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FILED PURSUANT TO RULE 424(b)(1)
REGISTRATION STATEMENT # 333-49583
PROSPECTUS
OFFER TO EXCHANGE
11 5/8% SERIES B SENIOR NOTES DUE 2005 FOR ALL ORIGINAL
11 5/8% SERIES A SENIOR NOTES DUE 2005
OF
ORBITAL IMAGING CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON AUGUST 26,
1998, UNLESS EXTENDED.
Orbital Imaging Corporation, a Delaware corporation (the "Company" or
"ORBIMAGE") hereby offers (the "Exchange Offer"), upon the terms and subject to
the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange its outstanding 11 5/8%
Senior Notes Due 2005, Series A (the "Original Notes"), of which an aggregate of
$150 million in principal amount is outstanding as of the date hereof, for an
equal principal amount of newly issued 11 5/8% Senior Notes due 2005, Series B
(the "Exchange Notes"). The form and terms of the Exchange Notes will be the
same as the form and terms of the Original Notes except that (i) the Exchange
Notes will be registered under the Securities Act of 1933, as amended (the
"Securities Act") and hence will not bear legends restricting the transfer
thereof, and (ii) the holders of Exchange Notes will not be entitled to certain
rights of holders of Original Notes under the Registration Rights Agreement
which rights will terminate upon the consummation of the Exchange Offer. The
Exchange Notes will evidence the same debt as the Original Notes and will be
entitled to the benefits of an indenture dated as of February 25, 1998 by and
between ORBIMAGE and Marine Midland Bank, as trustee (the "Trustee") governing
the Original Notes and the Exchange Notes (the "Indenture"). The Indenture
provides for the issuance of both the Exchange Notes and the Original Notes. The
Exchange Notes and the Original Notes are sometimes referred to herein
collectively as the "Notes." Capitalized terms used in this Prospectus are
defined either within the text, within "Certain Definitions" on page 91 of the
Prospectus or within the Glossary contained in the Prospectus.
The Exchange Notes will bear interest from the most recent date on which
interest has been paid or duly provided for on such Original Notes surrendered
in exchange for such Exchange Notes or if no interest has been paid or duly
provided for on such Original Notes, from February 25, 1998, at the rate of
11 5/8% per annum, payable semi-annually in arrears on March 1 and September 1
of each year, commencing on September 1, 1998. The Exchange Notes will mature on
March 1, 2005. The Company will not be required to make any mandatory redemption
or sinking fund payments with respect to the Exchange Notes prior to maturity.
The Exchange Notes will be redeemable at the option of the Company at any time
after March 1, 2002 at the redemption prices set forth herein, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the redemption date.
In addition, the Company will be entitled, at any time on or before March 1,
2001 to redeem the Exchange Notes with the net cash proceeds of one or more
sales of Capital Stock (other than Disqualified Stock) at the redemption price
set forth herein plus accrued and unpaid interest and Liquidated Damages, if
any, to the redemption date; provided, however, that at least 65% of the
aggregate principal amount of Notes remains outstanding after giving effect to
such redemption. See "Description of Exchange Notes--Optional Redemption."
On a Change of Control, the Company will be required to offer to repurchase
all or any part of the Exchange Notes at a purchase price equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase. In the event of a
Change of Control, there can be no assurance that the Company will have or be
able to acquire sufficient funds to repurchase the Exchange Notes. See
Description of Exchange Notes--Repurchase at the Option of the Holders."
The Exchange Notes are being offered hereunder in order to satisfy certain
contractual obligations of the Company. See "The Exchange Offer."
The Original Notes are and the Exchange Notes will be senior obligations of
the Company, will rank pari passu in right of payment with all existing and
future senior Indebtedness of the Company, and will rank senior in right of
payment to any future subordinated Indebtedness of the Company. As of March 31,
1998, the Company had approximately $166 million ($157 million net of debt
discount) of senior Indebtedness outstanding (including current liabilities of
approximately $16 million). As of the date of this Prospectus, the Company had
no senior Indebtedness other than the Notes. The Indenture will permit the
Company to incur additional Indebtedness, subject to certain limitations.
------------------------ (continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE EXCHANGE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS JULY 24, 1998.
<PAGE> 2
(Continued from previous page)
The Company will accept for exchange all validly tendered Original Notes on
or prior to 5:00 p.m., New York City time, on August 26, 1998 (if and as
extended, the "Expiration Date"). Tenders of the Original Notes in the Exchange
Offer is not conditioned upon any minimum principal amount of Original Notes
being tendered for exchange. The Original Notes may be tendered only in integral
multiples of $1,000. In the event the Company terminates the Exchange Offer and
does not accept for exchange any Original Notes, the Company will promptly
return all previously tendered Original Notes to the holders thereof.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the Exchange Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "The Exchange Offer--Resale of Exchange
Notes." Each broker-dealer (a "Participating Broker-Dealer") that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer as a result of
market-making activities or other trading activities.
Prior to the Exchange Offer, there has been no public market for the
Exchange Notes. There can be no assurance as to the liquidity of any markets
that may develop for the Exchange Notes, the ability of holders to sell the
Exchange Notes or the price at which holders would be able to sell the Exchange
Notes. The Company does not intend to list the Exchange Notes for trading on any
national securities exchange or over-the-counter market system. Future trading
prices of the Exchange Notes will depend on many factors, including among other
things, prevailing interest rates, the Company's operating results and the
market for similar securities. Historically, the market for securities similar
to the Exchange Notes, including non-investment grade debt, has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that any market for the Exchange Notes, if
such market develops, will not be subject to similar disruptions. The Initial
Purchasers have advised the Company that it currently intends to make a market
in the Exchange Notes offered hereby. However, the Initial Purchasers are not
obligated to do so and any market making may be discontinued at any time without
notice.
Any Original Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the rights and will be subject to
the limitations applicable thereto under the Indenture. Following consummation
of the Exchange Offer, the holders of Original Notes will continue to be subject
to the existing restrictions upon transfer thereof and the Company will have no
further obligation to such holders to provide for registration under the
Securities Act of the Original Notes held by them. To the extent that Original
Notes are tendered and accepted in the Exchange Offer, a holder's ability to
sell untendered Original Notes could be adversely affected. See "Risk
Factors--Consequences of Failure to Exchange" and "Exchange Offer--Procedures
for Tendering."
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to this Exchange Offer
will be issued in the form of one or more Global Notes which will be deposited
with, or on behalf of, The Depository Trust Company (the "Depositary") and
registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in a Global Note representing the Exchange Notes will be shown on, and
transfers thereof will be effected through, records maintained by the Depositary
and its participants. After the initial issuance of the Global Notes, Exchange
Notes in certificated form will be issued in exchange for a Global Note only on
the terms set forth in the Indenture. See "Description of Exchange Notes--Book
Entry, Delivery and Form."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF ORIGINAL NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Original Notes as of July 27, 1998.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No dealer-manager is being used in connection
with this Exchange Offer. The Company will pay all expenses incurred by it
incident to the Exchange Offer. See "Use of Proceeds" and "Plan of
Distribution."
Until 180 days after the Exchange Offer is consummated, all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER, OR A SOLICITATION
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
ii
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 15
Use of Proceeds............................................. 27
Capitalization.............................................. 28
The Exchange Offer.......................................... 29
Selected Historical Financial Data.......................... 38
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 40
Business.................................................... 44
Regulation.................................................. 57
Management.................................................. 60
Principal Stockholders...................................... 63
Certain Relationships and Related Transactions.............. 64
Description of Capital Stock................................ 69
Relationship with Orbital Sciences Corporation.............. 70
Description of Exchange Notes............................... 72
Provisions Applicable to All Securities..................... 104
U.S. Federal Income Tax Consequences........................ 106
Plan of Distribution........................................ 109
Legal Matters............................................... 110
Experts..................................................... 110
Index to Financial Statements............................... F-1
Glossary of Terms........................................... G-1
</TABLE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the
rules and regulations promulgated thereunder, covering the Exchange Notes being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Copies of such material can be
obtained from the Company upon request.
The Company has agreed to file with the Commission, to the extent
permitted, and distribute to holders of the Exchange Notes reports, information
and documents specified in Section 13 and 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), so long as the Exchange Notes are
outstanding, whether or not the Company is subject to such informational
requirements of the Exchange Act. Periodic reports, proxy statements and other
information filed by the Company with the Commission may be inspected at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at its regional offices located at the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, 13th Floor, New York, New York 10007. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Such Web site is located at http://www.sec.gov. While any Exchange
Notes remain outstanding, the Company will make available, upon request, to any
holder of the Exchange Notes, the information required pursuant to Rule
144A(d)(4) under the Securities Act during any period in which the Company is
not subject to Section 13 or 15(d) of the Exchange Act. Any such request should
be directed to the General Counsel of the Company at 21700 Atlantic Boulevard,
Dulles, Virginia, 20166
iii
<PAGE> 4
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS: THE STATEMENTS CONTAINED
IN THIS PROSPECTUS THAT ARE NOT HISTORICAL FACTS ARE "FORWARD-LOOKING
STATEMENTS", WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY
SUCH AS "ESTIMATES," "PROJECTS," "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS,"
"BELIEVES," OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE
TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES.
MANAGEMENT WISHES TO CAUTION THE READER THAT THESE FORWARD-LOOKING STATEMENTS,
SUCH AS THE MARKET OPPORTUNITY PRESENTED BY THE COMPANY'S TARGET MARKETS,
STATEMENTS REGARDING DEVELOPMENT OF THE COMPANY'S BUSINESSES, THE ESTIMATE OF
MARKET SIZE AND ADDRESSABLE MARKETS FOR THE COMPANY'S PRODUCTS, CASH PROJECTED
TO BE USED IN OPERATIONS, THE ANTICIPATED CAPITAL EXPENDITURES TO DESIGN,
CONSTRUCT, AND LAUNCH THE HIGH-RESOLUTION ORBVIEW SATELLITES, EXPECTED LAUNCH
DATES, AND OTHER STATEMENTS CONTAINED IN THIS PROSPECTUS REGARDING MATTERS THAT
ARE NOT HISTORICAL FACTS, ARE ONLY ESTIMATES OR PREDICTIONS. NO ASSURANCE CAN BE
GIVEN THAT FUTURE RESULTS WILL BE ACHIEVED; ACTUAL EVENTS OR RESULTS MAY DIFFER
MATERIALLY AS A RESULT OF RISKS FACING THE COMPANY OR ACTUAL RESULTS DIFFERING
FROM THE ASSUMPTIONS UNDERLYING SUCH STATEMENTS. SUCH RISKS AND ASSUMPTIONS
INCLUDE, BUT ARE NOT LIMITED TO, RISKS ASSOCIATED WITH SCHEDULE DELAYS IN THE
CONSTRUCTION AND LAUNCH OF THE HIGH-RESOLUTION ORBVIEW SATELLITES. THE COMPANY'S
ABILITY TO SUCCESSFULLY MARKET ITS IMAGERY PRODUCTS AND SERVICES TO CURRENT AND
NEW CUSTOMERS, GENERATE CUSTOMER DEMAND FOR ITS IMAGERY PRODUCTS AND SERVICES IN
THE PARTICULAR MARKETS WHERE IT PLANS TO MARKET PRODUCTS AND SERVICES ALL IN A
TIMELY MANNER, AT REASONABLE COSTS AND ON SATISFACTORY TERMS AND CONDITIONS, AS
WELL AS REGULATORY, LEGISLATIVE AND JUDICIAL DEVELOPMENTS THAT COULD CAUSE
ACTUAL RESULTS TO VARY MATERIALLY FROM THE FUTURE RESULTS INDICATED, EXPRESSED
OR IMPLIED IN SUCH FORWARD-LOOKING STATEMENTS. ALL WRITTEN AND ORAL
FORWARD-LOOKING STATEMENTS MADE IN CONNECTION WITH THIS OFFERING WHICH ARE
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THESE CAUTIONARY STATEMENTS.
iv
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless the
context otherwise requires, the terms "ORBIMAGE" or "Company" refer, with
respect to periods prior to May 8, 1997, to the Orbital Imaging Division of
Orbital Sciences Corporation and, with respect to periods after such date, to
Orbital Imaging Corporation. The term "Orbital" refers to Orbital Sciences
Corporation, the Company's majority shareholder, and, unless the context
otherwise requires, its subsidiaries. Certain technical and other capitalized
terms used in this Prospectus are defined either in the text of this Prospectus,
"Certain Definitions" on page 90 or in the Glossary. Holders of Original Notes
should carefully consider the specific matters set forth under "Risk Factors"
beginning on page 15 as well as the other information and data included in this
Prospectus prior to tendering their Original Notes pursuant to the Exchange
Offer.
THE COMPANY
ORBIMAGE is a leading provider of global space-based imagery. The Company
operates, and is further developing, a fleet of satellites that collect, process
and distribute digital imagery of the Earth's surface (land and oceans), the
atmosphere and weather conditions. ORBIMAGE currently has two satellites in
operation that provide imagery to a variety of scientific and commercial
customers, including NASA. The Company expects to place two additional
satellites providing high-resolution digital imagery into operation in 1999 and
2000, respectively. The Company's imagery products and services are intended to
provide ORBIMAGE customers with information concerning, among other things,
forestry and crop health, urban growth and development, the locations and
movements of troops or military assets, land and ocean-based natural resources
and weather patterns and wind conditions. ORBIMAGE intends to provide customers
with imagery at a lower price than that provided by existing or planned remote
imagery alternatives.
In April 1995, ORBIMAGE launched its first satellite, OrbView-1, which
provides dedicated weather-related imagery and meteorological products to NASA.
The Company's second satellite, OrbView-2, was launched in August 1997 and
provides images of land and ocean surfaces to commercial customers, as well as
to NASA and other scientific users. The Company believes that OrbView-2 is the
only satellite of its kind providing daily color images of the entire Earth's
surface. ORBIMAGE is in the process of completing the design of two
high-resolution imaging satellites, OrbView-3 and OrbView-4 (the
"high-resolution OrbView satellites"), which are being designed to provide
high-resolution panchromatic (black and white), multispectral (color and
infrared) and, in the case of OrbView-4, hyperspectral (enhanced color and
enhanced infrared) imagery. See "Certain Relationships and Related
Transactions -- Procurement Agreement." OrbView-3 is scheduled to be operational
during the second half of 1999, and OrbView-4 is scheduled to be operational in
mid-2000. The Company believes that OrbView-3 and OrbView-4 will be among the
first commercial satellites with high-resolution imagery capability and that
OrbView-4 will be the world's first satellite with commercially available
hyperspectral capability.
Remote imaging is the process of observing, measuring and recording
features, objects or events from a distance using a variety of sensors mounted
on satellites and aircraft. The current market for global remote imagery and
related products consists of both domestic and international commercial and
government users. It includes both satellite development, construction and
operations costs incurred by users who decide to build and operate their own
satellite systems as well as the cost of purchased imagery and related services
currently addressable by existing imagery suppliers. Historically, in the United
States, the only "commercial" operators of remote imaging satellites were
quasi-governmental programs such as the low-resolution Landsat satellite systems
in operation since the 1970s. The opportunities for commercialization of
space-based imagery expanded significantly in 1994 when the U.S. government
implemented a policy permitting the worldwide, commercial sale of
high-resolution satellite imagery. The U.S. government has estimated that the
worldwide market for remote imagery products and services addressable by
commercial satellite imagery providers (excluding hardware sales) will be
approximately $2 billion by the year 2000. ORBIMAGE believes that this worldwide
commercial imagery market will grow as the availability of low-cost, high
quality satellite imagery
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stimulates the demand for such products and services and encourages the
development of new satellite-imaging technologies and applications.
Customers have entered into imagery contracts providing for minimum
payments to the Company totaling approximately $100 million, of which the
Company has received approximately $48 million through March 31, 1998, and
expects to receive approximately $12 million through the end of 1998. See "Risk
Factors -- Contracts." These contracts include (i) a contract to provide NASA
with weather-related imagery and meteorological information generated by
OrbView-1, (ii) a contract to provide NASA with color ocean imagery generated by
OrbView-2, (iii) a contract between Orbital and the U.S. Air Force to provide
the U.S. Air Force with hyperspectral imagery from OrbView-4 (such imagery will
be provided by the Company pursuant to the Procurement Agreement (as defined))
and (iv) a distributor agreement with Samsung Aerospace Industries, Ltd.
("Samsung Aerospace"), which grants Samsung Aerospace an exclusive license to
receive, process and sell high-resolution imagery of the Korean peninsula (the
"Samsung Agreement"). In addition, the Company has entered into agreements with
regional distributors for OrbView-2 imagery in Canada and Chile and is in
negotiation with potential regional distributors for high-resolution OrbView
imagery in the Middle East, Europe, Asia, Southern Africa, South America and
Australia. To provide industry-specific imagery applications, ORBIMAGE is
seeking to develop strategic alliances with key value-added resellers ("VARs")
who currently provide imagery products to customers in industries such as oil
and gas exploration, mining, agriculture, forestry, fishing and cartography.
In April, 1998, ORBIMAGE acquired substantially all the assets of TRIFID
Corporation, an image processing and product generation company. As a result,
ORBIMAGE has acquired sophisticated image processing software, experienced
technical personnel and broad geographic information database systems.
BUSINESS STRATEGY
ORBIMAGE's business strategy is to (i) penetrate existing markets, (ii)
create new markets to sustain long-term growth, (iii) provide imagery at prices
lower than other satellite and aerial-based imagery, (iv) achieve global
distribution, (v) provide worldwide coverage on a timely basis, (vi) establish
an electronic imagery archive with broad and diverse imagery products and (vii)
leverage the expertise of Orbital, including Orbital's existing satellite
imagery technology and product infrastructure, to promote rapid market
acceptance. See "Business -- Business Strategy."
Penetrate Existing Markets. The Company believes that it should rapidly be
able to gain market share in existing applications because it expects its
imagery to be priced below that of existing aerial imagery and planned satellite
imagery and to be of higher resolution than existing satellite imagery.
Create New Markets. Through the introduction of affordable,
high-resolution satellite imagery, the Company believes it will stimulate the
development of new markets. For example, ORBIMAGE's marketing efforts to date
indicate that certain market segments, such as the foreign national security
market, do not currently have access to dedicated high-resolution imagery.
Furthermore, the Company believes it can develop new commercial applications for
satellite-based imagery including, among other uses, real estate assessment,
travel planning and entertainment applications.
Provide Low Priced Imagery. The Company believes that the expected cost to
construct its high-resolution OrbView satellites and related ground systems, the
principal components of which will be furnished by Orbital under a fixed-price
contract, will be less than or competitive with the announced costs of its
competitors' high-resolution satellite systems. The Company believes that this
will afford it pricing flexibility for its imagery products and services,
allowing it to pursue a strategy of pricing aggressively while still realizing
attractive returns.
Achieve Global Distribution. The Company believes that it can expand its
market share by providing imagery to end users both directly and through third
party distribution channels. The Company intends to focus its direct
distribution efforts on larger customers in the commercial/consumer and
scientific/environmental markets and on the U.S. national security market. The
Company expects VARs will perform application-specific processing and analysis
of the Company's imagery for various commercial applications.
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<PAGE> 7
The Company believes that utilizing these distribution channels simultaneously
will enhance the distribution of its products and services.
ORBIMAGE is working to penetrate foreign markets by entering into
relationships with strong regional partners who have existing marketing and
distribution infrastructures and are able to overcome local regulatory barriers.
The Company expects these distributors to purchase or upgrade and operate the
ground imagery receiving and processing stations in their territories and to
obtain the necessary regulatory approval to operate in their territories. With
several such arrangements already in place, the Company is also in negotiations
with potential regional distributors for high-resolution OrbView imagery around
the world.
Provide Worldwide Coverage on a Timely Basis. All the OrbView satellites
are designed to provide timely product delivery, either through real-time
imagery downlinking to a distributor's or customer's local ground receiving
station, or through delivery of processed imagery from ORBIMAGE's central U.S.
ground station by overnight courier or via the Internet. OrbView-2 provides
global imagery on a daily basis. OrbView-3 is designed to image virtually any
location on Earth with a "revisit" time of three days or less. Upon the launch
of OrbView-4, the effective "revisit" time of the high-resolution OrbView
satellites should be reduced to less than two days.
Establish Electronic Imagery Archive. The Company is developing the OrbNet
Digital Archive, a database that will collect, store and distribute imagery
derived from the OrbView satellites and aerial sources. ORBIMAGE intends to
expand its imagery catalogue with aerial and existing satellite imagery products
prior to the launch of its OrbView-3 satellite by entering into strategic
alliances with existing imaging satellite operators, aerial photography firms
and imagery VARs. The Company intends to deliver imagery to customers over the
Internet, on CD or on computer tape for a per image fee.
Leverage Expertise of Orbital. Orbital, the Company's majority
shareholder, is a space technology and satellite services company with extensive
experience in the design and construction of remote imaging satellites and
ground stations. ORBIMAGE has used, and will continue to use, the integrated
space capabilities, infrastructure and experience of Orbital to develop its
business cost effectively, including leveraging certain of Orbital's existing
customer relationships and product lines.
TARGET MARKETS
ORBIMAGE is focusing on four primary market segments in which it believes
there currently exist or will develop a significant demand for high-quality,
timely, low-cost remote imagery. See "Business -- Target Markets." These four
market segments are:
Commercial/Consumer. The Company believes that the near-term
commercial/consumer market segment will include domestic and foreign companies
and local government entities, such as municipalities, that currently use aerial
photographs and medium-resolution satellite imagery products. In the long term,
the Company also expects to market to individual businesses and consumers.
Initial applications are expected to include standardized map-making,
maintaining computer-based geographic information systems, agriculture and
forestry management, fishing, natural resource exploration and extraction and
tax assessment. In addition, as high-resolution satellite imagery becomes
available, the Company expects new consumer markets will emerge involving real
estate assessment, travel planning, education and entertainment applications.
Scientific/Environmental. The scientific/environmental market is comprised
of government entities that use satellite imagery to monitor environmental,
climate-related and meteorological phenomena, both in real-time and over
extended time periods, as well as other environmental, scientific and commercial
entities that need accurate, timely environmental information over a wide
geographic area. The Company expects that its multispectral and hyperspectral
imagery will have a variety of environmental applications, including assessing
damage from natural disasters and severe storms and the environmental impact of
industrial activities through pollution detection techniques.
U.S. National Security. Satellite imagery can supplement existing
dedicated U.S. government surveillance satellites to serve tactical
reconnaissance, wide-area mapping and other needs not fully or economically
served by existing satellites. The U.S. government has indicated that it expects
to meet a portion of its future
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<PAGE> 8
national security imagery requirements by outsourcing to U.S. commercial
providers of high-resolution satellite imagery. Additionally, the Company
believes that potential cutbacks in the Department of Defense ("DoD") and
National Reconnaissance Office ("NRO") budgets, together with more
geographically dispersed military assets, could further increase the
government's need for commercially available high-resolution imagery and cause
it to rely on lower-cost commercial providers.
Foreign National Security. Many countries have a strong national security
interest in obtaining real-time high-resolution imagery to help monitor borders,
gather intelligence on potential adversaries, identify and target enemy troops
and assets, plan missions, deploy resources and assess battle damage. Commercial
high-resolution satellites can provide friendly foreign governments with
real-time, high-resolution imagery for national security enhancement on a
routine, regional "time-share" basis. This type of high-resolution imagery
generally has not been available to governments other than those of the United
States and the former Soviet Union.
RISK MITIGATION
ORBIMAGE has adopted a comprehensive strategy to mitigate the financial,
business and technical risks associated with market development and satellite
construction, launch and operations. See "Business -- Risk Mitigation."
Market Development. ORBIMAGE has reduced, and seeks to continue to reduce,
the financial risks associated with constructing and operating its fleet of
satellites by negotiating pre-launch contracts with customers and/or
distributors. To further facilitate market penetration, the Company is also
seeking to develop strategic alliances with VARs who currently provide imagery
products to customers in industries such as oil and gas exploration, mining,
agriculture, forestry, fishing and cartography.
Construction and Launch. ORBIMAGE has entered into a fixed-price contract
with Orbital to build and launch the high-resolution OrbView satellites, and to
construct the related ground system (the "Procurement Agreement"). The majority
of imaging technology and the sub-system components to be used in the
high-resolution OrbView satellites have been deployed in U.S. government
surveillance and space programs prior to use by ORBIMAGE. In addition, the
high-resolution OrbView satellites incorporate system redundancies for certain
critical components.
Operations. The OrbView-3 and OrbView-4 satellites have substantially
similar performance parameters, with OrbView-4 additionally having hyperspectral
imagery capability. The high-resolution OrbView satellites are expected to be
launched within a year of each other to provide a more robust satellite system
and to reduce the business risk from launch and operational failure.
RELATIONSHIP WITH ORBITAL
Orbital currently owns approximately 56% of the outstanding capital stock
of the Company on a fully diluted basis assuming conversion of the Company's
outstanding Series A Convertible Preferred Stock (the "Series A Preferred
Stock") and exercise of the Warrants and outstanding options to purchase Common
Stock. To date, Orbital has contributed approximately $88 million in capital to
ORBIMAGE. Pursuant to the Procurement Agreement, the Company has agreed to pay
Orbital a fixed price of approximately $295 million for the design, development
and launch of OrbView-1 and the high-resolution OrbView satellites, the
OrbView-2 License and the U.S. ground segment for all four OrbView satellites.
Orbital has granted the Company the exclusive worldwide license to promote,
market, sell and use OrbView-2 imagery (the "OrbView-2 License") and has
assigned to the Company all revenues received by Orbital pursuant to a contract
between Orbital and NASA. See "Certain Relationships and Related Transactions."
Orbital is a space and information systems company that designs,
manufactures, operates and markets a broad range of space-related products and
services. Orbital is a leading provider of turn-key space systems, with a
heritage of designing and building satellites and providing launch services for
various satellites operating today. All four OrbView satellites, and the related
ground systems, have been or will be designed and constructed by Orbital.
Orbital's Pegasus(R) launch vehicle has successfully launched OrbView-1 and
OrbView-2 and is expected to also launch OrbView-3.
4
<PAGE> 9
The Company's principal executive offices are located at 21700 Atlantic
Boulevard, Dulles, Virginia 20166. The Company's Internet address is
www.orbimage.com, and the Company's telephone number is (703) 406-5000.
SERIES A OFFERING
On February 25, 1998, the holders of the Series A Preferred Stock (the
"Series A Holders") exercised an option granted pursuant to a stock purchase
agreement dated May 7, 1997 by and among Orbital, the Company and the Series A
Holders, as amended (the "Stock Purchase Agreement"), to purchase an additional
$22.7 million of Series A Preferred Stock (the "Series A Offering"), which
represents the maximum number of shares of Series A Preferred Stock that Series
A Holders may purchase under the Stock Purchase Agreement. The Series A Offering
was consummated concurrently with the Units Offering. The Series A Offering
generated net proceeds of approximately $21 million.
THE UNITS OFFERING
On February 25, 1998, the Company consummated the Units Offering, pursuant
to which it sold 150,000 Units, each consisting of $1,000 principal amount of
Original Notes and one Warrant. Each Warrant, when exercised, will entitle the
holder thereof to purchase 8.75164 shares of Common Stock of the Company at an
exercise price of $.01 per share (the "Exercise Price"). The Exercise Price and
the number of Warrant Shares issuable on exercise of a Warrant are both subject
to anti-dilutive adjustments. The Warrants are exercisable at any time on or
after the earlier to occur of (i) the first anniversary of the date of issuance
and (ii) in the event a Change of Control occurs, the date the Company mails
notice thereof to holders of Notes and Warrants. Unless exercised, the Warrants
will automatically expire on March 1, 2005. The Warrants will entitle the
holders thereof to purchase in the aggregate approximately 3% of the outstanding
Common Stock of the Company on a fully-diluted basis as of the date of issuance
of the Warrants after giving effect to the exercise of certain outstanding
options and rights issued by the Company. The Original Notes and Warrants will
become separable no later than upon the commencement of the Exchange Offer.
The Company used approximately $32.9 million of the net proceeds from the
Units Offering to fund the purchase of the Pledged Securities, which will
provide funds sufficient to pay in full when due the first four scheduled
interest payments on the Notes. The Pledged Securities are pledged as security
for the repayment of principal of and interest on the Notes, Liquidated Damages,
if any, and all other obligations under the Indenture. See "Description of
Exchange Notes--Security." All remaining proceeds, including the net proceeds
from the Series A Offering, will be applied to (i) develop, construct, test,
launch and operate the high-resolution OrbView satellites, (ii) develop, upgrade
and construct the U.S. domestic ground system used in connection with
high-resolution OrbView satellites, (iii) market remote imagery products and
services and (iv) provide working capital.
The Units were sold by the Company on February 25, 1998 to Bear, Stearns &
Co. Inc., Merrill Lynch & Co. and NationsBanc Montgomery Securities LLC (the
"Initial Purchasers") pursuant to a Purchase Agreement dated February 20, 1998
(the "Purchase Agreement"). The Initial Purchasers subsequently resold the Units
to qualified institutional buyers pursuant to Rule 144A under the Securities Act
and pursuant to offers and sales that occurred outside the United States within
the meaning of Regulation S under the Securities Act. Pursuant to the Purchase
Agreement, the Company and the Initial Purchasers entered into the Registration
Rights Agreement dated February 25, 1998 (the "Registration Rights Agreement"),
which grants the holders of the Original Notes certain exchange and registration
rights. The Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement.
5
<PAGE> 10
SOURCES AND USES OF FUNDING
The net proceeds to the Company from the Units Offering (after deducting
fees and expenses) were approximately $144.5 million. The Company used
approximately $32.9 million of such proceeds to fund the purchase of the Pledged
Securities. All remaining proceeds, including the net proceeds from the Series A
Offering, will be applied to (i) develop, construct, test, launch and operate
the high-resolution OrbView satellites, (ii) develop, upgrade and construct the
U.S. domestic ground system used in connection with the high-resolution OrbView
satellites, (iii) market remote imagery products and services and (iv) provide
working capital. See "Description of the Exchange Notes--Certain Covenants--Use
of Proceeds."
The table below summarizes the estimated sources and uses of funding for
the period from inception through September 30, 1999, by which date OrbView-3 is
expected to be launched.
SOURCES AND USES OF FUNDING
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SOURCES OF FUNDING (AS OF MARCH 31, 1998):
<S> <C>
Initial equity investments:
Orbital.............................. $ 88
Series A Holders, net................ 55
Net proceeds of the Units Offering..... 145
Payments from customers (2)............ 48
----
Sources........................... 336
----
FUTURE SOURCES:
Advance payments from customers (2).... 22
----
Future sources.................... 22
----
Total sources................ $358
====
</TABLE>
<TABLE>
<CAPTION>
USES OF FUNDING: (1)
<S> <C>
Satellites........................... $238
Ground systems....................... 30
Insurance............................ 11
Purchase of Pledged Securities(3).... 33
TRIFID Acquisition................... 5
Cash used in and available for
operations (4)..................... 41
----
Total uses................. $358
====
</TABLE>
- ---------------
(1) Approximately $149 million has been expended as of March 31, 1998 for
satellites, ground systems and insurance. The Company's accumulated deficit
as of March 31, 1998 was approximately $24 million.
(2) Represents cash payments received pursuant to contracts or expected to be
received prior to delivery of imagery.
(3) The Pledged Securities will be used to fund interest payments on the Notes
for the first four interest payment dates.
(4) The Company believes the above sources and cash expected to be generated
from operations will be sufficient to fund operating expenses through
September 30, 1999, by which date OrbView-3 is expected to be launched.
Approximately $9 million has been used in operations through March 31, 1998
(excluding payments from customers included in the above sources).
ORBIMAGE believes that the net proceeds of the Units Offering and the
Series A Offering, together with expected net cash from advance payments from
customers and operations, will be sufficient to fund the Company's operations
through at least September 30, 1999, by which date OrbView-3 is expected to be
launched. Additional funding may be necessary in the event of an OrbView-3
satellite launch delay, cost overruns or any shortfall in estimated levels of
operating cash flow, or to meet unanticipated expenses. See "Risk
Factors--Potential Additional Capital Requirements."
6
<PAGE> 11
THE EXCHANGE OFFER
SECURITIES OFFERED............ $150,000,000 aggregate principal; amount of
Series B 11 5/8% Senior Notes due 2005 (the
"Exchange Notes").
THE EXCHANGE OFFER............ The Company is offering to exchange up to $150
million principal amount of the Exchange Notes
for a like principal amount of the Original
Notes. The Exchange Notes may be exchanged only
in multiples of $1,000 principal amount. The
Company will issue the Exchange Notes on or
promptly after the Expiration Date. See "The
Exchange Offer."
Based on interpretations by the Staff set forth
in no-action letters issued to third parties,
the Company believes that the Exchange Notes
issued pursuant to the Exchange Offer in
exchange for the Original Notes may be offered
for resale, resold and otherwise transferred by
any holder thereof (other than any such holder
which is (i) an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act, (ii) a broker-dealer who
acquired the Original Notes directly from the
Company or (iii) a broker-dealer who acquired
the Original Notes as a result of market making
or other trading activities) without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that
such Exchange Notes are acquired in the
ordinary course of such holder's business and
such holder is not engaged in, and does not
intend to engage in, and has no arrangement or
understanding with any person to participate in
the distribution of such Exchange Notes. Each
broker-dealer that receives the Exchange Notes
for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a
prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that
it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may
be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes
received in exchange for Original Notes where
such Original Notes were acquired by such
Participating Broker-Dealer as a result of
market-making activities or other trading
activities (other than a resale of an unsold
allotment from the original sale of Original
Notes). The Company has agreed that, for a
period of 180 days after the Exchange Offer
Registration Statement is declared effective,
it will make this Prospectus available to any
Participating Broker-Dealer for use in
connection with any such resale.
Any holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution of
the Exchange Notes could not rely on the
position of the staff of the Commission
enunciated in no-action letters and, in the
absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. Failure
to comply with such requirements in such
instance may result in such holder incurring
7
<PAGE> 12
liability under the Securities Act for which
the holder is not indemnified by the Company.
See "Plan of Distribution."
To comply with the securities laws of certain
jurisdictions, it may be necessary to qualify
for sale or register the Exchange Notes prior
to offering or selling such Exchanges Notes. If
a holder of Original Notes does not exchange
such Original Notes for the Exchange Notes
pursuant to the Exchange Offer, such Original
Notes will continue to be subject to the
restrictions on transfer contained in the
legend thereon. In general, Original Notes may
not be offered or sold, unless registered under
the Securities Act, except pursuant to an
exception from, or in a transaction not subject
to the Securities Act and applicable state
securities laws. See "The Exchange
Offer--Consequences of Failure to Exchange" and
"Description of Exchange Notes."
EXPIRATION DATE............... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on August 26, 1998, unless
extended in which case the term "Expiration
Date" shall mean the latest date and time to
which the Exchange Offer is so extended.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
ORIGINAL NOTES................ Each Exchange Note will bear interest from the
most recent date to which interest has been
paid or duly provided for on the Original Note
surrendered in exchange for such Exchange Note
or, if no interest has been paid or duly
provided for on such Original Note, from
February 25, 1998. Interest on the Exchange
Notes is payable semi-annually on each March 1
and September 1, commencing on September 1,
1998. Holders of Original Notes whose Original
Notes are accepted for exchange will not
receive accrued interest on such Original Notes
for any period from and after the last date to
which interest has been paid or duly provided
for on the Original Notes prior to the original
issue date of the Exchange Notes or, if no such
interest has been paid or duly provided for,
will not receive any accrued interest on such
Original Notes, and will be deemed to have
waived, the right to receive any interest on
such Original Notes accrued from and after
February 25, 1998.
CONDITIONS TO THE EXCHANGE
OFFER......................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company in whole or in part and from time
to time in its sole discretion. See "The
Exchange Offer--Conditions." The Exchange Offer
is not conditioned upon any minimum aggregate
principal amount of Original Notes being
tendered for exchange.
PROCEDURES FOR TENDERING THE
ORIGINAL NOTES................ Each holder of Original Notes wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal,
or such facsimile, together with such Original
Notes and any other required documentation, to
the Exchange Agent at the address set forth
herein. By executing the Letter of Transmittal,
each holder of the Original Notes (other than
participating broker-dealers) will represent to
the Company that, among other
8
<PAGE> 13
things, the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such Exchange Notes, whether or not
such person is the holder of the Original
Notes, that neither the holder of the Original
Notes nor any such other person has an
arrangement or understanding with any person to
participate in the distribution of such Notes
and that neither the holder nor any such person
is an "affiliate," as defined in Rule 405 under
the Securities Act of the Company. Any Original
Notes not accepted for exchange for any reason
will be returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or termination
of the Exchange Offer. See "The Exchange
Offer--Procedures for Tendering."
UNTENDERED OLD NOTES.......... Following the consummation of the Exchange
Offer, holders of Original Notes eligible to
participate but who do not tender their
Original Notes will not have any further
exchange rights and such Original Notes will
continue to be subject to certain restrictions
on transfer. Accordingly, the liquidity of the
market for such Original Notes could be
adversely affected.
SPECIAL PROCEDURES FOR
BENEFICIAL HOLDERS............ Any beneficial holder whose Original Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on its own behalf.
If such beneficial holder wishes to tender on
its owns behalf, such holder must, prior to
completing and executing the Letter of
Transmittal and delivering its Original Notes,
either make appropriate arrangements to
register ownership of the Original Notes in
such holder's name or obtain a properly
completed bond power from the record holder.
The transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date. See
"The Exchange Offer--Procedures for Tendering."
SHELF REGISTRATION
STATEMENT..................... In the event that (i) the Exchange Offer is not
available to any holder or may not be
consummated because, in either case, it would
violate applicable securities laws or because
the applicable interpretations of the staff of
the Commission would not permit the Company to
effect the Exchange Offer, or (ii) in certain
circumstances the holder notifies the Company
that it is unable to participate in the
Exchange Offer or is unable to use this
Prospectus, the Company will cause to be filed
with the Commission, no later than 45 days
after such obligation arises, a shelf
registration statement (the "Shelf Registration
Statement"). The Company will use its best
efforts to cause the Shelf Registration
Statement to be declared effective on or before
the 150th day after such obligation arises. The
Company has agreed to maintain the
effectiveness of the Shelf Registration
Statement, under certain circumstances, for a
maximum of two years following the date of the
completion of the Units Offering.
GUARANTEED DELIVERY
PROCEDURES.................... Holders of the Original Notes who wish to
tender their Original Notes and whose Original
Notes are not immediately available or
9
<PAGE> 14
who cannot deliver their Original Notes and the
Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date,
must tender their Original Notes according to
the guaranteed delivery procedures set forth in
"The Exchange Offer--Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS............. Tenders of Original Notes may be withdrawn at
any time prior to 5:00 p.m., New York City
time, on the Expiration Date. For a withdrawal
to be effective, a written or facsimile notice
of withdrawal must be received by the Exchange
Agent at its address set forth herein. Such
notice must (i) specify the name of the person
having tendered the Original Notes to be
withdrawn; (ii) identify the Original Notes to
be withdrawn (including the serial number or
numbers and principal amount of Original Notes
to be withdrawn); (iii) be signed by the holder
in the same manner as the original signature on
the Letter of Transmittal by which such
Original Notes were tendered; and (iv) specify
the name in which the Original Notes are to be
registered, if different from that of the
withdrawing holder. See "The Exchange
Offer--Withdrawal Rights."
ACCEPTANCE OF ORIGINAL NOTES
AND DELIVERY OF EXCHANGE
NOTES......................... The Company will accept for exchange any and
all Original Notes which are properly tendered
in the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange
Offer will be delivered promptly following the
Expiration Date. See "The Exchange Offer--Terms
of the Exchange Offer."
CONSEQUENCES OF FAILURE
TO EXCHANGE................... Holders of Original Notes who do not exchange
their Original Notes for the Exchange Notes
pursuant to the Exchange Offer will continue to
be subject to the restrictions on transfer of
such Original Notes as set forth in the legend
thereon. In general, the Original Notes that
are not exchanged pursuant to the Exchange
Offer may not be offered or sold except
pursuant to a registration statement under
Securities Act or an exemption from
registration thereunder and in compliance with
applicable state securities laws. In the event
the Company completes the Exchange Offer, the
interest rate on Original Notes will remain as
stated thereon and holders of Original Notes
will have no further rights under the
Registration Rights Agreement.
CERTAIN TAX CONSIDERATIONS.... Latham & Watkins, counsel to the Company, has
advised the Company that because the Exchange
Notes will not be considered to differ
materially from the Original Notes, the
exchange of the Original Notes for Exchange
Notes will not result in any material federal
income tax consequences to holders exchanging
the Original Notes for the Exchange Notes. For
a full description of the basis of, and
limitations on, this opinion, see "U.S. Federal
Income Tax Consequences."
REGISTRATION RIGHTS
AGREEMENT..................... Pursuant to a registration rights agreement
(the "Registration Rights Agreement") among the
Company and the Initial Purchas-
10
<PAGE> 15
ers, the Company has agreed (i) to file a
registration statement with respect to an offer
to exchange the Original Notes for a like
principal amount of Exchange Notes and (ii) to
use their reasonable best efforts to cause such
registration statement to become effective
under the Securities Act. This Exchange Offer
is intended to satisfy the rights of holders of
Original Notes under the Registration Rights
Agreement, which rights terminate upon
consummation of the Exchange Offer. The holders
of the Exchange Notes are not entitled to any
exchange or registration rights with respect to
the Exchange Notes.
EXCHANGE AGENT................ Marine Midland Bank is the Exchange Agent. The
address and telephone number of the Exchange
Agent are set forth in "The Exchange
Offer--Exchange Agent."
USE OF PROCEEDS............... There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
11
<PAGE> 16
THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes (which they replace) except that (i) the Exchange Notes
bear a Series B designation, (ii) the Exchange Notes have been registered under
the Securities Act and, therefore, will not bear legends restricting the
transfer thereof, and (iii) the holders of Exchange Notes will not be entitled
to certain rights under the Registration Rights Agreement, including the
provisions providing for an increase in the interest rate on the Original Notes
in certain circumstances relating to the timing of the Exchange Offer, which
rights will terminate when the Exchange Offer is consummated. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer." The Exchange Notes will
evidence the same debt as the Original Notes and will be entitled to the
benefits of the Indenture. See "Description of Exchange Notes." The Warrants
issued in connection with the issuance of the Original Notes are not subject to
the Exchange Offer and will continue to be subject to the restrictions on
transfer set forth therein.
ISSUER........................ Orbital Imaging Corporation
MATURITY...................... March 1, 2005.
INTEREST...................... Interest on the Exchange Notes will accrue at
the rate of 11 5/8% per annum, payable
semi-annually in arrears on March 1 and
September 1 of each year, commencing on
September 1, 1998.
RANKING....................... The Exchange Notes will be senior obligations
of the Company, will rank pari passu in right
of payment with all existing and future senior
Indebtedness of the Company and will rank
senior in right of payment to any future
subordinated Indebtedness of the Company. As of
March 31, 1998, the total amount of senior
Indebtedness (including current liabilities) of
the Company is $166 million ($157 million net
of debt discount). As of the date of this
Prospectus, the Company had no senior
Indebtedness other than the Notes. As more
fully described herein, the Indenture permits
the Company under certain circumstances to
incur indebtedness, such as one or more fixed
asset financings, that may be secured by a
first priority lien on certain of the Company's
assets. Upon a grant of a first priority lien
in certain of its assets, the lenders under
such fixed asset financings will have a first
priority claim to such assets senior to that of
the holder of Notes.
SECURITY...................... The Company used approximately $32.9 million of
the net proceeds thereof to purchase the
Pledged Securities, representing funds
sufficient to provide for payment in full of
the first four scheduled interest payments on
the Notes. The Pledged Securities are pledged
as security for repayment of the principal of
and interest on the Notes. See "Description of
Exchange Notes--Security." When an interest
payment is due, the Company may either deposit
sufficient funds to pay the interest scheduled
to be paid or direct the Trustee to release
from the Pledge Account funds sufficient to pay
the interest scheduled. In the event the
Company exercises the former option, the Pledge
Agreement provides the Company may direct the
Trustee to release proceeds or the Pledged
Securities from the Pledge Account in a like
amount. If the Company makes the first four
scheduled interest payments on the Notes in a
timely manner and no Default or Event of
Default is then continuing, the remaining
Pledged Securities, if any, will be released
from the Pledge Account and the Notes will
thereafter be
12
<PAGE> 17
unsecured obligations of the Company. See
"Description of Exchange Notes--Security."
OPTIONAL REDEMPTION........... The Exchange Notes are not redeemable prior to
March 1, 2002. Thereafter, the Exchange Notes
will be redeemable at the option of the
Company, at the redemption prices set forth
herein plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the
applicable redemption date. See "Description of
Exchange Notes--Optional Redemption."
Prior to March 1, 2001, the Company may, on any
one or more occasions, redeem outstanding
Exchange Notes with the net cash proceeds of
one or more sales of Capital Stock (other than
Disqualified Stock) of the Company to one or
more Persons (but only to the extent the
proceeds of such sales of Capital Stock consist
of cash or Cash Equivalents) at a redemption
price equal to 111.625% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the
redemption date; provided, however, that: (i)
not less than 65% of the aggregate principal
amount of the Notes remains outstanding
immediately after any such redemption and (ii)
such redemption shall occur within 60 days
after the date of closing of such sale of
Capital Stock.
MANDATORY REDEMPTION.......... The Company will not be required to make
mandatory redemption or sinking fund payments
with respect to the Exchange Notes.
CHANGE OF CONTROL............. Upon the occurrence of a Change of Control,
each holder of Exchange Notes will have the
right to require the Company to purchase all or
any part of such holder's Exchange Notes at an
offer price in cash equal to 101% of the
aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of
purchase. See "Description of Exchange
Notes--Repurchase at the Option of Holders."
CERTAIN COVENANTS............. The Indenture contains certain covenants that
limit the ability of the Company and its
Restricted Subsidiaries to incur additional
Indebtedness, pay dividends or make other
distributions, repurchase Equity Interests or
subordinated Indebtedness, make certain other
Restricted Payments, create certain liens,
enter into certain transactions with
affiliates, sell assets, enter into Sale and
Leaseback Transactions, issue or sell Equity
Interests of the Company's Restricted
Subsidiaries, enter into any business not
related to the remote imaging industry or enter
into certain mergers and consolidations. The
Indenture also requires the Company to obtain
launch vehicle and in-orbit insurance under
certain circumstances. See "Description of
Exchange Notes--Certain Covenants."
RISK FACTORS
For a discussion of certain risk factors that should be considered by
holders of Original Notes in evaluating a tender of Original Notes for Exchange
Notes pursuant to the Exchange Offer, see "Risk Factors."
13
<PAGE> 18
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1993 1994 1995 (1) 1996 1997 (2) 1997 1998
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ -- $ -- $ 4,567 $ 1,055 $ 2,062 $ 108 $ 2,417
Direct costs............................ -- 800 7,998 4,320 6,312 1,137 4,189
Selling, general and administrative
expenses.............................. 1,702 3,156 2,371 1,630 2,844 614 987
------- ------- ------- ------- ------- ------- -------
Loss from operations.................... $(1,702) $(3,956) $(5,802) $(4,895) $(7,094) $(1,643) $(2,759)
======= ======= ======= ======= ======= ======= =======
OTHER DATA:
Capital expenditures.................... $13,749 $13,832 $18,989 $12,617 $49,029 $ 4,275 $15,737
EBITDA (3).............................. (1,702) (3,157) 1,975 (914) (1,558) (593) 703
Net cash provided by (used in) operating
activities............................ 7,142 3,111 (192) (1,008) 6,334 (801) 4,879
Net cash used in investing activities... (13,749) (13,832) (18,989) (12,617) (60,366) (4,275) (53,734)
Net cash provided by financing
activities............................ 6,607 10,721 19,181 13,625 64,915 5,076 166,584
Ratio of earnings (losses) to fixed
charges............................... -- -- -- -- -- -- --
Deficiency of earnings (losses) to fixed
charges............................... (1,702) (3,956) (5,802) (4,895) (7,094) (1,643) (3,545)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $143,433
Pledged Securities.......................................... 33,057
Property, equipment and satellites and related rights,
net....................................................... 129,395
Total assets................................................ 311,350
Notes....................................................... 141,074(4)
Series A Preferred Stock (5)................................ 54,865
Total stockholders' equity.................................. 115,679(4)
</TABLE>
- ------------------------------
(1) The OrbView-1 satellite was launched in April 1995.
(2) The OrbView-2 satellite was launched in August 1997.
(3) EBITDA consists of earnings (losses) before interest, income taxes,
depreciation, amortization and other non-cash charges. EBITDA data is
presented because such data is used by certain investors to determine the
Company's ability to incur debt and to meet its debt service requirements.
The Company considers EBITDA to be an indicative measure of the Company's
operating performance, because EBITDA can be used to measure the Company
ability to service debt, fund capital expenditures and expand its business;
however, such information should not be considered as an alternative to net
income, operating profit, cash flows from operations or any other operating
or liquidity performance measure prescribed by generally accepted accounting
principles. EBITDA does not represent funds available for management's
discretionary use. EBITDA is not a measure supported by generally accepted
accounting principles and may be calculated differently by other companies.
EBITDA as defined herein may not conform to the definition of Consolidated
Cash Flow as defined in the Indenture. See "Description of Notes--Certain
Definitions--Consolidated Cash Flow."
(4) The estimated value of the Warrants, approximately $9 million, is reflected
as both a debt discount and an element of additional paid-in capital.
(5) Represents stated value of $100 per share of Series A Preferred Stock less
applicable fees and expenses.
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RISK FACTORS
Holders of Original Notes should carefully consider the following matters,
in addition to the other information contained in this Prospectus, in evaluating
the Company and its business in connection with the Exchange Offer.
LIMITED OPERATING HISTORY; NET LOSSES
Limited Operating and Financial Data. Holders of Original Notes have
limited operating and financial data about ORBIMAGE on which to base an
evaluation of the Company's performance in connection with tendering Original
Notes for Exchange Notes in this Exchange Offer. ORBIMAGE did not commence
commercial service until 1995 with the launch of OrbView-1. To date, the Company
has generated only limited revenues from the operations of OrbView-1 and
OrbView-2. To execute the Company's business plan, the Company will have to
complete, in a timely manner, the construction and deployment of the high-
resolution OrbView satellites, successfully develop and implement the related
ground infrastructure network, develop a customer base for the Company's
products and services, and establish distribution channels. Results of
operations may vary from quarter to quarter and year to year. Given ORBIMAGE's
limited operating history and in light of the risks, expenses, difficulties and
delays encountered with a high technology, highly regulated business such as
ORBIMAGE's, there can be no assurance that the Company will be able to overcome
these barriers, develop a sufficiently large revenue-generating customer base to
service its indebtedness, or compete successfully in the remote imaging
industry.
Expectation of Continued Losses. The continued development of ORBIMAGE's
business will require significant capital expenditures, a substantial portion of
which will be incurred prior to the realization of significant revenues.
Together with the Company's operating expenses, these capital expenditures will
result in a negative cash flow until an adequate revenue-generating customer
base is established. ORBIMAGE has incurred cumulative losses of approximately
$23.7 million through March 31, 1998 and it expects such losses to continue for
the foreseeable future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Company does not expect to generate
net positive cash flow from operations until OrbView-3 is operational, currently
expected in the second half of 1999. There can be no assurance that OrbView-3
will become operational on this timetable, or at all, or that the Company will
achieve or sustain any positive cash flow or profitability thereafter. See
"Business."
SUBSTANTIAL LEVERAGE; RESTRICTIVE COVENANTS
As of March 31, 1998 the Company's total indebtedness is $166 million ($157
million net of debt discount), and its stockholders' equity totaled
approximately $115.7 million. On a pro forma basis after giving effect to the
Units Offering, the Company's deficiency of earnings before fixed charges to
cover fixed charges for the year ended December 31, 1997 would have been $26.6
million. The Company anticipates earnings will be insufficient to cover fixed
charges through at least September 30, 1999. The Indenture will permit the
Company to incur additional indebtedness under certain limited conditions, and
the Company expects that it may incur indebtedness, in addition to the Notes,
such as one or more fixed asset financings, to the extent it is permitted to do
so under the Indenture. Such fixed asset financing, if pursued, will be secured
by first priority security interests in certain of the Company's assets.
Accordingly, the lenders of such fixed asset financing, if pursued, will have a
claim on these assets prior to the claims of the holders of the Exchange Notes.
The successful implementation of the Company's strategy, among other
things, is necessary for the Company to be able to meet its debt service. The
Company currently has limited sources of revenue. In addition, the Company's
ability to satisfy its obligations after the OrbView-3 satellite is operational
will depend on the Company's future performance, which is subject to a number of
factors, many of which are beyond the Company's control. There can be no
assurance that OrbView-1 and OrbView-2 will continue to operate for their design
lives, or that both of the high-resolution OrbView satellites will be
successfully deployed and become fully operational or that, once the
high-resolution OrbView satellites are operational, ORBIMAGE will generate
sufficient cash flow from operating activities to meet its debt service and
working capital requirements. In the absence of such operating results, the
Company could face substantial constraints
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on its liquidity and may be required to seek additional financing through the
issuance of debt or equity securities. There can be no assurance the Company
would be successful in completing such financing. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation--Liquidity and
Capital Resources." Any failure of the OrbView-2 satellite, or any failure or
delay in deployment of the high-resolution OrbView satellites could have a
material adverse effect upon the Company's business, results of operations and
financial condition, including failure to meet its debt service requirements.
The Company's degree of leverage could have adverse consequences to the
holders of the Exchange Notes, including: (i) a substantial portion of the
Company's net cash provided by operations will be committed to the payment of
the Company's debt service requirements and will not be available to the Company
for its operations, capital expenditures, or other purposes; (ii) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or general corporate purposes may be limited;
and (iii) the Company may be placed at a competitive disadvantage and its
flexibility in reacting to changes in its business may be limited. See
"Description of Exchange Notes."
The Indenture contains, and any additional financing agreements may
contain, certain restrictive covenants. The restrictions in the Indenture will
affect, and in some cases will significantly limit or prohibit, among other
things, the ability of the Company to incur indebtedness, make prepayments of
certain indebtedness, pay cash dividends, make investments, engage in
transactions with affiliates, issue capital stock of subsidiaries, create liens,
sell assets and engage in mergers and consolidations. If the Company fails to
comply with the restrictive covenants in the Indenture, the Company's obligation
to perform its obligations under the Indenture may be accelerated.
POTENTIAL ADDITIONAL CAPITAL REQUIREMENTS
The Company currently expects to require approximately $290 million for
capital expenditures, development and initial operating costs of ORBIMAGE's
satellite system through September 30, 1999, by which date OrbView-3 is expected
to be launched. Through March 31, 1998, ORBIMAGE has expended approximately $149
million for the design, construction, deployment and/or procurement of the
OrbView satellites, and portions of the U.S. ground system. To finance such
expenditures, the Company has obtained approximately $143 million in net equity
contributions from Orbital and third party investors and approximately $48
million in imagery contract payments. See "Certain Relationships and Related
Transactions--Stock Purchase Agreement," and "Use of Proceeds." The Company
believes that the net proceeds of the Units Offering and the Series A Offering,
together with expected cash from operations, will be sufficient to fund the
Company's operations through September 30, 1999, by which date OrbView-3 is
expected to be launched. There can be no assurance that the Company will
generate sufficient cash from operations, or that expenses will not exceed the
Company's estimates. In such event, the Company will require additional capital.
A significant portion of the Company's expenses will be incurred pursuant
to the Procurement Agreement covering development, construction and launch of
the OrbView satellites and construction and activation of its U.S. ground
system. While most of ORBIMAGE's costs under the Procurement Agreement will be
fixed, certain items and services, such as launch and in-orbit insurance, launch
service costs for OrbView-4 in excess of approximately $23 million, OrbView-4's
hyperspectral sensor and related work, and ORBIMAGE-directed technological
assistance and regulatory support will be furnished by Orbital to ORBIMAGE on a
cost-plus or cost-reimbursable basis. Many factors outside the control of
ORBIMAGE may influence the costs of such items and services and the Company may
be required to raise additional capital if any material increase in costs should
occur.
Furthermore, additional capital may be required if, for example: (i) there
are significant delays in the deployment of the high-resolution OrbView
satellites, as a result of technical difficulties, launch or satellite failure
or otherwise; (ii) the Company does not enter into agreements with customers,
VARs or distributors for high-resolution imagery at the times or on the terms
anticipated by ORBIMAGE, if at all; (iii) there is an increase in the Company's
estimated net operating deficit as a result of the Company incurring significant
unanticipated expenses, such as costs related to resolving satellite operational
difficulties; or (iv) the Company incurs additional costs as a result of
modifications to all or a portion of the high-resolution OrbView satellites
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or ground segment designs to meet changed or unanticipated market, regulatory or
technical requirements. In the event that these or other events occur, there can
be no assurance that additional capital would be available from public or
private markets on favorable terms, on a timely basis, or at all. A substantial
shortfall in funding would delay or prevent construction and launch of the
high-resolution OrbView satellites.
CERTAIN TAX CONSIDERATIONS
The Original Notes were issued with original issue discount ("OID") for
U.S. federal income tax purposes. This OID will carry over to, and be treated as
OID on, the Exchange Notes received in exchange for the Original Notes, and each
U.S. holder of an Exchange Note will be required to include in taxable income
for any particular taxable year a portion of such OID in advance of the receipt
of the cash to which such OID is attributable. For additional information
regarding the OID associated with the Notes, as well as certain other federal
income tax considerations relevant to the exchange of Original Notes for
Exchange Notes and the ownership and disposition of Exchange Notes, see "U.S.
Federal Income Tax Consequences."
COLLECTIBILITY OF UNEARNED INTEREST
Upon acceleration of the Notes, at any time prior to maturity there will be
a portion of unamortized OID, which may be characterized as unearned or
unmatured interest, associated with the Notes. Under certain circumstances under
state law a holder of Notes may not be entitled to recover interest that was not
accrued or earned at the time of acceleration.
If a bankruptcy case is commenced by or against the Company under Title 11
of the United States Code, as amended (the "Bankruptcy Code"), the claim of a
holder of the Notes with respect to the principal amount thereof may be limited
to an amount equal to the sum of (i) the initial public offering price of the
Notes and (ii) that portion of the original issue discount that is not deemed to
constitute "unmatured interest" for purposes of the Bankruptcy Code. Any
original issue discount that was not accrued as of such bankruptcy filing may be
deemed to constitute "unmatured interest." Thus, under certain circumstances, a
holder of a Note may not have a claim with respect to that portion of the issue
price of a Unit allocated to the Warrant which is deemed to constitute
"unmatured interest" on the Note.
SCHEDULE DELAYS
Delay in the timely construction, deployment and commercial operation of
either of the high-resolution OrbView satellites could result from a variety of
causes, including delays in the design, construction, integration and testing of
any of the satellites and related ground systems, a delayed or unsuccessful
launch, subcontractor or manufacturer delays, delays caused by technical reviews
and redesign and testing activities in the event of failures during testing or a
loss of a satellite, delays in the receipt of licenses necessary to operate the
satellite system, or other events beyond the control of ORBIMAGE. The sensors
for the high-resolution OrbView satellites, which are key components of the
satellites, are being designed and constructed by a subcontractor. Significant
delays in the launch of either of the high-resolution OrbView satellites could
increase the amount of pre-launch operating costs, delay the generation of
revenue and have a material adverse effect on the Company's results of
operations. There can be no assurance that either of the high-resolution OrbView
satellites will be launched and placed into operation on a timely basis.
Competitive posture in the satellite-based imaging industry may be affected
by perceived and actual timing of satellite launches. Significant delays, or the
perception of anticipated or potential delays, in the deployment of either of
the high-resolution OrbView satellites could increase the costs of such
satellites, delay the generation of revenue or have a material adverse effect on
the Company's business, financial condition and results of operations and its
ability to meet its debt service requirements.
LAUNCH RISKS
Satellite launches are subject to significant risks, including partial or
complete failure of the launch vehicle, which may result in disabling damage to
or loss of a satellite or failure of the launch vehicle to deliver the satellite
to its proper orbit. The Company has contracted with Orbital to launch the
high-resolution
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OrbView satellites. Orbital intends to launch OrbView-3 on a Pegasus(R) launch
vehicle. Orbital's Pegasus launch vehicle has experienced launch failures from
time to time, and has an approximately 90% launch success rate. There are a
number of additional Pegasus launches currently planned prior to the launch of
OrbView-3, and the failure of any one of these launch vehicles could result in a
delay in the deployment of OrbView-3. Orbital's Pegasus launch vehicle is
launched from beneath a modified Lockheed L-1011 aircraft owned by Orbital. In
the event the Orbital aircraft is unavailable for any reason, the Company could
experience significant delays as a result of Orbital having to acquire and
modify a new carrier aircraft or the Company having to arrange for deployment of
OrbView-3 using an alternative launch vehicle. There can be no assurance that
another aircraft could be obtained and properly modified or that alternate
launch services could be obtained on a timely basis, if at all.
Orbital is currently reviewing launch vehicle alternatives for OrbView-4.
Possible launch vehicles for OrbView-4 include Orbital's Taurus(R) launch
vehicle (which has had two missions, both of which were successful), other
similar class launch vehicles, or on larger launch vehicles such as the Delta or
Ariane rocket, on which OrbView-4 would be a secondary payload. There can be no
assurance that the high-resolution OrbView satellites will be successfully
deployed in a timely manner or that a launch failure will not occur. Any such
delay or occurrence of a launch failure could have a material adverse effect on
the Company's business, financial condition and results of operations and its
ability to meet its debt service requirements.
MARKET ACCEPTANCE; ESTIMATES
The success of the OrbView satellites and the Company's ability to meet its
debt service requirements on the Notes will depend on acceptance of its imagery
products and services in existing markets as well as the development of new
markets. Market acceptance in turn depends upon a number of factors, including
the spatial and spectral quality, scope, timeliness, sophistication and price of
the Company's imagery products and services and of alternative products and
services. There can be no assurance that the products and services to be offered
by ORBIMAGE will achieve market acceptance, or that the market will demand such
products and services from ORBIMAGE at prices and on terms acceptable to
ORBIMAGE.
The Company's strategy to target certain markets for its satellite imagery
products is based on a number of assumptions, some or all of which may be
incorrect, and unanticipated events may occur that could adversely affect the
Company's market results. The Company's description of potential markets for its
products and services and estimates of the Company's addressable markets that
are discussed in this Prospectus represent the Company's estimates as of the
date hereof with respect to such markets. In particular, the Company is
anticipating significant revenues from sales of imagery generated by the
OrbView-2 and the high-resolution OrbView satellites. Satellite imagery with
spatial and spectral characteristics generated by the OrbView-2 satellite, and
to be generated by the high-resolution OrbView satellites, is not now
commercially available. Consequently, it is difficult to predict accurately the
ultimate size of the market and the demand for these services and products, and
actual markets should be expected to vary from the addressable markets discussed
herein, and these variations may be material. Lack of significant market
acceptance, delays in such acceptance, or failure of certain markets to develop
could also have a material adverse effect on the Company's business, financial
condition and results of operations and its ability to meet its debt service
requirements.
TECHNOLOGICAL, DEVELOPMENT AND IMPLEMENTATION RISKS
ORBIMAGE is in the process of completing the design of the high-resolution
OrbView satellites; however, there can be no assurance that the design of the
satellites will not require modifications to achieve desired performance
criteria. For example, there were significant delays in the design, production
and testing of the OrbView-2 satellite that was launched in August 1997,
approximately two years behind schedule. The high-resolution OrbView satellites
will employ advanced technologies and sensors that will be subjected to severe
environmental stresses during launch or in space that could affect the
satellite's performance. Sometimes, human operators may also execute an improper
command that may negatively impact a satellite's performance. Employing these
technologies is further complicated by the fact that the OrbView satellites will
be in space. Correcting problems related to hardware components in space may
require premature satellite
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replacement, with attendant costs and revenue losses. EarthWatch Incorporated's
("EarthWatch") three-meter remote imagery satellite bus (not including the
sensor or systems-level assembly, integration and test) was designed and
constructed by CTA Incorporated ("CTA") pursuant to a contract awarded to CTA in
1995. Orbital acquired CTA's satellite manufacturing business in August 1997.
The EarthWatch satellite was launched in December 1997 but was declared to have
experienced an on-orbit failure several months later.
There can be no assurance that the high-resolution OrbView satellites will
be successfully launched or operated, or that each of the OrbView satellites
will perform or remain in operation for the duration of its expected "design
life." Furthermore, even if the high-resolution OrbView satellites are
successfully launched, minor flaws in the satellites' sensors could
significantly degrade the satellites' performance and affect ORBIMAGE's ability
to successfully market its products.
The Company has not procured a spare satellite for OrbView-2, nor does it
maintain an inventory of long lead-time parts for a replacement OrbView-2
satellite. In the event of an OrbView-2 satellite failure, if the Company were
to decide to construct and launch a replacement, ORBIMAGE would likely
experience a delay of at least 24 months or more before it would be able to
launch the replacement satellite.
The Company also has not procured a spare high-resolution OrbView
satellite, nor does it currently maintain an inventory of long lead-time parts
for the high-resolution OrbView satellites. If there is a failure in an
OrbView-3 satellite subsystem that is common to the OrbView-4 satellite (e.g.,
the sensor), such failure may result in a delay of the OrbView-4 launch.
LIMITED LIFE OF SATELLITES
The OrbView satellites, which constitute a substantial portion of the
Company's total assets, will have a limited useful life. A number of factors
will affect the useful lives of the OrbView satellites, including the quality of
construction, the expected gradual environmental degradation of solar panels,
the durability of various satellite components and the orbit in which the
satellite is placed. Random failure of satellite components could result in
damage to or loss of a satellite. In rare cases, satellites could also be
damaged or destroyed by electrostatic storms or collisions with other objects.
The high-resolution OrbView satellites each have an expected "design life"
of five years, OrbView-1 had an expected "design life" of three years (but is
now expected to be operational for five years), and OrbView-2 has an expected
"design life" of seven and one-half years. At the end of its "design life", the
performance of each OrbView satellite is expected to gradually decline. The
"design life" of a satellite results from a complex calculation involving among
other factors, estimated probabilities of failure of the constituent components
of the satellite from design or manufacture defects, environmental stresses or
other causes. There can be no assurance of the longevity of any of the OrbView
satellites. A useful life of the OrbView satellites that is significantly
shorter than the design life of the satellites would have a material adverse
effect on the Company's business, financial condition, and results of operations
and its ability to meet its debt service requirements.
The Company anticipates using funds generated from operations to develop
follow-on high-resolution satellites. If sufficient funds from operations are
not available and ORBIMAGE is unable to obtain financing for additional
satellites, ORBIMAGE will not be able to deploy follow-on satellites to replace
OrbView-3 and OrbView-4 at the end of their useful lives. There can be no
assurance that additional capital will be available to develop follow-on
high-resolution OrbView satellites on favorable terms or on a timely basis, if
at all. Additionally, there can be no assurance that ORBIMAGE will be able to
contract with Orbital or any other company to design, construct or launch a
follow-on high-resolution satellite.
COMPETITION
The Company's products and services will compete with satellite and
aircraft-based imagery and other related products and services offered by a
range of private and government providers that have the technical and financial
ability to compete in these markets and applications. Certain of these entities
have greater financial, personnel and other resources than the Company.
Potential competitors include at least two
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companies, Space Imaging EOSAT ("Space Imaging EOSAT") and EarthWatch, each of
which intends to offer satellite imagery comparable to the imagery that the
high-resolution OrbView satellites are designed to provide. Space Imaging EOSAT
has announced that it expects to launch its first one-meter satellite in late
1998 and EarthWatch has announced that the launch of its one-meter satellite is
targeted for late 1999. In addition, the U.S. government and foreign governments
may fund the development, construction, launch and operation of remote imaging
satellites that may compete with OrbView-2 as well as the high-resolution
OrbView satellites. The U.S. government's Earth Science Program includes the
launch of a satellite next year that will provide imagery similar to imagery
provided by OrbView-2 that could be competitive with some of the Company's
imagery products and services. In addition, the U.S. government will probably
continue to rely on government-owned and operated systems for certain highly
classified satellite-based high-resolution imagery. While the Company believes
that it generally will have a competitive advantage because it expects to have
sufficient pricing flexibility to be a low-cost commercial provider within its
targeted markets and applications, the low marginal cost of producing satellite
imagery once a satellite is operating could result in adverse pricing pressure,
reductions in anticipated profits or even losses. The Company's competitors or
potential competitors who may have greater resources than the Company could in
the future offer satellite-based imagery, or other products, having technical
characteristics or other features that could be more attractive than those of
the Company's products. Such new technologies, even if not ultimately
successful, could have a material adverse effect on OrbView's marketing efforts,
and its business could be adversely affected if competitors develop and launch
satellites with advanced capabilities and technologies compared to the OrbView
high-resolution satellites. See "Risk Factors--Potential Conflict of Interest"
and "Business--Competition."
LIMITED INSURANCE; AVAILABILITY
The Company will generally be required under the Indenture to obtain
launch, in-orbit checkout and in-orbit operations insurance for risks related to
the launch and operations of the high-resolution OrbView satellites. The Company
has included estimates that it believes to be reasonable for certain of the
premiums for insurance for the high-resolution OrbView satellites in its
projected capital requirements. However, the Company has not yet determined the
amounts and types of coverage that it will obtain. Insurance market conditions
or other factors outside the Company's control at the time the Company seeks to
procure such insurance, such as failure of a satellite using similar components
or a similar launch vehicle, could cause premiums to be significantly higher
than current estimates, could cause other terms to be significantly less
favorable than those currently available, may result in limits on amounts of
coverage that are obtainable or may result in such insurance not being available
at all. In addition, certain risks, such as partial degradation of functionality
of the satellite, may be difficult to insure. The OrbView-1 satellite is not
insured. The Company has procured in-orbit insurance for OrbView-2 to cover
losses up to $12 million for its first year of operations, and which policy is
renewable in the second and third year of operations to cover losses of $10
million and $8 million, respectively. There can be no assurance that launch or
satellite failures will not occur and that insurance will be available to the
Company in the future or, if available, at a cost or on terms acceptable to the
Company. There can be no assurance that proceeds from insurance will be
sufficient to provide for a new satellite due to cost increases and other
factors beyond the Company's control.
DEPENDENCE ON ORBITAL; LIMITED RECOURSE
The Company depends on Orbital to design, develop and launch the
high-resolution OrbView satellites and to construct the U.S. ground segment for
the high-resolution OrbView satellites, and does not intend to acquire, except
by contracting with other parties, the ability to design, construct or launch
the OrbView satellites or to modify its existing ground segment to accommodate
these imagery satellites. The Company also relies upon the OrbView-2 License
from Orbital to market the OrbView-2 imagery. Under the Procurement Agreement
the Company has contracted with Orbital, and Orbital has contracted with certain
subcontractors, to provide these services. In the event that Orbital fails to
perform adequately its obligations under the Procurement Agreement, the
deployment of the high-resolution OrbView satellites would be delayed until the
Company located an alternative provider of necessary services to replace
Orbital. Orbital's liability to ORBIMAGE for claims arising under the
Procurement Agreement, such as breach of contract or patent indemnification, is
limited to $10 million. Under the terms of the Procurement Agreement, Orbital
will
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not be liable to ORBIMAGE for any costs with respect to schedule delays.
Pursuant to the Services Agreement, Orbital has agreed to provide various
administrative and operational functions on a cost reimbursable or cost-plus fee
basis. These functions include on-orbit mission operations and anomaly
resolution for the four OrbView satellites. In the event Orbital fails to
perform certain of its obligations under the Services Agreement, the operation
of the OrbView satellites may be adversely affected. The Services Agreement
terminates for each OrbView satellite three years after the respective launch of
each such satellite. There can be no assurance that the Services Agreement will
be renewed on terms favorable to ORBIMAGE if at all. In addition, a material
adverse change in Orbital or its financial condition or that of one of its
subcontractors could adversely affect Orbital's ability to perform under the
Procurement Agreement or the Services Agreement. The Company has not identified
any alternate providers, and there can be no assurance that such alternate
provider would be available or, if available, would be available at a cost or on
terms favorable to the Company or Orbital.
REGULATION; SIGNIFICANT REMAINING REGULATORY APPROVALS
Domestic. ORBIMAGE's business requires licenses from the DoC and from the
FCC. The Company currently has a license from the DoC to operate two
high-resolution satellites (the "DoC License"), and Orbital holds a license from
the DoC to operate OrbView-2. Each of these DoC licenses expires in 2004; there
can be no assurance that such licenses will be renewed. In March 1998, Orbital
filed an application with the DoC to transfer the OrbView-2 DoC license to
ORBIMAGE. Under the provisions of the DoC licenses, the U.S. government reserves
the right to interrupt service during periods of national emergency when U.S.
national security interests are affected. The threat or implementation of such
interruptions of service could adversely affect ORBIMAGE's ability to market its
products to certain foreign distributors or end-user customers. In addition, the
DoC has the right to review and approve the terms of agreements with ORBIMAGE's
international customers and any such review might result in a delay in or the
prohibition of the execution of such agreements. ORBIMAGE could in the future be
subjected to new laws, policies or regulations, or changes in the interpretation
or application of existing laws, policies and regulations, that modify the
present regulatory environment in the United States. In November 1997, the DoC
issued a notice of proposed rulemaking regarding regulations governing the
licensing and operation of remote imaging satellite systems clarifying among
other things, DoC oversight regarding foreign imagery sales agreements and
certain limitations on company financings. There can be no assurances that
limitations applicable to other countries will not be imposed by U.S.
regulators, and any such limitations could adversely affect the Company's
operations. See "Regulation."
ORBIMAGE has filed an application with the DoC to amend the DoC License to
permit it to distribute OrbView-4 hyperspectral imagery on a commercial basis.
There can be no assurances that such application will be approved. While a final
decision has not been rendered, the DoC has indicated that the approval may be
subject to certain limitations on ORBIMAGE's ability to deliver hyperspectral
imagery to commercial customers, such as delaying release of imagery or
degrading spatial resolution of such imagery. Failure to gain approval of such
amendment on the terms requested or loss of the DoC License could have a
material adverse effect on the Company's ability to market hyperspectral imagery
to non-U.S. government customers.
A FCC license is required to operate each of the OrbView satellites (other
than OrbView-1). The Company currently operates OrbView-2 under an experimental
FCC license held by Orbital. This license expires in 1999 and the Company
expects that Orbital will file an application with the FCC to renew this license
prior to that date. There can be no assurances, however, that the FCC will grant
a renewal to this license. The failure to obtain a renewal to this license, or a
revocation of this license, would have a material adverse effect on the
Company's ability to operate the OrbView-2 satellite in the United States.
ORBIMAGE has filed an application with the FCC to receive a license to launch
and operate the high-resolution OrbView satellites (the "FCC License"). The
Company cannot operate or launch the high-resolution OrbView satellites without
the FCC License. Although historically the FCC has granted licenses to systems
that conform to the technical, legal and financial requirements for such systems
as set forth by the FCC, there can be no assurance that the FCC will grant to
ORBIMAGE a license to operate either of or both the high-resolution OrbView
satellites. Certain U.S. competitors of the Company, EarthWatch and Space
Imaging EOSAT, each have obtained the required DoC and FCC licenses. See
"Regulation."
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International. All satellite systems operating internationally are subject
to general international regulations and the specific laws of the countries in
which satellite imagery is downlinked. Applicable regulations include (i)
International Telecommunications Union ("ITU") regulations, which define, for
each service, the technical operating parameters (including maximum transmitter
power, maximum interference to other services and users, and the minimum
interference the user must operate under for that service), (ii) the Intelsat
and Inmarsat agreements which provide that in order to conform with
international treaties and obligations the operators of international satellite
systems must demonstrate that they will not cause economic or technical harm to
Intelsat and Inmarsat, and (iii) regulations of foreign countries that require
that satellite operators secure appropriate licenses and operational authority
for utilization of the required spectrum in each country. Obtaining local
regulatory approval for operation of the OrbView-2 and high-resolution OrbView
satellites will be the responsibility of the Company's customers or
distributors. While regional foreign distributors will be selected, in part,
based on their perceived qualifications to obtain the requisite local approvals,
there can be no assurance that they will be successful in doing so, and if they
are not successful, remote imagery service will not be made available for real
time distribution in such territories. ORBIMAGE's inability to offer service in
a significant number of foreign countries could have a material adverse effect
on ORBIMAGE's business. Regulatory provisions in countries in which the Company
or its foreign regional distributors are seeking to operate may impose
restrictions on the Company's or its foreign regional distributors' operations
and there can be no assurance that such restrictions would not be unduly
burdensome. The Company's business may also be adversely affected by regulatory
changes resulting from adoption of treaties, legislation or regulation by the
national authorities where ORBIMAGE plans to operate.
Although the Company believes that it will be able to obtain all
international licenses and authorizations necessary to operate effectively,
there can be no assurance that it will be successful in doing so. The failure of
the Company to obtain some or all necessary licenses or approvals could have a
material adverse effect on the Company's business.
Launch License. Commercial U.S. space launches require licenses from the
U.S. Department of Transportation ("DoT"). Under the Procurement Agreement,
Orbital is responsible for ensuring that the appropriate DoT commercial launch
license is in place for the high-resolution OrbView satellite launches. There
can be no assurance that Orbital will continue to be successful in its efforts
to obtain necessary licenses or regulatory approvals. The inability of Orbital
to secure any necessary licenses or approvals for the launch of high-resolution
OrbView satellites could delay such launches, which could have a material
adverse effect on the Company's business, financial condition and results of
operation and its ability to meet its debt service requirements.
MANAGEMENT OF GROWTH
The Company may experience periods of rapid growth. Such growth could place
a significant strain on the Company's management, operating, financial and other
resources. The Company's future performance will depend, in part, upon its
ability to manage its growth effectively, which will require it to develop its
management information systems capabilities, improve its operating, financial
and accounting systems and to expand, train and manage its employee base. The
Company's inability to manage its growth effectively could have a material
adverse effect on the Company's results of operations, and its ability to meet
its obligations as they become due.
RELIANCE ON FOREIGN DISTRIBUTORS AND VALUE ADDED RESELLERS
ORBIMAGE will rely on foreign regional distributors to market and
distribute internationally a significant portion of the Company's imagery from
its OrbView-2 and its high-resolution OrbView satellites. The existing and
potential foreign regional distributors generally are expected to be acting on
behalf of, or contracting directly with, foreign governments for the sale of
imagery for national security and related purposes, and these regional
distributors may not possess the skill or experience to develop regional
commercial markets for the Company's products and services. The failure of the
Company to enter into such agreements on a timely basis or the failure of the
Company's foreign regional distributors to successfully
22
<PAGE> 27
market the Company's imagery products and services would have a material adverse
effect on the Company's business, financial condition and results of operations
and its ability to meet its debt service requirements.
The Company intends to rely on VARs to develop and market products and
services based on ORBIMAGE's imagery to address certain of the Company's
targeted markets. The failure of the Company's VARs to successfully develop and
market OrbView products and services would adversely affect the Company's
results of operations.
INTERNATIONAL OPERATIONS
The Company expects to derive substantial revenues from international sales
of products and services. Such operations are subject to certain risks, such as
changes in domestic and foreign governmental regulations and telecommunications
standards, maintenance of friendly foreign status with the United States,
licensing requirements, tariffs or taxes and other trade barriers, export
controls, exchange controls and political and economic stability, including
fluctuations in the value of foreign currencies which may make payment in U.S.
dollars more expensive for foreign customers.
POTENTIAL CONFLICT OF INTEREST
Orbital owns approximately 56% of the outstanding capital stock of the
Company on a fully diluted basis assuming (i) conversion of the Company's
outstanding Series A Preferred Stock and (ii) exercise of the Warrants and
outstanding options to purchase Common Stock. Certain of the Company's executive
officers and directors are also employees and/or directors of Orbital. Such
ongoing relationships may result in conflicts of interest with respect to
matters involving both the Company and Orbital. Although the Company has adopted
policies which it believes will preclude or prevent such conflicts from arising,
there can be no assurance that conflicts will not arise that could adversely
affect the Company. See, "Relationship with Orbital Sciences
Corporation -- Policies and Procedures for Addressing Conflicts." The Company
and Orbital are parties to the Procurement Agreement, the OrbView-2 License, the
Services Agreement and the Non-Compete Agreement, each of which is material to
the Company's business. Orbital's interests as an equity holder may at times
conflict with its interests under these agreements. Under the Procurement
Agreement, Orbital (or in certain cases its subcontractors) retains ownership of
the technology in all four OrbView satellites and their common ground system. To
the extent the Company has obligations to deliver OrbView-compatible ground
stations to its customers, the Company has contracted to procure such ground
stations from MacDonald, Dettwiler and Associates Ltd. ("MDA"), a wholly owned
subsidiary of Orbital, provided that the terms are commercially competitive.
Under a Non-Competition and Teaming Agreement between Orbital and ORBIMAGE
dated May 8, 1997 (the "Non-Compete Agreement"), Orbital is prohibited from
selling turn-key satellite imaging systems (i.e., satellite, sensors, launch
vehicles and ground system), but is generally permitted to sell components of
such systems, including launch services and satellites, to current or future
customers or competitors of ORBIMAGE. The Non-Compete Agreement will terminate
on the earlier of June 30, 2003 or the occurrence of certain events. As a result
of Orbital's acquisition of the space business of CTA in August 1997, Orbital
became the supplier of the satellite bus (not including the sensor, system-level
assembly, integration and test) for the EarthWatch three-meter resolution
satellite that was launched in December 1997. As a result of an earlier
acquisition, Orbital is also building the ground system network for EarthWatch.
The Company expects EarthWatch to be a direct competitor of the Company. In
March 1998, MDA was selected by the Canadian government to develop, construct
and manage the RADARSAT-II three-meter radar satellite program. Under this
program, Orbital will provide the satellite platform and MDA will provide the
ground station. MDA will own and operate the Radarsat-2 satellite. In addition,
as a result of certain acquisitions, Orbital holds approximately a 4% equity
interest in EarthWatch, and an approximate 26% equity interest in Radarsat
International Inc. ("Radarsat"), a low-spatial resolution satellite radar
imagery provider.
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<PAGE> 28
CONTRACTS
At March 31, 1998, approximately 85% of the Company's total firm contract
backlog was derived from contracts with the U.S. government and its agencies.
Changes in government policies, priorities or funding levels through agency or
program budget reductions by the U.S. Congress or executive agencies or the
imposition of budgetary constraints could have a material adverse effect on the
Company's business, financial condition and results of operations and its
ability to meet its debt service requirements. Furthermore, contracts with the
U.S. government may be terminated or suspended by the U.S. government at any
time, with or without cause. There can be no assurance that these contracts will
not be terminated or suspended in the future. The U.S. Air Force has contracted
with Orbital to fund the cost of the design and construction of the
hyperspectral sensor that will be integrated on the OrbView-4 satellite. If the
Air Force terminates or suspends the contract and ORBIMAGE desires to proceed
with its hyperspectral program, ORBIMAGE would be required to incur the
remaining cost of upgrading OrbView-4 with hyperspectral capability. The Samsung
Agreement is cancelable by Samsung Aerospace for any reason (with liquidated
damages payable under certain circumstances). The Samsung Agreement provides
that Samsung may terminate the agreement, without liability of ORBIMAGE, if the
OrbView-3 satellite is not launched by May 1999 (the "target launch date"). The
Company does not expect OrbView-3 to be launched until later in 1999. The
Company and Samsung are presently negotiating an amendment to the Samsung
Agreement to extend the "target launch date" to December 31, 1999. There can be
no assurance that this amendment will be consummated. The termination of the
Samsung Agreement would result in lost potential revenues and could have a
material adverse effect on the Company's business, financial condition and
results of operations and its ability to meet its debt service requirements. As
of March 31, 1998, imagery contracts with remaining value of approximately $43
million could be terminated for convenience.
CONTROL OF THE COMPANY
The holders of the Series A Preferred Stock (which represents approximately
34% of the Company's outstanding Common Stock, on a fully diluted basis assuming
conversion of the Series A Preferred Stock and the Company are parties to the
Stock Purchase Agreement and a Stockholders' Agreement dated as of May 8, 1997,
as amended and restated (the "Stockholders' Agreement"). The Stockholders'
Agreement and the Company's Second Amended and Restated Certificate of
Incorporation (the "Charter") contain provisions relating to, among other
things, the election of members of the Company's Board of Directors. In
particular, the Stockholders' Agreement provides that the Board of Directors may
consist of up to five directors consisting of (i) two directors designated by
Orbital (the "Common Directors"), (ii) two directors designated by the Series A
Holders (the "Series A Directors") and (iii) a single independent director
designated by both Orbital and the Series A Holders.
Under the Charter, the Series A Holders will be entitled to designate two
additional members to the Board of Directors (i) in the event of the failure by
the Company to pay timely dividends, or to repurchase the Series A Preferred
Stock in certain circumstances or (ii) in the event of the failure by Orbital to
conduct a favorable critical design review of the OrbView-3 spacecraft by
October 31, 1998 or the failure by Orbital to have commenced by March 15, 1999
the integration and testing of the OrbView-3 spacecraft or to have commenced by
November 15, 1999 the integration and testing of the OrbView-4 spacecraft (such
dates may be extended by 30 days in the discretion of ORBIMAGE under certain
circumstances). Such additional directors shall serve until the event giving
rise to such right has been resolved. Under these circumstances, the Series A
Directors would have the ability to control the management and policies of the
Company. In addition, under the Stockholders' Agreement, certain major actions
taken by the Company require the approval of one of the Series A Directors.
BROAD DISCRETION OVER USE OF PROCEEDS
The Company's management has broad discretion in determining the specific
uses for the net proceeds of the Units Offering and the timing of the related
expenditures. Furthermore, depending on future developments in the Company's
business and other factors, it is possible that the actual use of the proceeds
may vary to some extent from the specific intended uses described herein.
Pending application of the proceeds from the sale of
24
<PAGE> 29
the Units, the Company has invested such proceeds (other than the portion used
to purchase the Pledged Securities) in short-term investment grade securities,
and the Company expects that the interest payable on such securities will be
substantially less than the interest payable on the Exchange Notes. See "Use of
Proceeds."
REPURCHASE OF NOTES AND SERIES A PREFERRED STOCK UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
offer to repurchase all of the outstanding Exchange Notes at a price equal to
101% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the repurchase date. Additionally, upon a Change
of Control, subject to the senior rights of the holders of Exchange Notes, the
Company will be required to offer to repurchase all of the outstanding Series A
Preferred Stock at the Liquidation Amount (as defined in the Stock Purchase
Agreement). There can be no assurance that the Company would have sufficient
resources to repurchase the Exchange Notes or the Series A Preferred Stock upon
the occurrence of a Change of Control. The failure to repurchase all of the
Exchange Notes tendered to the Company would constitute an Event of Default
under the Indenture. Furthermore, the repurchase of the Exchange Notes by the
Company upon a Change of Control might result in a default on the part of the
Company in respect of other future indebtedness of the Company, as a result of
the financial effect of such repurchase on the Company or otherwise. The Change
of Control repurchase feature of the Exchange Notes may have anti-takeover
effects and may delay, defer or prevent a merger, tender offer or other takeover
attempt. See "Description of Exchange Notes--Repurchase at Option of Holders,"
and "--Definitions--Change of Control."
RESTRICTION ON RESALE
The Units, Original Notes and Warrants have not been registered under the
Securities Act or any state securities laws and, unless so registered, may not
be offered or sold except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act and applicable
state securities laws.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares of Common Stock by existing stockholders under Rule
144 of the Securities Act, or through the exercise of registration rights or the
issuance of shares of Common Stock upon the exercise of options or warrants,
could have a material adverse effect on the market price of shares of Common
Stock and could materially impair the Company's future ability to raise capital
through an offering of equity securities. No predictions can be made as to the
effect, if any, market sales of such shares or the availability of such shares
for future sale will have on the market price of shares of Common Stock
prevailing from time to time.
LACK OF PUBLIC MARKET
Prior to the Exchange Offer, there has not been any public market for the
Original Notes. The Original Notes have not been registered under the Securities
Act and will be subject to restrictions on transferability to the extent that
they are not exchanged for Exchange Notes by holders who are entitled to
participate in the Exchange Offer. The holders of Original Notes (other than any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) who are not eligible to participate in the Exchange
Offer are entitled to certain registration rights, and the Company is required
to file a Shelf Registration Statement with respect to such Original Notes. The
Exchange Notes will constitute a new issue of securities with no established
trading market. The Exchange Notes will not be listed on any securities exchange
and the Company will not seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. The Company has
been advised by the Initial Purchasers that they intend to make a market in the
Exchange Notes; however, the Initial Purchasers are not obligated to do so, and
any such market making activities may be discontinued at any time without
notice. In addition, such market making activity may be subject to the limits
imposed by the Securities Act and the Exchange Act and may be limited during the
Exchange Offer and the pendency of the Shelf Registration Statement.
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<PAGE> 30
Therefore, there can be no assurance that an active market for the Exchange
Notes will develop or as to liquidity of a trading market for the Exchange
Notes.
Depending on prevailing interest rates, the market for similar securities
and other factors, including the financial condition of the Company, the
Exchange Notes may trade at a discount from their principal amount.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Original Notes who do not exchange their Original Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such original Notes as set forth in the legend
thereon as a consequence of the issuance of the Original Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Original Notes may not be offered or sold, unless registered under
the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. The Company does not intend to register the Original Notes
under the Securities Act. In addition, any holder of Original Notes who tenders
in the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may be deemed to have received restricted securities and, if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. To
the extent Original Notes are tendered and accepted in the Exchange Offer, the
trading market, if any, for the Original Notes not tendered could be adversely
affected. See "The Exchange Offer."
CONSEQUENCES OF FAILURE TO PROPERLY TENDER THE ORIGINAL NOTES IN THE EXCHANGE
Issuance of the Exchange Notes in exchange for the Original Notes pursuant
to the Exchange Offer will be made only after timely receipt by the Exchange
Agent of such Original Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of the Original
Notes desiring to tender such Original Notes in exchange for Exchange Notes
should allow sufficient time to ensure timely delivery. The Company is under no
duty to give notification of defects or irregularities with respect to tenders
of Original Notes for exchange. Original Notes that are not tendered or that are
tendered but not accepted by the Company for exchange, will, following
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof under the Securities Act and, upon
consummation of the Exchange Offer, certain registration rights under the
Registration Rights Agreement will terminate.
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<PAGE> 31
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. The Exchange Offer is intended to satisfy certain
of the Company's obligations under the Registration Rights Agreement.
The net proceeds to the Company from the Units Offering (after deducting
discounts, and commissions to the Initial Purchasers and estimated offering
expenses) were approximately $144.5 million. The Company used approximately
$32.9 million of such proceeds to fund the purchase of the Pledged Securities.
All remaining proceeds, including the net proceeds from the Series A Offering,
will be applied to (i) develop, construct, test, launch and operate the
high-resolution OrbView satellites, (ii) develop, upgrade and construct the U.S.
domestic ground system used in connection with high-resolution OrbView
satellites, (iii) market remote imagery products and services and (iv) provide
working capital. See "Description of the Notes--Certain Covenants--Use of
Proceeds."
The net proceeds to the Company from the Series A Offering, which was
consummated simultaneously with the Units Offering, was approximately $21
million.
Prior to the application of the net proceeds of the Units Offering, as
described above, such funds (other than amounts used to purchase the Pledged
Securities) are invested in short-term investment-grade securities.
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<PAGE> 32
CAPITALIZATION
The following table sets forth the cash, cash equivalents, short-term
investments and Pledged Securities and capitalization of the Company as of March
31, 1998. This table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the financial
statements, including the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash, cash equivalents and short-term investments........... $143,433
Pledged Securities.......................................... 33,057(1)
--------
Total cash, cash equivalents and short-term investments
and Pledged Securities................................ $176,490
========
Long-term debt:
Notes (2)................................................. $141,074
--------
Total long-term debt.............................. 141,074
Stockholders' equity:
Series A Cumulative Convertible 12% Preferred Stock,
par value $.01 2,000,000 shares authorized, 620,182
shares outstanding (liquidation value
$64,248,518)(3)....................................... 6
Common Stock, par value $.01 per share, 75,000,000
shares authorized, and 25,214,000 shares outstanding
(4)................................................... 252
Additional paid-in capital (2)......................... 139,144
Accumulated deficit.................................... (23,723)
--------
Total stockholders' equity............................. 115,679
--------
Total capitalization.............................. $256,753
========
</TABLE>
- ------------------------------
(1) Represents the aggregate principal amount, of the Pledged Securities plus
accrued interest. See "Description of the Exchange Notes--Security."
(2) The estimated value of the Warrants, approximately $9 million, is reflected
as both a debt discount and an element of additional paid-in capital.
(3) Dividends are payable semi-annually on May 1 and November 1 in cash or
in-kind, subject to restrictions contained in the Indenture.
(4) Excludes 4,800,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan (the "Stock Option Plan"), of which options
to purchase 2,424,000 shares of Common Stock were outstanding at March 31,
1998 and options to purchase 700,000 shares of Common Stock were exercisable
at March 31, 1998. See "Management--Stock Option Plan."
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<PAGE> 33
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Original Notes were originally sold by the Company on February 25, 1998
to the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Original Notes to qualified institutional
buyers in reliance on Rule 144A under the Securities Act and pursuant to offers
and sales that occurred outside the United States within the meaning of
Regulation S under the Securities Act. As a condition to the completion of the
Units Offering, the Company entered into the Registration Rights Agreement with
the Initial Purchasers pursuant to which the Company agreed to file with the
Commission the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to an offer to exchange the Original Notes
for Exchange Notes. The Exchange Notes will be substantially identical to the
Original Notes, except that the Exchange Notes will bear a Series B designation
and will have been registered under the Securities Act and, therefore will not
contain terms with respect to transfer restrictions (other than those that might
be imposed by state securities laws). If (i) the Company is not required to file
the Exchange Offer Registration Statement or permitted to commence or accept
tenders pursuant to the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy, (ii) any Holder of Transfer
Restricted Securities notifies the Company within 20 business days after the
consummation of the Exchange Offer that (a) such holder was prohibited by
applicable law or Commission policy from participating in the Exchange Offer or
(b) such holder may not resell the Exchange Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and the prospectus contained
in the Exchange Offer Registration Statement is not appropriate or available for
such resales or (c) such holder is a broker-dealer and owns Original Notes
acquired directly from the Company or an affiliate of the Company or (iii) the
Exchange Offer is for any other reason not consummated within 180 days of the
issuance date of the Original Notes, the Company will file with the Commission
the Shelf Registration Statement. For purposes of the Exchange Offer, "Transfer
Restricted Securities" means each Note, until the earliest to occur of (a) the
date on which such Original Note is exchanged in the Exchange Offer and entitled
to be resold to the public by the holder thereof without complying with the
prospectus delivery requirements of the Securities Act, (b) the date on which
such Original Note has been sold pursuant to a Shelf Registration Statement, (c)
the date on which such Exchange Note is disposed of by a broker-dealer pursuant
to the "Plan of Distribution" contemplated by the Exchange Offer Registration
Statement (including delivery of the prospectus contained therein) or (d) the
date on which such Note is distributed to the public pursuant to Rule 144 under
the Securities Act.
Under existing interpretations of the staff of the Commission, the Exchange
Notes would, in general, be freely transferable after the Exchange Offer without
further registration under the Securities Act. However, any purchaser of
Original Notes who is an "affiliate" of the Company or intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes (i) will
not be able to rely on the interpretations of the staff of the Commission, (ii)
will not be able to tender its Original Notes in the Exchange Offer and (iii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Original Notes,
unless such sale or transfer is made pursuant to an exemption from such
requirements.
Each holder who wishes to exchange such Original Notes for Exchange Notes
in the Exchange Offer will be required to make certain representations,
including representations that (i) it is not an affiliate of the Company, (ii)
it is not engaged in, and does not intend to engage in, and has no arrangement
or understanding with any person to participate in, a distribution of the
Exchange Notes and (iii) it is acquiring the Exchange Notes in its ordinary
course of business. In addition, broker-dealers receiving Exchange Notes in the
Exchange Offer will have a prospectus delivery requirement with respect to
resales of Exchange Notes. The Commission has taken the position that such
broker-dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sale of Original Notes) with the prospectus contained in the Exchange
Offer Registration Statement. Under the Registration Rights Agreement, the
Company is required to allow such broker-dealers to use the prospectus contained
in the Exchange Offer Registration Statement in connection with the resale of
such Exchange Notes for a period of 180 days after the Exchange Offer is
consummated.
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<PAGE> 34
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which is filed as an exhibit to the Exchange Offer Registration Statement of
which this Prospectus is a part. See "Description of the Exchange
Notes--Registration Rights; Liquidated Damages."
Following the consummation of the Exchange Offer, holders of the Original
Notes who were eligible to participate in the Exchange Offer but who did not
tender their Original Notes will not have any further registration rights and
such Original Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for such Original Notes could
be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Original
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Original Notes
accepted in the Exchange Offer. Holders may tender some or all of their Original
Notes pursuant to the Exchange Offer. However, Original Notes may be tendered
only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes except that (i) the Exchange Notes bear a Series B
designation and a different CUSIP Number from the Original Notes, (ii) the
Exchange Notes have been registered under the Securities Act and hence will not
bear legends restricting the transfer thereof and (iii) the holders of the
Exchange Notes will not be entitled to certain rights under the Registration
Rights Agreement, including the provisions providing for an increase in the
interest rate on the Original Notes in certain circumstances relating to the
timing of the Exchange Offer, all of which rights generally will terminate when
the Exchange Offer is terminated. The Exchange Notes will evidence the same debt
as the Original Notes and will be entitled to the benefits of the Indenture.
The Exchange Offer is not conditioned upon any minimum number of Original
Notes being tendered. As of the date of this Prospectus, $150 million aggregate
principal amount of Original Notes were outstanding.
Holders of Original Notes do not have any appraisal or dissenters rights
under the General Corporation Law of Delaware or the Indenture in connection
with the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Original
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Exchange Notes from the Company.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Original Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date. See "-- Procedures for Tendering,"
"-- Book-Entry Transfer," "-- Guaranteed Delivery Procedures" and
"-- Conditions."
Holders whose Original Notes are not tendered or are tendered but not
accepted in the Exchange Offer will continue to hold such Original Notes and
will be entitled to all the rights and preferences and subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders will continue to be subject to the existing
restrictions upon transfer thereon and the Company will have no further
obligation to such holders to provide for the registration under the Securities
Act of the Original Notes held by them. To the extent that Original Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Original Notes could be adversely affected.
Holders who tender Original Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Original Notes pursuant to the Exchange Offer. The Company will pay all charges
and
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<PAGE> 35
expenses, other than transfer taxes in certain circumstances, in connection with
the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSION; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York time, on August
26, 1998, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice prior to 9:00 a.m., New York
time, on the next business day after the previously scheduled expiration date.
Any such extension will be followed as promptly as practicable by notice thereof
by press release or other public announcement (or by written notice to the
holders of the Notes).
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Original Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner.
INTEREST ON THE EXCHANGE NOTES
Interest on the Exchange Notes will accrue at the rate of 11 5/8% per annum
from the most recent date to which interest has been paid or duly provided for
on the Original Notes surrendered in exchange for such Exchange Notes or, if no
interest has been paid or duly provided for on such Original Notes, from
February 25, 1998.
Holders of Original Notes whose Original Notes are accepted for exchange
will not receive accrued interest on such Original Notes for any period from and
after the last date to which interest has been paid or duly provided for on the
Original Notes prior to the original issue date of the Exchange Notes or, if no
such interest has been paid or duly provided for, will not receive any accrued
interest on such Original Notes, and will be deemed to have waived the right to
receive any interest on such Original Notes, accrued from and after February 25,
1998.
PROCEDURES FOR TENDERING
For a holder of Original Notes to tender Original Notes validly pursuant to
the Exchange Offer, a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantee, or (in the case
of a book-entry transfer), an Agent's Message in lieu of the Letter of
Transmittal, and any other required documents, must be received by the Exchange
Agent at the address set forth in the Letter of Transmittal prior to 5:00 p.m.,
New York time, on the Expiration Date. In addition, prior to 5:00 p.m., New York
time, on the Expiration Date, either (a) certificates for tendered Original
Notes must be received by the Exchange Agent at such address or (b) such
Original Notes must be transferred pursuant to the procedures for book-entry
transfer described below (and a confirmation of such tender received by the
Exchange Agent, including an Agent's Message if the tendering holder has not
delivered a Letter of Transmittal).
The term "Agent's Message" means a message transmitted by the Depository,
received by the Exchange Agent and forming part of the confirmation of a
book-entry transfer, which states that the Depository has received an express
acknowledgment from the participant in the Depository tendering Original Notes
which are the subject of such book-entry confirmation that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that the Company may enforce such agreement against such participant. In the
case of an Agent's Message relating to guaranteed delivery, the term means a
message transmitted by the Depository and received by the Exchange Agent, which
states that the Depository has received an express acknowledgment from the
participant in the Depository tendering Original Notes that such participant has
received and agrees to be bound by the Notice of Guaranteed Delivery.
31
<PAGE> 36
By tendering Original Notes pursuant to the procedures set forth above,
each holder will make to the Company the representations set forth above in the
third paragraph under the heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal. THE METHOD OF DELIVERY OF ORIGINAL NOTES AND THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL,
HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Original Notes, such beneficial owner
must, prior to completing and executing the Letter of Transmittal and delivering
such Original Notes in such beneficial owner's name, either make appropriate
arrangements to register ownership of the Original Notes in such beneficial
owner's name or obtain a properly completed bond power from the registered
holder of the Original Notes. The transfer of registered ownership may take
considerable time and may not be able to be completed prior to the Expiration
Date.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Original Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
recognized signature guarantee medallion program within the meaning of Rule
17Ad-15 of the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Original Notes listed therein, such Original Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Original
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
offices of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to the Company of their authority to so act must be submitted with
the Letter of Transmittal.
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange Offer
by causing DTC to transfer Original Notes to the Exchange Agent in accordance
with DTC's ATOP procedures for transfer. DTC will then send an Agent's Message
to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Original Notes and withdrawal of tendered
Original Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Original Notes not properly tendered or any Original Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in its sole discretion
to waive any defects, irregularities or conditions of tender as to particular
Original Notes. The
32
<PAGE> 37
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Original Notes must be cured within such time as the
Company shall determine. Although the Company intends, to notify holders of
defects or irregularities with respect to tenders of Original Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Original Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Original Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
BOOK-ENTRY TRANSFER
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Original Notes at the bookentry transfer facility, The Depository Trust
Company ("DTC" or the "Book-Entry Transfer Facility"), for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Original Notes by causing such
Book-Entry Transfer Facility to transfer such Original Notes into the Exchange
Agent's account with respect to the Original Notes in accordance with the
Book-Entry Transfer Facility's procedures for such transfer. Although delivery
of the Original Notes may be effected through book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility, an appropriate
Letter of Transmittal properly completed and duly executed with any required
signature guarantee, or, in the case of a book-entry transfer, an Agent's
Message in lieu of the Letter of Transmittal and all other required documents
must in each case be transmitted to and received or confirmed by the Exchange
Agent at its address set forth in the Letter of Transmittal on or prior to the
Expiration Date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures. Delivery
of documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds otherwise
payable to a holder pursuant to the Exchange Offer if the holder does not
provide its taxpayer identification number (social security number or employer
identification number) and certify that such number is correct. Each tendering
holder should complete and sign the main signature form and the Substitute Form
W-9 included as part of the Letter of Transmittal, so as to provide the
information and certification necessary to avoid backup withholding, unless an
applicable exemption exists and is proved in a manner satisfactory to the
Company and the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available, (ii) who cannot deliver their Original
Notes, the Letter of Transmittal or any other required documents to the Exchange
Agent or (iii) who cannot complete the procedures for book-entry transfer, prior
to the Expiration Date, may effect a tender if: (a) the tender is made through
an Eligible Institution; (b) prior to the Expiration Date, the Exchange Agent
receives from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s) of
such Original Notes and the principal amount of Original Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five New
York Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s) representing
the Original Notes (or a confirmation of book-entry transfer of such Original
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility),
and any other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent; and (c) such properly
completed and executed Letter of Transmittal (or facsimile thereof), as well as
the certificates representing all tendered Original Notes in proper form for
transfer (or a
33
<PAGE> 38
confirmation of book-entry transfer of such Original Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility), and all other documents
required by the Letter of Transmittal are received by the Exchange Agent upon
five New York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to 5:00 p.m., New York time, on the Expiration Date.
To withdraw a tender of Original Notes in the Exchange Offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received by
the Exchange Agent at its address set forth in the Letter of Transmittal prior
to 5:00 p.m., New York time, on the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Original
Notes to be withdrawn (the "Depositor"), (ii) identify the Original Notes to be
withdrawn (including the certificate number(s) and principal amount of such
Original Notes, or, in the case of Original Notes transferred by book-entry
transfer, the name and number of the account at the Book-Entry Transfer Facility
to be credited), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Original Notes
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the
Original Notes register the transfer of such Original Notes into the name of the
person withdrawing the tender and (iv) specify the name in which any such
Original Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose determination
shall be final and binding on all parties. Any Original Notes so withdrawn will
be deemed not to have been validly tendered for purposes of the Exchange Offer
and no Exchange Notes will be issued with respect thereto unless the Original
Notes so withdrawn are validly retendered. Any Original Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Original Notes may be retendered by following one of the procedures described
above under "--Procedures for Tendering" at any time prior to the Expiration
Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Original
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Original Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the Company's reasonable discretion, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the Company's
reasonable discretion, might materially impair the ability of the Company
to proceed with the Exchange offer or materially impair the contemplated
benefits of the Exchange offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in the Company's reasonable discretion, deem necessary
for the consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Original
Notes and return all tendered Original Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Original Notes tendered prior to the
expiration of the
34
<PAGE> 39
Exchange Offer, subject, however, to the rights of holders to withdraw such
Original Notes (see "--Withdrawal of Tenders"), or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Original Notes which have not been withdrawn.
The foregoing conditions are solely for the benefit of the Company and may
be asserted by the Company in good faith regardless of the circumstances giving
rise to such conditions or may be waived by the Company in whole or in part at
any time and from time to time in its discretion. The failure by the Company at
any time to exercise the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time. In addition, the Company has
reserved the right, notwithstanding the satisfaction of each of the foregoing,
to terminate or amend the Exchange Offer.
EXCHANGE AGENT
Marine Midland Bank (the "Exchange Agent") has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent at the address indicated in the Letter of Transmittal. DELIVERY TO AN
ADDRESS OTHER THAN AS SET FORTH IN THE LETTER OF TRANSMITTAL WILL NOT CONSTITUTE
A VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telecopy, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Original Notes as reflected in the Company's accounting records on the date of
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Original Notes who do not exchange their Original Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Original Notes as set forth in the legend
thereon. In general, the Original Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not intend to register the Original Notes under the
Securities Act.
RESALE OF EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties
(for example, the letters of the commission to (i) Exxon Capital Holdings
Corporation (avail. May 13, 1988), (ii) Morgan Stanley & Co., Inc. (avail. June
5, 1991)
35
<PAGE> 40
and (iii) Shearson & Sterling (avail. July 2, 1993)), the Company believes that
a holder or other person (other than a person that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) who receives
Exchange Notes in exchange for Original Notes in the ordinary course of business
and who is not participating, does not intend to participate, and has no
arrangement or understanding with any person to participate, in the distribution
of the Exchange Notes, will be allowed to resell the Exchange Notes to the
public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each participating broker-dealer that receives
Exchange Notes for its own account in exchange for Original Notes, where such
Original Notes were acquired by such participating broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
Each holder of Original Notes who wishes to exchange Original Notes for
Exchange Notes in the Exchange Offer will be required to represent that (i) it
is not an affiliate of the Company, (ii) it is not engaged in, and does not
intend to engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Exchange Notes and (iii) it is acquiring
the Exchange Notes in its ordinary course of business. Each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Original Notes for its own account as the
result of market-making activities or other trading activities and must agree
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters referred to
above, the Company believes that participating broker-dealers who acquired
Original Notes for their own accounts as a result of market-making activities or
other trading activities may fulfill their prospectus delivery requirements with
respect to the Exchange Notes received upon exchange of such Original Notes
(other than Original Notes which represent an unsold allotment from the original
sale of the Original Notes) with a prospectus meeting the requirements of the
Securities Act, which may be the prospectus prepared for an exchange offer so
long as it contains a description of the plan of distribution with respect to
the resale of such Exchange Notes. Accordingly, this Prospectus, as it may be
amended or supplemented from time to time, may be used by a participating
broker-dealer during the period referred to below in connection with resales of
Exchange Notes received in exchange for Original Notes where such Original Notes
were acquired by such participating broker-dealer for its own account as a
result of market-making or such other trading activities. Subject to certain
provisions set forth in the Registration Rights Agreement, the Company has
agreed that this Prospectus, as it may be amended or supplemented from time to
time, may be used by a participating broker-dealer in connection with resales of
such Exchange Notes for a period ending 180 days after the date on which the
Exchange Offer Registration Statement is declared effective. However, a
participating broker-dealer who intends to use this Prospectus in connection
with the resale of Exchange Notes received in exchange for Original Notes
pursuant to the Exchange Offer must notify the Company, or cause the Company to
be notified, on or prior to the Expiration Date, that it is a participating
broker-dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at its
addresses set forth in the Letter of Transmittal. See "Plan of Distribution."
Any participating broker-dealer who is an "affiliate" of the Company may not
rely on such interpretive letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction.
36
<PAGE> 41
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Original Notes for Exchange Notes by holders should not be
a taxable exchange for federal income tax purposes, and holders should not
recognize any taxable gain or loss or any interest income as a result of such
exchange. See "U.S. Federal Income Tax Consequences."
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Original Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Original Notes pursuant to the terms of this Exchange Offer,
the Company will have fulfilled a covenant contained in the terms of the
Original Notes and the Registration Rights Agreement. Holders of the Original
Notes who do not tender their certificates in the Exchange Offer will continue
to hold such certificates and will be entitled to all the rights, and
limitations applicable thereto, under the Indenture, except for any such rights
under the Registration Rights Agreement which by their terms terminate or cease
to have further effect as a result of the making of this Exchange Offer. See
"Description of Exchange Notes." All untendered Original Notes will continue to
be subject to the restriction on transfer set forth in the Indenture. To the
extent that Original Notes are tendered and accepted in the Exchange Offer, the
trading market, if any, for the Original Notes could be adversely affected. See
"Risk Factors--Consequences of Failure to Exchange."
The Company may in the future seek to acquire untendered Original Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plan to acquire any Original
Notes which are not tendered in the Exchange Offer.
37
<PAGE> 42
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of ORBIMAGE as of and for
the years ended December 31, 1993, 1994, 1995, 1996 and 1997 have been derived
from the audited financial statements of ORBIMAGE. The following selected
historical financial data of ORBIMAGE as of and for the three months ended March
31, 1997 and March 31, 1998 have been derived from ORBIMAGE's unaudited
financial statements, included elsewhere in the Prospectus. The selected
historical financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------------- -----------------------
1993 1994 1995 (1) 1996 1997 (2) 1997 1998
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues.............. $ -- $ -- $ 4,567 $ 1,055 $ 2,062 $ 108 $ 2,417
Direct costs.......... -- 800 7,998 4,320 6,312 1,137 4,189
------- ------- ------- ------- ------- ------- -------
Gross profit (loss)... -- (800) (3,431) (3,265) (4,250) (1,029) (1,772)
Selling, general and
administrative
expenses............ 1,702 3,156 2,371 1,630 2,844 614 987
------- ------- ------- ------- ------- ------- -------
Loss from
operations.......... (1,702) (3,956) (5,802) (4,895) (7,094) (1,643) (2,759)
Interest income....... -- -- -- -- 1,260 -- 1,043
------- ------- ------- ------- ------- ------- -------
Loss before benefit
for income taxes.... (1,702) (3,956) (5,802) (4,895) (5,834) (1,643) (1,716)
Benefit for income
taxes............... -- -- -- -- 1,752 -- 1,716
------- ------- ------- ------- ------- ------- -------
Net income (loss)..... $(1,702) $(3,956) $(5,802) $(4,895) $(4,082) $(1,643) $ --
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
OTHER DATA:
Capital
expenditures........ $13,749 $13,832 $18,989 $12,617 $49,029 $ 4,275 $15,737
EBITDA (3)............ (1,702) (3,157) 1,975 (914) (1,558) (593) 703
Net cash provided by
(used in) operating
activities.......... 7,142 3,111 (192) (1,008) 6,334 (801) 4,879
Net cash used in
investing
activities.......... (13,749) (13,832) (18,989) (12,617) (60,366) (4,275) (53,734)
Net cash provided by
financing
activities.......... 6,607 10,721 19,181 13,625 64,915 5,076 166,584
Ratio of earnings
(losses) to fixed
charges............. -- -- -- -- -- -- --
Deficiency of earnings
(losses) to fixed
charges............. (1,702) (3,956) (5,802) (4,895) (7,094) (1,643) (3,545)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- -----------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments..... $ -- $ -- $ -- $ -- $ 22,220 $143,433
Pledged Securities........... -- -- -- -- -- 33,057
Property, equipment and
satellites and related
rights, net................ 38,911 51,944 63,155 71,792 115,280 129,395
Total assets................. 38,911 51,944 63,423 72,328 137,750 311,350
Total liabilities............ 31,985 40,419 43,466 46,048 52,389 195,671
Series A Preferred Stock..... -- -- -- -- 33,547(4) 54,865(4)
Total stockholders' equity... 6,926 11,525 19,957 26,280 85,361 115,679
</TABLE>
- ------------------------------
(1) The OrbView-1 satellite was launched in April 1995.
(2) The OrbView-2 satellite was launched in August 1997.
(3) EBITDA, as defined in the Indenture, consists of earnings (losses) before
interest, income taxes, depreciation, amortization and other non-cash
charges. EBITDA data is presented because such data is used by certain
investors to determine the Company's ability to incur debt and to meet its
debt service requirements. The Company considers EBITDA to be an indicative
measure of the Company's operating performance, because EBITDA can be used
to
38
<PAGE> 43
measure the Company ability to service debt, fund capital expenditures and
expand its business; however, such information should not be considered as
an alternative to net income, operating profit, cash flows from operations
or any other operating or liquidity performance measure prescribed by
generally accepted accounting principles. EBITDA does not represent funds
available for management's discretionary use. EBITDA is not a measure
supported by generally accepted accounting principles and may be calculated
differently by other companies. EBITDA as defined herein may not conform to
the definition of Consolidated Cash Flow as defined in the Indenture. See
"Description of Notes--Certain Definitions--Consolidated Cash Flow."
(4) Represents stated value of $100 per share of Series A Preferred Stock less
applicable fees and expenses.
39
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ORBIMAGE operates and is further developing a fleet of satellites that
collect, process and distribute digital imagery of the Earth's surface, the
atmosphere and weather conditions. ORBIMAGE has entered into a procurement
agreement with Orbital (the "Procurement Agreement") to purchase the OrbView-1,
OrbView-3 and OrbView-4 satellites (including launch services) and the U.S.
ground system necessary to operate the satellites and to collect, process and
distribute imagery. Under the Procurement Agreement, ORBIMAGE also acquired
exclusive worldwide distribution rights (the "OrbView-2 License") with respect
to OrbView-2 satellite imagery. The terms of the OrbView-2 License require
ORBIMAGE to operate and control the OrbView-2 satellite. Orbital also provides
certain administrative services to ORBIMAGE such as accounting, tax, human
resources and benefit-related services. See "Certain Relationships and Related
Transactions -- Services Agreement" and "-- Stockholders Agreements."
Prior to May 8, 1997, ORBIMAGE was an operating division of Orbital.
Orbital now owns approximately 63% of the Company (56% on a fully diluted basis)
and has the ability to exercise significant influence over the Company's
operating and financial policies. Pursuant to the terms of the Company's charter
and the Stockholders Agreement, Orbital does not have unilateral control over
ORBIMAGE's assets.
Revenue. ORBIMAGE is performing under several long-term sales contracts to
provide imagery products and, pursuant to terms thereof, receives contractual
payments in advance of product delivery. In such circumstances, ORBIMAGE
initially records deferred revenue for the total amount of the payment and
recognizes revenue over the contractual delivery period. At March 31, 1998,
ORBIMAGE had approximately $38.3 million of deferred revenue related to advance
payments for OrbView-2 imagery. See "Certain Relationships and Related
Transactions -- OrbView-2 License."
System Depreciation. ORBIMAGE depreciates its satellites over the design
life of each satellite. ORBIMAGE is amortizing the cost of the OrbView-2 License
over the design life of the OrbView-2 satellite. ORBIMAGE depreciates the ground
systems used to operate the satellites and collect, process and distribute
imagery over the estimated lives of the assets, generally eight years.
Depreciation begins when the satellites and ground system are placed in service.
Interest Expense. The portion of the proceeds of the Units Offering
representing the estimated value of the Warrants, approximately $9 million, has
been accounted for as a discount to the par value of the Notes and as an
increase to common equity, reflecting the fact that the Warrants are a separate
security of the Company. Amortization of this discount, together with the stated
interest on the Notes, is capitalized as the historical costs of assets under
construction, when appropriate. The Company expects to capitalize substantially
all its interest expense throughout 1998 and 1999 as it completes construction
of the high-resolution OrbView satellites.
Year 2000 Compliance. The Company has made a preliminary assessment of
potential "Year 2000" issues with respect to various computer-related systems.
The Company has developed an initial corrective action plan that includes
reprogramming impacted software when appropriate and feasible, obtaining vendor-
provided software upgrades when available and completely replacing impacted
systems when necessary. The Company currently expects that identified "Year
2000" impacted systems will be corrected by the end of 1998, although there can
be no assurance that the Company has identified all "Year 2000" impacted systems
or that its corrective action plan will be timely and successful. The Company
believes that the costs to correct its systems will not materially affect its
results of operations or its financial condition.
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 AND FOR
THE THREE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
Revenues. Revenues for the three-month periods ended March 31, 1997 and
1998 were approximately $.1 million and $2.4 million, respectively. The increase
was primarily attributable to OrbView-2 sales during 1997. The OrbView-2
satellite was placed into commercial operations in November 1997.
Revenues for the years ended December 31, 1995, 1996 and 1997 were
approximately $4.6 million, $1.1 million and $2.1 million, respectively.
Revenues in 1995 and 1996 were attributable solely to the sale of OrbView-1
imagery products to NASA and UCAR. The decline in OrbView-1 imagery sales
between 1995 and 1996 was primarily attributable to lower "per image" prices as
a result of volume discounts offered in exchange for additional imagery
purchases. Revenues for the year ended December 31, 1997 consisted of
approximately $.8 million and $1.3 million of OrbView-1 and OrbView-2 sales,
respectively.
Direct Expenses. Direct expenses include costs of operating and
depreciating the OrbView-1 satellite, the OrbView-2 License and the related
ground assets. Satellite operating costs primarily consist of labor expenses.
Direct expenses for the three-month periods ended March 31, 1997 and 1998 were
approximately $1.1 million and $4.2 million, respectively. Direct expenses
increased from the first quarter 1997 to the first quarter 1998 as a result of
the OrbView-2 License amortization, additional ground station depreciation and
increased operating expenses primarily related to OrbView-2. The Company
completed the depreciation of the OrbView-1 satellite at the end of April 1998.
Direct expenses for the years ended December 31, 1995, 1996 and 1997, were
approximately $8.0 million, $4.3 million, and $6.3 million, respectively. Direct
expenses decreased from the year ended December 31, 1995 to the year ended
December 31, 1996 primarily because 1995 expenses included the cost of launching
and placing the OrbView-1 satellite into operation and $5.0 million of an
additional depreciation charge associated with OrbView-1. See Note 2 to the
Financial Statements. Direct expenses increased from the year ended December 31,
1996 to the year ended December 31, 1997 as a result of the launch and placement
in operation of OrbView-2 in 1997. The Company expects direct expenses to
increase significantly in 1998 from 1997 levels as a result of OrbView-2 License
amortization and OrbView-2 operating expenses. The Company does not expect to
incur any significant direct expenses to launch OrbView-3 and OrbView-4.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses include the costs of marketing, advertising,
promotion and other selling expenses, as well as the costs of the finance,
administrative and general management functions of the company. SG&A expenses
were approximately $.6 million and $1.0 million for the three-month periods
ended March 31, 1997 and 1998, respectively. The increase from the 1997 period
to the 1998 period was primarily attributable to the increase in salaries and
related benefits as the Company expanded its operations and workforce.
SG&A expenses were approximately $2.4 million, $1.6 million and $2.8
million for the years ended December 31, 1995, 1996 and 1997, respectively. For
the year ended December 31, 1997, approximately $2.1 million in SG&A were costs
associated with administrative and management functions and approximately $.7
million were costs associated with marketing. The increase in SG&A expenses from
the year ended December 31, 1996 to the year ended December 31, 1997 was
primarily attributable to an increase in the Company's staffing levels as the
Company expanded its operations and workforce. SG&A expenses in 1997 and 1995
included costs of approximately $600,000 and $400,000, respectively, incurred to
support the launch and initial checkout of the OrbView-1 satellite and OrbView-2
satellites, respectively. The Company expects that launch and initial checkout
costs for OrbView-3 and OrbView-4 will be incurred at levels generally
consistent with those incurred in 1997.
Interest Income. Interest income for the three-month period ended March
31, 1998 was approximately $1.0 million; no interest income was earned in the
comparable 1997 period. Interest income was approximately $1.3 million for the
year ended December 31, 1997 and none in prior years. Interest income reflects
interest earnings on short-term investments made primarily with proceeds from
the Company's financing activities. The Company expects interest income to
increase in 1998, primarily due to the increased investments arising from the
Company's 1998 financing activities.
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Interest Capitalization. Interest incurred on the Notes as of March 31,
1998 in the amount of $1.7 million, has been capitalized in connection with the
construction of the OrbView-3 and OrbView-4 satellites and related ground
segments. The capitalized interest is recorded as part of the historical cost of
the assets to which it relates and will be amortized over the assets' useful
lives when placed in service.
Benefit for Income Taxes. The Company recorded an income tax benefit of
approximately $1.7 million for the three-month period ended March 31, 1998. The
Company recorded an income tax benefit of approximately $1.8 million for the
period May 8, 1997 through December 31, 1997. The tax benefits result from a
reduction in net deferred tax liabilities based on an increase in deferred tax
assets primarily related to net operating losses generated during the period
offset by decreases in deferred tax liabilities for depreciation of satellite
assets which were previously deducted for tax purposes. The Company records its
interim income tax benefit or provision based on estimates of the Company's
effective tax rate expected to be applicable for the full fiscal year. Estimated
effective rates recorded during interim periods may be periodically revised, if
necessary, to reflect current estimates. Prior to May 8, 1997, ORBIMAGE was an
operating division of Orbital and was included in Orbital's consolidated tax
return.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998 the Company had approximately $177 million of cash and
cash equivalents, and short- and long-term investments (including approximately
$33 million of Pledged Securities) and had total debt outstanding (net of
discount) of approximately $141 million. The Company's current ratio was
approximately 10.0 at March 31, 1998.
On February 25, 1998, ORBIMAGE issued the Notes and Warrants raising gross
proceeds of approximately $150 million (the "Units Offering"). Out of net
proceeds of approximately $145 million, ORBIMAGE purchased approximately $33
million of U.S. Treasury securities in an amount sufficient to pay the interest
on the Notes for the first four interest payment dates. These securities have
maturities ranging from six months to two years and were placed in a restricted
account and pledged as security for repayment of interest on the Notes. Interest
is payable semi-annually beginning on September 1, 1998. The total effective
interest rate on the Notes, including the discount attributable to the value of
the Warrants and issuance expenses, is approximately 14%. The Notes will rank
pari passu in right of payment with all existing and future subordinated
indebtedness of the Company. Concurrent with the issuance of the Notes, ORBIMAGE
completed a private placement of 227,295 shares of Series A Preferred Stock,
generating approximately $23 million of gross proceeds. During 1997, ORBIMAGE
completed two private equity placements in which it sold 372,705 shares of
Series A Preferred Stock, generating gross proceeds of approximately $37
million. Orbital also increased its common equity investment in ORBIMAGE,
bringing its total equity invested to approximately $88 million.
Investing activities used cash of approximately $53.7 million and $4.3
million for the three-month periods ended March 31, 1998 and 1997, respectively.
Investing activities used cash of approximately $60.4 million, $12.6 million and
$19.0 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The increase in the use of cash from 1996 to 1997 and continuing
into 1998 is attributable primarily to the net purchases (net of sales and
maturities) of short- and long-term investments and increased capital
expenditures in those periods. After completion of its private equity and debt
financings in 1997 and 1998, the Company invested the proceeds from the
financings in various short- and long-term investments, consisting primarily of
commercial paper and U.S. Treasury Notes. The Company intends to use the
investments to fund the remaining costs under the Procurement Agreement.
Capital expenditures in 1995 and 1996 consisted primarily of costs under
the Procurement Agreement relating to the acquisition of the U.S. ground system
assets, the OrbView-1 satellite and the OrbView-2 License. Beginning in 1997,
Capital expenditures were also related to the high-resolution OrbView
satellites. The total cost of the OrbView-1 satellite, the high-resolution
OrbView-3 and OrbView-4 satellites, the OrbView-2 License and the related U.S.
ground system, is estimated to be approximately $297,000,000 (of which
$295,000,000 is provided for under the Procurement Agreement), which amount
includes all satellite design, construction and launch costs, but excludes
insurance costs. Of this amount, as of March 31, 1998,
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ORBIMAGE has spent approximately $149 million and expects to spend approximately
$73 million through the remainder of 1998, which amount will be funded by the
Company's cash, cash equivalents, short-term investments and net cash from
operations.
Operating activities provided cash of approximately $4.8 million during the
three months ended March 31, 1998 and $6.3 million during the year ended
December 31, 1997. Operating activities used cash during the three months ended
March 31, 1997 and during the years ended December 31, 1996 and 1995 of
approximately $.8 million, $1 million and $.2 million, respectively. The
increase in operating cash flows from 1996 to 1997 is primarily attributable to
the receipt of advance customer payments for imagery purchases.
The Company expects to fund its future capital expenditures and negative
cash flows from operating activities using cash and cash equivalents and
short-term investments together with cash from advance customer payments. While
the Company believes it has sufficient resources to meet its requirements
through its positive free cash flow (expected to occur by the end of 1999, when
OrbView-3 is expected to be operational), additional funding may be necessary in
the event of an OrbView-3 or OrbView-4 launch delay, cost increases or any
shortfall in projected levels of estimated cash flow, or to meet unanticipated
expenses. There can be no assurance that additional capital will be available on
favorable terms or on a timely basis, if at all. ORBIMAGE has incurred losses
since its inception and ORBIMAGE believes that it will continue to do so for the
forseeable future. ORBIMAGE's ability to become profitable and generate positive
cash flow is dependent on the continued expansion of commercial services,
adequate customer acceptance of ORBIMAGE's services and numerous other factors.
See "Risk Factors -- Limited Operating History; Net Losses;" "-- Potential
Additional Capital Requirements" and "-- Market Acceptance; Estimates."
SUBSEQUENT EVENT
On April 30, 1998, ORBIMAGE acquired substantially all the assets of TRIFID
Corporation ("TRIFID") for approximately $4 million. Under the terms of the
acquisition agreement, an additional $1 million earn-out is payable by ORBIMAGE
to TRIFID if certain revenue targets are achieved during the third quarter of
1998. TRIFID is a leading image processing and product generation company,
providing sophisticated image processing software, geographic information
database and production systems, imaging sensor design and related engineering
services to both governmental and commercial customers. The acquisition provides
ORBIMAGE with the technical personnel and production capability required to
generate high resolution imagery and derived products. The acquisition resulted
in excess of purchase price over net assets acquired of approximately $2
million, which amount will be amortized over 10 years.
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BUSINESS
OVERVIEW
ORBIMAGE is a leading provider of global space-based imagery. The Company
operates, and is further developing, a fleet of satellites that collect, process
and distribute digital imagery of the Earth's surface (land and oceans), the
atmosphere and weather conditions. ORBIMAGE currently has two satellites in
operation that provide imagery to a variety of scientific and commercial
customers, including NASA. The Company expects to place two additional
satellites providing high-resolution digital imagery into operation in 1999 and
2000, respectively. The Company's imagery products and services are intended to
provide ORBIMAGE customers with information concerning, among other things,
forestry and crop health, urban growth and development, the locations and
movements of troops or military assets, land and ocean-based natural resources
and weather patterns and wind conditions. ORBIMAGE intends to provide customers
with imagery at a lower price than that provided by existing or planned remote
imagery alternatives.
In 1991, the ORBIMAGE operating division of Orbital was established to
manage the development of remote imaging satellites that would collect, process
and distribute digital imagery of land areas, oceans and the atmosphere. In
1992, the Company was incorporated in Delaware as a wholly owned subsidiary of
Orbital. In 1997, ORBIMAGE consummated a private placement of Series A Preferred
Stock with financial investors to fund a significant portion of the remaining
costs of existing projects. Contemporaneously with this financing, the Company
acquired at historical cost all the assets and liabilities of the operating
division.
In April 1995, ORBIMAGE launched its first satellite, OrbView-1, which
provides dedicated weather-related imagery and meteorological products to NASA.
The Company's second satellite, OrbView-2, was launched in August 1997 and
provides images of land and ocean surfaces to commercial customers, as well as
to NASA and other scientific users. The Company believes that OrbView-2 is the
only satellite of its kind providing daily color images of the entire Earth's
surface. ORBIMAGE is in the process of completing the design of the
high-resolution OrbView satellites, which are being designed to provide
high-resolution panchromatic (black and white), multispectral (color and
infrared) and, in the case of OrbView-4, hyperspectral (enhanced color and
enhanced infrared) imagery. OrbView-3 is scheduled to be operational during the
second half of 1999, and OrbView-4 is scheduled to be operational in mid-2000.
The Company believes that OrbView-3 and OrbView-4 will be among the first
commercial satellites with high-resolution imagery capability and that OrbView-4
will be the world's first satellite with commercially available hyperspectral
capability.
Remote imaging is the process of observing, measuring and recording
features, objects or events from a distance using a variety of sensors mounted
on satellites and aircraft. The current market for global remote imagery and
related market consists of both domestic and international commercial and
government users, and includes satellite development, construction and
operations costs incurred by users who decide to build and operate their own
satellite systems as well as the cost of purchased imagery and related services
currently addressable by existing imagery suppliers. Historically, in the United
States, the only "commercial" operators of remote imaging satellites were
quasi-governmental programs such as the low-resolution Landsat satellite systems
in operation since the 1970s. The opportunities for commercialization of
space-based imagery expanded significantly in 1994 when the U.S. government
implemented a policy permitting the worldwide, commercial sale of
high-resolution satellite imagery. The U.S. government has estimated that the
worldwide market for remote imagery products and services addressable by
commercial imagery providers (excluding hardware sales) will be approximately $2
billion by the year 2000. ORBIMAGE believes that this worldwide commercial
imagery market will grow as the availability of low-cost, high quality satellite
imagery stimulates the demand for such products and services and encourages the
development of new satellite-imaging technologies and applications.
Customers have entered into imagery contracts providing for minimum
payments to the Company totaling approximately $100 million, of which the
Company has received approximately $48 million through March 31, 1998, and
expects to receive approximately $12 million through the end of 1998. See "Risk
Factors -- Contracts." These contracts include (i) a contract to provide NASA
with weather-related imagery
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and meteorological information generated by OrbView-1, (ii) a contract to
provide NASA with color ocean imagery generated by OrbView-2, (iii) a contract
between Orbital and the U.S. Air Force to provide the U.S. Air Force with
hyperspectral imagery from OrbView-4 (such imagery will be provided by the
Company pursuant to the Procurement Agreement) and (iv) the Samsung Agreement.
The Samsung Agreement requires Samsung Aerospace to pay an annual minimum amount
for high-resolution OrbView imagery for each of the three years after OrbView-3
becomes operational. In addition, the Company has entered into agreements with
regional distributors in Canada and Chile for OrbView-2 imagery and is in
negotiation with potential regional distributors for high-resolution OrbView
imagery in the Middle East, Europe, Asia, Southern Africa, South America and
Australia. To provide industry-specific imagery applications, ORBIMAGE is
seeking to develop strategic alliances with key VARs who currently provide
imagery products to customers in industries such as oil and gas exploration,
mining, agriculture, forestry, fishing and cartography.
THE REMOTE IMAGERY INDUSTRY
Remote imaging is the process of observing, measuring and recording objects
or events from a distance using a variety of sensors mounted on satellites,
aircraft or ground-based stations. Imagery is usually processed in an electronic
or hard copy format consisting of panchromatic or multispectral images. Until
1992, all satellite imagery systems were either military surveillance platforms
or were sponsored by large national and international civil space agencies,
which used satellites to monitor meteorological conditions and environmental
changes on the Earth's surface. Currently, there are a limited number of
commercial providers of satellite imaging services, which collectively address
only a portion of the demands and opportunities in the remote imaging industry.
The majority of today's remote imagery comes from local or regional aerial
photography firms. Although aerial imaging companies are able to achieve high
spatial resolution and customize their products according to local needs, their
slow response time, limited coverage area, restricted ability to fly over
certain areas and high cost limit widespread use of such imagery. Many existing
maps are based on out-of-date imagery because they are expensive to update. The
remainder of current commercial imagery sales are generated by a few providers
of low-resolution satellite imaging services; however, these providers have
failed to satisfy the market's growing sophistication and demand segmentation.
As the market develops, primary competitive factors are expected to
include: (i) spatial and/or spectral resolution, (ii) frequency of revisit
times, (iii) pricing, (iv) timeliness of imagery distribution and (v) extent of
geographic coverage. OrbView-2 and the high-resolution OrbView satellites have
been designed to offer a number of strategic advantages over currently available
commercial remote imaging systems including increased spatial resolution and
increased spectral capability. Certain markets such as national security mapping
and surveying markets require spatial resolution of less than three meters. In
addition, increased spectral resolution, or the ability to take highly precise
color and infrared images of the Earth's surface, enables potential customers in
the agriculture and fishing industries to better detect and identify crop health
and map prime fishing locations. Spectral resolution also can be used in the
exploration of natural resources, for example, land conditions that signify the
presence of oil will be easier to identify on an infrared image than in a
conventional black and white aerial photograph.
The Company believes that a key competitive advantage that the
high-resolution OrbView satellites will have over aerial photography is their
ability to image any location on the Earth in one to three days and to make the
imagery available in real time through a broad distribution channel. Currently,
a commercial imagery customer such as a telecommunications company that wants to
map a large, fairly remote area to determine where to place cellular towers
would hire an aerial photographer to fly an airplane over the area to take
pictures, develop the film and deliver the final map to the customer. This can
be time-consuming and expensive. In contrast, the Company expects that its
OrbView-3 satellite will be able to map 20,000 square kilometers in a single
10-minute pass. Similarly, countries around the world that are unable or
unwilling to establish their own space programs can conduct complete border
surveillance only in the areas over which aerial photographers can safely fly.
The Company expects that the high-resolution OrbView satellites will be able to
image areas that are not accessible by airplanes because the air space is
restricted or they are too remote. In addition, up-to-date maps are key for
serving certain high-technology segments of the national
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security market, such as digital terrain modeling for aircraft and missile
guidance. ORBIMAGE believes the real-time global imagery from the
high-resolution OrbView satellites will allow customers to efficiently and
cost-effectively map areas of the world that have never been photographed
commercially or for which existing maps are now obsolete, and will permit users
to frequently monitor agricultural, forestry and fishing areas to provide timely
information to enhance business and government effectiveness.
BUSINESS STRATEGY
ORBIMAGE's business strategy is to (i) penetrate existing markets, (ii)
create new markets to sustain long-term growth, (iii) provide imagery at prices
lower than other satellite and aerial-based imagery, (iv) achieve global
distribution, (v) provide worldwide coverage on a timely basis, (vi) establish
an electronic imagery archive with broad and diverse imagery products and (vii)
leverage the expertise of Orbital, including Orbital's existing satellite
imagery technology and product infrastructure, to promote rapid market
acceptance.
Penetrate Existing Markets. The Company believes that its existing
addressable markets consist of numerous applications, including new construction
site selection, oil, gas, and mineral exploration activities, utility
infrastructure monitoring, scientific and environmental monitoring and U.S.
national security applications. In each of these market applications, ORBIMAGE
believes it should be able to gain market share rapidly because it expects its
imagery to be priced below that of existing aerial imagery and planned satellite
imagery and to be of higher spatial and spectral resolution than existing
satellite imagery.
Create New Markets. Through the introduction of affordable,
high-resolution satellite imagery, the Company believes it will stimulate the
development of new markets. For example, ORBIMAGE's marketing efforts to date
indicate that certain market segments do not currently have access to dedicated
high-resolution imagery, such as the foreign national security and commercial
fishing markets. The Company believes that such markets will develop rapidly as
commercial high-resolution imagery becomes available. Furthermore, the Company
believes it can develop new commercial applications for satellite-based imagery
including, among other uses, real estate assessment, travel planning and
entertainment applications.
Provide Low Priced Imagery. The Company believes that the expected cost to
construct its high-resolution OrbView satellites and related ground systems, the
principal components of which will be furnished by Orbital under a fixed-price
contract, will be less than or competitive with the announced costs of its
competitors' high-resolution satellite systems. The Company believes that the
cost of its satellites and related ground systems will afford it pricing
flexibility for its imagery products and services, allowing it to pursue a
strategy of pricing aggressively while still realizing attractive returns.
ORBIMAGE believes that the high-resolution OrbView satellites should be able to
provide a lower-priced imagery alternative to existing aerial photography.
Achieve Global Distribution. The Company believes that it can expand its
market share by providing imagery to end users both directly and through third
party distribution channels, such as foreign regional distributors and VARs. The
Company intends to focus its direct distribution efforts on larger customers in
the commercial/consumer and scientific/environmental markets and on the U.S.
national security market. The Company expects that VARs will perform
application-specific processing and analysis of the Company's imagery for
various commercial applications. The Company believes that utilizing these
distribution channels simultaneously will enhance the distribution of its
products and services.
ORBIMAGE believes that the most effective way to penetrate foreign markets
is to enter into relationships with strong regional partners who have existing
marketing and distribution infrastructures and are able to overcome local
regulatory barriers. The Company expects these distributors to purchase or
upgrade and operate the ground imagery receiving and processing stations in
their territories and attain the necessary regulatory and approvals to operate
in their territories. ORBIMAGE has entered into distribution agreements with
regional distributors in Chile and Canada for OrbView-2 imagery and has entered
into the Samsung Agreement to distribute high-resolution imagery of the Korean
peninsula. The Company is also in negotiations with potential regional
distributors for high-resolution OrbView imagery in the Middle East, Europe,
Asia, Southern Africa, South America and Australia.
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Provide Worldwide Coverage on a Timely Basis. All the OrbView satellites
are designed to provide timely product delivery, either through real-time
imagery downlinking to a distributor's or customer's local ground receiving
station, or through delivery of processed imagery from ORBIMAGE's central U.S.
ground station by overnight courier or via the Internet. OrbView-2 provides
global imagery on a daily basis. OrbView-3 is designed to image virtually any
location on Earth with a "revisit" time of three days or less. Upon the launch
of OrbView-4, the effective "revisit" time of the high-resolution OrbView
satellites should be reduced to less than two days.
Establish Electronic Imagery Archive. The Company is developing the OrbNet
Digital Archive, a database that will collect, store and distribute imagery
derived from satellite and aerial sources. OrbView-2 imagery can be viewed on
the Company's website and is expected to become available for sale over the
Internet. ORBIMAGE intends to expand its imagery catalogue with aerial and
existing satellite imagery products prior to the launch of its OrbView-3
satellite by entering into strategic alliances with existing imaging satellite
operators, aerial photography firms and imagery VARs. The Company intends to
deliver imagery to customers over the Internet, on CD or on computer tape for a
per image fee.
Leverage Expertise of Orbital. Orbital, the Company's majority
shareholder, is a space technology and satellite services company with extensive
experience in the design and construction of remote imaging satellites and
ground stations. ORBIMAGE has used, and will continue to use, the integrated
space capabilities, infrastructure and experience of Orbital to develop its
business cost effectively, including leveraging certain of Orbital's existing
customer relationships and product lines.
PRODUCTS AND SERVICES
Through the operation of the OrbView-1, OrbView-2, and high-resolution
OrbView satellites and associated U.S. and foreign ground systems, ORBIMAGE
provides and will provide a wide range of imagery products and services.
Weather and Atmospheric Monitoring. The Company's OrbView-1 satellite
provides the U.S. government with daily atmospheric and weather conditions
images, including images showing both clouds and global lightning information
that can be used to improve tornado and hurricane forecasting, and for weather
monitoring and meteorological research. The OrbView-1 satellite also provides
information on the atmosphere near the Earth's horizon to develop atmospheric
temperature, pressure, and water vapor profiles which facilitate the efficient
gathering of worldwide atmospheric information. As a result of the radio
frequencies used by the OrbView-1 satellite, OrbView-1 imagery may only be sold
to the U.S. government.
Ocean and Land Multispectral Imagery. The OrbView-2 satellite detects
subtle color changes in the Earth's oceans and land areas. Under a five-year
contract, NASA and its researchers may directly downlink certain OrbView-2
imagery to use for their own research purposes. ORBIMAGE is also marketing
licenses to university researchers and other primarily scientific users around
the world to enable them to directly downlink OrbView-2 imagery.
In addition, OrbView-2 provides value-added products that generally can be
delivered within 24 hours of collecting the data. Such products measure
phytoplankton and sediment concentration in oceans and lakes, as well as the
vegetative health of crops and forests on land. Scientists and environmentalists
can use these and other similar imagery products to assess environmental factors
that affect the oceans (including pollution levels and toxic algae events) and
to facilitate "before and after" comparisons of land areas showing, for example,
changes in agricultural crop and forestry growth or the erosion of coastal
zones.
The Company also uses OrbView-2 imagery to generate fishing maps. ORBIMAGE
initially is offering two types of fishing maps, a coastal product targeted at
sport and coastal commercial fishing customers and a deep ocean product targeted
at larger, high seas fishing fleets.
High Spatial Resolution Imagery. High-resolution OrbView imagery will
enable a user to discern an object one-meter in size (the size of a phone booth)
from space. The Company plans to sell its high-resolution imagery products in
the form of hard copies and electronic copies that can be stored and processed
on a computer. ORBIMAGE intends to base its product pricing, in part, on the
level of processing required and the
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customer's delivery-time requirements. Sales of unprocessed imagery are targeted
to sophisticated end-users, such as the U.S. and foreign national security
customers or VARs who have internal capability to perform their own imagery
enhancement and processing. While the Company intends to make unprocessed
imagery available for sale through the OrbNet Digital Archive, ORBIMAGE believes
that military and intelligence customers will procure the necessary software
from ORBIMAGE to upgrade their ground stations so that they can directly
downlink and process such imagery from the satellite.
ORBIMAGE may also offer various value-added precision-corrected products.
The Company believes that these products will have applications in all four
target markets, discussed below. Precision-corrected imagery is processed based
upon known geographic points, terrain, elevation and topography to enable the
user to identify the position of the image on the Earth's surface. These
products will address the needs of customers who require detailed topographical
and elevation information. One example of such a product is a digital elevation
model used by military planners for aircraft flight simulation. Other examples
include maps that analyze the health of vegetation in farm and forest areas, and
land use maps that can segment land tracts based on population density,
construction projects and other land uses.
Hyperspectral Imagery. Hyperspectral imagery provides enhanced color and
enhanced infrared imagery for additional applications, including more precise
crop health analysis and analysis of the presence of minerals that will enable
mining and natural resource exploration companies to more efficiently detect the
location of precious minerals such as gold and silver, and other natural
resources such as oil. In addition, the U.S. Air Force has stated that it
intends to use hyperspectral imagery to assist in detecting, tracking and
monitoring military vehicles and assets.
TARGET MARKETS
The Company targets its imagery product and service offerings toward four
distinct markets: the commercial/consumer market, the scientific/environmental
market, the U.S. national security market and the foreign national security
market. These markets are currently serviced by aerial photography or lower-
resolution government-operated satellite imagery systems.
Commercial/Consumer Market
The Company believes that the near-term commercial/consumer market segment
will include domestic and foreign companies and local governmental entities such
as municipalities that currently use aerial photographs and medium-resolution
satellite imagery products. In the long term the Company expects this market
will also include individual consumers who will use satellite imagery from the
OrbNet Digital Archive in various consumer oriented applications such as real
estate assessment, travel planning, education and entertainment. ORBIMAGE has
already begun targeting the market applications described below, which the
Company believes represent attractive near-term marketing opportunities.
Fishing. The Company believes that fishing maps designed to assist the
commercial ocean fishing industry are among the Company's most promising
near-term commercial market applications. OrbView-2's multispectral sensor has
been specifically designed to distinguish the phytoplankton-rich oceanic regions
from the clear oceanic regions. Many commercially important surface-feeding
fish, such as tuna and swordfish, congregate at the phytoplankton/clear water
boundary. At present, fishing fleets have no means of accurately identifying
this boundary in a timely fashion. Many fishing vessels currently use on-board
helicopters to conduct aerial searches of broadly identified areas. ORBIMAGE
believes its fishing maps will significantly reduce search time and related
hardware and operating costs, will be more accurate, and will cover a broader
area than existing alternatives.
The Company's customers for fishing maps include three fishing companies,
including the largest commercial fishing operators in the Philippines and South
Korea. Fishing captains view the maps transmitted daily over a satellite link to
their vessels with a personal computer using ORBIMAGE's proprietary software, or
receive the maps in a hard copy format via facsimile. The Company is continuing
to conduct beta testing with over 50 boats in the Central and South Eastern
Pacific Ocean.
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Mapping and Surveying. The key mapping and surveying markets targeted by
the Company are new construction site selection, utility infrastructure
monitoring and local and regional tax assessment. High-resolution imagery is
used for planning the optimal location for construction projects such as
wireless communication towers, retail development, new housing developments and
highways. For example, telecommunications providers use high-resolution imagery
extensively to determine the topography and land use/land cover classifications
within a region under consideration for new wireless service. This information
enables optimal placement of new communications towers based on the radio signal
transmission characteristics of the region. The Company believes that
high-resolution imagery can also help retail businesses to select the optimal
locations for new businesses by providing valuable information such as
population density, residential versus industrial land use patterns, locations
of competitive businesses, and other factors useful in the site selection
process.
In addition, the Company believes that its high-resolution OrbView imagery
will be used by gas and electric utilities, which are among the largest current
high-resolution aerial imagery users. Spatial data, such as high-resolution maps
showing precise locations of surface features, is critical to planning, design,
construction, operation, marketing and regulatory compliance in connection with
utilities' widely dispersed networks. Finally, ORBIMAGE believes its
high-resolution imagery will be useful to city, county and state tax authorities
in monitoring taxable activities such as residential add-on construction and
tree-cutting on public and private lands.
Agricultural. ORBIMAGE expects agricultural applications to represent a
growing market opportunity, driven by large, commercial farming customers
interested in obtaining up-to-date data on the condition of their crops and
fields. Today, most agricultural customers either are unable to obtain the
requisite imagery, or must rely on direct on-site inspection or aerial
photography at substantial expense. The Company believes products based on
multispectral and hyperspectral satellite imagery will provide timely and
valuable information on the health of crops and assist in managing the
allocation of water, fertilizer and pesticides. In addition, the Company
believes its broad-area multispectral and hyperspectral imagery could increase
the accuracy of crop-yield forecasts and benefit insurance companies, commodity
traders and agricultural products brokers.
Forestry. To date, demand for aerial imagery products in the forestry
industry has been modest due to the high cost, poor resolution and lack of
appropriate revisit time of existing alternatives. The availability of
ORBIMAGE's high-resolution, low-cost imagery products is expected to drive
forestry industry demand for satellite imagery. In particular, ORBIMAGE believes
the multispectral imagery generated by OrbView-2 and the high-resolution OrbView
satellites will be beneficial in monitoring the overall health of forests, and
OrbView-4's hyperspectral imagery will be useful in distinguishing tree
plantations of different species and ages through pattern recognition
techniques. The Company believes this information will be beneficial both to
private forest product companies and to government agencies such as the U.S.
Forest Service.
Mineral Exploration. The Company believes high-resolution OrbView
satellite imagery will also be valuable for oil, gas and mineral exploration
companies for planning operations in remote regions of the world. In many
locations where such exploration occurs there is a great need for improved
mapping information for such activities as planning equipment transport, seismic
field testing and drilling operations. Also, the hyperspectral imagery from
OrbView-4 will be useful for identifying promising locations for new oil, gas
and mineral reserves. Spectral matching techniques will be used to identify
specific "pathfinder minerals" which signify high probability locations for oil,
gas and other mineral reserves.
Scientific/Environmental Market
The scientific/environmental market is comprised of government entities
that use satellite imagery to monitor environmental, climate-related and
meteorological phenomena, both in real-time and over extended time periods, as
well as commercial entities such as airlines, oil and gas companies and
insurance companies who need accurate, timely environmental information over
wide geographic areas. ORBIMAGE is marketing imagery from OrbView-2 to national
government agencies such as NASA, the U.S. Navy, and the Department of
Agriculture. All these agencies currently use aerial and satellite imagery for
diverse
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applications, including weather prediction, monitoring of ocean conditions,
natural disaster assessment, environmental impact studies and similar
applications. Since 1995, OrbView-1 has generated information that has improved
the meteorological community's ability to predict the timing and location of
severe storms including tornadoes and hurricanes. The Company believes
OrbView-2's ability to monitor phytoplankton levels in the world's oceans on a
global basis will be valuable to scientists in studying global climate change
and to coastal fisheries in tracking dangerous and costly "red tide" events. The
Company believes its high-resolution and hyperspectral imagery will be helpful
to government agencies in a variety of environmental applications including
assessment of the damage from natural disasters such as floods, forest fires,
earthquakes and severe storms and the environmental impact of industrial
activities.
U.S. National Security Market
The U.S. government has publicly stated that demand for high-resolution
imagery, especially for use by tactical military commanders in the field, far
exceeds the supply currently provided by its dedicated surveillance satellites.
The Company believes that anticipated additional cutbacks in DoD and NRO
budgets, together with the greater number of areas around the world in which the
U.S. has a military interest, may further drive government agencies' need for
commercially available high-resolution imagery and cause them to place increased
reliance on lower-cost commercial providers. Commercial satellite imagery can
augment current classified government satellite programs which use data, imagery
and related products and services for mapping, reconnaissance, surveillance,
trend analysis, mission planning, and targeting of conventional and "smart"
weapons such as the "Tomahawk" cruise missile. ORBIMAGE believes that it can
capture a significant share of this market once either of the high-resolution
OrbView satellites are operational. ORBIMAGE is performing under a $33 million
contract (with up to $8 million in contract options) to provide real-time
hyperspectral imagery from OrbView-4 to the U.S. Air Force. The U.S. Navy has
also expressed an interest in procuring OrbView-2 imagery for measuring water
clarity and for similar applications. The imagery would assist the U.S. Navy in
determining optimal times, locations and depths for performing laser and sonar
operations relating to mine detection and submarine communication.
Foreign National Security Market
Many countries have a strong national security interest in obtaining
real-time high-resolution satellite imagery to help monitor borders, gather
intelligence on potential adversaries, identify and target enemy troops and
assets, plan missions and deploy resources, and assess battle damage. Many
countries have aerial reconnaissance aircraft, but such aircraft are at risk if
they penetrate foreign air space. The vast majority of foreign countries neither
own nor have access to satellites that generate high-resolution imagery.
Therefore, these countries have only three possible options to collect
high-resolution satellite imagery: (i) develop the technology and build and
launch their own satellites, (ii) purchase and operate a turn-key satellite
system, or (iii) purchase "time-share" capacity from a satellite imagery
company. Developing the technology and manufacturing expertise and then
constructing a dedicated high-resolution satellite system and the infrastructure
to support it requires a sizable financial investment and may require a
substantial time commitment. Purchasing a turn-key high-resolution satellite
system from a company in the United States or another country may be difficult
due to export controls and safeguards relating to national security interests
and licensing requirements. Purchasing a portion of the total capacity of a
commercial satellite while it orbits a foreign government customer's area of
interest provides the same high-resolution imagery capability as other
alternatives, but is less expensive and more readily attainable. This "time
share" arrangement is the one being offered by ORBIMAGE to its regional
high-resolution OrbView imagery distributors.
ORBIMAGE is currently in discussions with several potential regional
distributors in Asia, Europe, the Middle East, Australia, South America and
Southern Africa, and has already entered into the Samsung Agreement for imagery
of the Korean peninsula. The interest expressed by potential regional
distributors during the course of these discussions strengthens ORBIMAGE's
belief that there exists substantial unmet demand for such imagery. The Company
believes that its products and services will provide an effective means for
foreign governments to acquire high-resolution imagery for national security
purposes.
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MARKETING AND DISTRIBUTION
The Company currently plans to market and distribute imagery from
ORBIMAGE's satellite network through (i) ORBIMAGE's direct sales force, (ii)
market- or application-specific VARs, (iii) foreign regional distributors, and
(iv) the OrbNet Digital Archive.
Direct Sales. ORBIMAGE's initial strategy for direct sales is to market
and sell its basic imagery products to U.S. government agencies or to companies
with internal image processing capabilities (e.g. large oil and gas producers).
Since mid-1995, ORBIMAGE has delivered OrbView-1 atmospheric imagery directly to
NASA on a daily basis. Since October 1997, NASA and its authorized researchers
have been directly downlinking OrbView-2 imagery at their own ground receiving
stations. ORBIMAGE may also directly market and will distribute its products and
services, such as fishing maps to commercial and scientific customers worldwide.
ORBIMAGE will continue to market its products and services directly to the
U.S. military services, U.S. intelligence gathering agencies, other U.S.
governmental customers and foreign governments that do not wish to purchase
imagery products through a regional distributor. The Company anticipates that
imagery for these customers will either be downlinked directly to the customers'
existing ground receiving stations (which will be upgraded to be
OrbView-compatible), or to ORBIMAGE's U.S. central ground station and then
delivered to the applicable end user.
Value-Added Resellers. While ORBIMAGE expects to perform certain
value-added services internally (as it is doing with certain OrbView-2 products
such as the fishing maps), the Company also intends to distribute its imagery to
end users through VARs who process it into complex maps and other types of
products for specific markets or applications. Currently, there are numerous
VARs located in the United States and other countries processing imagery derived
from existing satellite imagery providers and aerial photographers. The Company
intends to work with VARs who have technological expertise and know-how to
produce more complex products, and who have a strong presence within and
knowledge of a certain industry. ORBIMAGE is currently in discussion with a
number of VARs located around the world with expertise in industries such as
agriculture , mining and oil and gas exploration, as well as with several VARs
who process raw imagery into specific product types, such as digital elevation
maps, for a broad base of customers.
Foreign Regional Distributors. The Company expects to sell high-resolution
OrbView satellites imagery in the international market principally through
exclusive arrangements with various regional distributors. The Company expects
that its distribution agreements will give foreign regional distributors
priority in "tasking" the satellite's camera while the satellite is over its
geographic region. ORBIMAGE generally expects to retain the right to market and
sell imagery of a distributor's territories, although the Company will pay the
distributor a royalty for these sales. In certain cases, the Company may agree
that a distributor's approval is required for certain sales of imagery,
including sales to specified customers or of specific areas. It is anticipated
that a single geographic distribution region normally will have a maximum radius
of approximately 2,400 kilometers from the ground station (this is the maximum
range that the satellite can communicate with the ground station on a given
orbital pass), although the precise size of each region will be negotiable.
ORBIMAGE has OrbView-2 distributors in Canada and Chile, and is in
discussions with potential OrbView-2 distributors in Asia and Europe. ORBIMAGE
has entered into the Samsung Agreement for imagery of the Korean peninsula and
is in discussions with potential regional distributors in the Middle East,
Europe, Asia, Australia, South America and Southern Africa for high-resolution
OrbView imagery.
The Company anticipates that its regional distribution agreements will
generally provide for significant annual minimum guaranteed royalty payments,
additional royalties for taskings or image purchases above agreed minimums, and
the purchase of a regional ground station. ORBIMAGE will also provide training
and technical support services to regional distributors, the extent and price of
which will be negotiated on a case-by-case basis.
OrbNet Digital Archive and Database. The fourth method of marketing
imagery is an on-line electronic catalog called the OrbNet Digital Archive. The
OrbNet Digital Archive will be a comprehensive, digital-imagery database in
which the Company collects, stores and distributes imagery derived from its
satellites and
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other satellite and aerial sources. The Company may then deliver the images to
customers over the Internet, on CD or computer tape. Through strategic alliances
with existing imaging satellite operators, aerial photography firms and imagery
VARs, ORBIMAGE intends to gain early recognition as an electronic depository for
a comprehensive digital imagery catalogue consisting of a broad range of diverse
imagery products primarily targeted to the commercial/consumer and
scientific/environmental markets. The Company is in preliminary discussions with
one existing satellite company and various aerial imaging companies regarding
imagery distribution opportunities through the OrbNet Digital Archive.
Imagery will be directed from the satellites to ground receiving stations
or VARs, where images will be processed, copies made and images forwarded to the
central archive. OrbView-2 imagery is directly downlinked from the satellite to
individual satellite receiving stations strategically located around the world
and forwarded to the central OrbNet Digital Archive in Dulles, Virginia. The
Company expects the OrbNet Digital Archive will commence operation in the second
half of 1998 offering OrbView-2 imagery products.
RISK MITIGATION
ORBIMAGE has adopted a comprehensive strategy to mitigate the financial,
business and technical risks associated with market development and satellite
development, satellite construction, launch and operations.
Market Development. ORBIMAGE has reduced, and seeks to continue to reduce,
the financial risks associated with constructing and operating its fleet of
satellites by negotiating pre-launch contracts with customers and/or
distributors. Customers have entered into imagery contracts providing for
minimum payments to the Company totaling approximately $100 million, of which
the Company has received approximately $48 million to date through March 31,
1998, and expects to receive up to $12 million through the end of 1998. See
"Risk Factors -- Contracts." To further facilitate market penetration, the
Company is also seeking to develop strategic alliances with VARs who currently
provide imagery products to customers in industries such as oil and gas
exploration, mining, agriculture, forestry, fishing and cartography.
Construction and Launch. ORBIMAGE has entered into the Procurement
Agreement with Orbital to build and launch the high-resolution OrbView
satellites, and to construct the related ground system. The majority of the
imagery technology and the sub-system components to be used in the
high-resolution OrbView satellites has been deployed in U.S. government
surveillance and other space programs prior to their use by ORBIMAGE. In
addition, the high-resolution OrbView satellites incorporate system redundancies
for certain critical components. Also, with an approximate 90% launch success
rate Orbital's Pegasus launch vehicle has a proven track record of successfully
launching satellites into their target orbit.
Operations. The OrbView-3 and OrbView-4 satellite systems have
substantially similar performance parameters, with OrbView-4 additionally having
hyperspectral imagery capability. The high-resolution OrbView satellites are
expected to be launched within a year of each other, thus reducing the business
risk from launch and operational failure and resulting in a more robust
satellite system.
SATELLITE AND GROUND SYSTEM OPERATIONS
ORBIMAGE's basic system architecture consists of several major components:
(i) a fleet of low-Earth orbit, advanced-technology small imaging satellites
carrying sophisticated sensors that collect specific types of land, ocean and
atmospheric imagery; (ii) a central U.S. ground system that controls the
satellites and that receives, processes and archives their imagery, and includes
electronic cataloging and distribution capabilities; and (iii) foreign regional
receiving and distribution centers with direct downlinking capabilities. The
Company believes that its system will provide global economies of scale in image
collection, processing and distribution. In particular, the Company believes the
system design will enable it to collect, produce and sell spatial and
spectral-resolution imagery on a worldwide scale every day, as the OrbView
satellites circle the Earth every 90-100 minutes and are "time shared" over many
different geographic areas.
OrbView-1 was launched in April 1995. It has operated successfully since
then and the Company now expects it to exceed its original three-year design
life. OrbView-2 was launched in August 1997 and initiated commercial operations
in October 1997. OrbView-3 and OrbView-4 are scheduled to be operational in the
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second half of 1999 and mid-2000, respectively. The OrbView satellites represent
a progression in space imaging technology and demonstrate Orbital's use of
proven technologies and system experience. The incremental progression in both
spatial and spectral satellite imaging capabilities among the OrbView satellites
mitigates technical risks. The OrbView satellites employ lightweight structures,
advanced sensors, miniaturized electronics, and innovative technical processes
designed to provide high performance at relatively low cost. In the construction
of the high-resolution OrbView satellites, Orbital will draw upon its satellite
imaging experience not only from OrbView-1 and OrbView-2, but also from large
national satellite programs like Landsat 4 and Landsat 5 to minimize overall
program risk. The OrbView-1 and OrbView-2 satellites are, and the
high-resolution OrbView satellites will be, commanded and controlled from
ORBIMAGE's main operations center located in Dulles, Virginia.
The following table summarizes the primary technical characteristics of the
four OrbView satellites.
<TABLE>
<CAPTION>
ORBVIEW-1 ORBVIEW-2 ORBVIEW-3 ORBVIEW-4
------------------ ------------------ --------------------- ---------------------
<S> <C> <C> <C> <C>
Principal Applications Weather, Weather, Fishing, Mapping, Agriculture, Mapping, Agriculture,
Scientific Agricultural, Oil and Gas, National Oil and Gas,
Research Scientific Security Forestry, Mining,
Research National Security
Best Ground Resolution 10 km Panchromatic 1 km Multispectral 1 m Panchromatic 1 m Panchromatic
4 m Multispectral 4 m Multispectral
8 m Hyperspectral
Scene-Width 1,300 km 2,800 km 8 km Panchromatic and 8 km Panchromatic and
Multispectral Multispectral
5 km Hyperspectral
Image Area N.A. N.A. 64 km(2) 64 km(2) Panchromatic
Panchromatic and and Multispectral
Multispectral 100 km(2)
Hyperspectral
On-Board Storage 80 Megabytes 128 Megabytes 4 Gigabytes 4 Gigabytes
Revisit Time 12 Days 1 Day <3 Days(1) <3 Days(1)
Orbital Altitude 740 km 705 km 470 km 470 km
Design Life 3 Years(2) 7 1/2 Years 5 Years 5 Years
</TABLE>
- ------------------------------
(1) The combined revisit time of both the high-resolution OrbView satellites
will be less than 2 days.
(2) Based on current performance, the Company expects the satellite to exceed
its design life.
ORBVIEW-1 SATELLITE
The OrbView-l satellite contains two atmospheric sensors providing
weather-related imagery to U.S. government customers. The first sensor, a
miniaturized camera, provides daily severe weather images and global lightning
information. It also records cloud-to-cloud lightning strikes that are not
observable from the ground and which provide information that may improve
tornado and hurricane prediction accuracy. OrbView-1 also measures variations in
radio signals through various parts of the atmosphere near the Earth's horizon
to develop atmospheric temperature, pressure, and water vapor profiles. This
technique enables efficient gathering of worldwide atmospheric temperature
information for domestic and international meteorological agencies and airline
operators, among other users.
The OrbView-1 satellite weighs 167 pounds and provides about 100 watts of
power with 55 watts available to its wide-field-of-view sensors. The on-board
solid state recorder memory permits storage of a half day's imagery for
transmission at two megabits per second to ORBIMAGE's primary U.S. ground
station. The satellite has a design life of three years, but is expected to be
operable for a somewhat longer period into 1999 or 2000.
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ORBVIEW-2 SATELLITE
The OrbView-2 satellite was launched in August 1997 and is believed to be
the world's only operational satellite providing global color imagery of the
entire Earth's surface on a daily basis. OrbView-2 uses eight spectral bands in
the visible and near-infrared spectrum to detect subtle color changes on the
Earth's surface. It is expected to perform for at least 7 1/2 years due to its
advanced redundancy architecture. The 660-pound OrbView-2 was launched into a
sun-synchronous orbit at an altitude of 705 kilometers, which together with its
wide-field-of-view sensor allows for complete global coverage every day.
OrbView-2 delivers ocean and land color imagery at both one-kilometer resolution
and at four-kilometer resolution. OrbView-2 is capable of downlinking imagery to
both ORBIMAGE's primary and backup ground stations and to various regional
receiving stations around the world. Orbital owns the OrbView-2 satellite and
the Company operates the OrbView-2 satellite under the OrbView-2 License.
HIGH-RESOLUTION ORBVIEW SATELLITES (ORBVIEW-3 AND ORBVIEW-4)
The high-resolution OrbView satellites, the first of which is currently
targeted to be operational in the second half of 1999, have been designed to
provide one-meter panchromatic imagery and four-meter multispectral imagery of
the Earth's surface. OrbView-4 will have similar capabilities to OrbView-3 and,
in addition, will provide eight-meter hyperspectral imagery. The high-resolution
OrbView satellites will have substantially similar performance capabilities,
reducing the impact of a satellite failure and increasing revisit frequency,
thus improving ORBIMAGE's overall capacity to supply timely imagery to its
customers. Imagery will be either downlinked in real-time to regional ground
stations or stored on board the satellite and subsequently downlinked to the
U.S. central ground station. Copies of most imagery downlinked to regional
ground stations will be forwarded to the OrbNet Digital Archive.
The partially redundant designs of the high-resolution OrbView satellites
provide an expected life of at least five years for each satellite. This system
builds upon the technical accomplishments of earlier ORBIMAGE and other Orbital
satellites, further refining the lightweight structures and microprocessor-based
high performance electronics used in these satellites. The high-resolution
OrbView satellites are designed to provide maximum maneuvering agility together
with a stable optical platform for high quality image collection. The compact
design is expected to facilitate the satellite's maneuverability and agility,
while short solar arrays are expected to help keep unwanted satellite motion and
vibration to negligible values.
The high-resolution OrbView satellites each will have an orbital altitude
of 470 kilometers and polar inclination. This should enable each satellite to
image any point on the Earth within three days or less. Once both satellites are
in orbit, the effective revisit time is expected to be less than two days. The
polar inclination will keep the orbit sun-synchronous and will have an orbital
orientation that places the satellite over the imaging area at approximately
10:30 a.m. "solar time" every orbit. The orbital path of the high-resolution
OrbView satellites is expected to pass over the territory covered by a typical
regional ground station an average of 1.7 times each day, providing 12 1/2
minutes of imagery time (assuming 25 degrees latitude ground station location)
and producing approximately 200 images per day (assuming a certain mix of image
types per territory). While each satellite is within communications range of the
regional ground station every day, each satellite is designed to revisit any
specific target every three days or less. Revisit frequency will be reduced to
less than two days with both OrbView-3 and OrbView-4 in operation. This is
because the satellite's high-resolution "seeing" range (approximately 940
kilometers in diameter) is less than its communications range (approximately
4,800 kilometers in diameter).
The Company expects the total annual realizable capacity of each of the
high-resolution OrbView satellites to be approximately 400,000 to 500,000
images, depending on customer preferences for the various images available and
certain operating assumptions, including cloud cover of targeted areas and
availability of regional ground systems.
GROUND OPERATIONS CENTERS AND IMAGE PROCESSING FACILITIES
ORBIMAGE's central U.S. ground stations monitor the OrbView satellites
while they are in orbit and commands the satellites as required to ensure that
proper orbits are maintained, that battery power stays
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within acceptable limits and that appropriate communications links are
maintained. For the high-resolution OrbView satellites, ORBIMAGE will also
transmit commands to the sensor on board the satellite providing the longitude
and latitude of areas to be imaged on upcoming orbital passes. This latter
function involves receiving, prioritizing and uplinking to the satellite the
image requests received from ORBIMAGE's domestic customers and foreign regional
distributors.
The image receiving and processing center for the family of OrbView
satellites is also located at ORBIMAGE's U.S. facility and will consist of
several ground antennas capable of receiving down-linked imagery from the
satellites and numerous work stations where the digital imagery streams from the
satellites are processed and converted into useful imagery products. The center
is being designed to be capable of processing and archiving 6,500
high-resolution OrbView satellite images per day. It is also designed to process
a sample of each image for placement in the OrbNet Digital Archive accessible by
customers using the Internet. ORBIMAGE's ground stations and image recovery and
processing center currently operate and downlink and process imagery from the
OrbView-1 and OrbView-2 satellites. The Company expects its ground network to be
compatible with OrbView-3 and OrbView-4 by the respective time each such
satellite is launched.
The imagery collected by OrbView-2 and the high-resolution OrbView
satellites is designed to either downlink directly to a user or be stored
on-board for later downlink to an ORBIMAGE ground station located in the United
States. OrbView-2 and the high-resolution OrbView satellites have been designed
to image and downlink simultaneously, so users with a compatible ground station
can receive real-time imagery for the full time that the satellite is in view of
a ground station. With one station in Dulles, Virginia and a planned second
station in Alaska, high-resolution and hyperspectral OrbView imagery is expected
to be downlinked on three of every four passes for subsequent processing,
archiving and distribution by ORBIMAGE. This procedure ensures timely delivery
of imagery to even those customers without a dedicated ground station. The
high-gain directional antenna on board the high-resolution OrbView satellites,
which continually tracks the ground station, is expected to provide a strong
signal to the ground with resulting very low transmission errors. Even with
compression and encryption of the signal, coding and transmission errors are
expected to be insignificant.
COMPETITION
ORBIMAGE's satellite and aerial imaging competitors include (i) small,
regional aerial photography firms, (ii) a limited number of existing satellite
imagery providers, and (iii) other anticipated high-resolution satellite imagery
providers.
Existing Aerial Photography Firms. The major source of commercial
high-resolution imagery today is aerial photography. This market is very
fragmented, with numerous small, regional firms located all over the world. Most
aerial photography firms currently use film-based technology rather than the
digital camera technology used by OrbView satellites. ORBIMAGE expects that its
satellites will provide customers with higher resolution and/or lower cost
imagery than is provided by existing aerial photography firms.
Existing Satellite Imagery Providers. OrbView-1 and OrbView-2 have no
existing direct competitors for their daily panchromatic and multispectral
imagery. SPOT 4 (operated by SPOTImage) provides multispectral imagery that
could be competitive with OrbView-2 in certain markets, such as agricultural
assessment. There are four existing satellite-based providers of low-resolution
imagery: (i) SPOTImage S.A., a French-owned company, currently produces
unprocessed imagery using three satellites with resolution capability of 10
meters panchromatic and 20 meters multispectral; (ii) Space Imaging EOSAT's
Landsat 4 and Landsat 5 satellites, provide coverage in seven spectral bands
covering the visible to infrared parts of the spectrum, but, the best resolution
of these satellites is 30 meters in multispectral; (iii) Radarsat-I, operated by
the Canadian Space Agency, provides radar imagery with a resolution that varies
between 10 and 100 meters (Radarsat-II, which will provide three-meter radar
imagery, is scheduled for launch in 2001); (iv) KVR-1000, a Russian government
satellite, provides film-based, two-meter resolution panchromatic images; and
(v) IRS-IC, an Indian Space Agency satellite, provides six-meter panchromatic
and 25 meter multispectral imagery. ORBIMAGE currently views these providers as
indirect competitors to the high-resolution OrbView satellites in certain
markets. See "Risk Factors--Technological, Development and Implementation
Risks."
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Future Satellite Competitors. The high-resolution OrbView satellites are
expected to face significant future competition in the satellite imagery market
from two U.S. satellite competitors who are planning imaging satellites that
will have one-meter panchromatic and four-meter multispectral capability and who
have partnered with various industry participants: Space Imaging EOSAT, which is
owned by Lockheed Martin Corporation, Raytheon Company and Mitsubishi
Corporation; and EarthWatch, which is owned by Ball Aerospace and Technology
Corporation, Telespazio and Hitachi, Ltd. In addition, the U.S. government and
foreign governments may fund the development, construction, launch and operation
of remote imaging satellite systems that may compete with OrbView-2 as well as
the high-resolution OrbView satellites. For example, NASA's Earth Science
Program is sponsoring a satellite scheduled for launch next year that will
provide imagery similar to that of OrbView-2.
EMPLOYEES
As of May 31, 1998, the Company had 78 employees. None of the Company's
employees is represented by a collective bargaining agreement.
PROPERTIES
The Company currently leases approximately 13,000 square feet of office and
operations space in Dulles, Virginia from Orbital, at Orbital's cost. See
"Relationship with Orbital Sciences Corporation--Services Agreement." The
Company also leases approximately 8,000 square feet of office and operations
space in St. Louis, Missouri.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings material to its
financial condition or results of operations. For a discussion of regulatory
issues affecting the Company, see "Regulation."
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REGULATION
The satellite remote imaging industry is a highly regulated industry, both
domestically and internationally. In the United States, remote imaging
satellites generally require licenses from the Department of Commerce ("DoC")
and from the Federal Communications Commission ("FCC"). In addition, in order to
operate internationally, remote imaging satellites generally require licenses
from the governments of foreign countries in which imagery will be directly
downlinked.
UNITED STATES REGULATION
DoC REGULATION. The DoC, through the National Oceanic and Atmospheric
Administration ("NOAA"), is responsible for granting commercial imaging
satellite operating licenses, coordinating satellite imaging applications among
several governmental agencies to ensure that any license addresses all U.S.
national security concerns and complying with all international obligations of
the United States. Under the provisions of the Company's DoC licenses, the U.S.
government reserves the right to interrupt service during periods of national
emergency when U.S. national security interests are affected. The threat of such
interruptions of service could adversely affect the Company's ability to market
its products to certain foreign distributors or end-user customers. In addition,
the DoC has the right to review and approve the terms of agreements with the
Company's international customers and distributors. The OrbView-1 satellite is
not subject to DoC-NOAA regulation since its imagery can be sold only to the
U.S. government.
ORBIMAGE currently has a DoC license for OrbView-2 and two one-meter
high-resolution satellites. ORBIMAGE also filed an application with the DoC to
permit the Company to make OrbView-4 hyperspectral imagery available
commercially. There can be no assurance that DoC will grant the amendment
request, or that the agency will take such action in a manner consistent with
the Company's planned schedule for launch and operation of OrbView-4. While a
final decision has not been rendered, the DoC has indicated that the approval
may be subject to certain limitations on ORBIMAGE's ability to deliver
hyperspectral imagery to commercial customers, such as delaying release of
imagery or degrading spatial resolution of such imagery. If the DoC fails to
grant the Company's amendment request on the terms requested regarding its
ability to sell hyperspectral imagery commercially, ORBIMAGE would be limited to
selling such imagery to U.S. government customers.
The DoC licenses for OrbView-2 and the high-resolution OrbView satellites
expire in 2004. While the Company believes that the DoC would renew its licenses
at that time, the DoC's failure to do so with respect to the high-resolution
OrbView satellites could materially affect the Company's business.
NTIA AND FCC REGULATION. The DoC also regulates federal governmental use
of certain imagery satellite systems through the National Telecommunications and
Information Administration ("NTIA"). The NTIA regulates and manages domestic use
of the radio frequency spectrum by U.S. federal agencies. An NTIA license
permits a downlink only to a federal governmental agency, although the federal
agency is not generally restricted as to subsequent distribution of its imagery.
The FCC is responsible for licensing the radio frequencies used by commercial
satellite imagery systems. In general, the FCC grants licenses to commercial
satellite systems that conform to the technical, legal and financial
requirements for such systems as set forth by the FCC.
The OrbView-1 satellite operates in a government exclusive frequency and,
accordingly, is regulated by NTIA. The NTIA license for OrbView-1 is contingent
on NASA retaining full operational control of the OrbView-1 satellite, and the
data collected from the OrbView-1 sensors are the property of the United States.
The operation of OrbView-2 is regulated by both the NTIA and the FCC.
Orbital has an FCC license to operate and receive 1-kilometer imagery from
OrbView-2. In addition, NASA has the NTIA license to downlink 4-kilometer
OrbView-2 imagery on a government-only frequency. The imagery downlinked by NASA
is used by government researchers and also is currently provided to ORBIMAGE for
ORBIMAGE's commercial customers.
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<PAGE> 62
In early February 1998, the Company filed an application with the FCC for a
license to launch and operate the high-resolution OrbView satellites, and to
obtain a frequency allocation in the FCC's Earth Exploration-Satellite Service
("EESS"), in order to transmit wideband imagery directly to Earth for commercial
use and to perform telemetry, tracking and command ("TT&C") of the satellites.
Currently, two of the Company's potential satellite-based competitors,
EarthWatch and Space Imaging EOSAT, hold licenses to use the same frequency band
that the Company intends to use for such imagery transmissions, and the band is
allocated by the FCC for use by other EESS licensees, as well as terrestrial
fixed and mobile services. These other primary users of the spectrum will have
the opportunity to comment on the feasibility and public policy benefits of an
FCC approval of the Company's application. The Company believes that a spectrum
sharing arrangement among ORBIMAGE, EarthWatch, Space Imaging EOSAT and other
primary users of the requested frequency allocation may be necessary, and if so,
that successful sharing and coordination will be achievable with the other
users' systems through techniques such as time sharing and frequency diversity,
with no adverse impact on the Company's ability or plans to operate the
high-resolution OrbView satellites. There can be no assurance, however, that the
Company will be able to coordinate successfully with other spectrum users, or
more generally, that the Company will receive the necessary FCC authorization to
launch and operate the high-resolution OrbView satellites as planned. Failure of
ORBIMAGE to do so could have a material adverse effect on its business.
The Company could in the future be subjected to new laws, policies or
regulations, or changes in the interpretation or application of existing laws,
policies and regulations, that modify the present regulatory environment in the
United States. There can be no assurance that limitations applicable to other
countries, or other regulatory limitations affecting satellite remote sensing
operations, will not be imposed by U.S. regulators. Any such limitations could
adversely affect the Company's business.
INTERNATIONAL REGULATION
All satellite systems operating internationally are subject to general
international regulations and the specific laws of the countries in which
satellite imagery is downlinked. Applicable regulations include (i)
International Telecommunications Union ("ITU") regulations, which define, for
each service, the technical operating parameters (including maximum transmitter
power, maximum interference to other services and users, and the minimum
interference the user must operate under for that service), (ii) the Intelsat
and Inmarsat agreements which provide that in order to conform with
international treaties and obligations the operators of international satellite
systems must demonstrate that they will not cause technical harm to Intelsat and
Inmarsat, and (iii) regulations of foreign countries that require that satellite
operators secure appropriate licenses and operational authority for utilization
of the required spectrum in each country.
The United States government, on behalf of the Company, is required to
coordinate the frequencies used by OrbView-2 and the high-resolution OrbView
satellites, which will operate internationally. ITU frequency coordination is a
necessary prerequisite to international registration, which provides
interference protection from other international EESS satellite systems. In
addition, it is a necessary prerequisite for the issuance of approvals and
licenses from certain foreign countries. The ITU coordination process has been
completed for OrbView-2, and the Company intends to have the U.S. government
initiate the ITU coordination process for the high-resolution OrbView satellites
as quickly as possible. The Company believes that the ITU registration process
will not prevent it from obtaining necessary foreign licenses on a timely basis.
In addition to compliance with ITU regulations and coordination processes,
the Company must also demonstrate that it will not cause technical harm to
Intelsat and Inmarsat, pursuant to the Intelsat and Inmarsat Agreements signed
under international treaty. The Company has completed this process for
OrbView-2, and believes that because of the frequencies it intends to use, the
high-resolution OrbView satellites will not cause any technical harm to the
Intelsat or Inmarsat systems.
Within foreign countries, the Company expects that its regional
distributors or customers will secure appropriate licenses and operational
authority for utilization of the required spectrum in each country into which
the high-resolution OrbView satellite imagery will be downlinked. For the most
part, the Company
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<PAGE> 63
anticipates that these activities will be performed by its distributors or
customers, with the Company's assistance when required.
While the Company believes that it will be able to obtain all U.S. and
international licenses and authorizations necessary to operate effectively,
there can be no assurance that it will be successful in doing so. The failure of
the Company to obtain some or all necessary licenses or approvals could have a
material adverse effect on the Company's business.
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<PAGE> 64
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the directors and executive officers of
ORBIMAGE as of the date of this Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- -------------------- --- -------------------------------------------------
<S> <C> <C>
David W. Thompson 44 Chairman of the Board and Chief Executive Officer
Gilbert D. Rye 56 President and Chief Operating Officer
Edward D. Nicastri 50 Vice President, Engineering and Operations
Armand D. Mancini 40 Vice President, Chief Financial Officer
James A. Abrahamson 65 Director
Bruce W. Ferguson 43 Director
Richard Reiss, Jr. 53 Director
William W. Sprague 39 Director
</TABLE>
DAVID W. THOMPSON is the Chairman and Chief Executive Officer of ORBIMAGE
and the Chairman, President and Chief Executive Officer of Orbital. Mr. Thompson
co-founded Orbital in 1982. Prior to founding Orbital, Mr. Thompson was employed
by Hughes Electronics Corporation as Special Assistant to the President of its
Missile Systems Group and by NASA at the Marshall Space Flight Center as a
project manager and engineer, and also worked at the Charles Stark Draper
Laboratory on the Space Shuttle's autopilot design.
GILBERT D. RYE is the President and Chief Operating Officer of ORBIMAGE, a
position he has held since 1993. From 1990 to 1993, he was Orbital's Senior Vice
President for Marketing and Business Development. Between 1985 and 1989, Mr. Rye
was President of Comsat Government Systems (a subsidiary of Comsat Corporation)
and Vice President and General Manager of Space and Technology for BDM
International. Mr. Rye is a retired Colonel from the U.S. Air Force with over 25
years of experience in various intelligence and space-related program management
and policy-making positions.
EDWARD D. NICASTRI has been the Vice President of Engineering and
Operations for ORBIMAGE since 1997. From 1994 to early 1997, Mr. Nicastri served
as Vice President for Advanced Projects with Orbital's Space Systems Division.
Prior to joining Orbital in 1994, Mr. Nicastri was Director of Space Systems at
the Defense Advanced Research Projects Agency (DARPA) from 1988 to 1993. Prior
to that Mr. Nicastri served as a Colonel in the U.S. Air Force, holding
positions in the development and operation of several military, satellites and
other national space systems.
ARMAND D. MANCINI was appointed Vice President, Chief Financial Officer of
the Company in March 1998. He had been the Vice President of Finance since
October 1994. From September 1991 to September 1994, Mr. Mancini was the Vice
President of Finance for Orbital's Communications and Information Systems Group
and Space Systems Division. Prior to that, Mr. Mancini worked as a senior
manager with various defense contractors who provide training and classified
weapons systems to the U.S. government.
JAMES A. ABRAHAMSON, has been a director of the Company since April 1998.
Mr. Abrahamson currently serves as Chairman and Chief Executive Officer of
StratCom, LLC and Air Safety Consultants. From 1992 to 1995, he served as
Chairman of Oracle Corporation. He served as Executive Vice President for
Corporate Development for Hughes Aircraft Company from October 1989 to April
1992 and President of the Transportation Sector for Hughes Aircraft Company from
April 1992 to September 1992. Mr. Abrahamson directed the Strategic Defense
Initiative from April 1984 until he retired from the Air Force in January 1989
at the rank of Lieutenant General. Mr. Abrahamson is also a director of Western
Digital Corporation and Stratesec Corporation.
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<PAGE> 65
BRUCE W. FERGUSON has been a member of the Board of Directors since 1993.
Mr. Ferguson is a co-founder of Orbital and a member of its Board of Directors.
He has been Senior Vice President, Special Projects of Orbital since 1997.
Previously, he was Executive Vice President and General Manger/Communications
and Information Services Group of Orbital from 1993 until 1997. Mr. Ferguson was
Executive Vice President and Chief Operating Officer of Orbital from 1989 to
1993 and Senior Vice President/Finance and Administration and General Counsel of
Orbital from 1985 to 1989. Mr. Ferguson is a Fellow at the Center for
International Science and Technology Policy and Center for Space Policy at The
George Washington University.
RICHARD REISS, JR. has been a member of the Board of Directors since 1997.
Mr. Reiss founded Georgica Advisors LLC in 1997, a private investment firm, to
make both public and private investments in the communications, media and
entertainment industries. From 1982 to 1997, Mr. Reiss was the Managing Partner
of Cumberland Associates, a private investment firm, which he joined in 1978,
and Cumberland Partners and LongView Partners, both investment partnerships.
From 1969 to 1977, Mr. Reiss was Senior Vice President and Director of Research
for Shearson Lehman Brothers. Mr. Reiss is a Trustee and Treasurer of Barnard
College and a Trustee of the Manhattan Institute. He is also a Director of The
Lazard Funds, Inc., a Director of nStor Technologies and Chairman of the
Executive Committee and a Director of O'Charley's.
WILLIAM W. SPRAGUE has been a member of the Board of Directors since 1997.
Mr. Sprague is the founder and President of Crest International Holdings LLC, a
private investment firm that invests in media and communications companies. From
1989 to 1996, Mr. Sprague served in various positions at Smith Barney, Inc.,
including as a Managing Director and Head of the Media and Telecommunications
Group, as Co-head of the Mergers and Acquisitions Group and as a senior member
of Smith Barney Inc.'s high yield group. From 1985 to 1989, Mr. Sprague was a
Vice President at Kidder Peabody & Co. Incorporated in the High Yield/Merchant
Banking Group. Mr. Sprague is currently a director of Centennial Communication
Inc., Ethan Allan Interiors Inc., TelQuest Ventures LLC, Wave Transnational LLC,
and One-On-One Sports, Inc.
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned for services
rendered to the Company in the fiscal year ended December 31, 1997, by its Chief
Executive Officer and the four most highly compensated executive officers in all
capacities in which they served (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1997 1997
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- -----------------------------
SECURITIES
UNDERLYING
OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS (#) COMPENSATION (1)
--------------------------- -------- -------- ---------- ----------------
<S> <C> <C> <C> <C>
David W. Thompson.............................. $ -- $ -- 40,000 $ --
Chairman and Chief Executive Officer (2)
Gilbert D. Rye................................. 200,000 110,000 50,000 11,658
President and Chief Operating Officer
Edward D. Nicastri............................. 116,000 64,500 90,000 8,488
Vice President, Engineering
Armand D. Mancini.............................. 115,000 39,300 15,000 6,789
Vice President, Chief Financial Officer
</TABLE>
- ------------------------------
(1) Includes matching and profit-sharing contributions earned under a 401(k)
Plan.
(2) Mr. Thompson's salary, bonus and long-term compensation (other than options)
are paid by Orbital. Except as set forth in the above table, Mr. Thompson is
not compensated for services rendered in his capacity as an officer of
ORBIMAGE.
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STOCK OPTION PLAN
In November 1996, the Board adopted the Stock Option Plan, which provides
for grants of either incentive or non-qualified stock options to officers,
directors and employees of ORBIMAGE and Orbital. Under the terms of the Stock
Option Plan, incentive stock options may not be granted at less than 100% of the
fair market value at the date of grant, and non-qualified options may not be
granted at less than 85% of the fair market value at the date of grant. Each
option under the Stock Option Plan vests at a rate set by the Board in each
individual's option agreement, generally in one-third increments over a
three-year period following the date of grant. Options expire no more than ten
years following the grant date.
As of March 31, 1998, there were 2,424,000 options for Common Stock
outstanding under the Stock Option Plan at exercise prices ranging from $3.60 to
$5.10 per share.
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information on grants of stock options to the Named Officers
pursuant to the Stock Option Plan during the fiscal year ended December 31,
1997, which options are reflected in the Summary Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
PERCENT OF POTENTIAL REALIZED VALUE
TOTAL OPTIONS AT ASSUMED ANNUAL
NUMBER OF GRANTED RATES OF STOCK PRICE
SECURITIES TO EMPLOYEES APPRECIATION FOR OPTION
UNDERLYING IN EXERCISE OR TERM
OPTIONS FISCAL YEAR BASE PRICE EXPIRATION -------------------------
NAME GRANTED(1) 1997 PER SHARE(2) DATE 5% 10%
---- ----------- ------------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
David W. Thompson........... 40,000 8% $4.17 6/30/07 $104,900 $265,836
Gilbert D. Rye.............. 50,000 10 4.17 6/30/07 131,125 332,295
Edward D. Nicastri.......... 90,000 18 4.17 6/30/07 236,024 598,132
Armand D. Mancini........... 15,000 3 4.17 6/30/07 39,337 99,689
</TABLE>
- ------------------------------
(1) Options vest in one-third increments over a three-year period.
(2) Options are granted at the fair market value on the date of grant, as
determined by the Board of Directors. Certain factors considered by the
Board of Directors in determining the fair market value of options include,
without limitation: (i) valuations done in connection with recent
financings; (ii) the conversion price of the Company's Series A Preferred
Stock; (iii) results of operations; (iv) entering into new contracts; and
(v) the lack of a market for the Company's common stock.
The Board has implemented an incentive bonus plan. Members of senior
management are eligible for bonuses equal to between 10% to 50% of their base
salary, based upon their success in meeting certain team and individual
incentives that are defined by the Board.
In September 1997, the Company awarded annual compensation in the amount of
5,000 stock options to non-employee directors of ORBIMAGE.
AGGREGATED OPTIONS YEAR END OPTION VALUES
The following table sets forth the number of options and the value of
unexercised and exercised options held by them as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED IN-
UNEXERCISED OPTIONS AT THE-MONEY OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David W. Thompson.............................. 100,000 140,000 $57,000 $57,000
Gilbert D. Rye................................. 125,000 175,000 71,250 71,250
Edward D. Nicastri............................. -- 90,000 -- --
Armand D. Mancini.............................. 50,000 65,000 28,500 28,500
</TABLE>
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<PAGE> 67
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock and Series A Preferred Stock as of June 30, 1998
(as adjusted to reflect conversion of the Series A Preferred Stock): (i) by each
person who beneficially owns more than five percent of the Series A Preferred
Stock (which votes as a class on certain matters), (ii) by each person who
beneficially owns more than five percent of the Common Stock (including the
Series A Preferred Stock on an as-converted basis), (iii) by each director and
Named Officer, and (iv) by all executive officers and directors as a group. All
persons listed below have an address in care of the Company's principal
executive offices unless otherwise noted.
<TABLE>
<CAPTION>
SHARES OF PREFERRED SHARES OF COMMON
STOCK BENEFICIALLY STOCK BENEFICIALLY
OWNED(1) OWNED(1)(2)
-------------------- ---------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
------------------------ -------- -------- ---------- -------
<S> <C> <C> <C> <C>
Orbital Sciences Corporation................................ -- 25,200,000 63%
21700 Atlantic Boulevard
Dulles, VA 20166
Merrill Lynch KECALP L.P. 1997.............................. 231,899(4) 35.7 5,561,127(4) 13.6
225 Liberty Street
South Tower, 23rd Floor
New York, New York 10080-6123
Crest Funding Partners, L.P................................. 184,453(3) 28.4% 4,423,333 10.8
320 Park Avenue
New York, New York 10022
Morgan Guaranty Trust
Company of New York....................................... 137,157(5) 21.1 3,289,137(5) 8.1
522 Fifth Avenue
New York, New York 10036
Georgica Advisors LLC....................................... 70,088(6) 10.8 1,681,583 4.1
1114 Avenue of the Americas
New York, NY 10036
David W. Thompson(7)........................................ -- -- 113,334 *
Gilbert D. Rye(7)........................................... -- -- 141,667 *
Armand D. Mancini........................................... -- -- 50,000 *
Edward D. Nicastri(7)....................................... -- -- 30,000 *
James A. Abrahamson......................................... -- -- -- --
Bruce W. Ferguson(7)(8)..................................... -- -- 114,000 *
William W. Sprague(3)....................................... -- -- -- --
Richard Reiss, Jr.(6) ...................................... -- -- -- --
All executive officers and directors as a group(7)(8)....... -- -- 449,001 *
</TABLE>
- ------------------------------
* Less than one percent.
(1) The persons named in this table have sole voting power with respect to all
shares shown as beneficially owned by them, except as indicated in other
footnotes to this table. In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of
Common Stock subject to options held by that person that are currently
exercisable or exercisable within 60 days after May 31, 1998, are deemed
outstanding. Such shares, however, are not deemed outstanding for the
purpose.
(2) Each of Crest Funding Partners, L.P., Merrill Lynch KECALP L.P. 1997 or
Morgan Guaranty Trust Co., Georgica Advisors LLC or their respective
affiliates, and Export Development Corporation currently own shares of
Series A Preferred Stock. Each share of Series A Preferred Stock is
convertible into approximately 23.9 shares of Common Stock. See "Description
of Capital Stock--Preferred Stock--Series A Preferred Stock--Conversion
Rights."
(3) Includes 134,119 shares owned by Crest Funding Partners, L.P., and 50,334
shares of Series A Preferred Stock. William W. Sprague, a director of the
Company, is the founder and President of Crest International Holdings LLC,
the manager of Crest Funding Partners, L.P.
(4) Includes shares owned by KECALP, Inc. and by Merrill Lynch KECALP L.P. 1997.
(5) Includes 97,250 shares owned by Morgan Guaranty Trust Company of New York,
as Trustee of the Comingled Pension Trust Fund (Multi-Market Special
Investment Fund II) of Morgan Guaranty Trust Company of New York; 19,334
shares owned by Morgan Guaranty Trust Company of New York, as Trustee of the
Multi-Market Special Investment Trust Fund of Morgan Guaranty Trust Company
of New York; and 20,573 shares owned by Morgan Guaranty Trust Company of New
York, as Investment Manager and Agent for the Alfred P. Sloan Foundation
(Multi-Market Account).
(6) Includes 67,846 shares owned by Georgica Partners and 2,242 shares owned by
Georgica Advisors, LLC. Richard Reiss, a director of the Company, is the
founder and President of Georgia Advisors, LLC.
(7) Includes shares of Common Stock issuable upon the exercise of options.
(8) Includes 14,000 shares of Common Stock issued pursuant to option exercises.
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<PAGE> 68
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK PURCHASE AGREEMENT
On May 7, 1997 and July 3, 1997, ORBIMAGE sold a total of 372,705 shares of
its Series A Cumulative Convertible Preferred Stock ("Series A Preferred Stock")
for $100 per share to the Series A Holders pursuant to the Stock Purchase
Agreement (the "Initial Sale"). The proceeds of this sale, approximately $37
million, were used, and will be used, by ORBIMAGE for funding a portion of the
purchase of the OrbView satellite systems and the OrbView-2 License, and for
initial operating expenses and other general corporate purposes.
The Series A Holders have purchased an additional $22.7 million of Series A
Preferred Stock pursuant to their rights under the Stock Purchase Agreement.
This Series A Offering was consummated concurrently with the Units Offering,
generating net proceeds of approximately $21 million.
Capital Contributions. As part of the Initial Sale, Orbital made a $34
million payment to the Company consisting of capital contributions of
approximately $88 million plus a payment of $41 million representing payments
previously received by Orbital for OrbView-1 and OrbView-2 data, offset by
approximately $95 million owed by ORBIMAGE to Orbital under the Procurement
Agreement and the Services Agreement. See, "--Procurement Agreement," and
"--Services Agreement."
Board of Directors. Pursuant to the Stock Purchase Agreement, certain
Series A Holders are permitted to attend all meetings of the Board of Directors
as non-voting observers and advisors, and to participate in discussions.
Change of Control. Upon a Change of Control prior to the latest of (i) the
successful in-orbit checkout of OrbView-3, (ii) the closing, under certain
circumstances, of a Qualifying Public Offering, or (iii) the culmination of a
180-day period in which the average price of the Common Stock exceeds a certain
level relative to the Conversion Price, then the Company shall offer to
purchase, subject to the rights of the holders of Notes, all shares of Series A
Preferred Stock then outstanding at a purchase price per share, in cash, equal
to the sum of (x) 101% of the Liquidation Amount and (y) if such Change of
Control occurs prior to the fourth anniversary of the initial issuance of the
Series A Preferred Stock, an amount equal to the dividends that would have
accrued on the shares of Series A Preferred Stock from the date of purchase
pursuant to a Change of Control through and including the fourth anniversary of
the initial issuance of shares of Series A Preferred Stock. A Change of Control
is defined to include: (i) the failure by Orbital to hold at least 12,600,000
shares of Common Stock of the Company (being 50% of the shares of Common Stock
held by Orbital on May 8, 1997, adjusted for stock splits, stock combinations
and the like,) (ii) the failure by Orbital to hold at least thirty percent (30%)
of the Common Stock of the Company on a fully diluted basis, without giving
effect to the conversion of Capital Stock of the Company issued as a dividend
with respect to shares of Series A Preferred Stock or Capital Stock of the
Company issued pursuant to options granted under the Stock Option Plan or any
other option plan adopted for the benefit of the Company's employees or
directors; (iii) the indirect or direct acquisition of Voting Equity Interests
of the Company by any Person or group of Persons acting in concert of beneficial
ownership in an amount greater than or equal to the amount of Voting Equity
Interests held contemporaneously by Orbital, except (x) purchases by record
holders of Series A Preferred Stock as of the Issue date (and their affiliates,
to the extent that such holders are permitted to transfer their shares of Series
A Preferred Stock to affiliates under the Amended and Restated Stock Purchase
Agreement (the "Series A Affiliates") from other holders of Series A Preferred
Stock or their Series A Affiliates and (y) purchases permitted pursuant to the
Series A Holders' subscription rights under Section 4.1 of the Stockholders'
Agreement; (iv) the acquisition of the Company, or the sale, lease, transfer,
conveyance or other disposition, in one transaction or a series of related
transactions, directly or indirectly, including through a liquidation or
dissolution, of all or substantially all of the assets of the Company and its
Restricted Subsidiaries by, or the combination of the Company or all or
substantially all its assets with, another Person (other than any such transfer
to any wholly owned subsidiary of the Company) unless the acquiring or surviving
Person shall be a corporation more than fifty percent (50%) of the combined
voting power of which corporation's then outstanding Voting Equity Interests,
after such acquisition or combination, are owned,
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immediately after such acquisition or combination, by the owners of the Voting
Equity Interests of the Company outstanding immediately prior to such
acquisition or combination; (v) the adoption of a plan relating to the
liquidation or dissolution of the Company (other than any such liquidation or
dissolution to or for the benefit of any wholly owned subsidiary of the
Company); (vi) the failure by the Company to obtain any applicable License (or
License amendment, as applicable) so that it is in full force and effect within
thirty (30) days prior to the scheduled launch of either of the OrbView
Satellites; (vii) the revocation of any License necessary to operate OrbView-2
the high-resolution OrbView satellites consistent with the Company's current and
planned commercial operations and which revocation is not cured within thirty
(30) days of the occurrence thereof or such later date when all applicable
appeals have been finally determined, if during such appeal period the Company
has received regulatory approval to continue operations under the License
pending the outcome of such appeal after exhausting all administrative remedies;
or (viii) unless consented to in writing by the holders of at least fifty
percent (50%) of the shares of Series A Preferred Stock then outstanding, the
acquisition by any Person or group of Persons acting in concert of beneficial
ownership, direct or indirect, of securities of Orbital representing thirty five
percent (35%) or more of the combined voting power of Orbital's then outstanding
equity interests and at any time thereafter either (x) less than a majority of
Orbital's board of directors shall be Continuing Directors or (y) there shall be
an announcement by Orbital or such acquiring Person or group of Persons or the
approval of a business plan by Orbital's Board of Directors, in either case that
indicates an intention to de-emphasize or curtail the relationship between the
Company and Orbital.
STOCKHOLDERS' AGREEMENT
In connection with the Initial Sale, ORBIMAGE, Orbital and the Series A
Holders agreed, pursuant to the Stockholders' Agreement, to certain voting
rights and restrictions upon transfer of the Series A Preferred Stock.
Board of Directors. The Stockholders' Agreement provides that the Board
will consist of up to five (5) members, of which the majority of the Series A
Holders have the right to elect the two Series A Directors (and, may be entitled
to elect two additional board members upon an "Election Event," as more fully
described in "Description of Capital Stock--Series A Preferred Stock--Voting")
and the majority of the holders of the Common Stock (the "Common Holders," and
together with the Series A Holders, the "Shareholders") have the right to elect
two members (the "Common Directors"). The fifth member of the Board is to be an
independent director, elected by the majority vote of the Shareholders, where
each Series A Holder is entitled to vote the number of shares of Common Stock
into which such holder's Series A Preferred Stock would be convertible.
Notwithstanding the foregoing, so long as Orbital retains ownership of fifty
percent (50%) of the voting stock of ORBIMAGE, it has the right to appoint the
final member of the Board with the consent of one of the Series A Directors, and
further, so long as Orbital retains ownership of twenty percent (20%) of the
voting stock of ORBIMAGE, it has the right to appoint one of the two Common
Directors. The majority of a quorum of the Board, including in some cases the
affirmative vote of at least one Series A Director is required before ORBIMAGE
approves certain transactions, including without limitation and subject to
certain exceptions, (i) approve any merger, consolidation or liquidation or sale
of all or substantially all the assets of ORBIMAGE; (ii) approve any
modifications to the Stock Purchase Agreement, the Stockholders' Agreement, the
Procurement Agreement, the Services Agreement or the OrbView-2 License that
affect satellite performance or increase cost by more than $1.0 million, (iii)
issue or commit to issue equity securities or securities convertible into or
exchangeable or exercisable for equity securities, (iv) incur indebtedness for
borrowed money or any capital lease in excess of $0.5 million, (v) select,
approve or remove any officer or (vi) declare any dividends on the Common Stock.
Restrictions on Transfer. Subject to limited exceptions, the Shareholders
have agreed not to transfer, pledge, mortgage, hypothecate or otherwise encumber
any shares of Common Stock or the Series A Preferred Stock. Furthermore, under
certain circumstances, any Shareholder desiring to transfer its Common Stock or
Series A Preferred Stock must give Orbital the right to purchase such shares
subject to transfer upon the same terms as proposed. Conversely, Orbital must
give the Shareholders the right to purchase a proportionate amount of the Common
Stock or Series C Preferred Stock ("Series C Preferred") in the event Orbital
offers
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or accepts an offer to transfer such Common Stock or Series C Preferred. In the
event Orbital proposes to transfer any shares of Common Stock or Series C
Preferred, the Series A Holders will have the right to sell a proportionate
amount of their Series A Preferred Stock ("Tag-Along Rights"). Additionally, if
seventy percent (70%) of the Common Holders (on a fully diluted basis) propose
to transfer seventy percent (70%) or more of the Common Stock (on a fully
diluted basis), the Series A Holders may be required to convert their Series A
Preferred Stock into Common Stock and transfer such Common Stock to the proposed
transferee ("Drag-Along Rights").
Subscription Rights. Upon certain non-public issuances of any equity
securities (including any warrants, options or other rights to acquire equity
securities) of the Company (excluding the issuance of the Warrants hereby and
subject to other certain exceptions), ORBIMAGE must first (i) give all Series A
Preferred Holders written notice of the terms of the offering and (ii) offer to
issue to such Series A Preferred Holders a proportionate amount of the offering
based upon each Series A Preferred Holders current ownership in ORBIMAGE. The
rights described in this paragraph will expire upon a public offering of the
Common Stock.
Registration Rights. Certain holders of more than thirty-five percent
(35%) of the then issued and outstanding Common Stock may demand that the
Company file up to three (3) registration statements that would permit the sale
and distribution of such Common Stock after 180 days of an initial public
offering of Common Stock or at any time after June 30, 2002 if the Company has
not consummated an initial public offering of Common Stock registered under the
Securities Act, subject to customary underwriter's cutback requirements.
Furthermore, if the Company determines to register any of its Common Stock
(excluding the registration of Common Stock incidental to the registration of
convertible securities), except for registrations on, among others, Form S-8 or
Form S-4, the Common Holders may include their Common Stock within such
registration statement, subject to customary underwriter's cutback requirements.
PROCUREMENT AGREEMENT
ORBIMAGE and Orbital have entered into the Procurement Agreement, pursuant
to which Orbital agreed to provide to ORBIMAGE: (i) the design, development,
construction and launch of the OrbView-1 satellite; (ii) the OrbView-2 License
to market OrbView-2 imagery, including the right to receive all payments
received by Orbital under Orbital's contract with NASA; (iii) the design,
development, construction and launch of the high-resolution OrbView satellites;
and (iv) the U.S. central imagery receiving, processing, and command and control
ground segment for all four OrbView satellites. Orbital (or its subcontractors)
will retain ownership of all intellectual property rights underlying the
OrbView-1, OrbView-2, the high-resolution OrbView satellites and ground systems,
and has granted ORBIMAGE a license to use the necessary intellectual property
for the operating OrbView satellites.
The total cost of the OrbView-1 and the high-resolution OrbView satellites,
the OrbView-2 License and the U.S. ground system is estimated to be
approximately $297 (of which $295 is provided for in the Procurement Agreement)
million, which includes all satellite design, construction and launch costs and
hyperspectral capability, but excludes insurance costs. Of this amount, the
Company has spent approximately $149 million as of March 31, 1998. The Company
expects to spend approximately $126 million to complete the high-resolution
OrbView satellites and $22 million to complete modifications to the U.S. ground
system. ORBIMAGE generally pays the costs under the Procurement Agreement in
accordance with a monthly schedule that is based upon Orbital's costs incurred,
with the balance of the remaining costs paid upon completion of certain
specified project milestones such as critical design review and launch events.
Furthermore, ORBIMAGE has agreed to pay Orbital an extended performance
incentive of $1 million per year (or a pro rata amount thereof) in the event the
high-resolution OrbView satellites remain operational in orbit beyond their five
year contracted life. While the modifications to OrbView-4 to add hyperspectral
capability will be paid for by ORBIMAGE under the Procurement Agreement,
ORBIMAGE's payment obligations are limited to advance contract payments it
receives from the U.S. Air Force for hyperspectral imagery. See "Risk
Factors--Contracts."
Delivery by Orbital and passing of the risk of loss from Orbital to
ORBIMAGE of the OrbView-3 satellite will occur upon separation of the Pegasus
launch vehicle from its carrier aircraft. Delivery and passing
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of the risk of loss from Orbital to ORBIMAGE of the OrbView-4 satellite will
occur upon intentional ignition of the launch vehicle. The OrbView-2 ground
command and control segment has been delivered to ORBIMAGE. The high-resolution
OrbView satellite ground receiving, processing, and command and control segments
will be delivered consistent with the high-resolution OrbView satellite launch
dates, although risk of loss of the command and control and the data processing
segments will pass to ORBIMAGE on successful completion of specified acceptance
test procedures. Under the Procurement Agreement, Orbital has no liability to
ORBIMAGE for any costs or other damages arising from schedule delays.
ORBIMAGE has the right, at any time, to make changes to the Specifications
or Statement of Work, method of packing or shipment, place or time of delivery,
quantity or type of items to be delivered or services required to be performed,
subject to Orbital's right to demand negotiations for "equitable adjustment" to
the price. However, pursuant to the Stockholders' Agreement, the Company may not
without the approval of a majority of a quorum of the Board, which majority
shall include at least one Series A Director, approve certain modifications to
the Procurement Agreement. See "Certain Relationships and Related Transactions--
Stockholders' Agreement." Price adjustments due to any changes requested by
ORBIMAGE will be negotiated between Orbital and ORBIMAGE. Failure to agree to
terms of the price adjustment will be resolved through arbitration in accordance
with the terms of the Procurement Agreement.
The Procurement Agreement may be terminated by ORBIMAGE if Orbital fails to
comply with the material terms thereof and does not cure such failure within 60
days of notice of noncompliance. Orbital may terminate the Procurement Agreement
if ORBIMAGE fails to make payments in accordance with the terms of the
Procurement Agreement.
For the high-resolution OrbView satellites, following launch, ORBIMAGE's
sole remedy for launch failure, defects, failure to conform with applicable
specifications or any other requirements is limited to insurance proceeds. In
addition, with respect to the command and control segments of the OrbView-2 and
high-resolution OrbView satellites and the ground receiving and processing
segments of the high-resolution OrbView satellites, Orbital made certain
warranties of one year in duration directly to ORBIMAGE and has assigned all
applicable third party warranties to ORBIMAGE. Orbital's liability to ORBIMAGE
under the Procurement Agreement is limited to $10 million.
SERVICES AGREEMENT
ORBIMAGE and Orbital entered into the Services Agreement under which
Orbital will provide to ORBIMAGE, to the extent requested by ORBIMAGE for a term
of three years from the date of launch of each OrbView satellite: (i) general
and administrative, accounting, tax, legal, regulatory and other similar
services on a cost-reimbursable basis with no additional fee; (ii) office and
other facilities-related services on a cost-reimbursable basis with no
additional fee; and (iii) in-orbit satellite operations for the OrbView-1,
OrbView-2, and the high-resolution OrbView satellites on a cost plus 10% fee
basis. All services will be provided upon ORBIMAGE's reasonable request and in
accordance with Orbital's customary standards at the time of delivery of the
services.
NON-COMPETITION AND TEAMING AGREEMENT
Under the Non-Compete Agreement, ORBIMAGE and Orbital have agreed that
Orbital will not enter into, and shall cause its affiliates not to enter into,
one or more contracts to construct and deliver an integrated remote sensing
satellite-based system, consisting of satellite bus, payload, launch services
and ground systems. Under certain circumstances, Orbital may respond to a
request for proposal for such an integrated system only if the response provides
that Orbital will have primary responsibility for the hardware and software
requirements, and ORBIMAGE will have primary responsibility for the provision of
imagery services. Orbital will be free to provide components for such systems or
subsystems, but under no circumstance will Orbital design, develop and/or
construct sensors capable of generating imagery substantially similar, or
technologically superior, in spatial and spectral resolution, to the imagery of
OrbView-2, the high-resolution OrbView satellites or any satellite purchased by
ORBIMAGE from Orbital or an affiliate of Orbital. Subject to certain exceptions,
Orbital has also agreed not to make, and it shall cause its affiliates not to
make, investments in
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excess of $10 million in any person engaged or proposed to be engaged in the
gathering and distributing of satellite-based imagery substantially similar, or
technologically superior, in spatial and spectral resolution, to the imagery of
OrbView-2, the high-resolution OrbView satellites, or any similar satellite
purchased by the Company from Orbital or its affiliates. In addition, Orbital
must offer to ORBIMAGE any satellite-based remote imaging project that emerges
from the research and development stage. The Non-Compete Agreement will
terminate on the earlier of June 30, 2003, the date on which the Procurement
Agreement is terminated, the first anniversary of an initial public offering by
the Company, or the end of a 180-day period in which the Company's average
Common Stock price exceeds certain thresholds.
ORBVIEW-2 LICENSE
Pursuant to the Procurement Agreement, Orbital and ORBIMAGE have entered
into a license agreement with regard to the OrbView-2 satellite. In
consideration of a license fee of approximately $63 million, Orbital has granted
an exclusive worldwide license to ORBIMAGE to use and sell OrbView-2 imagery,
and to license third parties to distribute such imagery, subject to the
limitations imposed by Orbital's contract with NASA to provide imagery from
OrbView-2 and the DoC license applicable to OrbView-2. Under this agreement,
Orbital has agreed to use reasonable commercial efforts to obtain and maintain
all material regulatory permits and licenses necessary for the continued
operation of the OrbView-2 satellite. Orbital also has assigned to ORBIMAGE all
amounts that are due or which will become due to Orbital under Orbital's
contract with NASA and ORBIMAGE has sole responsibility for operating and
controlling the satellite.
The OrbView-2 License terminates either automatically upon the assignment
of Orbital's contract with NASA to ORBIMAGE or upon any of the following: (i)
ORBIMAGE's discretionary determination that the OrbView-2 satellite has failed;
(ii) at ORBIMAGE's option, upon Orbital's uncured breach of Orbital's contract
with NASA or (iii) by either party upon the other's insolvency. In addition,
Orbital retains a special right of access to ORBIMAGE's ground station
facilities to perform certain of its obligations under Orbital's contract with
NASA in the event of ORBIMAGE's uncured failure to perform these same
obligations.
OTHER AGREEMENTS
Earth Observation Sciences, Ltd., a subsidiary of Orbital ("EOS"),
developed OrbView-2 fishing software for ORBIMAGE and provides maintenance and
support of such software on a time and materials basis. In addition to the
provisions in the Procurement Agreement, ORBIMAGE may contract in the future
with EOS or Orbital or its other subsidiaries for the development, support and
maintenance of software for processing, archiving or distributing OrbView
imagery products.
The distributorship contracts that ORBIMAGE expects to offer to foreign
high-resolution imagery distributors may include the purchase from ORBIMAGE of
an imagery ground station or an OrbView upgrade to an existing ground station.
ORBIMAGE is contractually obligated to procure such ground stations or upgrades
from MacDonald, Dettwiler and Associates Ltd., an Orbital subsidiary, provided
that the price is commercially competitive.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
ORBIMAGE has authorized 75,000,000 shares of Common Stock, of which
25,214,000 shares are issued and outstanding. Subject to the powers, preferences
and rights of any holder of preferred stock, the Common Holders are entitled to
receive such dividends as may be declared from time to time by the Board from
funds legally available therefor. Upon liquidation, dissolution or winding-up of
ORBIMAGE, the Common Holders will be entitled to share ratably in all assets
available for distribution to Shareholders after payment of liabilities, subject
to prior distribution rights of holders of preferred stock then outstanding.
There are no redemption or sinking fund provisions applicable to the Common
Stock. All shares of Common Stock into which the Warrants may be converted upon
completion of the Units Offering, will be fully paid and non-assessable. The
rights, preferences and privileges of Common Holders will be subject to the
rights, preferences and privileges of any preferred stock and of any other
series of preferred stock which the Company may issue in the future.
PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred stock, $0.01 par
value per share, of which: (a) 2,000,000 shares of the Series A Preferred Stock
have been authorized, of which 648,653 shares have been issued; (b) 2,000,000 of
the Series B Preferred Stock have been authorized, none of which have been
issued; and (c) 2,000,000 of the Series C Stock Preferred have been authorized,
none of which have been issued. The Board is authorized to issue preferred stock
from time to time in one or more series, each of such series to have such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and such
qualifications, limitations or restrictions thereof, as shall be determined by
the Board in a resolution or resolutions providing for the issuance of such
preferred stock other than as a paid-in-kind dividend. Except for the Series A
Offering, the Board currently has no plans for the issuance of preferred stock.
The issuance of such stock could adversely affect the rights of holders of the
Exchange Notes.
SERIES A PREFERRED STOCK
Dividends. The Series A Preferred Stock is assigned a stated value of $100
per share (the "Series A Preferred Stated Value") and is entitled to a
cumulative dividend of 12% per annum payable semi-annually on May 1 and November
1 of each year, in cash or, in lieu thereof, payable in-kind in shares of Series
A Preferred Stock on the basis of one hundred twenty (120) shares of Series A
Preferred Stock for each one thousand (1,000) shares of Series A Preferred Stock
outstanding. On November 1, 1997, the Company declared and paid a dividend
in-kind to each Series A Holder. Upon a mandatory conversion prior to the fourth
anniversary of the issuance of any Series A Preferred Stock (see "Certain
Relationships and Related Transactions"--Series A Preferred Stock--Conversion
Rights"), a Series A Holder shall also receive the dividends with respect to the
Series A Preferred Stock that would have accrued from the date of the mandatory
conversion to the fourth anniversary of the initial issuance of the Series A
Preferred Stock.
Ranking. Series A Holders have certain preferences upon dividend
distributions, distributions upon liquidation or distributions upon merger,
consolidation or sale of assets over the holders of Series B Preferred (if and
when issued), Series C Preferred (if and when issued), the Common Holders, and
any other class of stock ranking junior to the Series A Preferred Stock.
Voting Rights. Each Series A Holder is entitled to such number (rounded to
the nearest whole number) of votes as such Series A Holder would be entitled if
such Series A Holder had converted its Series A Preferred Stock into shares of
Common Stock. See "Certain Relationships and Related Transactions--Shareholders'
Agreement." Furthermore, the Series A Holders have the right to elect two
additional directors to the Board upon the occurrence of an "Election Event." An
"Election Event" is the failure by ORBIMAGE: (i) to declare and pay dividends on
the Series A Preferred Stock on any May 1 or November 1 which remains uncured
for more than thirty (30) day; (ii) to repurchase the Series A Preferred Stock
upon, among other things, a Change of Control (see "Certain Relationships and
Related Transactions--Stock
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Purchase Agreement--Change of Control"); (iii)(a) to conduct a critical design
review of the OrbView-3 spacecraft pursuant to the Procurement Agreement by
October 31, 1998, (b) to commence by March 15, 1999 the integration and testing
of the OrbView-3 spacecraft or (c) to commence by November 15, 1999 the
integration and testing of the OrbView-4 spacecraft. The dates specified in this
paragraph may be extended by up to thirty (30) days in the discretion of the
President of the Company (in consultation with the Series A Directors) that such
delay is advisable. See "Certain Relationships and Related
Transactions--Procurement Agreement." The Directors elected upon the occurrence
of an Election Event shall serve only so long as such Election Event continues.
Certain transactions, including certain additional issuances of securities by
the Company, require the consent of the holders of at least two thirds of the
outstanding Series A Preferred Stock.
Conversion Rights. The Series A Holders have the option, at any time, or
from time to time, to convert their Series A Preferred Stock into fully paid and
non-assessable shares of Common Stock. The number of shares of Common Stock
issued upon such conversion will be determined by multiplying each Series A
Holder's number of Series A Preferred Stock by a fraction, the numerator of
which is the Series A Preferred Stock Stated Value and the denominator of which
is a conversion price, subject to anti-dilutive adjustments (as adjusted, the
"Conversion Price"). The Conversion Price is currently $4.17. The Series A
Preferred Stock shall be automatically converted into shares of Common Stock
upon the earliest to occur of any one of the following events: (i) the closing,
under certain circumstances, of a public offering of the Common Stock; (ii) the
culmination of a 180-day period in which the average price of the Common Stock
exceeds a certain level relative to the Conversion Price; or (iii) the proposed
sale of no less than 70% of the Common Stock (on a fully diluted basis) as more
fully described in "Certain Relationships and Related
Transactions--Stockholders' Agreement--Restrictions on Transfer."
RELATIONSHIP WITH ORBITAL SCIENCES CORPORATION
Formed in 1982, Orbital is a space and information systems company that
designs, manufactures, operates and markets a broad range of space-related
products and services. Orbital's 1997 revenues were approximately $600 million
and Orbital and its subsidiaries employ approximately 4,000 people. Orbital's
products and services are grouped into three business sectors: (i) space and
ground infrastructure systems; (ii) satellite access products; and (iii)
satellite-delivered services. Space and ground infrastructure systems include
launch vehicles, satellites, electronics and sensor systems and ground systems.
Satellite access products include hand-held satellite-based navigation and
communications products and transportation management systems.
Satellite-delivered services include satellite-based two-way mobile data
communications. Orbital operates launch vehicle, satellite and electronics
engineering, manufacturing and test facilities in Dulles and McLean, Virginia,
Germantown and Greenbelt, Maryland and Chandler, Arizona; a launch vehicle and
satellite integration and test facility at Vandenberg Air Force Base,
California; a space sensors and instruments facility in Pomona, California; a
ground systems and software facility in Vancouver, British Columbia, and
facilities for its navigation and communications products in San Dimas and
Sunnyvale, California and in Rochester Hills, Michigan.
ORBIMAGE utilizes certain of Orbital's employees and centralized systems
for corporate and administrative services pursuant to the Services Agreement.
ORBIMAGE anticipates that each of its executive officers will generally devote a
sufficient portion of his or her time to the business of ORBIMAGE. However, any
ORBIMAGE executive officer who is an Orbital employee also may devote a
significant portion of his or her time to the business of Orbital and its other
subsidiaries.
POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS
The ongoing relationships between ORBIMAGE and Orbital may present certain
conflict situations for David W. Thompson, who serves as Chairman of the Board
of Directors and Chief Executive Officer of ORBIMAGE, and also serves as
Chairman of the Board, President and Chief Executive Officer of Orbital. Other
officers and directors of Orbital also serve as officers and directors of the
Company. Such officer's and Mr. Thompson's salary are paid by Orbital. Mr.
Thompson, as well as other executive officers and directors of Orbital, own (or
have options or other rights to acquire) a significant number of shares of
common stock in
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both ORBIMAGE and Orbital. Certain ORBIMAGE employees including its executive
officers have options to acquire Orbital common stock. Potential conflicts could
include: (i) the amount of time that Mr. Thompson or other executive officers of
both Orbital and ORBIMAGE are able to devote to the day-to-day operations of
ORBIMAGE or (ii) the decision making process involving situations that impact
both Orbital and the Company. ORBIMAGE and Orbital have adopted appropriate
policies and procedures to be followed by the Board of Directors of each company
to limit the involvement of Mr. Thompson (or such other officers and directors
having a significant ownership interest in the companies or who are serving in
similar capacities for both companies) in conflict situations, including matters
relating to contractual relationships or litigation between ORBIMAGE and
Orbital. Such procedures include requiring directors of both Orbital and
ORBIMAGE to abstain from voting as directors of each company with respect to
matters that present a significant conflict of interest between the companies.
Whether or not a significant conflict of interest situation exists is determined
on a case-by-case basis depending on such factors as the dollar value of the
matter and the likelihood that resolution of the matter has significant
strategic, operational or financial implications for the businesses of ORBIMAGE
or Orbital.
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DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Original Notes were issued and the Exchange Notes will be issued
pursuant to the Indenture between the Company and Marine Midland Bank, as
trustee (the "Trustee"). Upon the issuance of the Exchange Notes, or the
effectiveness of a Shelf Registration Statement, the Indenture will be subject
to and governed by the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The terms of the Exchange Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act. The Notes are subject to all such terms, and holders of Exchange
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Exchange Notes, the
Indenture and the Registration Rights Agreement do not purport to be complete
and are qualified in their entirety by reference to the Exchange Notes, the
Indenture and the Registration Rights Agreement, including the definitions in
each of such instruments and agreements of certain terms used below. A copy of
the Indenture and the Registration Rights Agreement will be made available to
holders of Original Notes upon request.
The Exchange Notes will be senior obligations of the Company, will rank
senior in right and priority of payment to all subordinated indebtedness of the
Company and will rank pari passu in right and priority of payment with all other
indebtedness of the Company which is not expressly so subordinated. The Exchange
Notes will be secured to the extent set forth below under "--Security." Upon
consummation of the Units Offering and the application of the net proceeds
therefrom, the Company has no indebtedness that is expressly subordinated in
right and priority of payment to the Original Notes.
As of the date of the Indenture, the Company has no Subsidiaries. Under
certain circumstances, the Company will be able to designate future Subsidiaries
that it creates or acquires as Restricted Subsidiaries or Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be issued in an aggregate principal amount of
$150,000,000. The Exchange Notes will mature on March 1, 2005. Interest on the
Exchange Notes will accrue at the rate of 11 5/8% per annum and will be payable
semi-annually in arrears on March 1 and September 1 of each year, commencing on
September 1, 1998, to holders of record on the immediately preceding February 15
and August 15. Interest on the Exchange Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
February 25, 1998 (the "Issue Date"). Interest on the Exchange Notes will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, interest and Liquidated Damages, if any, on
the Exchange Notes, will be payable at the office or agency of the Company
maintained for such purpose or, at the option of the Company, payment of
interest and Liquidated Damages, if any, may be made by check mailed to the
holders of the Exchange Notes at their respective addresses set forth in the
register of holders of the Exchange Notes; provided that if the holder of any
Exchange Notes has given wire transfer instructions to the Company, the Company
will be required to make all payments with respect to such Exchange Notes by
wire transfer of immediately available funds to the account specified by such
holder. Until otherwise designated by the Company, the Company's office or
agency will be the office of the Trustee maintained for such purpose. The
Exchange Notes will be issued in denominations of $1,000 and integral multiples
thereof.
OPTIONAL REDEMPTION
The Notes will not be redeemable prior to March 1, 2002. Thereafter, the
Notes will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued
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and unpaid interest and Liquidated Damages (if any) thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on March 1
of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002........................................................ 105.8125%
2003........................................................ 102.9063%
2004 and thereafter......................................... 100.0000%
</TABLE>
Notwithstanding the foregoing, prior to March 1, 2001, the Company may, on
one or more occasions, redeem outstanding Notes with the net cash proceeds of
one or more sales of Capital Stock (other than Disqualified Stock) of the
Company to one or more Persons (but only to the extent the proceeds of such
sales of Capital Stock consist of cash or Cash Equivalents) at a redemption
price equal to 111.625% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages (if any) thereon to the redemption date;
provided, however, that: (i) not less than 65% of the aggregate principal amount
of the Notes initially issued remains outstanding immediately after any such
redemption; and (ii) such redemption shall occur within 60 days after the date
of closing of such sale of Capital Stock.
MANDATORY REDEMPTION
The Company will not be required to make mandatory redemption or sinking
fund payments with respect to the Notes. However, as described below, the
Company may be obligated, under certain circumstances, to make an offer to
purchase: (i) all outstanding Notes at a redemption price of 101% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages (if any) to the date of purchase, upon a Change of Control; and (ii)
outstanding Notes with a portion of the Net Proceeds of Asset Sales at a
redemption price of 100% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages (if any) to the date of purchase. See
"--Repurchase at the Option of Holders--Change of Control" and "--Limitation on
Sales of Assets and Subsidiary Interests."
SECURITY
Pursuant to the Indenture, the Company purchased and pledged to the
Collateral Agent for the benefit of the holders of the Notes the Pledged
Securities in such amount as will be sufficient upon receipt of scheduled
interest and principal payments of such securities. The Company used
approximately $32.9 million of the net proceeds of the Units Offering to acquire
the Pledged Securities. The Pledged Securities are pledged by the Company to the
Trustee as Collateral Agent for the benefit of the holders of Notes pursuant to
the Pledge Agreement and will be held by the Collateral Agent in the Pledge
Account. Pursuant to the Pledge Agreement, immediately prior to an interest
payment date on the Notes, the Company may either deposit with the Collateral
Agent from funds otherwise available to the Company cash sufficient to pay the
interest scheduled to be paid on such date or the Company may direct the
Collateral Agent to release from the Pledge Account proceeds sufficient to pay
interest then due. In the event that the Company exercises the former option,
the Company may thereafter direct the Collateral Agent to release to the Company
from the Pledge Account proceeds or Pledged Securities in like amount.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient, in the opinion of a nationally recognized
firm of independent certified public accountants selected by the Company, to
provide for payment in full of the first four scheduled interest payments due on
the Notes (or, in the event an interest payment or payments have been made, an
amount sufficient to provide for payment in full of any interest payments
remaining, up to and including the four scheduled interest payments), the
Collateral Agent will be permitted to release to the Company at the Company's
request any such excess amount. The Original Notes are and the Exchange Notes
will be secured by a first priority security interest in the Pledged Securities
and in the Pledge Account and, accordingly, the Pledged Securities and the
Pledge Account also secure repayment of the principal amount of the Original
Notes and will secure repayment of the principal amount of the Exchange Notes to
the extent of such security. The Pledge Agreement allows ORBIMAGE to substitute
Marketable
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Securities for the Government Securities originally pledged as collateral;
provided, however, that the Marketable Securities so substituted must have a
value (measured at the date of substitution), in the opinion of a nationally
recognized firm of independent public accountants selected by the Company, at
least equal to 125.0% of the amount of any of the first four scheduled interest
payments on the Notes that are unpaid (or the pro rata portion of such interest
payments equal to the percentage of such interest payments to be secured by such
Marketable Securities) as of the date such Marketable Securities are proposed to
be substituted as security for the Company's obligation under the Pledge
Agreement.
Under the terms of the Pledge Agreement, assuming that the Company makes
the first four scheduled interest payments on the Notes in a timely manner, all
of the Pledged Securities will be released from the Pledge Account.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages (if any) thereon to the date of purchase (the
"Change of Control Payment"). In the event of a Change of Control, there can be
no assurance that the Company will have or be able to acquire sufficient funds
to repurchase the Exchange Notes. Within ten days following any Change of
Control, the Company will mail a notice to each holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 40 days from the date such notice is
mailed (the "Change in Control Payment Date") pursuant to the procedures
required by the Indenture and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful:
(i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(ii) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so tendered;
and
(iii) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of Notes or portions thereof being purchased by the
Company.
The Paying Agent will promptly mail to each holder of Notes so tendered the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new note equal in principal amount to any unpurchased portion of the Note
surrendered; provided that each such new Note will be in a principal amount of
$1,000 or an integral multiple thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date. Except as described above with respect to a
Change of Control, the Indenture does not contain provisions that permit the
holders of the Notes to require that the Company repurchase or redeem the Notes
in the event of a takeover, recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the time and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
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Subject to the limitations discussed below, the Company could in the future
enter into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of Indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
Due to the highly leveraged structure of the Company, the Company may not have
sufficient funds to be able to repurchase all of the Notes tendered in a Change
of Control Offer. The failure of the Company to purchase any Notes tendered in a
Change of Control Offer will constitute an Event of Default under the Indenture.
See "--Events of Default and Remedies."
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Notes to require the Company to repurchase such Notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of the Company to another Person may be uncertain.
Limitation on Sales of Assets and Subsidiary Interests
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to consummate an Asset Sale unless:
(i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value of the assets sold or otherwise disposed of;
(ii) at least 75% of the consideration received in the Asset Sale by
the Company or such Restricted Subsidiary, as the case may be, consists of
(a) cash or Cash Equivalents or (b) the assumption of Indebtedness (other
than Indebtedness that is subordinated) of the Company or such Restricted
Subsidiary and the release of the Company and the Restricted Subsidiaries,
as applicable, from all liability on the Indebtedness assumed; and
(iii) the aggregate Fair Market Value of all non-Cash Consideration
received therefor by the Company or such Restricted Subsidiary, as the case
may be, when aggregated with the Fair Market Value of all other non-Cash
Consideration received by the Company and its Restricted Subsidiaries from
all other Asset Sales since the Issue Date that has not yet been converted
into cash or Cash Equivalents (in either case, in U.S. dollars or freely
convertible into U.S. dollars), does not exceed (without duplication) 5% of
the aggregate Consolidated Tangible Net Assets of the Company at the time
of such Asset Sale; provided, however, that any securities, notes or
similar obligations received by any of the Company or such Restricted
Subsidiaries from such transferees that are contemporaneously (subject to
ordinary settlement periods) converted by the Company or such Restricted
Subsidiaries into cash, shall be deemed to be cash (to the extent of the
net cash received) for purposes of clauses (ii) and (iii).
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds to: (i) make capital expenditures or
acquire Business Assets, (ii) acquire 100% of the Equity Interests of a Related
Satellite Business, (iii) market imagery products and services, (iv) repay
Indebtedness under a Credit Facility, and (v) provide working capital. Pending
the final application of any such Net Proceeds, the Company may temporarily
invest such Net Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from an Asset Sale that are not applied or invested as provided
in the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $7.5 million,
the Company will be required to make an offer to all holders of Notes (an "Asset
Sale Offer") to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds (and not solely the amount in excess of
$7.5 million), at an offer price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages (if any) thereon to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general business
purposes. If the aggregate amount of Notes surrendered by holders thereof
exceeds the amount of Excess
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Proceeds, the Trustee will select the Notes to be purchased on a pro rata basis
in accordance with the procedures set forth below. Upon completion of such offer
to purchase, the amount of Excess Proceeds will be reset at zero. The Asset Sale
Offer shall remain open for a period of 20 business days or such longer period
as may be required by law.
The foregoing provisions will not apply to the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company,
which will be governed by the provisions of the Indenture described below in
"--Merger, Consolidation or Sale of Assets" and "--Repurchase at the Option of
Holders."
SELECTION AND NOTICE OF NOTES FOR REDEMPTION OR REPURCHASE
If less than all of the Notes are to be redeemed or repurchased pursuant to
any purchase offer required under the Indenture at any time, selection of Notes
for redemption or repurchase will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis,
selected by lot or by such method as the Trustee shall deem fair and
appropriate; provided that no Note with a principal amount of $1,000 or less
shall be redeemed or repurchased in part.
Notices of redemption or repurchase shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption or repurchase date to
each holder of Notes to be redeemed or repurchased at its registered address. If
any Note is to be redeemed or repurchased in part only, the notice that relates
to such Note shall state the portion of the principal amount thereof to be
redeemed or repurchased. A new Note in principal amount equal to the unredeemed
or unrepurchased portion will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after the redemption or repurchase
date, interest will cease to accrue on the Notes or portions thereof called for
redemption or repurchase.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any distribution on account of
the Equity Interests of the Company (including, without limitation, any
payment in connection with any merger or consolidation involving the
Company or any of its Restricted Subsidiaries), other than dividends or
distributions declared and payable (a) in Equity Interests (other than
Disqualified Stock) of the Company or any of its Restricted Subsidiaries or
(b) to the Company or to any Restricted Subsidiary of the Company;
(ii) purchase, redeem, defease, retire for value or otherwise acquire
or return for value any Equity Interests of the Company, other than any
such Equity Interests owned by the Company or any Wholly Owned Restricted
Subsidiary of the Company;
(iii) make any principal payment on (except at maturity) or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness
that is subordinated (whether pursuant to its terms, by operation of law,
structurally or otherwise) to the Notes; or
(iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the immediately preceding fiscal quarter,
have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the first
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paragraph set forth in the covenant entitled "Incurrence of Indebtedness or
Issuance of Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the Issue Date (excluding Restricted Payments permitted by clauses
(ii), (iii) and (iv) of the next succeeding paragraph), is less than the
sum, without duplication, of:
(1) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the Issue Date to the end of the
Company's most recently ended fiscal quarter for which financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit); plus
(2) 100% of the aggregate net cash proceeds received by the Company
since the date of the Indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of the Company
(other than Disqualified Stock) or from the issue of Disqualified Stock
or debt securities of the Company that have been converted into such
Equity Interests (other than (A) Equity Interests (or Disqualified Stock
or convertible debt securities) sold to a Subsidiary of the Company, (B)
Disqualified Stock or debt securities that have been converted into
Disqualified Stock, (C) equity capital contributions described in clause
(vi) of the definition of "Permitted Investment," (D) to the extent that
the net cash proceeds of the issuance of such Equity Interests are used
to redeem the Notes as permitted under the section entitled "Optional
Redemption," and (E) Series A Preferred Stock issued in the Series A
Offering); plus
(3) to the extent that any Restricted Investment that was made
after the Issue Date is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (A) the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any) and
(B) the initial amount of such Restricted Investment; plus
(4) to the extent that any Unrestricted Subsidiary is designated by
the Company as a Restricted Subsidiary, an amount equal to the lesser of
(A) the Fair Market Value of such Restricted Investment and (B) the
Company's Investment in such Unrestricted Subsidiary at the time of such
designation.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) so long as no default has occurred and is continuing or will
arise therefrom, the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out
of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of other Equity Interests of the Company (other
than any Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition shall be excluded from clause (2) of the preceding
paragraph;
(iii) so long as no default has occurred and is continuing or will
arise therefrom, the repayment, defeasance, redemption or repurchase of
Intercompany Indebtedness (as defined in clause (vi) of the covenant
entitled "Incurrence of Indebtedness or Issuance of Disqualified Stock") or
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (other than
to a Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition shall be excluded from clause (2) of the preceding
paragraph;
(iv) the issuance of shares of Series A Preferred Stock as
paid-in-kind dividends in accordance with the terms of the Series A
Preferred Stock as in effect on the date of the Indenture;
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(v) the purchase, redemption or retirement by the Company of shares of
its Common Stock held by an employee or former employee of the Company or
its Subsidiaries issued under the Stock Option Plan; provided that the
amount of any such payments in any fiscal year does not exceed $1,000,000;
and provided, further, that the limitation set forth in the foregoing
proviso does not apply to the purchase, redemption or retirement of shares
of common stock with funds or other property or amounts paid by the Company
for which the Company receives concurrent reimbursement from any other
Person (other than the Company's Subsidiaries); and
(vi) payments made in respect of (x) the cancellation of fractional
shares of Common Stock in connection with the conversion of the Series A
Preferred Stock and the exercise of the Warrants and (y) the repurchase or
redemption of any shares of Series A Preferred Stock in an amount not to
exceed $500,000.
In determining the amount of Restricted Payments permissible under clause
(c) above, amounts expended pursuant to clauses (i), (v) and (vi) in the
preceding paragraph shall be included as Restricted Payments. Notwithstanding
the foregoing, payments made by the Company to Orbital pursuant to the Orbital
Agreements shall not be deemed Restricted Payments.
The Company may designate any of its Restricted Subsidiaries to be an
Unrestricted Subsidiary if such designation would not cause a Default and, at
the time of and after giving effect to such designation, the Company could incur
$1.00 of additional Indebtedness under the applicable provisions of the first
paragraph of the covenant entitled "Incurrence of Indebtedness or Issuance of
Disqualified Stock"; provided, that, in no event shall all or any portion of the
material assets or properties (other than cash) owned by the Company on the
Issue Date be transferred to or held by an Unrestricted Subsidiary of the
Company; and provided, further, that such ability to incur $1.00 of additional
Indebtedness shall not be required in the case of any newly created Unrestricted
Subsidiary funded solely with an Investment described in clause (vi) of the
definition of "Permitted Investment." For purposes of making such determination,
all outstanding Investments by the Company and its Restricted Subsidiaries
(except to the extent repaid in cash and except for Investments described in
clause (vi) of the definition of "Permitted Investment") in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greatest of:
(i) the net book value of such Investments at the time of such
designation;
(ii) the Fair Market Value of such Investments at the time of such
designation; and
(iii) the original Fair Market Value of such Investments at the time
they were made.
Such designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments, if not made in cash, shall be the
Fair Market Value on the date of the Restricted Payment of the asset(s) proposed
to be transferred by the Company or such Restricted Subsidiary, as the case may
be, pursuant to the Restricted Payment. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this covenant were computed,
which calculations may be based upon the latest available financial statements
of the Company.
Incurrence of Indebtedness or Issuance of Disqualified Stock
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guaranty or otherwise become directly or indirectly liable, contingently
or otherwise, with respect to (collectively, "incur") any Indebtedness
(including Acquired Debt) or any Disqualified Stock; provided, however, that the
Company may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock and the Restricted Subsidiaries may incur Indebtedness
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if, after giving pro forma effect to the incurrence of such Indebtedness and the
use of proceeds thereof, the aggregate Indebtedness to Cash Flow Ratio of the
Company does not exceed 4.0 to 1. Notwithstanding the foregoing, prior to June
30, 2001, the Company or any Restricted Subsidiary may incur Indebtedness if
immediately after giving pro forma effect to the incurrence of such Indebtedness
and the receipt and application of the proceeds thereof, the Indebtedness to
Capital Ratio would be less than or equal to 65.0%.
The foregoing provisions will not apply to:
(i) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness under Credit Facilities; provided that the
aggregate principal amount of all Indebtedness (with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of the Company and its Subsidiaries thereunder) outstanding under
all Credit Facilities after giving effect to such incurrence does not
exceed an amount equal to the greater of (A) $25 million and (B) 85% of
Eligible Receivables;
(ii) the incurrence by the Company of Indebtedness represented by the
Notes and the Indenture or the issuance of shares of Series A Preferred
Stock accrued or issued as paid-in-kind dividends;
(iii) Existing Indebtedness;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness under (A) Hedging Obligations, provided that
(1) the notional principal amount of any interest rate protection agreement
does not significantly exceed the principal amount of the Indebtedness to
which such interest rate protection agreement relates and (2) any
agreements related to fluctuations in currency rates do not increase the
outstanding Indebtedness other than as result of fluctuations in foreign
currency exchange rates, and (B) performance, surety and workers'
compensation bonds or other obligations of a like nature incurred in the
ordinary course of business;
(v) the incurrence by any Unrestricted Subsidiary of the Company of
Non-Recourse Debt; provided that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary such event shall be deemed
to constitute an incurrence of Indebtedness by a Restricted Subsidiary;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness owed to and held by the Company or any of its
Wholly Owned Restricted Subsidiaries (the Indebtedness incurred pursuant to
this clause (vi) being hereafter referred to as "Intercompany
Indebtedness"); provided that an incurrence of Indebtedness shall be deemed
to have occurred upon (i) any sale or other disposition of Intercompany
Indebtedness to a Person other than the Company or any of its Restricted
Subsidiaries, (ii) any sale or other disposition of Equity Interests of the
Company's Restricted Subsidiaries which holds Intercompany Indebtedness
such that such Restricted Subsidiary ceases to be a Restricted Subsidiary
after such sale or other disposition or (iii) designation of a Restricted
Subsidiary as an Unrestricted Subsidiary;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Non-Recourse Debt to finance purchase money obligations;
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness ("Permitted Refinancing Indebtedness")
incurred to refinance, replace or refund Indebtedness
("Refinanced Indebtedness") incurred pursuant to the first paragraph of
this covenant or pursuant to clause (i) or (iii) of this covenant; provided
that:
(a) the aggregate principal amount of such Permitted Refinancing
Indebtedness does not exceed the aggregate principal amount of the
Refinanced Indebtedness (including accrued and unpaid interest thereon);
(b) such Permitted Refinancing Indebtedness shall have a final
maturity equal to or later than, and a Weighted Average Life to Maturity
equal to or greater than, the final maturity and Weighted Average Life
to Maturity of the Refinanced Indebtedness, respectively; and
(c) such Permitted Refinancing Indebtedness shall rank no higher
relative to the Notes than the Refinanced Indebtedness and in no event
may any Indebtedness of the Company, or any of its
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Restricted Subsidiaries be refinanced with Indebtedness of any
Restricted Subsidiary under this clause (viii);
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of Capital Lease Obligations in an aggregate amount for all
such Persons not to exceed $15 million at any one time outstanding;
(x) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness not to exceed $15 million outstanding at any
time pursuant to a Fixed Asset Financing; and
(xi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in addition to that described in clauses (i)
through (x) above, so long as the aggregate principal amount of all such
Indebtedness, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred pursuant to this
clause (xi), shall not exceed $10 million outstanding at any one time in
the aggregate.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien on any asset or property now owned or hereafter
acquired, or any income or profits therefrom, or assign or convey any right to
receive income therefrom, unless (i) in the case of Liens securing obligations
subordinate to the Notes, the Notes are secured by a valid, perfected Lien on
such asset or property that is senior in priority to such Liens, (ii) in the
case of Liens securing obligations subordinate to a Subsidiary Guarantee, such
Subsidiary Guarantee is secured by a valid, perfected Lien on such asset or
property that is senior in priority to such Liens, and (iii) in all other cases,
the Notes (and, if such Lien secures obligations of a Restricted Subsidiary, a
Subsidiary Guarantee of such Restricted Subsidiary) are equally and ratably
secured; provided, however, that the foregoing shall not prohibit or restrict
Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to:
(i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries on its Capital Stock or with respect to
any other interest or participation in, or measured by, its profits;
(ii) pay any Indebtedness owed to the Company or any of its Restricted
Subsidiaries;
(iii) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(iv) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of:
(a) the Indenture, the Pledge Agreement or the Notes;
(b) Existing Indebtedness;
(c) applicable law;
(d) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as
in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the
Person, or the property or assets of the Person, so acquired;
(e) customary non-assignment provisions in leases or other
agreements entered into in the ordinary course of business;
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(f) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature
described in clause (iv) above on the property so acquired;
(g) Permitted Refinancing Indebtedness; provided that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in
the agreements governing the Refinanced Indebtedness; or
(h) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(i) secured Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the
caption "--Liens" that limits the right of the debtor to dispose of the
assets securing such Indebtedness; or
(j) in the case of clauses (a), (b), (d), (e), (f), (g), (h) and
(i) above, any amendments, modifications, restatements, renewals,
increases, supplements, modifications, restatements or refinancings
thereof, provided that such amendments, modifications, restatements or
refinancings are not materially more restrictive with respect to such
dividend and other payment restrictions than those contained in such
instruments as in effect on the date of their incurrence.
Merger, Consolidation or Sale of Assets
The Indenture provides the Company may not consolidate or merge with or
into (whether or not the Company is the surviving Person), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, another Person
unless:
(i) the Company is the surviving Person or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized and existing
under the laws of the United States, any state thereof or the District of
Columbia;
(ii) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or the entity or Person to which such
sale, assignment, transfer, lease, conveyance or other disposition shall
have been made assumes all the obligations of the Company under the Notes,
the Indenture and the Pledge Agreement pursuant to a supplemental indenture
in form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction, no Default or Event of
Default exists;
(iv) the Company, or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the transaction; and
(v) the Company, or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
immediately preceding fiscal quarter, will be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the first paragraph of the
covenant entitled "Incurrence of Indebtedness or Issuance of Disqualified
Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, sell, lease transfer or otherwise dispose of
any of their properties or assets to, or purchase any property or
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assets from, or enter into or make any contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless:
(i) such Affiliate Transaction is on terms that are no less favorable
to the Company or such Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person;
(ii) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $2.5 million, (x) a determination by the
disinterested members of the Board of Directors of the Company made in
good faith (evidenced by a resolution approved by at least a majority of
the disinterested members of the Board of Directors of the Company and
set forth in an Officers' Certificate delivered to the Trustee) or (y)
an opinion as to the fairness of such Affiliate Transaction to the
Company or Restricted Subsidiary involved in such Affiliate Transaction
from a financial point of view issued by an Independent Financial
Advisor or, with respect to development, launch and operations of
satellites and remote imaging-related matters, a nationally recognized
expert in the respective applicable industry; and
(b) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $10 million, an opinion as to the fairness of
such Affiliate Transaction to the Company or Restricted Subsidiary
involved in such Affiliate Transaction from a financial point of view
issued by an Independent Financial Advisor or, with respect to
development, launch and operations of satellites and remote
imaging-related matters, a nationally recognized expert in the
respective applicable industry;
provided, however, that the following shall be deemed not to be Affiliate
Transactions:
(1) any employment agreement, stock option or stock purchase
agreement entered into by the Company or any of its Restricted
Subsidiaries with any of their respective employees in the ordinary
course of business;
(2) transactions between or among the Company and/or its Wholly
Owned Restricted Subsidiaries;
(3) Restricted Payments permitted by clauses (i), (ii), (iv), (v)
and (vi) of the second paragraph of the covenant entitled "Restricted
Payments" and Permitted Investments of a type referred to in clauses
(i), (iii) and (vi) of the definition of Permitted Investments;
(4) the sale of common Equity Interests (other than Disqualified
Stock, except as contemplated by the Stock Purchase Agreement) of the
Company for cash to an Affiliate of the Company;
(5) transactions pursuant to agreements entered into with resellers
of the Company's products and services on terms substantially the same
as the Company's standard agreements entered into with such parties in
the ordinary course of business;
(6) transactions pursuant to the Orbital Agreements, including
transactions pursuant to any amendments to the Procurement Agreement
with respect to the selection of the launch vehicle for the satellite
designated on the Issue Date as the OrbView-4 satellite;
(7) amendments, supplements or other modifications to the Orbital
Agreements that do not involve the payment of cash by the Company or any
of its Restricted Subsidiaries;
(8) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of the Company; and
(9) the sale of securities (other than common Equity Interests) of
the Company for cash to an Affiliate of the Company; provided that:
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(A) an amount of such securities at least equal to the amount
sold to such Affiliate have been or are being sold substantially
simultaneously to Persons that are not Affiliates of the Company;
(B) the price per security paid by such Affiliate is no less
than the price paid by such non-Affiliates; and
(C) the Company shall not have entered into any other
arrangement with such non-Affiliates to induce such non-Affiliates to
purchase such securities.
Maintenance of Insurance
The Indenture provides that the Company shall obtain or maintain (as
applicable) in full force and effect:
(i) launch and in-orbit checkout insurance with respect to each
OrbView Satellite, which insurance shall be procured promptly prior to the
launch of each such satellite and shall be in effect on the launch date and
remain in effect through the launch and the initial check-out period of
such OrbView Satellite, in an amount sufficient to provide for the
construction, launch and insurance of a Replacement Satellite to be payable
in the event of a launch or satellite failure during the initial check-out
period; provided, however, that at the time the Company is required to
procure launch and in-orbit check-out insurance with respect to an OrbView
Satellite, the Company may reduce the amount to be insured if another
OrbView Satellite is fully operational, is being used in commercial service
and is insured in accordance with clause (ii) below, by (x) the amount of
cash, cash equivalents and short-term investments (excluding proceeds of
the Offering and the Series A Offering and amounts allocated or expected to
be allocated for capital expenditures) currently available to the Company
to construct a Replacement Satellite as determined in good faith by the
Board of Directors of the Company (evidenced by a resolution approved by at
least a majority of the Board of Directors of the Company and set forth in
an Officers' Certificate delivered to the Trustee), and (y) the value of
any long lead-time spare parts that the Company has procured to date for
any satellite that is comparable to the technological capability of the
OrbView Satellite being insured, as such value is determined in good faith
by the Board of Directors of the Company (evidenced by a resolution
approved by at least a majority of the Board of Directors of the Company
and set forth in an Officers' Certificate delivered to the Trustee).
(ii) in-orbit operations insurance with respect to each OrbView
Satellite, at all times following the date an OrbView Satellite is placed
in commercial service, representing the value of such satellite (taking
into account the foregone useful life of such satellite) and the pro rata
cost of a launch vehicle, payable in the event that such satellite ceases
to be used for commercial revenue producing service (provided that such
insurance may contain customary provisions for deductible payments and
minimum thresholds for satellite failure); provided, however, that at the
time the Company is required to procure or renew in-orbit operations
insurance with respect to an OrbView Satellite, the Company may reduce the
amount to be insured if another OrbView Satellite is fully operational, is
being used in commercial service, and is insured in accordance with this
clause (ii), by (x) the amount of cash, Cash Equivalents and short-term
investments (excluding proceeds of the Offering and the Series A Offering
and amounts allocated or expected to be allocated for capital
expenditures), currently available to the Company to construct a
Replacement Satellite as determined in good faith by the Board of Directors
of the Company (evidenced by a resolution approved by at least a majority
of the Board of Directors of the Company and set forth in an Officers'
Certificate delivered to the Trustee), and (y) the value of any long
lead-time spare parts that the Company has procured to date for any
satellite that is comparable to the technological capability of the OrbView
Satellite being insured, as such value is determined in good faith by the
Board of Directors of the Company (evidenced by a resolution approved by at
least a majority of the Board of Directors of the Company and set forth in
an Officers' Certificate delivered to the Trustee).
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The obligation of the Company to maintain insurance pursuant to this
covenant may be satisfied by any combination of:
(i) insurance commitments obtained from any recognized insurance
provider,
(ii) insurance commitments obtained from any entity other than an
entity referred to in clause (i) if the Board of Directors of the Company
determines in good faith (evidenced by a majority resolution of the Board
of Directors of the Company and set forth in an Officer's Certificate
delivered to the Trustee) that such entity is creditworthy and otherwise
capable of bearing the financial risk of providing such insurance and
making payments in respect of any claims on a timely basis; and
(iii) unrestricted cash segregated and maintained by the Company in a
segregated account established with an Eligible Institution (the "Insurance
Account") solely for disbursement in accordance with the terms of this
covenant ("Cash Insurance"), and to be held in trust for the sole and
express benefit of the holders of the Notes.
Within 30 days following any date on which the Company is required to
obtain insurance pursuant to the Indenture, the Company will deliver to the
Trustee an insurance certificate certifying the amount of insurance then
carried, and in full force and effect, and an Officer's Certificate stating that
such insurance, together with any other insurance or Cash Insurance maintained
by the Company, complies with the Indenture. In addition, the Company will cause
to be delivered to the Trustee no less than once each year an insurance
certificate setting forth the amount of insurance then carried, which insurance
certificate shall entitle the Trustee to:
(i) notice of any claim under any such insurance policy; and
(ii) at least 30 days' notice from the provider of such insurance
prior to the cancellation of any such insurance and an Officers'
Certificate that complies with the first sentence of this paragraph.
In the event that the Company maintains any Cash Insurance in satisfaction
of any part of their obligation to maintain insurance pursuant to this covenant,
the Company shall deliver, in lieu of any insurance certificate otherwise
required by this covenant, an Officers' Certificate to the Trustee certifying
the amount of such Cash Insurance.
In the event that the Company receives any proceeds of any insurance that
it is required to maintain pursuant to this covenant, the Company shall promptly
deposit such proceeds into an escrow account established with an Eligible
Institution for such purpose. If the Company maintains any Cash Insurance in
satisfaction of any part of its obligation to maintain insurance pursuant to
this covenant, the Company shall transfer the cash maintained in the Insurance
Account to such escrow account upon the occurrence of the event (e.g., a launch
failure) that would have entitled the Company to the payment of insurance had
the Company purchased insurance from a recognized insurance provider. The
Company may use monies on deposit in such escrow account for the design,
development, construction, procurement, launch and insurance of any Replacement
Satellite if: (i) the Company delivers to the Trustee a certificate of the
Company's President certifying that such Replacement Satellite is comparable to
the technological capability of the satellite being replaced, (ii) within 30
days following the receipt of such insurance proceeds, the Company delivers to
the Trustee an Officers' Certificate certifying that (A) the Company will use
its reasonable best efforts to ensure that such Replacement Satellites are
launched within 24 months following delivery from the escrow account of such
insurance proceeds; and (B) the Company will have sufficient funds to service
the Company's projected debt service requirements until the scheduled launch of
such Replacement Satellite and to develop, construct, launch and insure such
Replacement Satellite.
Business Activities and Construction of OrbView Satellites
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, engage in any business other than that which
is related to the design, development and operation of remote imaging satellites
and the worldwide marketing and sales of remote imagery-based products and
services.
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Limitations on Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
Subsidiary of the Company to, directly or indirectly, enter into any Sale and
Leaseback Transaction with respect to any property or assets (whether now owned
or hereafter acquired), except for a Sale and Leaseback Transaction not
exceeding 365 days, unless (i) the sale or transfer of such property or assets
to be leased is treated as an Asset Sale and complies with the "--Limitations on
Sales of Assets and Subsidiary Interests" covenant and (ii) the Company or such
Subsidiary would be entitled under the "Incurrence of Indebtedness or Issuance
of Disqualified Stock" covenant to incur any Indebtedness (with the lease
obligations being treated as Indebtedness for purposes of ascertaining
compliance with this covenant) in respect of such Sale and Leaseback
Transaction.
Additional Guarantors
The Indenture provides that the Company shall cause each Person that
becomes a Restricted Subsidiary after the date of the Indenture, upon becoming a
Restricted Subsidiary, to become a Subsidiary Guarantor with respect to the
Notes. Any such person shall become a Subsidiary Guarantor by executing and
delivering to the Trustee (a) a supplemental indenture, in form and substance
satisfactory to the Trustee, which subjects such person to the provisions of the
Indenture as a Subsidiary Guarantor and (b) an opinion of counsel to the effect
that such supplemental indenture has been duly authorized and executed by such
Subsidiary Guarantor.
The Indenture contains provisions the intent of which is to provide that
the obligations of any Subsidiary Guarantor will be limited to the maximum
amount that will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from, rights to receive contribution from, or payments made by or on
behalf of any other Subsidiary Guarantor in respect of the obligations of such
other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to its
contribution obligations under the Indenture, result in the obligations of such
Subsidiary Guarantor under its Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under any applicable federal,
state, or foreign law. Any Subsidiary Guarantor that makes a payment or
distribution under a Subsidiary Guarantee shall be entitled to contribution from
each other Subsidiary Guarantor so long as the exercise of such right does not
impair the rights of the holders of the Notes under the Subsidiary Guarantees.
Limitation on Sale of Capital Stock of Subsidiaries
The Indenture provides that the Company may not, and may not permit any
Restricted Subsidiary to, issue, transfer, convey, lease or otherwise dispose of
any shares of Capital Stock or other ownership interests in a Restricted
Subsidiary or securities convertible or exchangeable into, or options, warrants,
rights or other interest with respect to, Capital Stock of or other ownership
interests in a Restricted Subsidiary to any Person (other than to the Company or
a Wholly Owned Restricted Subsidiary) except in a transaction that consists of a
sale of all of the Capital Stock of or other ownership interests in such
Subsidiary owned by the Company and any Subsidiary of the Company that complies
with the provisions described under "Repurchase at the Option of
Holders--Limitations on Sales of Assets and Subsidiary Interests" above to the
extent such provisions apply.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the holders of Notes:
(i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of
operations of the Company and its Restricted Subsidiaries and, with respect
to the annual information only, a report thereon by the Company's
independent certified public accountants; and
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(ii) all information that would be required to be filed with the
Commission on Form 8-K if the Company was required to file such reports.
In addition, following the consummation of the Exchange Offer, whether or
not required by the rules and regulations of the Commission, but only if then
permitted by the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability and make
such information available to securities analysts and prospective investors upon
request. In addition, for so long as any Notes remain outstanding, the Company
will furnish to the holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default:
(i) default for 30 days in the payment when due of interest on, or
Liquidated Damages (if any) with respect to, the Notes;
(ii) default in payment when due (whether at maturity, upon redemption
or repurchase, or otherwise) of the principal of or premium, if any, on the
Notes;
(iii) default in the payment of principal and interest or Liquidated
Damages, if any, on Notes required to be purchased pursuant to the
provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control," "--Repurchase at the Option of
Holders--Limitations on Sales of Assets and Subsidiary Interests", or
failure by the Company to comply with the provisions described under
"--Certain Covenants--Merger, Consolidation or Sale of Assets,"
(iv) failure by the Company or any of its Restricted Subsidiaries for
30 days after notice to the Company by the Trustee or to the Company and
the Trustee by the Holders of at least 25% of the outstanding principal
amount of the Notes, to comply with any of their other covenants in the
Indenture for the Notes;
(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, which default:
(a) is caused by a failure to pay principal of, or premium, if any,
or interest on, such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
(b) results in the acceleration (which acceleration has not been
rescinded) of such Indebtedness prior to its express maturity, and, in
each case described in clauses (a) and (b) of this paragraph, the
principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated,
aggregates $5 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments (other than any judgments as to which a reputable
insurance company has accepted full liability and whose bond, premium or
similar charge therefor is not in excess of $5 million) aggregating in
excess of $5 million, which judgments are not paid, discharged or stayed
within 60 days after their entry,
(vii) breach by the Company of any representation or warranty set
forth in the Pledge Agreement, or default by the Company in the performance
of any covenant set forth in the Pledge Agreement, or repudiation by the
Company of any of its obligations under the Pledge Agreement or the
unenforceability of the Pledge Agreement against the Company for any reason
which in any one case or in the aggregate results in a material impairment
of the rights intended to be afforded thereby; and
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(viii) certain events of bankruptcy or insolvency with respect to the
Company or any of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing with respect to the Notes,
the Trustee or the holders of at least 25% of the aggregate principal amount of
the then outstanding Notes may declare all the Notes to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to the
Company, any Significant Subsidiary or any group of Restricted Subsidiaries
that, taken together, would constitute a Significant Subsidiary, all outstanding
Notes will become due and payable without further action or notice. Holders of
the Notes may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from holders of the Notes notice of
any continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable upon the acceleration of the
Notes. If an Event of Default occurs prior to March 1, 2002 by reason of any
such willful action (or inaction), by or on behalf of the Company with the
intention of avoiding the prohibition on redemption of the Notes prior to March
1, 2002, then the premium specified in the Indenture shall also become
immediately due and payable to the extent permitted by law upon the acceleration
of the Notes.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture, except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, PARTNERS, OFFICERS, EMPLOYEES, INCORPORATORS
AND STOCKHOLDERS
No director, officer, employee, incorporator, stockholder or authorized
representative of the Company, as such, shall have any liability for any
obligations of the Company under the Notes, the Indenture or the Pledge
Agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of Notes, by accepting a Note, waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of their
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for:
(i) the rights of holders of outstanding Notes to receive payments in
respect of the principal of, and premium (if any), interest and Liquidated
Damages (if any) on, such Notes when such payments are due from the trust
referred to below;
(ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost
or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
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(iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith; and
(iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (other than non-payment, bankruptcy, receivership, rehabilitation
and insolvency events) described under "--Events of Default" will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to the Notes:
(i) the Company must irrevocably deposit with the Trustee, in trust
for the benefit of the holders of the Notes, cash in U.S. dollars,
non-callable Government Securities or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent certified public accountants, to pay the principal of,
and premium if any, interest and Liquidated Damages, if any, on, the
outstanding Notes on the Stated Maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes
are being defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that:
(A) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling, or
(B) since the date of the Indenture, there has been a change in the
applicable federal income tax law,
in either case to the effect, and based thereon such opinion of counsel shall
confirm, that the holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the holders of the
outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance
had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound;
(vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day (or such other applicable
date) following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally;
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(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Notes
selected for redemption. Also, the Company is not required to transfer or
exchange any Notes for a period of 15 days before a selection of Notes to be
redeemed.
The registered holder of a Note will be treated as the owner of such Note
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Indenture, the
Notes and the Pledge Agreement may be amended or supplemented with the consent
of the holders of at least a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture, the Notes or the Pledge
Agreement may be waived with the consent of the holders of a majority in
principal amount of the then outstanding Notes (including consents obtained in
connection with a purchase of, or tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Note held by a non-consenting holder):
(i) reduce the principal amount of Notes whose holders must consent to
an amendment, supplement or waiver;
(ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other
than provisions relating to the covenants described above under the caption
"Repurchase at the Option of Holders--Change in Control" and "Limitation on
Sales of Assets and Subsidiary Interests");
(iii) reduce the rate of or change the time for payment of interest on
any Note;
(iv) waive a Default or Event of Default in the payment of principal
of, premium (if any), interest or Liquidated Damages (if any) on, the Notes
(except a rescission of acceleration of the Notes by the holders of at
least a majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration);
(v) make any Note payable in money other than that stated in the
Notes;
(vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Notes to receive
payments of principal of, premium (if any), interest or Liquidated Damages
on, the Notes;
(vii) waive a redemption payment with respect to any Note (other than
a payment required by one of the covenants described above under the
caption "--Repurchase at the Option of holders"); or
(viii) make any change in the foregoing amendment and waiver
provisions.
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Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture, the Notes or
the Pledge Agreement to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to holders of Notes in
the case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the holders of Notes or that does not adversely
affect the legal rights under the Indenture of any such holder, or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if the Trustee acquires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of Notes, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company entered into the Registration Rights Agreement with the Initial
Purchasers pursuant to which the Company will, at its expense, for the benefit
of the holders of the Original Notes, (i) use its best efforts to file within 45
days after the Closing Date, this Exchange Offer Registration Statement with the
Commission with respect to a registered offer to exchange the Original Notes for
the Exchange Notes, which will have terms identical in all material respects to
the Original Notes (except that the Exchange Notes will not contain terms with
respect to transfer restrictions) and (ii) unless the Exchange Offer would not
be permitted by applicable law or Commission policy, use its best efforts to
cause the Exchange Offer Registration Statement to be declared effective under
the Securities Act within 150 days after the Closing Date. Upon the Exchange
Offer Registration Statement being declared effective, the Company will offer
the Exchange Notes in exchange for surrender of the Original Notes. The Company
will keep the Exchange Offer open for not less than 30 days (or longer if
required by applicable law) after the date notice of the Exchange Offer is
mailed to the holders of the Original Notes. For each Original Note surrendered
to the Company pursuant to the Exchange Offer, the holder of such Original Note
will receive an Exchange Note having a principal amount equal to that of the
surrendered Original Note, which shall be canceled. Under existing
interpretations by the staff of the Commission, the Exchange Notes would in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act; provided that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will have a prospectus delivery requirement with respect to resales of such
Exchange Notes. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sale of the Original Notes) with the prospectus contained in the
Exchange Offer Registration Statement. Under the Registration Rights Agreement,
the Company is required to allow Participating Broker-Dealers and other persons,
if any, with similar prospectus delivery requirements to use the prospectus
contained in the Exchange Offer Registration Statement in connection with the
resale of such Exchange Notes. The Company will agree for a period of at least
180 days after the consummation of the Exchange Offer to make available a
prospectus meeting the requirements of the Securities Act to any Participating
Broker-Dealer for use in connection with any resale of any such Exchange Notes.
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Each holder of Original Notes (other than certain specified holders) who
wishes to exchange such Original Notes for Exchange Notes in the Exchange Offer
will be required to make certain representations, including representations that
any Exchange Notes to be received by it will be acquired in the ordinary course
of its business and that at the time of the commencement of the Exchange Offer
it has no arrangement with any person to participate in a distribution (within
the meaning of the Securities Act) with respect to the Exchange Notes.
The Company has agreed to pay all reasonable expenses incident to the
Exchange Offer (excluding the fees of counsel to the Initial Purchasers) and
will indemnify the Initial Purchasers against certain liabilities, including
liabilities under the Securities Act.
In the event that, based upon applicable interpretations of the Securities
Act by the staff of the Commission, the Company concludes that it cannot effect
the Exchange Offer, or if for any other reason the Exchange Offer is not
consummated within 180 days of the Closing Date, or if a holder of the Original
Notes is not permitted by applicable law to participate in the Exchange Offer,
the Company will use its best efforts to file a shelf registration statement
(the "Shelf Registration Statement") with the Commission on or prior to 45 days
after such filing obligation arises, cause the Shelf Registration Statement to
be declared effective by the Commission on or prior to 150 days after such
obligation arises and use their best efforts to keep such Shelf Registration
Statement continuously effective until two years after the Closing Date.
In the event that either: (i) the Exchange Offer Registration Statement or
the Shelf Registration Statement is not filed with the Commission on or prior to
the date specified for such filing; (ii) the Exchange Offer Registration
Statement or the Shelf Registration Statement has not been declared effective by
the Commission on or prior to the date specified for such effectiveness; (iii)
the Exchange Offer is not consummated on or prior to the date specified for such
consummation; or (iv) following the date such Exchange Offer Registration
Statement or Shelf Registration Statement is declared effective by the
Commission, it shall cease to be effective without being restored to
effectiveness by amendment or otherwise within the time period specified in the
Registration Rights Agreement, (each such event referred to in clauses (i)
through (iv), a "Registration Default"), the Company shall pay as liquidated
damages ("Liquidated Damages") to each holder of the Original Notes an amount
(the "Damage Amount") equal to 0.25% per annum of the face amount of the
Original Notes during the first 90-day period or any portion thereof immediately
following the occurrence of such Registration Default. The Damage Amount will be
increased by an additional 0.25% per annum of the face amount of the Original
Notes for each subsequent 90-day period that any such Damage Amount continues to
accrue, and the Damage Amount will accrue at the rate specified above until such
Registration Default is cured; provided that in no event shall the Damage Amount
be increased by more than 1% of the face amount of the Original Notes. In
certain circumstances, if the Shelf Registration Statement ceases to be
effective for certain periods, then Liquidated Damages shall be payable.
The Original Notes and the Exchange Notes will be considered collectively
to be a single class for all purposes under the Indenture, including, without
limitation, waivers, amendments, redemptions and offers to repurchase under the
circumstances described herein.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Attributable Debt" means, with respect to any sale and leaseback
transaction, the present value at the time of determination (discounted at a
rate consistent with accounting guidelines, as determined in good faith by the
Company) of the payments during the remaining term of the lease (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended) or until the earliest date on which the lessee may
terminate such lease without penalty or upon payment of a penalty (in which case
the rental payments shall include such penalty, after excluding all amounts
required to be paid on account of maintenance and repairs, insurance, taxes,
assessments, water, utilities and similar charges).
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"Acquired Debt" means, with respect to any specified Person:
(i) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Restricted Subsidiary of such
specified Person, including, without limitation, Indebtedness incurred in
connection with, or in contemplation of, such other Person merging with or
into or becoming a Restricted Subsidiary of such specified Person; and
(ii) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of Voting Equity Interests, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Equity Interests (or the
equivalent) of a Person shall be deemed to be control.
"Asset Sale" means:
(i) the sale, lease, license, conveyance or other disposition of any
assets or rights (including, without limitation, by way of a Sale and
Leaseback or similar arrangement) by the Company or a Restricted Subsidiary
(a "disposition"), provided that the disposition of all or substantially
all of the assets of the Company and its Restricted Subsidiaries taken as a
whole will be governed by the provisions of the Indenture described above
under the caption "--Repurchase at the Option of Holders--Change of
Control" and/or the provisions described above under the caption "--Certain
Covenants--Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant); and
(ii) except to the extent excluded by clause (i) above, the issuance
or disposition by the Company or any of its Restricted Subsidiaries of
Equity Interests of the Company's Restricted Subsidiaries,
in the case of either clause (i) or (ii) above, whether in a single transaction
or a series of related transactions: (a) that have a Fair Market Value in excess
of $2.5 million; or (b) for net proceeds in excess of $2.5 million.
Notwithstanding the foregoing: (i) sales of imagery, imagery distribution
or satellite tasking rights, software or rights in software for processing and
storing imagery, license grants to imagery value-added resellers or distributors
and other associated rights, and sales of services, products or inventory in the
ordinary course of business; (ii) a transfer of assets by the Company to any of
its Restricted Subsidiaries or by a Restricted Subsidiary to the Company; (iii)
an issuance of Equity Interests by a Restricted Subsidiary to the Company or to
a Wholly Owned Restricted Subsidiary of the Company; (iv) an exchange of an
asset held by the Company or a Restricted Subsidiary for an asset of a third
party upon a determination by the disinterested members of the Board of
Directors of the Company made in good faith (evidenced by a resolution approved
by a majority of the disinterested members of the Board of Directors of the
Company and set forth in an Officers' Certificate delivered to the Trustee) that
the asset received by the Company or a Restricted Subsidiary in such exchange
(x) is a Related Asset, (y) has a Fair Market Value at least equal to the fair
market value of the asset transferred by the Company or such Restricted
Subsidiary and (z) is usable in the ordinary course of the Company's business to
at least the same extent as the asset transferred by the Company or such
Restricted Subsidiary; (v) sales or dispositions of damaged, worn out or other
obsolete property in the ordinary course of business so long as such property is
no longer necessary for the proper conduct of the business of the Company or any
of its Restricted Subsidiaries; and (vi) a Restricted Payment that is permitted
by the covenant entitled "Restricted Payments" will not be deemed to be Asset
Sales.
"Business Assets" means any hardware, software, technology, intellectual
property, or other rights in or assets (or, in the case of clause (vi),
inventory) relating to (i) the remote imaging satellites owned and/or operated
by ORBIMAGE on the Issue Date, (ii) the OrbView Satellites, (iii) the
Replacement Satellites, (iv) any other remote imaging satellites developed,
constructed or acquired by ORBIMAGE, (v) the ground segment (or any components
thereof) related to the operation of, and processing of data from, the
satellites described in clauses (i)-(v) above, and (vi) the Company's imagery
catalogue and archive.
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"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(i) in the case of a corporation, corporate stock;
(ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(iii) in the case of a partnership, partnership interests (whether
general or limited); and
(iv) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Consideration" means any consideration received from an Asset Sale in
the form of cash or Cash Equivalents, in either case in U.S. dollars or freely
convertible into U.S. dollars.
"Cash Equivalents" means:
(i) United States dollars;
(ii) Government Securities;
(iii) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances or money market deposit accounts with maturities not exceeding
six months and overnight bank deposits, in each case with any Eligible
Institution;
(iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any Eligible Institution;
(v) commercial paper having the highest rating obtainable from Moody's
or S&P and in each case maturing within six months after the date of
acquisition; and
(vi) mutual funds or other pooled investment vehicles investing solely
in investments of the types described in (i) through (v) above.
"Change of Control" means:
(i) the failure by Orbital to hold at least 12,600,000 shares of
Common Stock of the Company (being 50% of the shares of Common Stock held
by Orbital on May 8, 1997), adjusted for stock splits, stock combinations
and the like;
(ii) the failure by Orbital to hold at least thirty percent (30%) of
the Common Stock of the Company on a fully diluted basis, without giving
effect to the conversion of Capital Stock of the Company issued as a
dividend paid-in-kind with respect to shares of Series A Preferred Stock or
Capital Stock of the Company issued pursuant to options granted under the
Stock Option Plan or any other option plan adopted for the benefit of the
Company's employees or directors;
(iii) the direct or indirect acquisition of beneficial ownership of
Voting Equity Interests of the Company by any Person or group of Persons
acting in concert, in an amount greater than the amount of Voting Equity
Interests held contemporaneously by Orbital except (x) purchases by record
holders of Series A Preferred Stock as of the Issue Date (and their
affiliates, to the extent that such holders are permitted to transfer their
shares of Series A Preferred Stock to affiliates under the Amended and
Restated Stock Purchase Agreement, dated February 25, 1998 ("Series A
Affiliates")) from other holders of Series A Preferred Stock and their
Series A Affiliates and (y) purchases permitted pursuant to the Series A
Holders' subscription rights under Section 4.1 of the Stockholders'
Agreement;
(iv) the acquisition of the Company, or the sale, lease, transfer,
conveyance or other disposition, in one transaction or a series of related
transactions, directly or indirectly, including through a liquidation or
dissolution, of all or substantially all of the assets of the Company and
its Restricted Subsidiaries or the
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combination of the Company or all or substantially all its assets with
another Person (other than any such transfer to any Wholly Owned Restricted
Subsidiary of the Company), unless the acquiring or surviving Person shall
be a corporation more than fifty percent (50%) of the combined voting power
of which corporation's then outstanding Voting Equity Interests, after
giving effect to such acquisition or combination, are owned, immediately
after such acquisition or combination, by the owners of the Voting Equity
Interests of the Company outstanding immediately prior to such acquisition
or combination;
(v) the adoption of a plan relating to the liquidation or dissolution
of the Company (other than any such liquidation or dissolution to or for
the benefit of any Wholly Owned Restricted Subsidiary of the Company);
(vi) the failure by the Company to obtain any applicable License (or
License amendment, as applicable) so that it is in full force and effect
within thirty (30) days prior to the scheduled launch of any of the OrbView
Satellites;
(vii) the revocation of any License necessary to operate OrbView-2 or
the OrbView Satellites consistent with the Company's current and planned
commercial operations and which revocation is not cured within thirty (30)
days of the occurrence thereof or such later date when all applicable
appeals have been finally determined, if during such appeal period the
Company has received regulatory approval to continue operations under the
License pending the outcome of such appeals; or
(viii) at any time prior to the latest to occur of (a) the successful
in-orbit checkout of the imaging satellite known as OrbView-3, (b) a
Qualifying Public Offering or (c) the business day next following the end
of a 180 consecutive day period during which the average closing price per
share of the Company's Common Stock shall have exceeded the Threshold Price
(as defined in the definition of "Qualifying Public Offering" below) then
in effect, and unless consented to in writing by the holders of at least
fifty percent (50%) of the shares of Series A Preferred Stock then
outstanding, the acquisition by any Person or group of Persons acting in
concert of beneficial ownership, direct or indirect, of securities of
Orbital representing thirty-five percent (35%) or more of the combined
voting power of Orbital's then outstanding equity securities and at any
time thereafter either (x) less than a majority of Orbital's board of
directors shall be Continuing Directors or (y) there shall be an
announcement by Orbital or such acquiring Person or group of Persons or the
approval of a business plan by Orbital's Board of Directors, in either case
that indicates an intention to de-emphasize or curtail the relationship
between the Company and Orbital.
"Collateral Agent" means the collateral agent under the Pledge Agreement.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period,
(a) plus, to the extent deducted or otherwise excluded in computing such
Consolidated Net Income:
(i) an amount equal to any extraordinary loss plus any net loss
realized in connection with a sale of assets;
(ii) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period;
(iii) Consolidated Interest Expense; and
(iv) depreciation, amortization (including amortization of goodwill
and other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other non-cash charges (excluding any
such non-cash charge to the extent that it represents an accrual of or
reserve for cash charges in any future period or amortization of a prepaid
cash expense that was paid in a prior period) of such Person and its
Restricted Subsidiaries for such period;
(b) minus, to the extent added or otherwise included in computing
Consolidated Net Income, consolidated interest income of such Person and its
Restricted Subsidiaries for such period and non-cash items increasing such
Consolidated Net Income (including, without limitation, (x) unrealized currency
exchange
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gains and (y) amortized non-cash contract revenues related to (i) cash received
prior to the Issue Date and (ii) cash received subsequent to the date hereof
that is specifically intended to fund capital expenditures, including, but not
limited to that certain contract between Orbital and the U.S. Air Force with
respect to hyperspectral imagery, in each case, on a consolidated basis and
determined in accordance with GAAP). Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Restricted Subsidiary of any such
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in the same proportion) that the Net Income of such
Restricted Subsidiary was included in calculating the Consolidated Net Income of
such Person and only if a corresponding amount would be permitted at the date of
determination to be distributed by dividend to such Person by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Consolidated Interest Expense" means, with respect to any Person for any
period, (a) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financing, and net payments (if any) pursuant
to Hedging Obligations) plus (b) the aggregate amount for such period of cash or
non-cash dividends on any Disqualified Stock of the Company and its
Subsidiaries.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that:
(i) the Net Income of any Person that is not a Subsidiary Guarantor or
that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions actually
paid in cash to the referent Person or a Wholly Owned Restricted Subsidiary
thereof;
(ii) the Net Income of any Restricted Subsidiary that is not a
Subsidiary Guarantor shall be excluded to the extent that the declaration
or payment of dividends or similar distributions by such Restricted
Subsidiary of such Net Income is not at the date of determination permitted
without any prior governmental approval (which has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary or its
stockholders;
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(iv) the cumulative effect of a change in accounting principles shall
be excluded; and
(v) the Net Income of any Unrestricted Subsidiary shall be included
only to the extent of the amount of dividends or distributions actually
paid in cash to the referent Person or a Restricted Subsidiary thereof.
"Consolidated Net Worth" means, with respect to any Person as of any date:
(i) the consolidated equity of the equity holders of such Person and
its consolidated Restricted Subsidiaries as of such date; plus
(ii) the respective amounts reported on such Person's balance sheet as
of such date with respect to any series of preferred Equity Interests
(other than Disqualified Stock) that by its terms is not entitled to the
payment of dividends unless such dividends may be declared and paid only
out of net earnings in
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respect of the year of such declaration and payment, but only to the extent
of any cash received by such Person upon issuance of such preferred stock;
minus
(iii) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going-concern
business made within 12 months after the acquisition of such business)
subsequent to the date of the Indenture in the book value of any asset
owned by such Person or a consolidated Subsidiary of such Person; minus
(iv) all investments as of such date in unconsolidated Subsidiaries
and in Persons that are not Restricted Subsidiaries; minus
(v) all unamortized debt discount and expense and unamortized deferred
charges as of such date.
"Consolidated Tangible Net Assets" means, with respect to any Person, the
Consolidated Net Worth of such Person less goodwill and any other intangible
assets shown on the consolidated balance sheet of such Person and its Restricted
Subsidiaries.
"Continuing Director" means a director of Orbital that is a director on the
Issue Date or is nominated as a director by a majority of Orbital's Board of
Directors, which majority consists of directors in place for at least 12 months
(other than in connection with replacements or vacancies occurring in the
ordinary course) prior to the acquisition representing 35% or more of the
combined voting power of Orbital's outstanding equity securities.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities or commercial paper facilities with banks or other institutional
lenders providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of any
event: (i) matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise at the option of the holder thereof; or (ii) is
redeemable or is convertible or exchangeable for Indebtedness at the option of
the holder thereof, in whole or in part, on or prior to the date on which the
Notes are repaid, redeemed or retired in full; provided however, that
Disqualified Stock shall not include any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the right to require
the Company to repurchase such Capital Stock if the terms of such Capital Stock
provide that the Company may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with
the covenant described above under the caption "--Certain Covenants--Restricted
Payments." The Series A Preferred Stock shall not be Disqualified Stock.
"Eligible Institution" means a domestic commercial banking institution that
has combined capital and surplus of not less than $500 million or its equivalent
in foreign currency, whose debt is rated "A" or higher according to S&P or
Moody's at the time as of which any investment or rollover therein is made.
"Eligible Receivables" means the accounts receivable of the Company (net of
accounts more than 90 days past due and reserves and allowances for doubtful
accounts determined in accordance with GAAP).
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company in existence on
the Issue Date, until such amounts are repaid.
"Fair Market Value" means, with respect to any asset, the sale value that
would be obtained in an arm's-length free market transaction, between a willing
seller and a willing buyer, neither of which is under pressure
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or compulsion to complete the transaction; provided that the Fair Market Value
of any such asset or assets shall be determined by the Board of Directors of the
Company, acting in good faith and by unanimous resolution, and which
determination shall be evidenced by an Officers' Certificate delivered to the
Trustee.
"Fixed Asset Financing" means Indebtedness that is secured by ground-based
equipment and other tangible assets of the Company or a sale and leaseback
transaction with respect to such assets, in which case the Attributable Debt
shall be treated as Indebtedness for purposes of this definition.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession and which are in effect on the Issue Date.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" or "guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under: (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements; (ii) foreign currency hedge
obligations; and (iii) other agreements or arrangements designed to protect such
Person against fluctuations in interest and foreign currency rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or bankers' acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable to the
extent that any such accrued expense or trade payable is not more than 90 days
overdue or is otherwise being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted, if and to the extent any of the
foregoing indebtedness (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, as well as all indebtedness of others secured by a Lien on
any asset of such Person (whether or not such indebtedness is assumed by such
Person and, in the event such indebtedness is not assumed by, and is otherwise
non-recourse to, such Person, the amount of such indebtedness shall be deemed to
equal the greater of book value or Fair Market Value), all obligations to
purchase, redeem, retire, defease or otherwise acquire for value any
Disqualified Stock or any warrants, rights or options to acquire such
Disqualified Stock valued, in the case of Disqualified Stock, at the greatest
amount payable in respect thereof on a liquidation (whether voluntary or
involuntary) plus accrued and unpaid dividends, the liquidation value of any
preferred stock issued by Subsidiaries of such Person, plus accrued and unpaid
dividends, and, to the extent not otherwise included, the Guarantee by such
Person of any indebtedness of any other Person; and provided, that
"Indebtedness" shall be calculated without duplication and after elimination of
Intercompany Indebtedness (as defined in clause (vi) of the covenant entitled
"Incurrence of Indebtedness or Issuance of Disqualified Stock").
"Indebtedness to Capital Ratio" means, on any date of determination for the
Company and its Restricted Subsidiaries, on a consolidated basis, the ratio
(expressed as a percentage) of Indebtedness on such date to Total Invested
Capital on such date.
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"Indebtedness to Cash Flow Ratio" means, with respect to any Person as of
any date of determination, the ratio of:
(i) total Indebtedness of such Person and its Restricted Subsidiaries
as of such date; to
(ii) two times Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for the two most recently ended fiscal quarters for
which financial statements of such Person are available (the "Measurement
Period");
provided, however, that: (a) in making such computation, the total Indebtedness
of such Person and its Restricted Subsidiaries shall include the total amount of
funds outstanding under any credit facilities; and (b) in the event such Person
or any of its Restricted Subsidiaries consummates a material acquisition or sale
of assets, or issues or redeems Disqualified Stock subsequent to the
commencement of the Measurement Period, then the Indebtedness to Cash Flow Ratio
shall be calculated giving pro forma effect to such material acquisition, sale
of assets or issuance or redemption of Disqualified Stock as if the same had
occurred at the beginning of the Measurement Period. For purposes of this
definition, whenever the pro forma effect is to be given to a transaction, the
pro forma calculations shall be made in good faith by a responsible financial or
accounting officer of the Company.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the good
faith judgment of the Board of Directors of the Company (evidenced by a
resolution of the majority of the Board of Directors of the Company as set forth
in an Officers' Certificate delivered to the Trustee), qualified to perform the
task for which it has been engaged and is disinterested and independent with
respect to the Company and its Affiliates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans, guarantees, advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities and all other items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that an acquisition of assets, Equity Interests
or other securities by the Company for consideration consisting of common Equity
Interests (other than Disqualified Stock) of the Company shall not be deemed to
be an Investment. Notwithstanding the foregoing, Investments shall not include
advance payments for satellite capacity or imagery related services or products
in the ordinary course of business.
"Joint Venture" means a Person in a Related Business in which the Company
or one of its Subsidiaries holds 50% or less of the Voting Equity Interests.
"License" means any Federal Communications Commission license or Department
of Commerce license issued to the Company relating to the operation of OrbView-2
or the OrbView Satellites (including the Department of Commerce license and the
Federal Communications Commission license currently owned by Orbital relating to
the operation of OrbView-2).
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Marketable Securities" means: (i) Government Securities or, for purpose of
determining whether such Government Securities may serve as substitute Pledged
Securities, Government Securities having a maturity date on or before the date
on which the payments of interest (or principal) on the Notes to which such
Government Securities are pledged occur; (ii) any certificate of deposit
maturing not more than 270 days after the date of acquisition issued by, or time
deposit of, an Eligible Institution; (iii) commercial paper maturing not more
than 270 days after the date of acquisition issued by a corporation (other than
an Affiliate of the
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Company) with a rating at the time as of which any investment therein is made,
of "A-1" (or higher) according to S&P or "P-1" (or higher) according to Moody's;
(iv) any banker's acceptances or money market deposit accounts issued or offered
by an Eligible Institution; and (v) any fund investing exclusively in
investments of the types described in clauses (i) through (iv) above.
"Moody's" means Moody's Investors Service, Inc.
"Net Income" means, with respect to any Person, the net income (or loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however,
(i) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with:
(a) any sale of assets (including, without limitation, dispositions
pursuant to Sale and Leaseback Transactions); or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(ii) any extraordinary or nonrecurring gain (but not loss), together
with any related provision for taxes on such extraordinary or nonrecurring
gain (but not loss).
"Net Proceeds" means (a) with respect to any Asset Sale, the aggregate cash
proceeds received by the Company or any of its Restricted Subsidiaries in
respect of such Asset Sale (including, without limitation, any cash received
upon the sale or other disposition of any non-cash consideration received in any
Asset Sale), net of the direct costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements and provided that any
such amount not so required to be paid for taxes shall be deemed to constitute
Net Proceeds at the time such amount is not retained for such purpose), amounts
required to be applied to the repayment of Indebtedness secured by a Lien on the
asset or assets (including Equity Interests) that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets (including Equity Interests) established in accordance with GAAP
(provided that the amount of any such reserve shall be deemed to constitute Net
Proceeds at the time such reserve shall have been released or is not otherwise
required to be retained for such purpose) and (b) with respect to any issuance
or sale of Capital Stock, the proceeds of such issuance or sale in the form of
cash or Cash Equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not interest,
component thereof) when received in the form of cash or Cash Equivalents (except
to the extent such obligations are financed or sold with recourse to the Company
or any Restricted Subsidiary of the Company) and proceeds from the conversion of
other property received when converted to cash or Cash Equivalents, net of
legal, accounting and investment banking fees, discounts and sales commissions
and net of taxes paid or payable as a result thereof.
"Non-Recourse Debt" means Indebtedness:
(i) as to which neither the Company nor any of its Restricted
Subsidiaries:
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness);
(b) is directly or indirectly liable (as a guarantor or otherwise);
or
(c) constitutes the lender;
(ii) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness of the Company or any of its Restricted Subsidiaries
to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its Stated Maturity; and
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(iii) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of any of the Company or
any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer or President and the chief financial and
accounting officer of such Person.
"Orbital" means Orbital Sciences Corporation, a Delaware corporation, or
any successor entity whether by merger, sale of all or substantially all its
assets or otherwise.
"Orbital Agreements" means each of the Procurement Agreement between the
Company and Orbital, dated as of November 18, 1996, as amended on May 8, 1997
and December 31, 1997, the Amended and Restated ORBIMAGE Services Agreement
between Orbital and the Company, dated as of December 31, 1997; the Non-Compete
and Teaming Agreement between the Company and Orbital, dated as of May 8, 1997;
the OrbView-2 License Agreement between the Company and Orbital, dated as of May
8, 1997; the Software License Agreement between the Company and Earth
Observation Sciences dated March 14, 1996, as amended; and the Software
Maintenance and Support Agreement between the Company and Earth Observation
Sciences, dated as of October 1, 1997; each agreement as in effect as of the
Issue Date and as amended from time to time if such amendment is not prohibited
by the Indenture.
"OrbView Satellites" means each of the high-resolution satellites currently
designated as OrbView-3 and OrbView-4 under the Procurement Agreement, and any
Replacement Satellite.
"Permitted Investment" means:
(i) any Investments in the Company or any Wholly Owned Restricted
Subsidiary of the Company;
(ii) any Investments in cash or Cash Equivalents;
(iii) Investments by the Company or any of its Restricted Subsidiaries
in a Person if, as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of the Company; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or any Restricted Subsidiary of the
Company;
(iv) any Investment made as a result of the receipt of non-Cash
Consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "Repurchase
at the Option of Holders--Limitation on Sales of Assets and Subsidiary
Interests";
(v) any Investment made with Excess Proceeds remaining after the
consummation of an Asset Sale Offer as described above under the caption
"Repurchase at the Option of Holders--Limitation on Sales of Assets and
Subsidiary Interests;"
(vi) any Investment made by the Company or any of its Restricted
Subsidiaries in any Unrestricted Subsidiary using the proceeds of a
substantially concurrent contribution to the equity capital of the Company;
and
(vii) any Investment made by the Company or any of its Restricted
Subsidiaries in a Related Business, Related Satellite Business or a Joint
Venture; provided that at the time any such Investment is made, such
Investment will not cause the aggregate amount of Investments at any one
time outstanding (x) $10 million or (y) 7.5% of the Consolidated Net Worth
of the Company.
"Permitted Liens" means:
(i) Liens securing the Notes;
(ii) Liens in favor of the Company;
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(iii) Liens on property of a Person existing at the time such Person
is merged into or consolidated with the Company or any of its Restricted
Subsidiaries; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company or its Restricted Subsidiary;
(iv) Liens on property existing at the time of acquisition thereof by
the Company or any of its Restricted Subsidiaries, provided that such Liens
were in existence prior to the contemplation of such acquisition;
(v) Liens to secure the performance of statutory obligations, surety,
appeal or performance bonds or other obligations of a like nature or
mechanics' or purchase money Liens incurred in the ordinary course of
business;
(vi) Liens existing on the Issue Date;
(vii) Liens on inventory, accounts receivable or domestic and/or
international ground operation centers and related systems securing
Indebtedness incurred under clause (i), (vii), (x) or (xi) of the covenant
entitled "Incurrence of Indebtedness or Issuance of Disqualified Stock", or
securing Permitted Refinancing Indebtedness incurred pursuant to the
Indenture to refinance Indebtedness incurred under clause (i), (viii), (x)
or (xi) of the covenant entitled "Incurrence of Indebtedness or Issuance of
Disqualified Stock";
(viii) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(ix) Liens incurred in the ordinary course of business of the Company
or any Subsidiary of the Company with respect to obligations that do not
exceed $5 million at any one time outstanding and that (a) are not incurred
in connection with the borrowing of money or the obtaining of advances or
credit (other than trade credit in the ordinary course of business), (b) do
not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the
Company or its Subsidiaries and (c) are not for the benefit of an Affiliate
of the Company; and
(x) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Pledge Account" means the account established with the Collateral Agent
pursuant to the terms of the Pledge Agreement for the deposit of the Pledged
Securities.
"Pledge Agreement" means the Pledge Agreement dated as of the date of the
Indenture by and between the Company and the Collateral Agent governing the
Pledge Account.
"Pledged Securities" means the U.S. government securities purchased by the
Company with a portion of the net proceeds from the Units Offering to be
deposited in the Pledge Account and pledged as security for the Notes.
"Qualifying Public Offering" means a public offering of Common Stock
registered under the Securities Act (i)(a) that shall have resulted in an
aggregate price to the public of not less than $30 million or (b) that involves
the sale to the public of Common Stock constituting at least twenty percent
(20%) of the Common Stock immediately outstanding after the offering, in either
case at a price per share of Common Stock equal to or greater than the Threshold
Price and (ii) that shall have resulted in listing or admission to trading of
the Common Stock on the New York Stock Exchange, a national securities exchange,
the NASDAQ National Market System or NASDAQ over-the-counter market. For the
purposes of this definition, Threshold Price means (i) as of any date through
May 1, 1999, 100% of the then current Conversion Price, (ii) from May 2,
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1999 through May 1, 2000, the then current Conversion Price, multiplied by the
amount (expressed as a percentage) equal to 100% plus the result of 30% times a
fraction, the numerator of which is the number of days after May 1, 1999 the
calculation of the Threshold Price occurs and the denominator of which is 365,
(iii) from May 2, 2000 through May 1, 2001, the then current Conversion Price,
multiplied by the amount (expressed as a percentage) equal to 130% plus the
result of 20% times a fraction, the numerator of which is the number of days
after May 1, 2000, the calculation of the Threshold Price occurs and the
denominator of which is 365, and (iv) from May 2, 2001 forward, 150% of the then
current Conversion Price.
"Related Asset" means any asset used in connection with a Related Business
or Related Satellite Business.
"Related Business" means any Related Satellite Business and any business
relating to the worldwide acquisition, marketing, processing and sales of remote
imagery-based products and services.
"Related Satellite Business" means any business relating to the design,
development, and operation of remote imaging satellites and the worldwide
marketing and sales of satellite-based remote imagery-based products and
services.
"Replacement Satellite" means any satellite constructed to replace an
OrbView Satellite in the event of a failure of such OrbView Satellite; provided,
however, that any such Replacement Satellite shall not include hyperspectral
imagery capacity, if it is determined in good faith by the Board of Directors of
the Company (evidenced by a resolution approved by at least a majority of the
Board of Directors of the Company and set forth in an Officers' Certificate
delivered to the Trustee) that hyperspectral imagery is not required to maintain
the competitiveness of the Company's satellites.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of such Person
that is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
pursuant to which any property (other than Capital Stock) or assets is sold by a
Person or a Subsidiary and is thereafter leased back from the purchaser or
transferee thereof by such Person or one or more of its Subsidiaries, except a
Fixed Asset Financing.
"S&P" means Standard & Poor's Ratings Services.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred Stock" means the Series A Cumulative Convertible
Preferred Stock, $.01 par value, of the Company.
"Series A Offering" means the sale of additional shares of Series A
Preferred Stock that will be consummated concurrent with the closing of the
Units Offering.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article I, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, when used with respect to any Note, March 1, 2005.
"Stock Purchase Agreement" means the Series A Preferred Stock Purchase
Agreement, dated May 7, 1997, as amended, by and among the Company and the
purchasers of Series A Preferred Stock, as in effect on the Issue Date.
"Stockholders' Agreement" means the agreement by and among the Company and
its stockholders, dated May 8, 1997, as amended, as in effect on the Issue Date.
"Stock Option Plan" means the Orbital Imaging Corporation 1996 Stock Option
Plan, adopted as of November 15, 1996 and any successor stock option plan
adopted for the benefit of the Company's directors and/or employees.
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"Subsidiary" means, with respect to any Person:
(i) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of such Person (or a combination thereof); and
(ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means any Guarantee of the Company's obligations
under the Indenture and the Notes given by a Subsidiary Guarantor.
"Subsidiary Guarantor" means any Person that becomes a Restricted
Subsidiary after the date of the Indenture.
"Total Invested Capital" means, as of any date of determination, the sum of
(a) total Indebtedness as of such date and (b) $88 million plus the aggregate
proceeds received by the Company or any Restricted Subsidiary in respect of the
issuance of Capital Stock (other than Disqualified Stock) of the Company or such
Restricted Subsidiary, including the fair value of property other than cash (as
determined in good faith by the Board of Directors of the Company (evidenced by
a resolution approved by at least a majority of the Board of Directors of the
Company and set forth in an Officers' Certificate delivered to the Trustee),
less any redemptions of, or dividends or other distributions on, Capital Stock
of the Company made after the Issue Date and on or prior to the date of
determination.
"Unrestricted Subsidiary" of a Person means any Subsidiary of such Person
that is designated by such Person as an Unrestricted Subsidiary, but only if and
for so long as such Subsidiary:
(i) has no Indebtedness other than Non-Recourse Debt;
(ii) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary unless the
terms of any such agreement, contract, arrangement or understanding are no
less favorable to the Company or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of the
Company;
(iii) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation:
(1) to subscribe for additional Equity Interests; or
(2) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results;
(iv) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of any of the Company or any of its
Restricted Subsidiaries; and
(v) in the case of a corporate entity or limited liability company,
has at least one director on its board of directors and at least one
executive officer, in each case who is not a director or executive officer
of the Company or any of its Restricted Subsidiaries.
"Voting Equity Interests" means the Equity Interest in a corporation or
other Person with voting power under ordinary circumstances entitling the
holders thereof to elect or appoint the board of directors, executive committee
or other governing body of such corporation or Person, whether at all times or
only so long as no senior class of securities has such voting power by reason of
any contingency.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(i) the sum of the products obtained by multiplying: (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
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(ii) the then outstanding principal of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person and one or more other Wholly Owned Restricted
Subsidiaries of such Person.
PROVISIONS APPLICABLE TO ALL SECURITIES
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes will
initially be issued in the form of one or more Global Notes (the "Global
Notes"). The Global Notes will be deposited on the date of the closing of the
sale of the Exchange Notes offered hereby (the "Exchange Closing Date") with, or
on behalf of, the Depositary and registered in the name of Cede & Co., as
nominee for the Depositary (such nominee being referred to herein as the "Global
Note Holder").
Exchange Notes that are issued as described below under "--Certificated
Securities" will be issued in registered form (the "Certificated Securities").
Upon the transfer of Certificated Securities, such Certificated Securities may,
unless the Global Notes have previously been exchanged for Certificated
Securities, be exchanged for an interest in a Global Note representing the
principal amount of Notes being transferred.
The Depositary is a limited-purpose trust company which was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants with portions of the principal amount of the Global
Notes and (ii) ownership of the Exchange Notes evidenced by the Global Notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by the Depositary (with respect to the interests of
the Depositary's Participants), the Depositary' Participants and the
Depositary's Indirect Participants. Prospective purchasers are advised that the
laws of some states require that certain Persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer Exchange Notes evidenced by the Global Notes will be limited to such
extent.
So long as the Global Note Holder is the registered owner of any Exchange
Notes, the Global Note Holder will be considered the sole owner or holder of
such Exchange Notes outstanding under the Indenture. Beneficial owners of
Exchange Notes evidenced by the Global Note will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
the giving of any directions, instructions or approvals to the Trustee
thereunder. The ability of a Person having a beneficial interest in Exchange
Notes represented by a Global Note to pledge such interest to Persons or
entities that do not participate in the Depositary's system or to otherwise take
actions in respect of such interest, may be affected by the lack of a physical
certificate evidencing such interest.
None of the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Exchange Notes by the Depositary, or for maintaining, supervising or
reviewing any records of the Depositary relating to such Exchange Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Exchange Notes registered in the name of a
Global Note Holder on the applicable record date will be payable by the Trustee
to or at the direction of such Global Note Holder in its capacity as the
registered holder under
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the Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the Persons in whose names the Exchange Notes, including the Global Notes,
are registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, none of the Company
nor the Trustee has or will have any responsibility or liability for the payment
of such amounts to beneficial owners of Exchange Notes (including principal,
premium, if any, interest and Liquidated Damages, if any).
The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payment, in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security as shown on the records
of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Exchange Notes
will be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in a
Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Exchange Notes in the form of Definitive Notes. Upon any
such issuance, the Trustee is required to register such Exchange Notes in the
name of, and cause the same to be delivered to, such Person or Persons. In
addition, if (i) the Company notifies the Trustee in writing that the Depositary
is no longer willing or able to act as a depositary and the Company is unable to
appoint a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Exchange
Notes in the form of Definitive Notes under the Indenture, then, upon surrender
by the relevant Global Note Holder of its Global Note, Exchange Notes in such
form will be issued to each Person that the Depositary identifies as the
beneficial owner of the related Exchange Notes.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary in identifying the beneficial owners of the related Exchange Notes
and each such Person may conclusively rely on, and shall be protected in relying
on, instructions from the Depositary for all purposes (including with respect to
the registration and delivery, and the respective principal amounts, of the
Exchange Notes to be issued).
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Exchange Notes
represented by the Global Securities (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Security Holder. With
respect to Certificated Securities, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the holders
thereof or, if no such account is specified, by mailing a check to each such
holder's registered address. The Exchange Notes represented by the Global Notes
are expected to trade in the Depositary's Same Day Funds Settlement System, and
any permitted secondary market trading activity in such Exchange Notes will
therefore be required by the Depositary to be settled in immediately available
funds. The Company expects that secondary trading in the Certificated Securities
will also be settled in immediately available funds.
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U.S. FEDERAL INCOME TAX CONSEQUENCES
Latham & Watkins, counsel to the Company, has advised the Company that the
following discussion is its opinion as to the material U.S. federal tax
consequences relevant to the exchange of Original Notes for Exchange Notes and
the ownership and disposition of Exchange Notes by persons who (a) acquired
Original Notes on original issue for cash and (b) hold Original Notes and
Exchange Notes as capital assets (generally, property held for investment)
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). Such opinion is based upon the Code, Treasury Regulations,
Internal Revenue Service ("IRS") rulings and pronouncements, and judicial
decisions now in effect, all of which are subject to change at any time by
legislative, administrative, or judicial action, possibly with retroactive
effect. The discussion does not discuss every aspect of U.S. federal taxation
that may be relevant to a particular taxpayer in light of their personal
circumstances or to persons who are otherwise subject to a special tax treatment
(including, without limitation, banks, broker-dealers, insurance companies,
pension and other employee benefit plans, tax exempt organizations and entities,
persons holding Notes as a part of a hedging or conversion transaction or a
straddle, certain hybrid entities and owners of interests therein and holders
whose functional currency is not the U.S. dollar) and it does not discuss the
effect of any applicable U.S. state and local or non-U.S. tax laws. The Company
has not sought and will not seek any rulings from the IRS concerning the tax
consequences of the exchange of Original Notes for Exchange Notes and the
ownership and disposition of Exchange Notes and, accordingly, there can be no
assurance that the IRS will not successfully challenge the tax consequences
described below. EACH HOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR
WITH RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF EXCHANGING ORIGINAL
NOTES FOR EXCHANGE NOTES AND OWNING AND DISPOSING EXCHANGE NOTES, AS WELL AS ANY
TAX CONSEQUENCES APPLICABLE UNDER THE LAWS OF ANY U.S. STATE, LOCAL, OR NON-U.S.
TAXING JURISDICTION.
U.S. HOLDERS
This Section states the material U.S. federal income tax consequences of
the exchange of Original Notes for Exchange Notes and the ownership and
disposition of Exchange Notes by "U.S. Holders." The term "U.S. Holder" refers
to a person that is classified for U.S. federal tax purposes as a United States
person. For this purpose, a United States person includes (i) a citizen or
resident of the United States, (ii) a corporation, limited liability company, or
partnership created or organized in the United States or under the laws of the
United States or of any state or political subdivision thereof, unless in the
case of a partnership, Treasury Regulations provide otherwise, (iii) an estate
whose income is includible in gross income for U.S. federal income tax purposes
regardless of its source, or (iv) a trust whose administration is subject to the
primary supervision of a United States court and which has one or more United
States persons who have the authority to control all substantial decisions of
the trust. Notwithstanding the preceding sentence, to the extent provided in
Treasury Regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to such date that elect to continue to be
treated as United States persons, shall also be considered U.S. Holders.
Exchange of Notes. The exchange of Original Notes for the Exchange Notes
pursuant to the Exchange Offer will not be treated as an "exchange" for federal
income tax purposes, because the Exchange Notes will not be considered to differ
materially in kind or extent from the Original Notes. Accordingly, the exchange
of Original Notes for Exchange Notes will not be a taxable event to holders for
federal income tax purposes. Moreover, the Exchange Notes will have the same tax
attributes and tax consequences to holders as the Original Notes had to holders,
including, without limitation, the same issue price, adjusted issue price,
original issue discount ("OID"), adjusted tax basis and holding period. The tax
attributes and tax consequences of ownership and disposition of the Original
Notes and, thus, of the Exchange Notes (collectively, the "Notes"), are
summarized below.
Stated Interest. Stated interest paid or accrued on the Notes will be
taxable to a U.S. Holder as ordinary income in accordance with the holder's
method of accounting for federal income tax purposes.
106
<PAGE> 111
Original Issue Discount. The Original Notes were issued with OID for U.S.
federal income tax purposes. The amount of OID on an Original Note equals the
excess of the "stated redemption price at maturity" of an Original Note over its
"issue price." The "stated redemption price at maturity" of an Original Note
will equal the sum of its principal amount plus all other payments thereunder,
other than payments of "qualified stated interest" (defined generally as stated
interest that is unconditionally payable in cash or other property (other than
debt instruments of the Company) at least annually at a single fixed rate). The
Company has determined that the portion of the purchase price originally paid
for each Unit which was properly allocable to each Original Note and, thus, the
"issue price" of each $1,000 Original Notes, equaled $940. Although this
allocation is not binding on the IRS, each U.S. Holder is bound by the Company's
allocation, unless a disclosure statement is attached to the timely filed U.S.
federal income tax return of the U.S. Holder for its taxable year in which it
acquired the Original Notes.
Each U.S. Holder (whether reporting on the cash or accrual basis of
accounting for tax purposes) will be required to include in taxable income for
any particular taxable year the daily portion of the OID described in the
preceding paragraph that accrues on the Note for each day during the taxable
year on which such U.S. Holder holds the Note. Thus, a U.S. Holder will be
required to include OID in income in advance of the receipt of the cash to which
such OID is attributable. The daily portion is determined by allocating to each
day of an accrual period (generally, the period between interest payments or
compounding dates) a pro rata portion of the OID allocable to such accrual
period. The amount of OID that will accrue during an accrual period is the
product of the "adjusted issue price" of the Note at the beginning of the
accrual period multiplied by the yield to maturity of the Note less the amount
of any qualified stated interest allocable to such accrual period. The "adjusted
issue price" of a Note at the beginning of an accrual period will equal its
issue price, increased by the aggregate amount of OID that has accrued on the
Note in all prior accrual periods, and decreased by any payments made during all
prior accrual periods of amounts included in the stated redemption price at
maturity of the Note.
Sale, Retirement, or Other Taxable Disposition of Notes. Upon the sale,
retirement or other taxable disposition of a Note, a U.S. Holder will recognize
gain or loss to the extent of the difference between the sum of the cash and the
fair market value of any property received in exchange therefor (except to the
extent attributable to the payment of accrued and unpaid interest on the Notes,
which generally will be taxed as ordinary income), and the U.S. Holder's
adjusted tax basis in the Notes. A U.S. Holder's tax basis in a Note will
initially equal the price paid for such Note and will subsequently be increased
by the OID includible in such U.S. Holder's taxable income under the rules
described in "--Original Issue Discount," above, and will be reduced by any
payments received on the Note of amounts included in the stated redemption price
at maturity of the Note. Any such gain or loss recognized by a U.S. Holder upon
the sale, retirement or other taxable disposition of a Note will be capital gain
or loss. In the case of a non-corporate U.S. Holder, such capital gain will be
subject to tax at a reduced rate of 28% if the Note is held for more than one
year, and will be eligible for a further reduced rate of 20% if the Note is held
more than 18 months. See "-- Recently Enacted Legislation" for changes to the
capital gain rate.
Holders of Notes should be aware that the market discount rules may affect
resale of the Notes. If a subsequent purchaser of a Note purchases the Note at a
"market discount" and thereafter recognizes gain upon its disposition, such gain
will be taxable as ordinary interest income (rather than capital gain) to the
extent of the "market discount" that has accrued (and has not otherwise been
included in income pursuant to an election made by such subsequent purchaser)
during the period the subsequent purchaser held such Note. Generally, "market
discount" will exist on the purchase of a Note if the purchase price is less
than the adjusted issue price of the Note and any such market discount will
accrue over the remaining term of the Note on a straight line basis or, at the
election of the subsequent purchaser, on a constant yield to maturity basis.
Liquidated Damages. The Company intends to take the position that the
Liquidated Damages described above under "Description of the Notes and
Description of Warrants--Registration Rights; Liquidated Damages" are taxable to
U.S. Holders as ordinary income in accordance with the U.S. Holder's usual
method of income tax accounting. The IRS may take a different position, however,
which could affect the timing of a U.S. Holder's income with respect to the
Liquidated Damages.
107
<PAGE> 112
Information Reporting; Backup Withholding. The Company is required to
furnish to record holders of the Notes, other than corporations and other exempt
holders, and to the IRS, information with respect to interest paid and the
amount of OID accrued on the Notes.
Certain U.S. Holders may be subject to backup withholding at the rate of
31% with respect to interest and OID paid on the Notes or with respect to
proceeds received from a disposition of the Notes. Generally, backup withholding
applies only if (i) the payee fails to furnish a correct taxpayer identification
number ("TIN") to the payor in the manner required or fails to demonstrate that
it otherwise qualifies for an exemption, (ii) the IRS notifies the payor that
the TIN furnished by the payee is incorrect, (iii) the payee has failed to
report properly the receipt of a "reportable payment" on one or more occasions
and the IRS has notified the payor that withholding is required, or (iv) the
payee fails (in certain circumstances) to provide a certified statement, signed
under penalties of perjury, that the TIN furnished is the correct number and
that such holder is not subject to backup withholding. Backup withholding is not
an additional tax but, rather, is a method of tax collection. U.S. Holders will
be entitled to credit any amounts withheld under the backup withholding rules
against their actual tax liabilities provided the required information is
furnished to the IRS.
Recently Enacted Legislation. The IRS Restructuring and Reform Act of
1998, which was signed into law on July 22, 1998, reduces the period that a
non-corporate U.S. Holder must hold a Note in order to qualify for the reduced
20% capital gain rate from more than 18 months to more than 12 months. This
change effectively eliminates the 28% capital gains rate, causing gains from the
sale, redemption, retirement or other taxable disposition of a Note held by a
non-corporate U.S. Holder for more than twelve months to be taxed at a 20% rate.
This change is generally effective for Notes sold or exchanged on or after
January 1, 1998.
NON-U.S. HOLDERS
The following states the material United States federal income and estate
tax consequences of the exchange of Original Notes for Exchange Notes and the
ownership and disposition of Exchange Notes by "Non-U.S. Holders." The term
"Non-U.S. Holder" refers to a person that is not classified for U.S. federal tax
purposes as a "United States person," as defined in "--U.S. Holders," above.
Prospective investors who are Non-U.S. Holders are urged to consult their tax
advisors regarding the United States federal income tax consequences that may
arise under the laws of any foreign, state, local or other taxing jurisdiction.
Exchange of Notes. The exchange of Original Notes for the Exchange Notes
pursuant to the Exchange Offer will not be a taxable event to Non-U.S. Holders
for U.S. federal income tax purposes.
Interest and OID. In general, a Non-U.S. Holder will not be subject to
U.S. federal income tax or regular withholding tax with respect to stated
interest or OID received or accrued on the Notes so long as (a) the interest and
OID is not effectively connected with the conduct of a trade or business within
the United States, (b) the Non-U.S. Holder does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock of
the Company entitled to vote, (c) the Non-U.S. Holder is not a controlled
foreign corporation that is related to the Company actually or constructively
through stock ownership, and (d) the Non-U.S. Holder certifies, under penalties
of perjury that such Holder is not a U.S. Holder and provides such Holder's name
and address.
Gain on Disposition of Notes. Non-U.S. Holders generally will not be
subject to U.S. federal income taxation on gain recognized on a disposition of
Notes so long as (i) the gain is not effectively connected with the conduct by
the Non-U.S. Holder of a trade or business within the United States and (ii) in
the case of a Non-U.S. Holder who is an individual, such Non-U.S. Holder is not
present in the United States for 183 days or more in the taxable year of
disposition and certain other requirements are met.
Federal Estate Taxes. A Note held by an individual who, at the time of
death, is not a citizen or resident of the United States generally will not be
subject to U.S. federal estate tax as a result of such individual's death if (i)
the individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote
and, (ii) at the time of the individual's death, interest payments with respect
to such Note would not have been effectively connected with the conduct by such
individual of a trade or business in the United States.
108
<PAGE> 113
U.S. Information Reporting Requirements and Backup Withholding
Tax. Generally, payments of interest, OID, premium or principal on the Notes to
Non-U.S. Holders will not be subject to information reporting or backup
withholding if the Non-U.S. Holder certifies, under penalties of perjury, that
such Holder is not a U.S. Holder and provides such Holder's name and address.
Non-U.S. Holders will not be subject to information reporting or backup
withholding with respect to the payment of proceeds from the disposition of
Notes effected by, to or through the foreign office of a broker; provided,
however, that if the broker is a U.S. person or a U.S.-related person,
information reporting (but not backup withholding) would apply unless the broker
has documentary evidence in its records as to the Non-U.S. Holder's foreign
status (and has no actual knowledge to the contrary), or the Non-U.S. Holder
certifies as to its non-U.S. status under penalty of perjury or otherwise
establishes an exemption. Non-U.S. Holders will be subject to information
reporting and backup withholding at a rate of 31% with respect to the payment of
proceeds from the disposition of Notes, effected by, to or through the U.S.
office of a broker, unless the Non-U.S. Holder certifies as to its non-U.S.
status under penalty of perjury or otherwise establishes an exemption.
Amounts withheld under the backup withholding rules do not constitute a
separate U.S. federal income tax. Rather, amounts withheld under the backup
withholding rules from a payment to a Non-U.S. Holder will be allowed as a
credit against such Non-U.S. Holder's U.S. federal income tax liability and any
amounts withheld in excess of such Non-U.S. Holder's U.S. federal income tax
liability would be refunded, provided that the required information is furnished
to the IRS.
Recently, the Treasury Department promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general, the
final regulations do not significantly alter the substantive withholding and
information reporting requirements but unify certain certification procedures
and forms and clarify reliance standards. Under the final regulations, special
rules apply which permit the shifting of primary responsibility for withholding
to certain financial intermediaries acting on behalf of beneficial owners. The
final regulations would generally be effective for payments made after December
31, 1999, subject to certain transition rules.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account in connection with the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by Participating Broker-Dealers during the period referred to below in
connection with resales of Exchange Notes received in exchange for Original
Notes where such Original Notes were acquired by such Participating
Broker-Dealers for their own accounts as a result of market-making activities or
other trading activities (other than a resale of an unsold allotment from the
original sale of Original Notes). The Company has agreed that this Prospectus,
as it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of such Exchange Notes
for a period ending 180 days from the date on which the Exchange Offer
Registration Statement is declared effective. However, a Participating Broker-
Dealer who intends to use this Prospectus in connection with the resale of
Exchange Notes received in exchange for Original Notes pursuant to the Exchange
Offer must notify the Company, or cause the Company to be notified, on or prior
to the Expiration Date, that it is a Participating Broker-Dealer. Such notice
may be given in the space provided for that purpose in the Letter of Transmittal
or may be delivered to the Exchange Agent at one of the addresses set forth in
the Letter of Transmittal. See "The Exchange Offer--Resales of Exchange Notes."
The Company will not receive any proceeds from the issuance of the Exchange
Notes offered hereby. Exchange Notes received by Participating Broker-Dealers
for their own accounts in connection with the Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or
109
<PAGE> 114
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such Exchange Notes.
Any Participating Broker-Dealer that resells Exchange Notes that were received
by it for its own account in connection with the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act, and any
profit on any such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period ending 180 days from the date on which the Exchange Offer
Registration Statement is declared effective, the Company will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any Participating Broker-Dealer that requests such documents in
the Letter of Transmittal.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Latham & Watkins, Washington, D.C.
EXPERTS
The financial statements of the Company as of December 31, 1997 and 1996,
and for each of the years in the three-year period ended December 31, 1997, have
been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
110
<PAGE> 115
INDEX TO FINANCIAL STATEMENTS
ORBITAL IMAGING CORPORATION
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Statements of Operations.................................... F-3
Balance Sheets.............................................. F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 116
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Orbital Imaging Corporation:
We have audited the accompanying balance sheets of Orbital Imaging
Corporation (the "Company") as of December 31, 1997 and 1996, and the related
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year 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 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 financial position of Orbital Imaging Corporation
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
January 16, 1998
Washington, D.C.
F-2
<PAGE> 117
ORBITAL IMAGING CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------------------------- --------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................. $ 4,566,667 $ 1,055,000 $ 2,061,655 $ 108,333 $ 2,416,725
Direct costs............. 7,997,741 4,319,914 6,311,816 1,137,014 4,188,934
----------- ----------- ----------- ----------- -----------
Gross profit (loss)...... (3,431,074) (3,264,914) (4,250,161) (1,028,681) (1,772,209)
Selling, general and
administrative
expenses............... 2,370,899 1,629,874 2,844,355 614,421 987,032
----------- ----------- ----------- ----------- -----------
Loss from operations..... (5,801,973) (4,894,788) (7,094,516) (1,643,102) (2,759,241)
Interest income.......... -- -- 1,260,762 -- 1,043,275
----------- ----------- ----------- ----------- -----------
Loss before benefit for
income taxes........... (5,801,973) (4,894,788) (5,833,754) (1,643,102) (1,715,966)
Benefit for income
taxes.................. -- -- 1,751,468 -- 1,715,966
----------- ----------- ----------- ----------- -----------
Net income (loss)........ $(5,801,973) $(4,894,788) $(4,082,286) $(1,643,102) $ --
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 118
ORBITAL IMAGING CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ 10,883,142 $128,612,710
Short-term investments, at market, which approximates
cost.................................................... -- 11,336,751 31,222,549
Receivables............................................... 50,000 134,163 1,084,773
------------ ------------ ------------
Total current assets.................................... 50,000 22,354,056 160,920,032
Property, plant and equipment, at cost, less accumulated
depreciation of $3,486,260, $5,144,194 and $5,702,972,
respectively.............................................. 9,506,629 11,053,898 10,852,378
Satellites and related rights, at cost, less accumulated
depreciation and amortization of $9,070,578 and
$12,947,213, and $15,709,234, respectively................ 62,284,878 104,226,147 118,542,460
Long-term investment, at amortized cost..................... -- -- 16,653,508
Other assets................................................ 486,468 115,416 4,381,121
------------ ------------ ------------
Total assets............................................ $ 72,327,975 $137,749,517 $311,349,499
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ -- $ 4,335,026 $ 7,316,366
Current portion of deferred revenue....................... 5,669,294 7,725,141 8,343,996
Deferred tax liabilities, net............................. 53,275 467,550 467,550
------------ ------------ ------------
Total current liabilities............................... 5,722,569 12,527,717 16,127,912
Long-term obligations....................................... 141,074,270
Deferred revenue, net of current portion.................... 29,717,769 29,667,469 29,990,949
Deferred tax liabilities, net............................... 10,607,953 10,193,678 8,477,712
------------ ------------ ------------
Total liabilities....................................... 46,048,291 52,388,864 195,670,843
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01, 10,000,000 shares
authorized;
Series A $100 cumulative convertible, 2,000,000 shares
authorized, 0 shares, 392,887 shares and 620,182
issued and outstanding, respectively (liquidation
value is $0, $40,074,474, and $64,248,518 at December
31, 1996 and 1997 and March 31, 1998, respectively)... -- 3,929 6,202
Series B cumulative, 2,000,000 shares authorized; no
shares issued and outstanding......................... -- -- --
Series C cumulative convertible, 2,000,000 shares
authorized; no shares issued and outstanding.......... -- -- --
Common stock, par value $.01, 75,000,000 shares
authorized; 25,214,000 shares issued and outstanding.... -- 252,140 252,140
Additional paid-in-capital................................ 45,920,943 108,828,129 139,143,859
Accumulated deficit....................................... (19,641,259) (23,723,545) (23,723,545)
------------ ------------ ------------
Total stockholders' equity.............................. 26,279,684 85,360,653 115,678,656
------------ ------------ ------------
Total liabilities and stockholders' equity......... $ 72,327,975 $137,749,517 $311,349,499
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 119
ORBITAL IMAGING CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A PREFERRED
STOCK COMMON STOCK ADDITIONAL
------------------ --------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- ------- ---------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994...... -- $ -- -- $ -- $ 20,470,019 $ (8,944,498) $ 11,525,521
Capital contributed........... -- -- -- -- 19,180,785 -- 19,180,785
Tax-sharing charge............ -- -- -- -- (4,947,880) -- (4,947,880)
Net income (loss)............. -- -- -- -- -- (5,801,973) (5,801,973)
------- ------ ---------- -------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1995...... -- -- -- -- 34,702,924 (14,746,471) 19,956,453
Capital contributed........... -- -- -- -- 13,624,941 -- 13,624,941
Tax-sharing charge............ -- -- -- -- (2,406,922) -- (2,406,922)
Net income (loss)............. -- -- -- -- -- (4,894,788) (4,894,788)
------- ------ ---------- -------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1996...... -- -- -- -- 45,920,943 (19,641,259) 26,279,684
Shares issued in private
offering, net............... 372,705 3,727 -- -- 33,542,767 -- 33,546,494
Issuance of common stock to
Orbital..................... -- -- 25,200,000 252,000 31,065,829 -- 31,317,829
Issuance of common stock to
director.................... -- -- 14,000 140 50,260 -- 50,400
Preferred stock dividends paid
in shares................... 20,182 202 -- -- (202) -- --
Tax-sharing charge............ -- -- -- -- (1,751,468) -- (1,751,468)
Net loss...................... -- -- -- -- -- (4,082,286) (4,082,286)
------- ------ ---------- -------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997...... 392,887 $3,929 25,214,000 $252,140 $108,828,129 $(23,723,545) $ 85,360,653
Shares issued in private
offering, net (unaudited)... 227,295 2,273 -- -- 21,315,730 -- 21,318,003
Proceeds from issuance of
common stock warrants
(unaudited)................. -- -- -- -- 9,000,000 -- 9,000,000
Net income (loss)
(unaudited)................. -- -- -- -- -- -- --
------- ------ ---------- -------- ------------ ------------ ------------
BALANCE, MARCH 31, 1998
(UNAUDITED)................... 620,182 $6,202 25,214,000 $252,140 $139,143,859 $(23,723,545) $115,678,656
======= ====== ========== ======== ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 120
ORBITAL IMAGING CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------- ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS).......................... $ (5,801,973) $ (4,894,788) $ (4,082,286) $(1,643,102) $ --
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Depreciation and amortization expense.... 7,777,282 3,981,176 5,536,108 1,050,476 3,451,427
Loss on disposal of fixed assets......... -- -- 4,244 -- --
Deferred tax benefit..................... -- -- (1,751,468) -- (1,715,966)
Other non-cash items..................... -- -- -- -- 10,513
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in receivables....... (200,000) 150,000 (84,163) -- (525,732)
(Increase) decrease in other assets...... (67,513) (418,955) 371,052 (149,653) (264,448)
Increase in accounts payable and accrued
expenses............................... -- -- 4,335,026 99,985 2,981,340
Increase (decrease) in deferred
revenue................................ (1,900,018) 175,000 2,005,547 (158,333) 942,335
------------- ------------ ------------ ----------- ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES............... (192,222) (1,007,567) 6,334,060 (800,627) 4,879,469
------------- ------------ ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................... (9,869,134) (4,657,403) (40,837,560) (1,816,180) (17,435,592)
Purchase of OrbView-2 license.............. (9,119,429) (7,959,971) (8,191,330) (2,459,047) --
Purchases of held-to-maturity investment
securities............................... -- -- -- (32,896,191)
Purchases of available-for-sale investment
securities............................... -- -- (115,750,801) -- (9,801,017)
Maturities of available-for-sale investment
securities............................... -- -- 102,441,541 -- 5,400,000
Sales of available-for-sale investment
securities............................... -- -- 1,972,509 -- 998,780
------------- ------------ ------------ ----------- ------------
NET CASH USED IN INVESTING
ACTIVITIES......................... (18,988,563) (12,617,374) (60,365,641) (4,275,227) (53,734,020)
------------- ------------ ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
obligations, net....................... -- -- -- -- 141,000,000
Fees paid to issue long-term
obligations............................ -- -- -- -- (4,733,884)
Issuance of preferred stock in private
offering, net of offering expenses..... -- -- 33,546,494 -- 21,318,003
Issuance of common stock................. 19,180,785 13,624,941 31,368,229 5,075,854 --
------------- ------------ ------------ ----------- ------------
Proceeds from issuance of common stock
warrants............................... -- -- -- -- 9,000,000
------------- ------------ ------------ ----------- ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES......................... 19,180,785 13,624,941 64,914,723 5,075,854 166,584,119
------------- ------------ ------------ ----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS.... -- -- 10,883,142 -- 117,729,568
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD..................................... -- -- -- -- 10,883,142
------------- ------------ ------------ ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD..... $ -- $ -- $ 10,883,142 $ -- $128,612,710
============= ============ ============ =========== ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 121
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
In 1991, the ORBIMAGE operating division of Orbital Sciences Corporation
("Orbital") was established to manage the development of remote imaging
satellites that would collect, process, and distribute digital imagery of land
areas, oceans and the atmosphere. In 1992, Orbital Imaging Corporation
("ORBIMAGE" or the "Company") was incorporated in Delaware as a wholly-owned
subsidiary of Orbital. On May 8, 1997 and July 3, 1997, ORBIMAGE issued
preferred stock to private investors to fund a significant portion of the
remaining costs of existing projects (the "Private Placement"). Orbital
purchased additional common stock, bringing its total common equity invested to
approximately $88 million. Also on May 8, 1997, ORBIMAGE executed certain
contracts with Orbital whereby all assets and liabilities of Orbital's operating
division, ORBIMAGE, were sold to the Company at the historical cost.
Accordingly, the accompanying financial statements incorporate the historical
accounts and operations of the operating division prior to May 8, 1997, as
predecessor financial statements of ORBIMAGE.
ORBIMAGE has three contracts with Orbital: the ORBIMAGE System Procurement
Agreement dated November 18, 1996, as amended (the "System Procurement
Agreement"), the OrbView-2 License Agreement dated May 8, 1997 (the "License
Agreement"), and the Amended and Restated Administrative Services Agreement
dated May 8, 1997 (the "Administrative Services Agreement"). Under the System
Procurement Agreement, ORBIMAGE is purchasing (i) the OrbView-1 satellite, (ii)
an exclusive license entitling ORBIMAGE to all of the economic rights and
benefits of the OrbView-2 satellite, (iii) the OrbView-3 satellite and launch
service, (iv) the OrbView-4 satellite and launch service, and (v) the ground
segment assets used to command and control the satellites as well as receive and
process imagery. Under the License Agreement, Orbital has granted an exclusive
worldwide license to ORBIMAGE to use and sell OrbView-2 imagery. Pursuant to the
terms of the License Agreement, Orbital has assigned to ORBIMAGE all amounts
that are due or which become due to Orbital under a contract Orbital has with
NASA to deliver OrbView-2 imagery, and ORBIMAGE has sole responsibility for
operating and controlling the satellite. Under the Administrative Services
Agreement, ORBIMAGE is reimbursing Orbital for all management, accounting,
legal, and financial services, office space, and other administrative services,
as well as certain direct operating services provided by Orbital.
The OrbView-1 satellite was launched in 1995 and provides severe weather
and atmospheric images, including global lightning information and measurements
used in analyzing atmospheric temperature information. The OrbView-2 satellite
was launched on August 1, 1997 and completed its on-orbit checkout in October
1997. The satellite provides multispectral imagery to detect changes in the
coloration of Earth's oceans and land areas. The OrbView-3 satellite is
currently scheduled to begin operations in the second half of 1999 and will
provide 1-meter panchromatic and 4-meter multispectral imagery of the Earth. The
OrbView-4 satellite will provide 1-meter and 2-meter panchromatic, 4-meter
multispectral, and 8-meter hyperspectral imagery of the Earth and is expected to
be operational in mid-2000. The imagery provided by both OrbView-3 and OrbView-4
will have a broad range of applications for U.S. and foreign national security
and many commercial and scientific markets.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
F-7
<PAGE> 122
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 financial statement presentation.
Revenue Recognition
ORBIMAGE's principal source of revenue is the sale of satellite imagery to
customers, value-added resellers, and distributors. Such sales often require
ORBIMAGE to provide imagery over the term of a multi-year sales contract.
Accordingly, ORBIMAGE recognizes revenues on imagery contracts on a
straight-line basis over the delivery term of the contract. Deferred revenue
represents contract receipts in advance of the delivery of imagery.
Unaudited Interim Information
The unaudited interim information as of March 31, 1998 and for the three
months ended March 31, 1998 and 1997, has been prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, such information contains all adjustments, consisting
only of normal recurring adjustments, considered necessary for a fair
presentation of such periods. Operating results for the three months ended March
31, 1998 are not necessarily indicative of the results expected for the full
year.
Services Provided by Orbital
A substantial part of ORBIMAGE's administrative services, including legal,
accounting, human resources, and purchasing is provided to ORBIMAGE at cost by
Orbital. Such costs include both specifically identifiable services and certain
pooled costs allocated by Orbital based on ORBIMAGE's proportional use. ORBIMAGE
believes that the cost of these services, as provided for in the accompanying
statements of operations, is reasonable and approximates the cost of similar
services if obtained directly by ORBIMAGE.
Income Taxes
ORBIMAGE recognizes income taxes using the asset and liability method, on a
stand alone basis. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Stock Based Compensation
On January 1, 1996, ORBIMAGE adopted Statement of Financial Accounting
Standards 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which
requires companies to (i) recognize as expense the fair value of all stock-based
awards on the date of grant, or (ii) continue to apply the provisions of
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25") and provide pro forma net income (loss) disclosures for
employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS 123 had been applied. ORBIMAGE has
elected to continue to apply the provisions of APB 25 and provide the pro forma
disclosure provisions of SFAS 123 (See Note 9).
F-8
<PAGE> 123
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents and Short-Term Investments
ORBIMAGE considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Investments in securities with
original maturities of more than three months but not more than one year are
classified as short-term investments and those with original maturities of more
than one year are classified as long-term investments. ORBIMAGE does not intend
to hold its investments in debt and equity securities until maturity and does
not actively trade the securities to maximize trading gains and classifies these
securities as "available for sale" and, accordingly, reports such securities at
fair value plus accrued interest. Any temporary excess (deficiency) of market
value over (under) the underlying cost of the short-term investment is excluded
from current period earnings and is reported as unrealized gains (losses) as a
separate component of stockholders' equity.
Satellites and Related Rights and Property, Plant and Equipment
ORBIMAGE is purchasing the OrbView-1, OrbView-3, and OrbView-4 satellites,
the OrbView-2 license, and the ground segment assets pursuant to the System
Procurement Agreement. ORBIMAGE is self-constructing a digital imagery archive
and processing system, which supports OrbView-2 and will support OrbView-3 and
OrbView-4 imagery processing and distribution. ORBIMAGE capitalizes certain
direct and indirect costs incurred in the construction of this system.
Amortization of the capitalized costs will begin when the system is placed in
service.
Depreciation, Amortization, and Recoverability of Long-Lived Assets
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the satellites (three years for OrbView-1 and
seven and one-half years for OrbView-2), and generally over eight years for
ground segment assets.
In 1995, ORBIMAGE adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), which (i) requires that assets "to be held and
used" be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable, (ii)
requires that long-lived assets "to be disposed of" be reported at the lower of
carrying amount or fair value less cost to sell, and (iii) provides guidelines
and procedures for measuring an impairment loss that are significantly different
from previous guidelines and procedures. In 1995, ORBIMAGE recorded $5,000,000
of additional depreciation expense, which is included in direct expenses in the
accompanying statement of operations, related to the estimated fair value of the
OrbView-1 satellite.
Interest Capitalization
Interest incurred on the Notes as of March 31, 1998 in the amount of
approximately $1,698,000 (unaudited) has been capitalized in connection with the
construction of the OrbView-3 and OrbView-4 satellites and related ground
segments. The capitalized interest is recorded as a part of the historical cost
of the assets to which it relates and will be amortized over the assets' useful
lives when placed in service.
(3) RELATED PARTY TRANSACTIONS
Pursuant to the System Procurement Agreement, ORBIMAGE has committed to
purchase various satellites, rights, and ground systems for approximately $295
million over approximately three years. ORBIMAGE incurred costs of approximately
$18,989,000, $12,617,000, and $47,604,000 for the years ended December 31, 1995,
1996, and 1997, respectively, under the System Procurement Agreement. ORBIMAGE
incurred costs of approximately $2,591,000, $1,969,000, and $3,168,000 for the
years ended December 31, 1995, 1996, and 1997, respectively, under the
Administrative Services Agreement.
F-9
<PAGE> 124
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) INVESTMENTS
The following table sets forth the aggregate cost and fair value and gross
unrealized gains (losses) of available-for-sale investments as of December 31,
1997 and March 31, 1998 (unaudited):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------
UNREALIZED
GAINS
COST (LOSSES) FAIR VALUE
----------- ---------- -----------
<S> <C> <C> <C>
SHORT-TERM
Commercial Paper................................. $11,336,751 $ -- $11,336,751
----------- ---------- -----------
Total available-for-sale investments $11,336,751 $ -- $11,336,751
=========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
--------------------------------------
UNREALIZED
GAINS
COST (LOSSES) FAIR VALUE
----------- ---------- -----------
<S> <C> <C> <C>
SHORT-TERM
Commercial Paper................................. $14,819,679 $ -- $14,819,679
----------- ---------- -----------
Total available-for-sale investments $14,819,679 $ -- $14,819,679
=========== ========== ===========
</TABLE>
The following table sets forth the aggregate cost and fair value of
held-to-maturity investments as of March 31, 1998 (unaudited) (none in 1997 or
prior periods):
<TABLE>
<CAPTION>
UNREALIZED
AMORTIZED GAINS
COST (LOSSES) FAIR VALUE
----------- ---------- -----------
<S> <C> <C> <C>
SHORT-TERM
U.S. Treasury Notes.............................. $16,402,870 $ -- $16,402,870
LONG-TERM
U.S. Treasury Notes, maturing 18-24 months....... $16,653,508 $ -- $16,653,508
----------- ---------- -----------
Total held-to-maturity investments.......... $33,056,378 $ -- $33,056,378
=========== ========== ===========
</TABLE>
Included in cash and cash equivalents at December 31, 1997 and March 31,
1998 were approximately $8,887,000 of commercial paper, and $76,431,000
(unaudited) of commercial paper and taxable municipal bonds, respectively.
(5) MAJOR CUSTOMER
Pursuant to imagery contracts with NASA, ORBIMAGE recognized revenues of
approximately $4,070,000, $800,000, and $1,957,000 for the years ended December
31, 1995, 1996, and 1997, respectively, representing approximately 89%, 76%, and
95%, respectively, of total revenues recognized during those periods.
F-10
<PAGE> 125
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
----------- -----------
<S> <C> <C>
Land............................................ $ 212,684 $ 212,684
Ground segment assets........................... 12,780,205 15,985,408
Accumulated depreciation........................ (3,486,260) (5,144,194)
----------- -----------
Total................................. $ 9,506,629 $11,053,898
=========== ===========
</TABLE>
(7) SATELLITES AND RELATED RIGHTS
Satellites and related rights consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997
----------- ------------
<S> <C> <C>
In service:
OrbView-1.................................... $12,327,040 $ 12,327,002
Accumulated depreciation..................... (9,070,578) (11,512,924)
----------- ------------
3,256,462 814,078
----------- ------------
OrbView-2 license............................ 56,351,670 64,543,000
Accumulated amortization..................... -- (1,434,289)
----------- ------------
56,351,670 63,108,711
----------- ------------
Satellites in process.......................... 2,676,746 40,303,358
----------- ------------
Total................................ $62,284,878 $104,226,147
=========== ============
</TABLE>
(8) INCOME TAXES
ORBIMAGE recorded a deferred benefit for income taxes of $1,751,468 and
$1,715,966 (unaudited) for the year ended December 31, 1997 and for the three
months ended March 31, 1998, respectively and had no current or deferred
provision or benefit for income taxes in prior periods. ORBIMAGE's losses for
income tax purposes for the period January 1 through May 7, 1997 and for the
years 1996 and 1995 (during which ORBIMAGE was an operating division, and was
included in the consolidated tax return, of Orbital) were significantly greater
than pre-tax financial statement losses, primarily due to expenses associated
with satellites and related rights deducted currently for income tax purposes.
Prior to May 8, 1997, the Company had a tax-sharing arrangement with Orbital
under which tax deductions for satellites and related rights, and the associated
net operating loss carryforwards, remained with Orbital. As a result, the
Company recorded a tax-sharing charge of $4,947,880, $2,406,922, and $1,751,468
for the years ended December 31, 1995, 1996, and 1997, respectively, as a direct
charge to additional paid-in capital.
F-11
<PAGE> 126
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant temporary differences at December 31, 1996
and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Revenue recognition........................... $14,154,825 $14,949,332
Net operating loss carryforward............... -- 584,905
Other......................................... -- 62,367
----------- -----------
Deferred tax assets, net...................... $14,154,825 $15,596,604
=========== ===========
Deferred tax liabilities:
Differences in the tax treatment of satellites
and related rights......................... $24,816,053 $26,257,832
=========== ===========
</TABLE>
The income tax provision (benefit) for the years ended December 31, 1995,
1996, and 1997, is different from that computed using statutory U.S. Federal
income tax rates solely due to differences associated with net operating loss
carry-forwards generated prior to May 8, 1997 and state tax benefits. As of
December 31, 1997, the Company has a net operating loss carryforward for income
tax purposes of approximately $1,500,000, which will be used to offset future
taxable income over the next 15 years.
(9) LONG-TERM OBLIGATIONS (UNAUDITED)
On February 25, 1998, the Company issued 150,000 units consisting of the
Notes and 1,312,746 warrants for common stock, raising net proceedings of
approximately $145,000,000 (unaudited). Interest is payable semi-annually,
commencing September 1, 1998. ORBIMAGE purchased U.S. Treasury securities in an
amount sufficient to pay the interest on the Notes for the first four periods.
These investments have maturities ranging from six months to two years and are
pledged as security for repayment of interest on the Notes.
(10) COMMON AND PREFERRED STOCK
In 1997, ORBIMAGE consummated the Private Placement in which it sold
372,705 shares of Series A cumulative convertible preferred stock (the
"Preferred Stock") generating gross proceeds of approximately $37,000,000. In
February 1998, the Company issued an additional 227,295 shares of Preferred
Stock in a private placement, generating gross proceeds of approximately
$23,000,000 (unaudited). Each share of Preferred Stock entitles its holder to
receive annual cumulative dividends of 12% per annum. The Preferred Stock is
convertible into ORBIMAGE common stock in an amount equal to $100 per share of
Preferred Stock, divided by the Series A Conversion Price, which is $4.17 per
share of Preferred Stock. The Series A Conversion Price is subject to adjustment
under certain circumstances. Each holder of Series A Preferred Stock is entitled
to voting rights equal to that of a common stockholder; for this purpose each
share of Preferred Stock is treated as if converted to common stock (rounded to
the nearest whole number) immediately prior to a vote.
Dividends on the Preferred Stock are cumulative, have priority over
dividends on common stock, Series B preferred stock, and Series C preferred
stock, and must be paid in the event of liquidation and before any distribution
to holders of common stock or Series B preferred stock and Series C preferred
stock. Dividends are payable on a semi-annual basis in May and November, and can
be paid in either cash or additional shares of Preferred Stock. In 1997, the
Company issued 20,182 shares of Preferred Stock as dividends. At December 31,
1997, cumulative Preferred Stock dividends in arrears amounted to approximately
8,000 shares.
In addition, in 1997, Orbital increased its common equity investment in
ORBIMAGE, bringing its total equity invested to approximately $87,900,000 and
its ownership of common stock to 25,200,000 shares.
F-12
<PAGE> 127
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(11) STOCK OPTION PLAN
In 1996, ORBIMAGE adopted the 1996 Stock Option Plan (the "ORBIMAGE Plan")
pursuant to which incentive or non-qualified options to purchase up to 2,800,000
shares of ORBIMAGE common stock may be granted to ORBIMAGE and Orbital
employees, consultants or advisors. Under the ORBIMAGE Plan, stock options may
not be granted with an exercise price less than 85% of the stock's fair market
value at the date of grant as determined by the Board of Directors. The ORBIMAGE
options generally vest ratably over a three-year period. The following table
summarizes the activity relating to the ORBIMAGE Plan:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF OPTION PRICE AVERAGE OUTSTANDING AND
SHARES PER SHARE EXERCISE PRICE EXERCISABLE
--------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
OUTSTANDING AT DECEMBER 31, 1995..... -- -- -- --
Granted............................ 1,408,000 $3.60 $3.60
Exercised.......................... -- -- --
Cancelled or Expired............... -- -- --
---------
OUTSTANDING AT DECEMBER 31, 1996..... 1,408,000 $3.60 $3.60 352,000
Granted............................ 498,000 $4.17 $4.17
Exercised.......................... (14,000) $3.60 $3.60
Cancelled or Expired............... (8,000) $3.60 $3.60
---------
OUTSTANDING AT DECEMBER 31, 1997..... 1,884,000 $3.60 -- $4.17 $3.75 707,250
========= ============= ===== =======
</TABLE>
ORBIMAGE applies APB No. 25 and related interpretations in accounting for
its plans. No compensation cost has been recognized in connection with stock
option grants in the accompanying statements of operations. To the extent that
the Company grants stock options to non-employee consultants or advisors, the
Company records expense equal to the fair value of the options granted as
determined by the Black-Scholes option pricing model.
Stock Based Compensation
On January 1, 1996, ORBIMAGE adopted SFAS 123 (see Note 2). ORBIMAGE uses
the Black-Scholes option-pricing model to determine the pro forma impact to its
net income. The model utilizes certain information, such as the interest rate on
a risk-free security maturing generally at the same time as the option being
valued, and requires certain assumptions, such as the expected amount of time an
option will be outstanding until it is exercised or it expires, to calculate the
weighted-average fair value per share of stock options granted. This information
and the assumptions used in the option-pricing model for 1996 and 1997,
respectively, are as follows: volatility, 30% and 30%; dividend yield, 0% and
0%; risk-free interest rate, 5.8% and 6.0%; average expected life, 4.5 years and
4.5 years; additional shares available, 1,392,000 and 902,000; and
weighted-average exercise price per share, $3.60 and $3.75.
Had ORBIMAGE determined compensation cost based on the fair value at the
grant date for its stock options in accordance with the fair value method
prescribed by SFAS 123, ORBIMAGE's net loss would have been approximately
$5,305,000 and $5,031,000 for the years ended December 31, 1996 and 1997,
respectively. The pro forma net loss reflects only options granted in 1996 and
1997 and therefore may not be representative of the effects for future periods.
(12) SUPPLEMENTAL DISCLOSURES
At December 31, 1997, ORBIMAGE employees were participating in the Deferred
Salary Profit Sharing Plan for Employees of Orbital Imaging Corporation, a
defined contribution plan (the "Plan") in accordance with Section 401(k) of the
Internal Revenue Code of 1986, as amended. Company contributions to the Plan
F-13
<PAGE> 128
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are made based on certain plan provisions and at the discretion of the Board of
Directors, and in 1997, were approximately $28,000.
(13) SUBSEQUENT EVENTS (UNAUDITED)
On April 30, 1998, the Company acquired substantially all the assets of
TRIFID Corporation ("TRIFID") for approximately $4,000,000. Under the terms of
the acquisition agreement, an additional $1,000,000 earn-out is payable if
certain revenue targets are achieved during the third quarter of 1998. The
acquisition will provide ORBIMAGE with the technical personnel and production
capability required to generate high resolution imagery products. The
acquisition resulted in excess of purchase price over net assets acquired of
approximately $2,000,000, which amount will be amortized over 10 years.
F-14
<PAGE> 129
GLOSSARY OF TERMS
CHECK-OUT INSURANCE -- Insurance placed into effect following the deployment of
the satellite which remains in effect until the satellite is placed into
commercial service.
COMMON STOCK -- The common stock of the Company, par value $.01 per share.
COMPANY -- Orbital Imaging Corporation, a Delaware corporation.
DESIGN LIFE -- The expected functional life of a satellite based on the specific
design employed.
DoC -- The U.S. Department of Commerce.
DoD -- The U.S. Department of Defense.
EESS -- Earth Exploration-Satellite Service, a radio-communication service
between ground stations and one or more satellites which obtains information on
the Earth and its natural phenomena from active sensors or passive sensors on
satellites.
EARTHWATCH -- EarthWatch Incorporated, a commercial remote sensing company
sponsored by Ball Aerospace and Technologies Corporation, CTA Incorporated, and
Hitachi, Ltd.
FCC -- The Federal Communications Commission, an independent government agency
charged with regulating interstate and international communications by radio,
television, wire, satellite, and cable.
HIGH-RESOLUTION ORBVIEW SATELLITES -- the OrbView-3 and OrbView-4 satellites
INMARSAT -- International Maritime Satellite Organization, an organization
responsible for providing international maritime telephony via communication
satellites.
IN-ORBIT INSURANCE -- Insurance covering the period following the date a
satellite has been placed into commercial service.
INTELSAT AND INMARSAT AGREEMENT -- An international agreement requiring
coordination to the extent that any party or signatory or person within the
jurisdiction of a party intends to establish, acquire, or utilize space segment
facilities separate from the Intelsat space segment facilities to meet its
domestic public telecommunications services requirements.
IRS-1C -- India Remote Sensing Satellite.
ITU -- International Telecommunications Union, which is the telecommunications
agency of the United Nations established to provide standardized communications
procedures and practices including frequency allocation and radio regulations on
a worldwide basis.
NASA -- National Aeronautics and Space Administration.
NIMA -- National Imagery and Mapping Agency.
NOAA -- National Oceanic and Atmospheric Administration, an agency of the DoC.
NRO -- The U.S. National Reconnaissance Office.
NTIA -- National Telecommunications and Information Administration, an agency of
the DoC.
ORBIMAGE -- Orbital Imaging Corporation, a Delaware corporation (the "Company").
ORBITAL -- Orbital Sciences Corporation, a Delaware corporation.
ORBVIEW-1 -- The satellite launched in April 1995 that is providing
meteorological data on severe weather lightning strikes and measurements of
other atmospheric properties.
ORBVIEW-2 -- The satellite launched in the second quarter of 1997, that is
providing 1-kilometer resolution imagery of the Earth's surface in eight
spectral bans.
G-1
<PAGE> 130
ORBVIEW-2 LICENSE -- The OrbView-2 License Agreement between Orbital and
ORBIMAGE, which provides ORBIMAGE with the economic equivalent of ownership of
the OrbView-2 satellite.
ORBVIEW-3 -- The satellite scheduled for launch in 1999, that is designed to
provide for both one-meter resolution panchromatic imagery, and four-meter
resolution multispectral imagery in 4 spectral bands of the Earth's surface.
ORBVIEW-4 -- The satellite scheduled for launch in the second quarter of 2000,
that is designed to provide for one-meter resolution panchromatic imagery,
four-meter resolution multispectral imagery and eight-meter resolution
hyperspectral imagery.
PEGASUS -- Orbital's air-launched rocket designed to launch small satellites
into low-Earth orbit.
RADARSAT -- Radarsat International Inc., a Canadian company operating a
commercial radar imaging satellite.
SAMSUNG AEROSPACE -- Samsung Aerospace Industries, Ltd..
SPACE IMAGING EOSAT -- Space Imaging EOSAT, a commercial remote sensing company
sponsored by Lockheed Martin, Raytheon and Mitsubishi.
STOCK OPTION PLAN -- The Company's 1996 Stock Option Plan, which provides for
grants of incentive or non-qualified stock options to officers, directors and
employees of the Company.
TAURUS -- Orbital's ground launched rocket designed for launching small to
medium satellites into space.
UCAR -- University Corporation for Atmospheric Research.
VARS -- Value added resellers.
G-2
<PAGE> 131
ORBITAL IMAGING CORPORATION
All tendered Original Notes, executed Letters of Transmittal, and other
related documents should be directed to the Exchange Agent. Requests for
assistance and for additional copies of the Prospectus, the Letter of
Transmittal and other related documents should be directed to the Exchange
Agent.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS
MARINE MIDLAND BANK
by Facsimile:
(212) 658-2292
Attention: Paulette Shaw
Confirm by telephone
(212) 658-5931
By Registered or Certified Mail:
Marine Midland Bank
Corporate Trust Operations
140 Broadway, Level A
New York, New York 10005
Attention: Paulette Shaw
By Hand:
Marine Midland Bank
Corporate Trust Operations
140 Broadway, Level A
New York, New York 10005
Attention: Paulette Shaw
By Overnight Courier:
Marine Midland Bank
Corporate Trust Operations
140 Broadway, Level A
New York, New York 10005-1180
Attention: Paulette Shaw
