<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
ORBITAL IMAGING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4899 54-1660268
(STATE OR OTHER JURISDICTION OF (PRIMARY INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
21700 ATLANTIC BOULEVARD SUSAN HERLICK, ESQ.
DULLES, VIRGINIA 20166 21700 ATLANTIC BOULEVARD
(703) 406-5000 DULLES, VIRGINIA 20166
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (703) 406-5000
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
WITH A COPY TO:
MICHAEL A. BELL, ESQ.
LATHAM & WATKINS
1001 PENNSYLVANIA AVENUE, N.W., SUITE 1300
WASHINGTON, D.C. 20004-2505
(202) 637-2200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
From time to time after this Registration Statement becomes effective.
---------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
---------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) FEE
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<S> <C> <C> <C> <C>
Warrants to purchase common stock........... 150,000 --(1) -- --
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Common Stock (par value $0.01 per
share)(2)................................. 1,312,746(3) $0.01(4) $13,127.46(5) $3.65
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</TABLE>
(1) In accordance with Rule 457 (g) of the Securities Act of 1933, as amended
(the "Securities Act"), no separate registration fee is payable in respect
of the warrants to purchase shares of the common stock if such warrants are
being registered in the same registration statement as the underlying common
stock.
(2) Represents the shares of common stock issuable on exercise of the warrants.
(3) Pursuant to Rule 416 of the Securities Act, there are also being registered
hereby such indeterminate number of additional shares of common stock and
other securities as may become issuable from time to time pursuant to the
adjustment provisions of the warrants.
(4) Represents the price at which the warrants may be exercised.
(5) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(g) of the Securities Act.
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION, DATED NOVEMBER 20, 1998
PROSPECTUS
[LOGO]
ORBITAL IMAGING CORPORATION
This prospectus relates to:
- 150,000 warrants (the "warrants") to purchase common stock of Orbital
Imaging Corporation at an exercise price of $0.01 per share; and
- 1,312,746 shares of common stock, par value $0.01 per share (the "warrant
shares") that may be issued from time to time upon exercise of the
warrants.
The holders of the warrants and warrant shares (the "selling holders") may
offer or sell such securities from time to time following the effective date of
the registration statement. The selling holders will receive all the proceeds
from the sale of the warrants and warrant shares.
The warrants become exercisable on the earlier of February 25, 1998 and
notice of certain change of control events. Unless exercised, the warrants will
automatically expire on March 1, 2005. The Company will receive the proceeds of
any exercise of the warrants. Each warrant, when exercised, will entitle the
holder to receive 8.75164 shares of common stock.
- --------------------------------------------------------------------------------
Before exercising your warrants, consider carefully the risk factors
beginning on page 9 of this Prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved these warrants or warrant shares or determined that this
Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
ORBITAL Imaging Corporation
21700 Atlantic Boulevard
Dulles, Virginia 20166
(703) 406-5000
The date of this Prospectus is November , 1998
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
About this Prospectus....................................... ii
Where to Find More Information.............................. ii
Note Regarding "Forward-Looking Statements"................. iii
Prospectus Summary.......................................... 1
Summary Financial Data...................................... 8
Risk Factors................................................ 9
Use of Proceeds............................................. 20
Market Price of and Dividends on the Common Stock and
Related Stockholder Matters............................... 20
Capitalization.............................................. 21
Selected Historical Financial Data.......................... 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 28
Regulation.................................................. 43
Management.................................................. 45
Principal Stockholders...................................... 49
Selling Holders............................................. 50
Certain Relationships and Related Transactions.............. 51
Description of the Warrants................................. 57
Description of Capital Stock................................ 61
Description of the Notes.................................... 63
Relationship with Orbital................................... 66
Certain U.S. Federal Income Tax Consequences................ 67
Plan of Distribution........................................ 71
Legal Matters............................................... 71
Experts..................................................... 72
Index to Financial Statements............................... F-1
Glossary of Terms........................................... G-1
</TABLE>
------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. We are offering to
sell the securities and seeking offers to buy the securities, only in
jurisdictions where offers and sales are permitted. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or any sales of the securities.
<PAGE> 4
ABOUT THIS PROSPECTUS
This Prospectus is part of a registration statement that Orbital Imaging
Corporation filed with the Securities and Exchange Commission (the "SEC" or the
"Commission"). After the Company completes the registration process, it will
issue common stock (sometimes called the "warrant shares") from time to time as
holders of the Company's 150,000 outstanding warrants exercise those warrants.
The Company originally issued the warrants on February 25, 1998 as part of an
offering of 150,000 units, each unit consisting of one warrant and $1,000
principal amount of the Company's 11 5/8% senior notes due 2005. The 150,000
warrants entitle the holders to acquire an aggregate of 1,312,746 warrant
shares. After registration, holders of warrants and warrant shares will be able
to trade these securities privately or using the over-the-counter market. The
Company will not receive any proceeds when holders of warrants or warrant shares
sell these securities. But if any warrants are exercised, the Company will
receive the exercise price for the warrant shares.
Each time the Company issues common stock offered under this registration
statement, it will provide you with a prospectus supplement that will explain
the terms of that particular offering. Therefore, before exercising warrants,
read this Prospectus and the applicable supplement carefully.
WHERE TO FIND MORE INFORMATION
The Company files annual, quarterly and special reports with the SEC. The
annual reports contain financial information that has been audited and reported
on, with an opinion expressed by an independent auditor. These filings are
available on the SEC's website: http://www.sec.gov. Hard copies are available at
the SEC's public reference facilities at the following addresses:
- 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549;
- Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois,
60661; and
- 7 World Trade Center, 13th Floor, New York, New York, 10007.
Call the SEC at 1-800-SEC-0330 with questions about its public reference
facilities. To contact the Company, use the following information:
21700 Atlantic Boulevard
Dulles, Virginia 20166
(703) 406-5000
http://www.orbimage.com
ii
<PAGE> 5
NOTE REGARDING "FORWARD-LOOKING STATEMENTS"
The statements in this prospectus that are not historical facts are called
"forward-looking statements." They can be identified by words such as
"estimates," "projects," "anticipates," "expects," "intends," "plans,"
"believes," or their negatives or other comparable words. Also look for
discussions of strategy that involve risks and uncertainties. Management wishes
to caution the reader that these forward-looking statements are only estimates
or predictions, such as statements regarding:
- market opportunity in the Company's target markets;
- development of the Company's businesses;
- estimates of market size and addressable markets for the Company's
products;
- cash projected to be used in operations;
- anticipated capital expenditures to design, construct and launch the
high-resolution OrbView satellites; and
- expected launch and satellite operational dates.
The Company can provide no assurance that it will achieve anticipated
results. Actual events or results may differ materially due to risks facing the
Company or due to actual facts differing from the assumptions underlying the
Company's predictions. Some of these risks and assumptions include:
- risks associated with schedule delays in constructing and launching the
high-resolution OrbView satellites;
- the Company's ability to market successfully its imagery products and
services to current and new customers;
- the Company's ability to generate customer demand for its imagery
products and services in its target markets at reasonable cost and on
satisfactory terms and conditions; and
- regulatory, legislative and judicial developments that could cause actual
results to vary materially from anticipated results.
The Company admonishes the reader that these cautionary remarks expressly
qualify in their entirety all forward-looking statements that are attributable
to the Company or persons acting on its behalf.
iii
<PAGE> 6
PROSPECTUS SUMMARY
The terms "ORBIMAGE" or "Company" refer to the Orbital Imaging Division of
Orbital Sciences Corporation before May 8, 1997, and to Orbital Imaging
Corporation after that date. The term "Orbital" refers to Orbital Sciences
Corporation (the Company's majority stockholder) and its subsidiaries. Certain
technical and other capitalized terms used in this Prospectus are defined either
in the text of this Prospectus or in the Glossary. Consider carefully the
information under "Risk Factors" beginning on page 9 as well as the other
information included in this prospectus before exercising warrants.
THE COMPANY
ORBIMAGE is a leading provider of global space-based imagery. The Company
develops and operates 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 has two operating satellites that provide imagery
to a variety of scientific, commercial and government customers, including NASA,
NIMA and commercial fishing companies. The Company expects to launch and operate
two additional satellites providing high-resolution digital imagery, one in 1999
and the other in 2000. ORBIMAGE intends to provide customers with imagery at
lower prices than the prices of existing or planned remote imagery alternatives.
The Company's imagery products and services are being developed to provide
ORBIMAGE's customers with information on a range of subjects including:
- mapping and surveying data;
- urban growth and development;
- forestry and crop health;
- land and ocean-based natural resources;
- locations and movements of troops or military assets; and
- weather patterns and wind conditions.
As a result of an acquisition in April 1998, ORBIMAGE provides
sophisticated image processing software, geographic information database and
production systems, imaging sensor design and related engineering services to
governmental and commercial customers.
The table below shows the imaging capability and current status of each
satellite that ORBIMAGE has launched or plans to launch through 2000:
<TABLE>
<CAPTION>
SATELLITE IMAGING CAPABILITY STATUS
- --------- ------------------ ------
<S> <C> <C>
OrbView-1 Low-resolution, black and white Launched in April 1995 and
(panchromatic) and meteorological currently operational
data
OrbView-2 Medium-resolution, color and Launched in August 1997 and
infrared (multispectral) currently operational
OrbView-3 High-resolution, panchromatic and Critical design review completed
multispectral and scheduled to be operational
during second half of 1999
OrbView-4 High-resolution, panchromatic and Critical design review completed
multispectral and enhanced color and scheduled to be operational
and infrared (hyperspectral) in mid-2000
</TABLE>
The Company believes that OrbView-2 is the only satellite of its kind
providing daily color images of the entire Earth's surface. The Company believes
that OrbView-3 and OrbView-4 (the "high-resolution
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OrbView satellites") 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, compositions 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 commercial and government users in both
domestic and international markets. The market includes satellite development,
construction and operations costs incurred by users who decide to build and
operate their own satellite systems. It also includes the cost of purchased
imagery and related services currently addressable by existing imagery suppliers
who use aircraft- and satellite-based imaging platforms.
Historically, in the United States, quasi-governmental programs such as the
low-resolution Landsat satellite systems from the 1970s were the only
"commercial" operators of remote imaging satellites. The opportunities to
commercialize 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 satellite and ground hardware
sales) will be approximately $2.0 billion by the year 2000. ORBIMAGE believes
that this market will grow as the availability of low-cost, high quality
satellite imagery stimulates the demand for these products and services and
encourages the development of new satellite-imaging technologies and
applications.
Since its inception, the Company has entered into a number of significant
pre-launch contracts for its satellite imagery, such as those described below:
<TABLE>
<CAPTION>
SATELLITE CONTRACTING PARTIES SERVICES PROVIDED
--------- ------------------- -----------------
<S> <C> <C>
OrbView-1 ORBIMAGE and NASA Weather-related imagery and
meteorological information
OrbView-2 ORBIMAGE and NASA Multispectral (color) ocean
imagery
OrbView-3 ORBIMAGE and Samsung High-resolution imagery
Aerospace
Industries, Ltd.
OrbView-4 Orbital and U.S. Air Hyperspectral imagery
Force
OrbView-3 and OrbView-4 ORBIMAGE and NIMA Worldwide high-resolution
imagery
</TABLE>
In addition, the Company has entered into agreements with regional
distributors for OrbView-2 imagery in Canada and Chile. The Company is
negotiating with potential regional distributors for high-resolution OrbView
imagery in Europe, Asia, the Middle East, Africa, South America and Central
America. To provide industry-specific imagery applications, ORBIMAGE is
developing strategic alliances with key value-added resellers who currently
provide imagery products to customers in industries such as oil and gas
exploration, mining, agriculture, forestry, fishing and cartography.
BUSINESS STRATEGY
ORBIMAGE's business strategy is to:
- penetrate existing markets with higher-quality and/or lower-priced
imagery;
- create new markets to sustain long-term growth;
- achieve global distribution;
- provide timely worldwide coverage;
- expand an electronic imagery archive with broad and diverse imagery
products; and
2
<PAGE> 8
- leverage the expertise of Orbital, including Orbital's existing satellite
imagery technology and product infrastructure, to promote rapid market
acceptance.
Penetrate Existing Markets with Higher -- Quality and/or Lower-Priced
Imagery. The Company believes it can gain market share rapidly in existing
applications because it expects its imagery to be priced below existing and
planned aerial and satellite imagery and to be of higher resolution than
existing satellite imagery. Additionally, the Company believes that the expected
cost to construct its high-resolution OrbView satellites and related ground
systems will be less than or competitive with the announced costs of its
competitors' high-resolution satellite systems. The Company believes this will
afford it pricing flexibility for its imagery products and services, allowing it
to pursue an aggressive pricing strategy while still realizing attractive
returns.
Create New Markets. By introducing affordable, high-resolution satellite
imagery, the Company believes it will stimulate the development of new markets.
For example, ORBIMAGE's marketing efforts 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 real
estate assessment, travel planning and entertainment applications.
Achieve Global Distribution. The Company believes 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, scientific,
environmental and U.S. national security markets. The Company expects that
value-added resellers will perform application-specific processing and analysis
of the Company's imagery for various commercial applications. The Company
intends to use direct and third party distribution channels simultaneously to
enhance its ability to distribute its products and services.
ORBIMAGE is working to penetrate foreign markets by forging relationships
with strong regional partners who have existing marketing and distribution
infrastructures and who 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 approvals.
Provide Timely Worldwide Coverage. All the OrbView satellites are designed
to provide timely product delivery through one of two methods:
- by downlinking real-time imagery to a distributor's or customer's local
ground receiving station; or
- by delivering processed imagery from ORBIMAGE's central U.S. ground
station by overnight courier or over the Internet.
OrbView-2 provides daily global imagery. OrbView-3 is designed to image
virtually any location on Earth with a "revisit" time of three days or less.
After the Company launches OrbView-4, the effective "revisit" time of the
high-resolution OrbView satellites is expected to be less than two days.
Expand Electronic Imagery Archive. The Company has developed the OrbNet
Digital Archive, a database that will collect, store, and distribute imagery
from the OrbView satellites and aerial sources. The archive currently includes
imagery products from the OrbView-2 satellite. ORBIMAGE intends to expand its
imagery catalogue prior to the launch of OrbView-3 with aerial and satellite
imagery products from existing imagery sources. The Company delivers imagery
from the OrbNet Digital archive 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
stockholder, is a space technology and satellite services Company with extensive
experience designing and constructing remote imaging satellites and ground
stations. ORBIMAGE has used and will continue to use Orbital's integrated space
capabilities, infrastructure and experience to develop its business cost
effectively. In addition, the Company plans to leverage certain of Orbital's
existing customer relationships and product lines.
3
<PAGE> 9
TARGET MARKETS
ORBIMAGE focuses on four primary market segments where it believes that a
significant demand for high-quality, timely, low-cost remote imagery currently
exists or will develop. These four market segments are the commercial/consumer
market, the scientific/environmental market, the U.S. national security market,
and the foreign national security market.
Commercial/Consumer. The Company believes that the near-term
commercial/consumer market segment will include domestic and foreign companies
and local government entities 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. The Company's initial
applications include or are expected to include:
- standardized map-making;
- maintaining computer-based geographic information systems;
- agriculture and forestry management;
- fishing and natural resource exploration and extraction; and
- tax assessment.
In addition, as high-resolution satellite imagery becomes available, the Company
expects new consumer markets to emerge involving real estate assessment, travel
planning, education, and entertainment applications.
Scientific/Environmental. The scientific/environmental market comprises
government entities that use satellite imagery to monitor environmental,
climate-related and meteorological phenomena, both in real-time and over
extended time periods. This market also comprises other environmental,
scientific and commercial entities that need accurate, timely environmental
information covering a wide geographic area. The Company expects that its
multispectral and hyperspectral imagery will have a variety of environmental
applications, including natural disaster and severe storm damage assessment and
the environmental impact assessment 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 national security imagery requirements by
outsourcing to U.S. commercial providers. Additionally, the Company believes
that potential budget cutbacks in the Department of Defense ("DoD") and National
Reconnaissance Office ("NRO"), 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 conduct the following
activities:
- monitor borders;
- gather intelligence on potential adversaries;
- identify and target enemy troops and assets; and
- plan missions, deploy resources and assess battle damage.
Commercial high-resolution satellites can provide foreign governments with
real-time, high-resolution imagery for national security enhancement on a
routine, regional "time-share" basis. High-resolution imagery generally has not
been available to governments other than the governments of the United States
and the former Soviet Union.
4
<PAGE> 10
RISK MITIGATION
ORBIMAGE has adopted a comprehensive strategy to mitigate the financial,
business, and technical risks associated with developing new and existing
markets and constructing, launching and operating its satellites.
Market Development. By negotiating pre-launch contracts with customers
and/or distributors, ORBIMAGE has reduced, and seeks to continue to reduce, the
financial risks associated with constructing and operating its fleet of
satellites. To further facilitate market penetration, the Company is also
developing strategic alliances with value-added resellers who 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. U.S. government surveillance and space
programs have already successfully deployed most of the imaging technology and
the sub-system components that the Company will use in the high-resolution
OrbView satellites. In addition, these satellites incorporate system
redundancies for certain critical components.
Operations. The OrbView-3 and OrbView-4 satellites have similar
performance parameters, with OrbView-4 having additional hyperspectral imagery
capability. The Company expects to launch the high-resolution OrbView satellites
within one 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 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. Within the next two years, Orbital will have
designed and constructed all four OrbView satellites and the related ground
systems. Orbital's Pegasus(R) launch vehicle has successfully launched OrbView-1
and OrbView-2 and is expected to also launch OrbView-3. Orbital's Taurus(R)
launch vehicle is expected to launch OrbView-4.
Orbital owns 60.4% of the outstanding voting stock of the Company. To date,
Orbital has contributed approximately $87.9 million in capital to ORBIMAGE. The
Company has agreed to pay Orbital a fixed price of about $295.1 million for the
following:
- the design, development, and launch of OrbView-1 and the high-resolution
OrbView satellites;
- the exclusive worldwide license to promote, market, sell and use
OrbView-2 imagery (the "OrbView-2 License"); and
- the U.S. ground segment for all four OrbView satellites.
SERIES A AND UNITS OFFERINGS
On February 25, 1998, the holders of the Series A preferred stock exercised
an option to purchase an additional $22.7 million of Series A preferred stock,
which represented the maximum amount of Series A preferred stock that Series A
Holders could purchase at that time. The Series A Offering generated net
proceeds of about $21.3 million. On that same date, the Company completed a
units offering, under which it sold 150,000 units, each consisting of $1,000
principal amount of 11 5/8% senior notes due 2005 and one warrant. Each warrant,
when exercised, entitles the warrant holder to purchase 8.75164 shares of common
stock at an exercise price of $0.01 per share. The warrants are exercisable at
any time on or after the earlier to occur of February 25, 1999 or the date the
Company notifies holders of notes and warrants that there has been a "change of
control" of the Company. Unless exercised, the warrants will automatically
5
<PAGE> 11
expire on March 1, 2005. The total outstanding warrants entitle the warrant
holders to purchase in the aggregate approximately 3% of the outstanding common
stock.
Out of net proceeds of approximately $144.8 million from the units
offering, the Company purchased approximately $32.9 million of U.S. Treasury
securities to pay the interest on the notes for the first four interest payment
dates. All remaining proceeds from both offerings will be applied to:
- develop, construct, test, launch and operate the high-resolution OrbView
satellites;
- develop, upgrade and construct the U.S. domestic ground system for the
high-resolution OrbView satellites; and
- working capital.
EXCHANGE OFFER
On August 31, 1998, the Company completed an exchange offer under which all
holders of the notes that the Company sold in the unregistered units offering
exchanged those notes for registered notes. The Company did not receive any
proceeds from the exchange offer. The term "notes" when used in this prospectus
will apply to both the original notes issued in the units offering and the
registered notes issued in the exchange offer.
6
<PAGE> 12
THE OFFERING
ISSUER..................... Orbital Imaging Corporation.
SECURITIES OFFERED......... 1,312,746 shares of common stock issuable upon the
exercise of 150,000 outstanding warrants.
TOTAL NUMBER OF WARRANTS... 150,000 warrants originally issued in a units
offering where each unit consisted of one warrant
and $1,000 principal amount of notes.
EXERCISE................... The exercise price is $0.01 per share. Each warrant
entitles the holder to buy 8.75164 shares of common
stock. The warrants are exercisable at any time on
or after February 25, 1999, or on the occurrence of
a Company change of control, which ever happens
first.
EXPIRATION DATE............ The warrants expire on March 1, 2005.
NO RIGHTS AS A
STOCKHOLDER................ Warrant holders are not entitled to any rights as
shareholders of the Company, including voting
rights.
NO FRACTIONAL SHARES....... The Company will not issue fractional shares on
exercise of the warrants. Instead, the Company will
pay to the eligible holder cash equal to the
current market price per warrant share multiplied
by the applicable fraction.
REGISTRATION OF WARRANTS
AND WARRANT SHARES......... The registration process, of which this prospectus
is a part, satisfies the rights of the warrant
holders under a registration rights agreement among
the Company and the initial purchasers, which
rights terminate when this process is completed.
USE OF PROCEEDS............ The Company will not receive any proceeds from
either the sale of the warrants or the sale of the
warrant shares by selling holders. Proceeds, if
any, received by the Company from the exercise of
the warrants will be used for working capital and
for general corporate purposes.
WARRANT AGENT.............. Marine Midland Bank.
WARRANTS OUTSTANDING....... As of the date of this prospectus, 150,000 warrants
are outstanding.
COMMON STOCK OUTSTANDING... As of the date of this Prospectus, 25,214,000
shares of common stock are outstanding. This does
not include (i) 1,312,746 shares issuable on
exercise of the warrants, (ii) 4,800,000 shares
issuable under the Company's stock option plan, of
which 2,642,500 are subject to options granted to
executive officers, directors and employees of the
Company and its affiliates and (iii) 16,488,633
shares issuable on exercise of the Series A
preferred stock conversion rights.
7
<PAGE> 13
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1993 1994 1995(1) 1996 1997(2) 1997 1998
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ -- $ -- $ 4,567 $ 1,055 $ 2,062 $ 525 $ 8,547
Direct expenses................................. -- 800 7,998 4,320 6,312 3,423 11,597
Selling, general and administrative expenses.... 1,702 3,156 2,371 1,630 2,844 1,616 5,235
------- ------- ------- ------- ------- ------- -------
Loss from operations............................ $(1,702) $(3,956) $(5,802) $(4,895) $(7,094) $(4,514) $(8,285)
======= ======= ======= ======= ======= ======= =======
Loss per common share -- basic and diluted
(3)........................................... $ (0.42) $ (0.31) $ (0.36)
Loss available to common stockholders (3)....... $(6,890) $(4,194) $(8,953)
Weighted average shares outstanding: (3)
Basic......................................... 16,432 13,477 25,214
Assuming dilution............................. 22,263 18,089 40,990
OTHER DATA:
Capital expenditures............................ $13,749 $13,832 $18,989 $12,617 $49,029 $39,410 $89,702
EBITDA (4)...................................... (1,702) (3,157) 1,975 (914) (1,558) (1,482) 1,429
Net cash provided by (used in) operating
activities.................................... 7,142 3,111 (192) (1,008) 6,334 5,631 20,733
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------
(DOLLARS IN
THOUSANDS)
(UNAUDITED)
-----------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 62,760
Total assets................................................ 321,471
Long-term obligations....................................... 141,476(5)
Series A preferred stock (6)................................ 54,824
Total stockholders' equity.................................. 111,691(5)
</TABLE>
- ---------------
(1) The OrbView-1 satellite was launched in April 1995.
(2) The OrbView-2 satellite was launched in August 1997.
(3) All potentially dilutive securities, such as convertible preferred stock,
warrants, and stock options are antidilutive for each of the periods
presented. Prior to May 8, 1997, ORBIMAGE was an operating division of
Orbital and loss per common share for the years ended December 31, 1993,
1994, 1995 and 1996 were not meaningful.
(4) 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 a useful measure of the Company's
operating performance, because EBITDA can be used to measure the Company's
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 in this prospectus may not conform to the definition of
Consolidated Cash Flow as defined in the indenture.
(5) The remaining carrying value of the warrants, approximately $8.5 million,
was reflected as both a debt discount and an element of additional paid-in
capital.
(6) Represents stated value of $100 per share of Series A preferred stock less
applicable fees and expenses.
8
<PAGE> 14
RISK FACTORS
ORBIMAGE, like other companies in the remote imaging industry, faces risks
from several different sources. These risk factors may negatively impact the
price of the Company's stock. Therefore, in addition to the other information
contained in this prospectus, investors should carefully consider the following
matters when making investments in the warrants and warrant shares.
LIMITED OPERATING HISTORY AND NET LOSSES MAY REDUCE MARKETABILITY OF SECURITIES
Limited Operating and Financial Data. Warrant holders have limited
operating and financial data about ORBIMAGE on which to evaluate the Company's
performance when making investment decisions. ORBIMAGE did not commence
commercial service until 1995 when it launched OrbView-1. The Company has a
history of net losses from operations and has generated only limited revenues
from the operations of OrbView-1 and OrbView-2 and its image processing
business. To execute the Company's business plan, the Company will have to:
- construct and deploy the high-resolution OrbView satellites;
- 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
remote imaging industry, the Company may not surmount these barriers, develop a
sufficiently large revenue-generating customer base to service its debt, or
compete successfully in the industry.
Expectation of Continued Losses. ORBIMAGE's business strategy will require
significant capital expenditures, a substantial portion of which will be
incurred before the Company generates significant revenues. Together with the
Company's operating expenses, these capital expenditures will result in a
negative cash flow until the Company can establish an adequate
revenue-generating customer base. ORBIMAGE has an accumulated deficit of $35.5
million through September 30, 1998, and it expects such losses to continue into
1999. The Company does not expect to generate net positive cash flow from
operations sufficient to fund both operations and capital expenditures until
OrbView-3 is operational, which the Company currently expects to happen in the
second half of 1999. OrbView-3 may not become operational on this timetable, or
at all, and the Company may not achieve or sustain any positive cash flow or
profitability thereafter. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
SUBSTANTIAL LEVERAGE AND RESTRICTIVE COVENANTS MAY ADVERSELY AFFECT THE
COMPANY'S FINANCIAL HEALTH AND ITS BORROWING ABILITY
As of September 30, 1998, the Company's total debt was $141.5 million
($150.0 million net of debt discount), and its stockholders' equity was
approximately $111.7 million. The Company anticipates earnings will be
insufficient to cover fixed charges through at least September 30, 1999. The
indenture governing the notes will permit the Company to incur additional debt
under certain limited conditions, and the Company expects that it may incur debt
in the form of one or more fixed asset financings. If pursued, these fixed asset
financings will be secured by first priority security interests in certain of
the Company's assets. Accordingly, the lenders of such fixed asset financings
would have a claim on these assets before the claims of the holders or warrants
and warrant shares.
The Company must succeed at implementing its strategy to be able to service
its debt. Currently, the Company 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. ORBIMAGE
cannot guarantee,
9
<PAGE> 15
for example, that OrbView-2 will continue to operate for its design life.
Furthermore, the Company cannot guarantee that it can successfully deploy and
fully operate both of the high-resolution OrbView satellites. Even with all four
satellites deployed and operating, the Company cannot guarantee that its
operations will generate sufficient cash flow to service its debt and meet its
working capital requirements. Absent positive operating results, the Company
could face substantial constraints on its liquidity and may be required to seek
additional financing by issuing debt or equity securities. The Company cannot
guarantee it would be successful in obtaining such financing. Any failure of the
OrbView-2 satellite, or any failure or delay in deployment of the
high-resolution OrbView satellites could negatively affect the Company's
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources."
Moreover, the Company's degree of leverage could have a negative effect on
the value of the warrants and warrant shares due to any of the following:
- a substantial portion of the Company's net cash from operations will be
committed to debt service payments and will not be available to the
Company for its operations, capital expenditures, or other purposes;
- 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
- the Company may be placed at a competitive disadvantage because its
substantial leverage may limit its flexibility in reacting to changes in
its business.
The indenture governing the notes 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,
the Company's ability to:
- pay cash dividends;
- borrow more money;
- make investments;
- engage in transactions with affiliates;
- sell assets; and
- engage in mergers and consolidations.
If the Company fails to comply with the restrictive covenants in the
indenture, the note holders are entitled to accelerated performance of the
Company's obligations under the indenture.
INABILITY TO FUND POTENTIAL ADDITIONAL CAPITAL REQUIREMENTS COULD DELAY
SATELLITE CONSTRUCTION AND DEPLOYMENT
The Company currently expects that it will need approximately $83.1 million
for capital expenditures, development, and initial operating costs for its
satellite system through September 30, 1999, by which date the Company expects
to launch OrbView-3. The Company believes that the net proceeds of the units
offering and the Series A offering, together with expected cash from operations,
are adequate to fund the Company's operations through September 30, 1999. As of
September 30, 1998 the Company had cash and cash equivalents and unrestricted
securities in the aggregate amount of $90.0 million. The Company cannot
guarantee that it will generate sufficient cash from operations, or that
expenses will fall within the Company's estimates. In either event, the Company
would require additional capital.
A large portion of the Company's expenses come from developing,
constructing and launching the OrbView satellites and constructing and
activating the U.S. ground system. While most of these costs are fixed under a
contract with Orbital, Orbital will furnish certain items and services to the
Company on a cost-plus or cost-reimbursable basis, such as launch and in-orbit
insurance, launch service costs for OrbView-4 that exceed $23.0 million and
ORBIMAGE-directed technological assistance. Many factors
10
<PAGE> 16
outside the Company's control influence the costs of these and other items and
services, and the Company may need to raise more capital if any of these costs
increase materially.
Furthermore, the Company may need to raise more capital if, for example:
- there are significant delays in deploying the high-resolution OrbView
satellites because of technical difficulties, launch or satellite failure
or other reasons;
- the Company does not enter into agreements with customers, value-added
resellers or distributors for high-resolution imagery at the times or on
the terms that the Company anticipates;
- the Company's estimated net operating deficit increases because the
Company incurs significant unanticipated expenses, such as costs for
resolving satellite operational difficulties;
- the Company incurs additional costs from modifying all or part of the
high-resolution OrbView satellites or ground segment designs to meet
changed or unanticipated market, regulatory or technical requirements; or
- the Company decides to expand its fleet of satellites.
If these or other events occur, the Company cannot guarantee that it could
raise additional capital from public or private markets on favorable terms, on a
timely basis or at all. A substantial shortfall in funding would delay or
prevent deployment of one or both of the high-resolution OrbView satellites.
SCHEDULE DELAYS COULD ADVERSELY AFFECT THE COMPANY'S RESULTS OF OPERATIONS
The Company could experience delays in the commercial operation of either
of the high-resolution OrbView satellites from a variety of causes, including:
- delays in designing, constructing, integrating and testing of the
satellites, satellite components and related ground systems;
- delayed or unsuccessful launches;
- subcontractor or manufacturer delays;
- delays in receiving licenses necessary to operate the satellite system;
or
- other events beyond the Company's control.
The perceived and actual timing of satellite launches may affect
competition in the satellite-based imaging industry. Significant delays or even
the perception of potential delays in launching either of the high-resolution
OrbView satellites could increase pre-launch operating costs, delay revenues and
negatively affect the Company's marketing efforts, results of operations and its
ability to service its debt. The Company cannot guarantee that either of the
high-resolution OrbView satellites will be launched and placed into operation on
a timely basis.
LAUNCH FAILURES OR DELAYS COULD ADVERSELY AFFECT PRODUCT AND SERVICE DELIVERY
AND THE COMPANY'S FINANCIAL HEALTH
Satellite launches are subject to significant risks, including partial or
complete launch vehicle failure. Launch vehicle failure may cause disabling
damage to or loss of a satellite or may result in a failure to deliver the
satellite to its proper orbit. The Company has contracted with Orbital to launch
the high-resolution OrbView satellites. Orbital intends to launch OrbView-3 on a
Pegasus(R) launch vehicle. There are a number of additional Pegasus launches
planned prior to the launch of OrbView-3, and the failure of any one of those
launch vehicles could result in a delay in the deployment of OrbView-3. The
Pegasus is launched from beneath one of Orbital's modified Lockheed L-1011
aircraft. If Orbital's L-1011 aircraft is unavailable, the Company could
experience significant delays. Orbital would have to acquire and modify a new
carrier aircraft or the Company would have to arrange to deploy OrbView-3 using
an alternative launch vehicle. The Company cannot guarantee that Orbital could
obtain another aircraft and
11
<PAGE> 17
properly modify the aircraft or that ORBIMAGE could obtain alternate launch
services on a timely basis, if at all. Orbital currently plans to launch
OrbView-4 on its Taurus(R) launch vehicle, which has had three missions, all of
which were successful.
The Company cannot guarantee that Orbital will successfully deploy the
high-resolution OrbView satellites in a timely manner. A delay or launch failure
could negatively affect the Company's business, financial condition and results
of operations, its ability to deliver its products and services and its ability
to service its debt.
MARKET ACCEPTANCE IS NOT ASSURED
The Company's success depends on acceptance of its imagery products and
services in existing markets and in the development of new markets. Market
acceptance depends on a number of factors. These include the spatial and
spectral quality, scope, timeliness, sophistication, and price of the Company's
imagery products and services and the availability of substitute products and
services. The Company cannot accurately predict whether its products and
services will achieve market acceptance, or whether the market will demand its
products and services on terms the Company finds acceptable.
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. Unanticipated events also 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 view as of the date of
this Prospectus. In particular, the Company expects significant revenues from
sales of imagery produced 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 market
demand for these services and products. Actual markets could vary materially
from the addressable markets discussed in this prospectus. Lack of significant
market acceptance, delays in such acceptance, or failure of certain markets to
develop could also negatively affect the Company's business, financial condition
and results of operations and its ability to service its debt.
TECHNOLOGICAL, DEVELOPMENT, AND IMPLEMENTATION PROBLEMS COULD CAUSE ADDITIONAL
DELAYS
ORBIMAGE has completed designing the high-resolution OrbView satellites;
however, the Company cannot guarantee that the satellites' design will not
require modifications to achieve desired performance criteria. For example, the
OrbView-2 satellite, launched in August 1997, was two years behind schedule
because of design, production and testing delays. The high-resolution OrbView
satellites will employ advanced technologies and sensors that will be subject to
severe environmental stresses during launch or in space that could affect the
satellites' performance. Sometimes human operators may execute improper commands
that may negatively impact a satellite's performance. Employing advanced
technologies is further complicated by the fact that the OrbView satellites will
be in space. Correcting hardware component problems in space may require
premature satellite replacement, with attendant costs and revenue losses.
The Company can provide no assurance that it can launch and operate
successfully the high-resolution OrbView satellites, or that each of the OrbView
satellites will perform or continue operating throughout its expected design
life. Furthermore, even if the Company successfully launches the high-resolution
OrbView satellites, minor flaws in the satellites' sensors could significantly
degrade the satellites' performance and affect ORBIMAGE's ability to market its
products successfully.
The Company has not procured a spare satellite for OrbView-2, nor does it
maintain an inventory of long lead-time parts to replace the OrbView-2
satellite. Similarly, the Company has not procured a spare high-resolution
OrbView satellite, nor does it maintain an inventory of long lead-time parts for
these satellites. If the OrbView-2 satellite fails, the Company does not
presently have plans to construct and launch a replacement. Permanent loss of
the OrbView-2 satellite could adversely affect the Company's
12
<PAGE> 18
operations. In addition, if there is a failure in an OrbView-3 satellite
subsystem that is common to the OrbView-4 satellite (e.g., the sensor), such a
failure may result in an OrbView-4 launch delay.
LIMITED LIFE OF SATELLITES COULD MEAN HIGH-COST REPLACEMENTS
The OrbView satellites, which constitute a substantial portion of the
Company's total assets, have a limited useful life. A number of factors affect
the useful lives of the OrbView satellites. They include:
- 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 cause damage to or loss of a
satellite. In rare cases, electrostatic storms or collisions with other objects
could also damage satellites.
OrbView-1 has an expected design life of three years. OrbView-2 has an
expected design life of seven and one-half years. The high-resolution OrbView
satellites each have an expected design life of five years. The Company expects
the performance of each OrbView satellite to decline gradually near the end of
its design life, although this has not yet happened with OrbView-1. The Company
determines a satellite's design life using a complex calculation involving
estimated probabilities of failure of the satellite's components from design or
manufacture defects, environmental stresses or other causes. The Company cannot
guarantee the longevity of any of the OrbView satellites. A useful life of an
OrbView satellite that is significantly shorter than its design life would
negatively affect the Company's business, financial condition, results of
operations and its ability to service its debt.
The Company anticipates using funds generated from operations to develop
follow-on high-resolution satellites. If ORBIMAGE does not generate sufficient
funds from operations and ORBIMAGE is unable to obtain financing from outside
sources, it will not be able to deploy follow-on satellites to replace OrbView-3
and OrbView-4 at the end of their useful lives. The Company cannot guarantee
that it can raise additional capital, on favorable terms or on a timely basis,
if at all, to develop follow-on high-resolution OrbView satellites.
Additionally, the Company cannot guarantee that it will be able to contract with
Orbital or any other Company to design, construct or launch a follow-on
high-resolution satellite.
COMPETITION COMES FROM SEVERAL SOURCES
The Company's products and services will compete with satellite and
aircraft-based imagery and related products and services offered by a range of
private and government providers. Certain of these entities have greater
financial, personnel and other resources than the Company. Potential competitors
include at least two companies, Space Imaging EOSAT and EarthWatch, each of
which intends to offer satellite imagery comparable to the imagery that the
high-resolution OrbView satellites could provide. Space Imaging EOSAT expects to
launch its first one-meter satellite in early 1999 and EarthWatch expects to
launch its one-meter satellite in late 1999.
In addition, the U.S. government and foreign governments may develop,
construct, launch and operate remote imaging satellites that compete with
OrbView-2 and the high-resolution OrbView satellites. The U.S. government, under
its Earth Science Program, will launch a satellite next year that will provide
imagery similar to OrbView-2 imagery. 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.
The Company believes it 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. But the low marginal cost
of producing satellite imagery once a satellite is operating could cause adverse
13
<PAGE> 19
pricing pressure, decreased profits or even losses. The Company's competitors or
potential competitors with greater resources than the Company could in the
future offer satellite-based imagery or other products having more attractive
features than the Company's products. New technologies, even if not ultimately
successful, could negatively affect OrbView's marketing efforts. More
importantly, if competitors develop and launch satellites with advanced
capabilities and technologies compared to the OrbView high-resolution
satellites, this competition could harm the Company's business. See "Risk
Factors -- Potential Conflicts of Interest with Orbital Could Affect the
Company" and "Business -- Competition."
LIMITED INSURANCE MAY NOT COVER ALL RISKS OF LOSS
Under the indenture governing the notes, the Company is required to
maintain launch, in-orbit checkout and in-orbit operations insurance for the
high-resolution OrbView satellites. The OrbView-1 satellite is not insured. The
Company has in-orbit insurance for OrbView-2 to cover losses up to $10.0 million
for its current operational year which policy is renewable in the next
operational year to cover losses of $8.0 million. The Company has not yet
determined the amounts and types of coverage that it will purchase in the
future. In addition, the Company may find it difficult to insure certain risks,
such as partial degradation of functionality of a satellite. Insurance market
conditions or factors outside the Company's control at the time the Company buys
the required 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. These factors could cause other terms to be
significantly less favorable than those currently available, may result in
limits on amounts of coverage that the Company can obtain or may prevent the
Company from obtaining insurance at all. Furthermore, the Company cannot
guarantee that proceeds from insurance it is able to purchase will be sufficient
to replace a satellite due to cost increases and other factors beyond the
Company's control.
HEAVY DEPENDENCE ON A SINGLE SUPPLIER COULD RESULT IN DELAYS IF THE SUPPLIER
FAILS TO PERFORM
The Company depends on Orbital to design, develop, and launch the
high-resolution OrbView satellites and to construct the U.S. ground segment for
these satellites. The Company expects that it will continue to rely on third
parties (including Orbital) to design, construct, or launch its satellites and
to modify its existing ground segment to accommodate these satellites. The
Company also relies on the OrbView-2 License from Orbital to market the
OrbView-2 imagery. Under the procurement agreement between the Company and
Orbital, the Company has contracted with Orbital to provide design,
construction, and launch services. If Orbital fails to perform adequately its
obligations under the procurement agreement, the Company would be forced to
delay deployment of the high-resolution OrbView satellites until it located an
alternative provider. Orbital's liability to ORBIMAGE for claims under the
procurement agreement, such as breach of contract or patent indemnification, is
limited to $10.0 million. Orbital is not liable to ORBIMAGE for any costs or
other damages arising from schedule delays.
Under a services agreement between the Company and Orbital, 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. If Orbital
fails to perform its obligations under the services agreement, the Company may
not be able to fully operate the OrbView satellites. The services agreement
terminates for each OrbView satellite three years after the launch of each
satellite. The Company can provide no assurance that it can renew the services
agreement on favorable terms, if at all. In addition, a material adverse change
in Orbital or its financial condition or the condition 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. In any case, the Company can provide no assurance that
an alternate provider would be available or, if available, would be available on
terms favorable to the Company or Orbital.
FAILURE TO OBTAIN REGULATORY APPROVALS COULD RESULT IN SERVICE INTERRUPTIONS
Domestic. ORBIMAGE's business requires licenses from the Department of
Commerce ("DoC") and from the Federal Communications Commission ("FCC"). The
Company currently has a license from
14
<PAGE> 20
the DoC to operate two high-resolution satellites and the OrbView-2 satellite.
Each of these DoC licenses expires in 2004. The Company cannot guarantee that
the licenses will be renewed.
Under the DoC licenses, the U.S. government reserves the right to interrupt
service during periods of national emergency that affect U.S. national security
interests. If the U.S. government threatens to or actually interrupts service,
these threats or interruptions could adversely affect ORBIMAGE's ability to
market its products to certain foreign distributors or end-users. In addition,
the DoC has the right to review and approve the terms of agreements with
ORBIMAGE's international customers. Any such review might delay or prohibit the
Company's ability to execute these agreements.
In the future, ORBIMAGE could be subjected to new laws, policies or
regulations, or new interpretations or applications of existing laws, policies
and regulations that could adversely affect the Company's operations. See
"Regulation."
ORBIMAGE has applied for an amendment to the DoC license to permit the
Company to distribute OrbView-4 hyperspectral imagery commercially. The Company
cannot guarantee that the DoC will approve its application. While the DoC has
not rendered a final decision, it has indicated that approval may be subject to
certain limitations, such as delaying release of imagery or degrading spatial
resolution of the imagery. If the DoC does not approve the amendment on the
terms requested or if the Company loses the DoC license the Company's ability to
market hyperspectral imagery to non-U.S. government customers could be
negatively affected.
The Company must have a FCC license to operate each of the OrbView
satellites (other than OrbView-1). The Company currently operates OrbView-2
under Orbital's experimental FCC license. This license expires in 1999, and
Orbital has applied to the FCC for its renewal. The Company cannot guarantee
that the FCC will grant the renewal. If this license is not renewed the Company
would not be able to operate the OrbView-2 satellite in the United States.
ORBIMAGE has applied to the FCC for a license to launch and operate the
high-resolution OrbView satellites. EarthWatch and Space Imaging EOSAT each have
obtained the required DoC and FCC licenses. Although historically the FCC has
granted licenses to systems that conform to the FCC's technical, legal and
financial requirements, the Company cannot guarantee that the FCC will grant to
ORBIMAGE a license to operate either of the high-resolution OrbView satellites.
International. All satellite systems operating internationally must follow
general international regulations and the specific laws of the countries in
which satellite imagery is downlinked. Applicable regulations include:
- 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);
- the Intelsat and Inmarsat agreements, which provide that 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
- regulations of foreign countries that require that satellite operators
secure appropriate licenses and operational authority to use the required
spectrum in each country.
The Company's customers or distributors are responsible for obtaining local
regulatory approval to receive imagery directly from the OrbView-2 and
high-resolution OrbView satellites. While the Company aims to select regional
foreign distributors in part on their ability to obtain the requisite local
approvals, the Company cannot guarantee that they will be successful in doing
so. Unless these regional distributors are successful, the Company will not be
able to distribute real time remote imagery service in these territories.
ORBIMAGE's inability to offer service in a significant number of foreign
countries could negatively affect its business. Regulatory provisions in
countries in which the Company or its foreign regional distributors wish to
operate may impose restrictions on the Company's or its distributors'
15
<PAGE> 21
operations. These restrictions may be unduly burdensome. The Company's business
may also be adversely affected by regulatory changes if the national authorities
where ORBIMAGE plans to operate adopt treaties, regulations or legislation
unfavorable to foreign companies.
Although the Company believes it can obtain all international licenses and
authorizations necessary to operate effectively, it cannot guarantee that it
will be successful in doing so. Failure could negatively affect 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 must ensure that the appropriate DoT commercial launch license is in
place for the high-resolution OrbView satellite launches. The Company cannot
guarantee that Orbital will continue to be successful in its efforts to obtain
the necessary licenses or regulatory approvals. Orbital's inability to secure
necessary licenses or approvals could delay launches. Delays could harm the
Company's business, financial condition, results of operations, and its ability
to service its debt.
COMPANY GROWTH COULD PLACE PRESSURE ON COMPANY RESOURCES
The Company may experience periods of rapid growth. This 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 on its ability
to manage growth effectively. The Company must develop its management
information systems capabilities, improve its operating, financial and
accounting systems and expand, train and manage its employee base to keep pace
with growth. The Company's inability to manage growth effectively could
negatively affect the Company's results of operations and its ability to meet
its obligations as they come due.
FOREIGN DISTRIBUTORS AND VALUE-ADDED RESELLERS MAY NOT EXPAND INTERNATIONAL
MARKETS
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
future foreign regional distributors are expected to act on behalf of, or
contract directly with, foreign governments to sell imagery for national
security and related purposes. These regional distributors may not have the
skill or experience to develop regional commercial markets for the Company's
products and services. If the Company fails to enter into these agreements on a
timely basis or if the Company's foreign regional distributors fail to
successfully market the Company's imagery products and services, these failures
would negatively impact the Company's business, financial condition, results of
operations and its ability to service its debt.
The Company intends to rely on value-added resellers to develop and market
its products and services to address certain targeted markets. If the Company's
value-added resellers fail to successfully develop and market OrbView products
and services, this failure would negatively affect the Company's results of
operations.
INTERNATIONAL OPERATIONS MAY NOT PRODUCE ANTICIPATED RESULTS
The Company expects to derive substantial revenues from international sales
of products and services. These operations are subject to certain risks, such
as:
- changes in domestic and foreign governmental regulations;
- deterioration of once-friendly relations between the United States and
the foreign entity;
- changes in licensing requirements; and
- changes in 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.
16
<PAGE> 22
These risks are beyond the Company's control but could have a large
negative impact on the Company's business.
POTENTIAL CONFLICTS OF INTEREST WITH ORBITAL COULD AFFECT THE COMPANY
Orbital owns 60.4% of the outstanding capital stock of the Company. Certain
of the Company's executive officers and directors are also employees and/or
directors of Orbital. These relationships may produce conflicts on matters
involving both the Company and Orbital. Although the Company has adopted
policies it believes will prevent a conflict from arising, nonetheless a
conflict could arise that harms the Company. See "Relationship with
Orbital -- Policies and Procedures for Addressing Conflicts."
The Company and Orbital are parties to a procurement agreement, the
OrbView-2 License, a services agreement and a 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
ground system. To the extent the Company has obligations to deliver
OrbView-compatible ground stations to its customers, the Company has contracted
to procure these ground stations from MacDonald, Dettwiler and Associates Ltd.
("MDA"), a wholly owned subsidiary of Orbital, provided that the terms are
commercially competitive.
Under the non-compete agreement, Orbital cannot sell turn-key satellite
imaging systems (i.e., satellite, sensors, launch vehicles and ground system),
but it can sell components of systems to current or future customers or
competitors of ORBIMAGE. The components include, among other things, launch
services and satellites. The non-compete agreement will terminate on the earlier
of June 30, 2003 or the occurrence of certain events. Orbital owns approximately
4% of the equity in EarthWatch. The Company expects EarthWatch to be its direct
competitor.
In March 1998, the Canadian government selected MDA to develop, construct,
and manage the Radarsat-2 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,
Orbital owns approximately 26% of the equity in Radarsat International Inc., a
medium-spatial resolution satellite radar imagery provider.
CONTRACT REVENUE IS NOT CERTAIN
At September 30, 1998, contracts with the U.S. government and its agencies
constituted approximately 83% of the Company's contract backlog. Changes in
government policies, priorities or funding levels through agency or program
budget reductions or the imposition of budgetary constraints could negatively
impact the Company's business, financial condition, results of operations and
its ability to service its debt. Furthermore, the U.S. government may terminate
or suspend its contracts at any time, with or without cause. The U.S. Air Force
has contracted with Orbital to fund the design and construction of the
hyperspectral sensor used 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 incur the remaining cost of upgrading
OrbView-4 with hyperspectral capability.
ORBIMAGE has an agreement with Samsung Aerospace that grants Samsung an
exclusive license to receive, process and sell high resolution imagery of the
Korean peninsula. Samsung can cancel the agreement for any reason (with
liquidated damages payable under certain circumstances). The agreement further
provides that Samsung may terminate the agreement without liability if the
Company has not launched the OrbView-3 satellite by May 1999. The Company does
not expect OrbView-3 to be launched until later in 1999. The Company and Samsung
are negotiating an amendment to the Samsung agreement to extend the target
launch date to December 31, 1999. The Company cannot guarantee that this
amendment will be consummated. If the agreement terminates, the Company would
lose revenues, which could negatively affect the Company's business, financial
condition, results of operations, and its ability to service its debt.
17
<PAGE> 23
CONTROL OF THE COMPANY COULD SHIFT TO THE HOLDERS OF SERIES A PREFERRED STOCK
The Company and the holders of the Series A preferred stock are parties to
a stockholders' agreement. The stockholders' agreement and the Company's charter
contain provisions relating to the election of directors. In particular, the
agreement provides that the board of directors may have up to five directors
consisting of:
- two directors designated by Orbital;
- two directors designated by the Series A holders (the "Series A
Directors"); and
- a single independent director designated by both Orbital and the Series A
holders.
Under the Company's charter, the Series A holders can designate two
additional members to the board of directors if:
- the Company fails to pay timely dividends or to repurchase the Series A
preferred stock in certain circumstances; or
- Orbital fails to have started the integration and testing of the
OrbView-3 spacecraft by March 15, 1999, or to have started the
integration and testing of the OrbView-4 spacecraft by November 15, 1999.
Such dates may be extended by 30 days in the Company's discretion under
certain circumstances.
These additional directors would serve until the event giving rise to their
appointment has been resolved. If designated under any of the above
circumstances, the Series A Directors could control the management and policies
of the Company. In addition, under the stockholders' agreement, certain major
Company actions require the approval of one of the Series A Directors.
REPURCHASE OF NOTES AND SERIES A PREFERRED STOCK ON A CHANGE OF CONTROL MAY
TRIGGER CERTAIN DEFAULT EVENTS
If a change of control occurs in the Company, as defined in the indenture
governing the notes, the Company would be required to offer to repurchase all of
the outstanding notes at 101% of the principal amount, plus accrued and unpaid
interest and any liquidated damages to the repurchase date. Additionally,
subject to the senior rights of the note holders, the Company would 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).
The Company cannot guarantee that it would have sufficient resources to
repurchase the notes or the Series A preferred stock on the occurrence of a
change of control. If the Company fails to repurchase all of the notes tendered
to the Company, this failure would constitute an event of default under the
indenture. Furthermore, the Company's repurchase of the notes could cause the
Company to default on other future indebtedness, due to the financial effect of
such repurchase on the Company. The change of control repurchase feature of the
notes may also have anti-takeover effects that could delay, defer or prevent a
merger, tender offer or other takeover attempt.
LACK OF PUBLIC MARKET FOR THE WARRANT SHARES COULD AFFECT THEIR SHARE PRICE
There has not been a public market for the Company's common stock. The
warrant shares issued on exercise of the warrants will constitute a new issue of
securities with no established trading market. The Company does not intend to
list the warrants or warrant shares on any securities exchange or to seek
approval for quotation through any automated quotation system. The Company
cannot guarantee that an active market for the warrant shares will develop or
that any market that does develop will be highly liquid.
If a trading market does not develop or is not maintained, holders of the
warrants and warrant shares may find it difficult to resell their securities and
thus may be required to bear the financial risk of such an investment for an
indefinite period of time. If a market for the warrants and warrant shares does
develop,
18
<PAGE> 24
future trading prices of these securities will depend on many factors, including
the Company's results of operations, the market for similar securities, overall
market conditions and general economic conditions.
DECREASE IN THE VALUE OF THE COMPANY'S STOCK COULD HARM THE COMPANY'S ABILITY TO
RAISE CAPITAL
Future sales of common stock by existing stockholders or the issuance of
common stock on exercise of options or warrants could negatively impact the
value of the stock. A depressed stock price could materially impair the
Company's ability to raise capital in the equity markets. The Company cannot
predict the effect, if any, that common stock sales or the availability of stock
for future sale will have on the market price of the Company's common stock
prevailing from time to time.
COMPUTER-RELATED SYSTEMS MAY NOT BE "YEAR 2000" COMPLIANT
The year 2000 presents potential concerns for the Company's computer
hardware and software applications. If the Company's computer-related systems
are unable to distinguish between the year 2000 and the year 1900, consequences
of this may include systems failures and business process interruption. The
problem may exist for many kinds of the Company's software and hardware,
including mainframes, mini computers, PCs and embedded systems.
In addition, the Company's largest customer consists of various agencies
within the U.S. government. If such customers' systems are not Year 2000
compliant on a timely basis, payments owed to ORBIMAGE could be delayed. The
Company can provide no assurance that a significant delay in payments would not
have a material impact on the Company's financial results.
Finally, the Company cannot guarantee that costs associated with addressing
Year 2000 issues will not be greater than the Company anticipates, or that Year
2000 problems will be identified on a timely basis and that corrective actions
undertaken by the Company or by Orbital (its primary third-party vendor) will be
completed before any Year 2000 problems occur. Thus, the Company's operations
and financial condition could be adversely affected by problems associated with
the Year 2000 issue. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- "Year 2000" Compliance."
19
<PAGE> 25
USE OF PROCEEDS
The maximum gross proceeds to the Company from the exercise of the warrants
and the issuance of the warrant shares offered hereby (assuming all warrants are
exercised at the current exercise price of $0.01 per share) would be $13,127.46.
The Company intends to use such proceeds for working capital and general
corporate purposes. The Company will not receive proceeds from either the sale
of warrants or the sale of warrant shares by selling holders.
MARKET PRICE OF AND DIVIDENDS ON THE COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
There is no established public trading market for the Company's common
stock. There are 25,214,000 shares of common stock issued and outstanding, and
20,443,879 shares of common stock are subject to outstanding options or warrants
to purchase, or securities convertible into, shares of common stock.
HOLDERS
As of September 30, 1998, there were two holders of shares of the Company's
common stock.
DIVIDENDS
The Company has never declared or paid any cash dividends on its common
stock or Series A preferred stock. Moreover, the indenture governing the
Company's notes restricts the payment of dividends. The Company anticipates that
it will retain all future earnings, if any, generated from operations to develop
and expand its business. Thus, the Company does not expect to pay cash dividends
on the common stock or Series A preferred stock at any time in the foreseeable
future.
20
<PAGE> 26
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 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>
SEPTEMBER 30, 1998
---------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C>
Long-term obligations:
Notes (1).............................................. $141,476
--------
Total long-term obligations............................ 141,476
Stockholders' equity:
Preferred stock, par value $0.01; 10,000,000 shares
authorized; Series A cumulative convertible, 2,000,000
shares authorized, 648,653 shares issued and outstanding
(liquidation value of $68,102) (2)(3)..................... 7
Common stock, par value $0.01; 75,000,000 shares authorized;
25,214,000 shares issued and outstanding (4).............. 252
Additional paid-in-capital (1).............................. 146,911
Accumulated deficit......................................... (35,485)
--------
Total stockholders' equity.................................. 111,685
--------
Total capitalization........................................ $253,161
========
</TABLE>
- ---------------
(1) The remaining carrying value of the warrants, $8.5 million, is reflected as
both a debt discount and an element of additional paid-in capital.
(2) Dividends are payable semi-annually on May 1 and November 1 in cash or
in-kind, subject to restrictions contained in the indenture governing the
notes.
(3) On November 1, 1998, the Company issued 38,923 shares of Series A preferred
stock to the holders of Series A preferred stock as a dividend payment.
(4) Excludes 4,800,000 shares of common stock reserved for issuance under the
Company's 1996 Stock Option Plan, of which options to purchase 2,642,500
shares of common stock were outstanding as of September 30, 1998 and options
to purchase 853,674 shares of common stock were exercisable as of September
30, 1998.
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<PAGE> 27
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 September 30, 1998 and for the nine
months ended September 30, 1997 and 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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1993 1994 1995(1) 1996 1997(2) 1997 1998
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ -- $ -- $ 4,567 $ 1,055 $ 2,062 $ 525 $ 8,547
Direct expenses............................ -- 800 7,998 4,320 6,312 3,423 11,597
------- ------- ------- ------- ------- ------- -------
Gross loss................................. -- (800) (3,431) (3,265) (4,250) (2,898) (3,050)
Selling, general and administrative
expenses................................. 1,702 3,156 2,371 1,630 2,844 1,616 5,235
------- ------- ------- ------- ------- ------- -------
Loss from operations....................... (1,702) (3,956) (5,802) (4,895) (7,094) (4,514) (8,285)
Interest income............................ -- -- -- -- 1,260 864 1,151
------- ------- ------- ------- ------- ------- -------
Loss before benefit for income taxes....... (1,702) (3,956) (5,802) (4,895) (5,834) (3,650) (7,134)
Benefit for income taxes................... -- -- -- -- (1,752) (1,095) (3,492)
------- ------- ------- ------- ------- ------- -------
Net loss................................... $(1,702) $(3,956) $(5,802) $(4,895) $(4,082) $(2,555) $(3,642)
======= ======= ======= ======= ======= ======= =======
Loss per common share -- basic and diluted
(3)...................................... $ (0.42) $ (0.31) $ (0.36)
Loss available to common stockholders
(3)...................................... $(6,890) $(4,194) $(8,953)
Weighted average shares outstanding: (3)
Basic.................................... 16,432 13,477 25,214
Assuming dilution........................ 22,263 18,089 40,990
OTHER DATA:
Capital expenditures....................... $13,749 $13,832 $18,989 $12,617 $49,029 $39,410 $89,702
EBITDA (4)................................. (1,702) (3,157) 1,975 (914) (1,558) (1,482) 1,429
Net cash provided by (used in) operating
activities............................... 7,142 3,111 (192) (1,008) 6,334 5,631 20,733
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------ SEPTEMBER 30,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- -------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ -- $ -- $ -- $ -- $ 22,220 $ 62,760
Total assets................................... 38,911 51,944 63,423 72,328 137,750 321,471
Long-term obligations.......................... -- -- -- -- -- 141,476
Series A preferred stock (5)................... -- -- -- -- 33,547 54,824
Total stockholders' equity..................... 6,926 11,526 19,956 26,279 85,360 111,691
</TABLE>
- ---------------
(1) The OrbView-1 satellite was launched in April 1995.
(2) The OrbView-2 satellite was launched in August 1997.
(3) All potentially dilutive securities, such as convertible preferred stock,
warrants, and stock options are antidilutive for each of the periods
presented. Prior to May 8, 1997, ORBIMAGE was an operating division of
Orbital, and loss per common share for the years ended December 31, 1993,
1994, 1995, and 1996 were not meaningful.
(4) EBITDA, as defined in the indenture governing the notes 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 a
useful 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.
(5) Represents stated value of $100 per share of Series A preferred stock less
applicable fees and expenses.
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<PAGE> 28
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 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."
Prior to May 8, 1997, ORBIMAGE was an operating division of Orbital.
Orbital now owns approximately 60.4% of the Company (55.2% 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.
Revenues. 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 September 30, 1998,
ORBIMAGE had approximately $34.2 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 remaining carrying value of the warrants,
approximately $8.5 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 a significant portion of its interest expense throughout
1998 and 1999 as it completes construction of the high-resolution OrbView
satellites.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1998 AND FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
Business Acquisition. On April 30, 1998, ORBIMAGE acquired substantially
all of the assets of TRIFID Corporation ("TRIFID") for $4.0 million. Based on
TRIFID meeting revenue targets established in the acquisition agreement, the
purchase price was adjusted and the Company paid an additional $1.0 million of
consideration to TRIFID during the three months ended September 30, 1998. TRIFID
provides 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 $3.0
million, which is being amortized over ten years.
23
<PAGE> 29
Revenues. Revenues for the nine months ended September 30, 1997 and 1998
were approximately $0.5 million and $8.5 million, respectively. The increase in
1998 revenue was primarily due to the commencement of the OrbView-2 satellite's
commercial operations in November 1997. Revenues during the nine months ended
September 30, 1998 also included $1.2 million in sales generated from the image
processing business acquired from TRIFID in April 1998. Revenues for the
comparable 1997 periods were attributable solely to the sale of OrbView-1
imagery products.
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 $0.8 million and $1.3 million of OrbView-1 and OrbView-2 sales,
respectively.
Direct Expenses. Direct expenses include the costs of operating and
depreciating (i) the OrbView-1 satellite, (ii) the OrbView-2 License, and (iii)
the related ground assets. Satellite operating costs primarily consist of labor
expenses. Direct expenses for the nine months ended September 30, 1997 and 1998
were approximately $3.4 million and $11.6 million, respectively. Direct expenses
increased from the 1997 period to the comparable 1998 period primarily as a
result of the OrbView-2 License amortization, additional ground station
depreciation and increased operating expenses primarily related to OrbView-2,
all of which began when OrbView-2 commenced commercial operations in November
1997.
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. 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 $1.6 million and $5.2 million for the nine months ended
September 30, 1997 and 1998, respectively. The increase in SG&A expenses in 1998
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 $0.7
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 1995 and 1997
included costs of approximately $0.4 million and $0.6 million, 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 and Interest Expense. Interest income reflects interest
earnings on investments made primarily with proceeds from the Company's
financing activities. Interest expense reflects interest incurred on the notes,
net of applicable capitalized interest. Net interest income for the nine months
ended September 30, 1997 and 1998 was approximately $0.9 million and $1.2
million, respectively. Interest expense was approximately $4.2 million for the
nine months ended September 30, 1998. The Company
24
<PAGE> 30
had no interest expense in the comparable 1997 period. For the nine months ended
September 30, 1998, capitalized interest in connection with the construction of
the OrbView-3 and OrbView-4 satellites and related ground segments totaled $6.9
million. 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. Net interest income was approximately $1.3 million
for the year ended December 31, 1997 and none in prior years.
Benefit for Income Taxes. The Company recorded income tax benefits of
approximately $1.1 million and $3.5 million for the nine months ended September
30, 1998 and 1997, respectively. 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 net operating losses generated during the period
offset, in part, 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
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
As of September 30, 1998, the Company had approximately $90.0 million of
cash and cash equivalents and unrestricted securities. The Company's current
ratio was approximately 2.8 as of September 30, 1998 compared to 1.8 as of
December 31, 1997.
On February 25, 1998, ORBIMAGE issued units consisting of the notes and
common stock warrants raising gross proceeds of $150.0 million. Interest on the
notes is payable semi-annually beginning on September 1, 1998. Out of net
proceeds of approximately $144.8 million, the Company purchased approximately
$32.9 million of U.S. Treasury securities to pay the interest on the notes for
the first four interest payment dates, of which $24.6 million remains as of
September 30, 1998. 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. The notes will rank pari passu in right of
payment with all existing and future subordinated indebtedness of the Company
and will rank senior in right of payment with all existing and future senior
indebtedness of the Company. The total effective interest rate on the notes,
including the discount attributable to the value of the warrants and issuance
expenses, is approximately 14%. Concurrent with the units offering, the Company
completed a private placement of 227,295 shares of Series A preferred stock,
generating approximately $21.3 million of net 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 $37.3
million. Orbital also increased its common equity investment in ORBIMAGE,
bringing its total equity invested to approximately $87.9 million.
Investing activities used cash of approximately $65.2 million and $135.0
million for the nine months ended September 30, 1997 and 1998, respectively.
Investing activities used cash of approximately $19.0 million, $12.6 million and
$60.4 million for the years ended December 31, 1995, 1996 and 1997,
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 securities. The Company intends to use the
investments to fund the remaining costs under the procurement agreement between
the Company and Orbital.
Capital expenditures for the nine months ended September 30, 1998 were
approximately $82.8 million (excluding capitalized interest) and consisted
primarily of costs relating to the acquisition of the OrbView-3 and OrbView-4
satellites and the related U.S. ground system. Capital expenditures in 1995 and
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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
$297.0 million (of which $295.1 million is provided for under the procurement
agreement), which includes all satellite design, construction and launch costs,
but excludes insurance costs. Of this amount, as of September 30, 1998, ORBIMAGE
has spent approximately $213.9 million and expects to spend approximately $83.1
million through mid-2000, the projected deployment date of OrbView-4.
Operating activities provided cash of approximately $5.6 million and $20.7
million during the nine months ended September 30, 1997 and September 30, 1998,
respectively, and $5.6 million and $6.3 million during the years ended December
31, 1997 and 1998, respectively. Operating activities used cash during the years
ended December 31, 1995 and 1996 of approximately $0.2 million and $1.0 million,
respectively. The increase in operating cash flow from 1997 to 1998 is primarily
attributable to an increase in accounts payable and accrued expenses of $22.3
million. The increase in operating cash flows from 1996 to 1997 was 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. The
Company's ability to generate positive cash flow is dependent on the sale of its
products and services, adequate customer acceptance of the Company's products
and services and numerous other factors. The Company does not expect to generate
net positive cash flow from operations sufficient to fund both operations and
capital expenditures until OrbView-3 is operational, which the Company currently
expects to happen in the second half of 1999. While the Company believes it has
sufficient resources to meet its requirements through that time, additional
funding may be necessary in the event of an OrbView-3 or OrbView-4 launch delay,
cost increases or 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 management believes
that it will continue to do so for the foreseeable 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 and Net Losses May Reduce Marketability of Securities" "-- Inability to
Fund Potential Additional Capital Requirements Could Delay Satellite
Construction and Deployment" and "-- Market Acceptance is Not Assured."
"YEAR 2000" COMPLIANCE
The year 2000 presents potential concerns for computer hardware and
software applications. The consequences of this may include systems failures and
business process interruption. The problem may exist for many kinds of software
and hardware, including mainframes, mini computers, PCs and embedded systems.
The Company has commenced an audit to assess the potential Year 2000 issues
with respect to various financial, technical and operational computer-related
systems. This audit will consist of reviewing software code and hardware system
components to determine whether a system failure or miscalculations causing
disruption of operations might occur as a result of the system's inability to
distinguish between the year 2000 and the year 1900. The Company believes that
its internal review will be completed by the end of 1998. The Company intends to
correct any Year 2000 issues, or develop alternative "work-around" procedures
that address the problem, as soon as problems are identified. The Company has
also inquired of its primary third-party vendor, Orbital, as to whether products
and services provided by Orbital may be adversely affected by the Year 2000
issue. Orbital has informed the Company that with respect to its provision of
administrative services, no material Year 2000 issues have been identified.
Orbital is still conducting an internal review of Year 2000 issues with respect
to the satellite systems, ground segments
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and launch services provided or to be provided to ORBIMAGE, and expects to have
completed its initial assessment of any pertinent issues by the end of 1998.
The Company's largest customer consists of various agencies within the U.S.
government. If such customers' systems are not Year 2000 compliant on a timely
basis, payments owed to ORBIMAGE could be delayed. There can be no assurance
that a significant delay in payments would not have a material impact on the
Company's financial results.
The Company does not currently anticipate that addressing Year 2000
problems for its internal systems will have a material impact on its operations
or financial results. There can be, however, no assurance that costs associated
with addressing Year 2000 issues will not be greater than anticipated, or that
Year 2000 problems will be identified on a timely basis and that corrective
actions undertaken by the Company or its primary third-party vendor will be
completed before any Year 2000 problems occur. All costs, including the cost of
internal personnel, outside consultants, systems replacements and other
equipment, will be expensed as incurred, except for long-lived assets which will
be capitalized in accordance with the Company's capitalization policies.
Contingency plans will be developed if it appears the Company or its key
supplier will not be Year 2000 compliant and such noncompliance is expected to
have a material adverse impact on the Company's operations.
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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, commercial and
government customers, including NASA, NIMA and commercial fishing companies. The
Company expects to place two additional satellites providing high-resolution
digital imagery into operation in 1999 and 2000, respectively. ORBIMAGE intends
to provide customers with imagery at a lower price than that provided by
existing or planned remote imagery alternatives.
The Company's imagery products and services are being developed to provide
ORBIMAGE's customers with information concerning, among other things:
- mapping and surveying data;
- urban growth and development;
- forestry and crop health;
- land and ocean-based natural resources;
- the locations and movements of troops or military assets; and
- weather patterns and wind conditions.
In 1991, ORBIMAGE was established as an operating division of Orbital 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 has completed 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 markets 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
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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.
Since its inception, the Company has entered into a number of pre-launch
contracts for its satellite imagery, as described below:
<TABLE>
<CAPTION>
SATELLITE CONTRACTING PARTIES SERVICES PROVIDED
--------- ------------------- -----------------
<S> <C> <C>
OrbView-1 ORBIMAGE and NASA Weather-related imagery and
meteorological information
OrbView-2 ORBIMAGE and NASA Color ocean imagery
OrbView-3 ORBIMAGE and Samsung High-resolution imagery
Aerospace
Industries, Ltd.
OrbView-4 Orbital and U.S. Air Hyperspectral imagery
Force
OrbView-3 and OrbView-4 ORBIMAGE and NIMA Worldwide high-resolution imagery
</TABLE>
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 negotiations with potential regional distributors for high-resolution
OrbView imagery in Europe, Asia, the Middle East, Africa, South America and
Central America. To provide industry-specific imagery applications, ORBIMAGE is
developing strategic alliances with key value-added resellers who currently
provide imagery products to customers in industries such as oil and gas
exploration, mining, agriculture, forestry, fishing and cartography.
In October 1998, NIMA awarded a contract to ORBIMAGE for the purchase of
imagery and infrastructure services. Under the terms of the contract, NIMA may
purchase up to $100.0 million of OrbView-2, OrbView-3 and OrbView-4 imagery and
the related ground station infrastructure to receive the imagery. NIMA has made
an initial commitment to purchase approximately $3.0 million of imagery and
services under this contract.
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.
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As the market develops, primary competitive factors are expected to
include:
- spatial and/or spectral resolution;
- frequency of revisit times;
- pricing;
- timeliness of imagery distribution; and
- 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 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:
- penetrate existing markets with higher-quality and/or lower-priced
imagery;
- create new markets to sustain long-term growth;
- achieve global distribution;
- provide worldwide coverage on a timely basis;
- establish an electronic imagery archive with broad and diverse imagery
products; and
- leverage the expertise of Orbital, including Orbital's existing satellite
imagery technology and product infrastructure, to promote rapid market
acceptance.
Penetrate Existing Markets with Higher-Quality and/or Lower-Priced
Imagery. The Company believes that its existing addressable markets consist of
numerous applications, including new construction
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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 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 spatial and spectral resolution
than existing satellite 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.
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.
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
value-added resellers. 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 value-added resellers 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 other 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 agreement with Samsung Aerospace 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 Europe,
Asia, the Middle East, Africa, South America, and Central America.
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 is expected to 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 available for sale over the Internet. ORBIMAGE
intends to expand its imagery catalogue with aerial and satellite imagery
products prior to the launch of its OrbView-3 satellite by entering into
strategic alliances with existing imaging satellite operators, aerial
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photography firms and imagery value-added resellers. 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
stockholder, 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, 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. Because 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 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 value-added resellers 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
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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 eighteen fishing companies
consisting of almost 100 fishing vessels, including commercial fishing operators
in the United States, Asia, Europe and South America. 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.
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.
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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" that signify high probability locations for oil,
gas, and other mineral reserves.
Scientific/Environmental Market
The scientific/environmental market comprises 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, NIMA and the National Oceanic and Atmospheric
Administration ("NOAA"). All these agencies currently use aerial and satellite
imagery for diverse 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, severe storms, and the environmental impact
of industrial activities.
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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 $32.5 million
contract (with up to $8.5 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:
- develop the technology and build and launch their own satellites;
- purchase and operate a turn-key satellite system; or
- 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.
In October 1998, the Company was selected by NIMA to supply satellite
imagery from OrbView-2 and the high-resolution OrbView satellites. The contract
has a total potential value of $100.0 million, of which $3.1 million has been
committed. The contract also funds several enhancements to ORBIMAGE's ground
infrastructure.
ORBIMAGE is currently in discussions with several potential regional
distributors in Europe, Asia, the Middle East, Africa, South America and Central
America, and has already entered into an agreement with Samsung Aerospace 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:
- ORBIMAGE's direct sales force;
- market- or application-specific value-added resellers;
- foreign regional distributors; and
- 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 value-added resellers who process it into complex maps and
other types of products for specific markets or applications. Currently, there
are numerous value-added resellers located in the United States and other
countries processing imagery derived from existing satellite imagery providers
and aerial photographers. The Company is working with a number of value-added
resellers 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, such as agriculture, mining and oil and gas exploration. The Company
is also developing alliances with several value-added resellers 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 satellite 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 an agreement with Samsung Aerospace for imagery of the Korean
peninsula and is in discussions with potential regional distributors for
high-resolution OrbView imagery in Europe, Asia, the Middle East, Africa, South
America and Central America.
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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 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 value-added resellers, 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 value-added resellers, 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 OrbNet Digital Archive commenced 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. The Company had government anchor customers for OrbView-1 and
OrbView-2 before those satellites were launched. The Company currently has
pre-launch contracts for OrbView-3 and OrbView-4 imagery with several government
and commercial customers, including NIMA and the U.S. Air Force. See
"-- Backlog" and "Risk Factors -- Contract Revenue is Not Certain." To further
facilitate market penetration, the Company is also developing strategic
alliances with value-added resellers 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 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 92% launch success rate, Orbital's Pegasus(R) launch vehicle has a
proven track record of successfully launching satellites into their target
orbit. Orbital's Taurus(R) launch vehicle, which is expected to be used to
launch OrbView-4, has a 100% success rate.
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.
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BACKLOG
ORBIMAGE's contract backlog of firm commitments at December 31, 1997 and
September 30, 1998 was approximately $90.0 million and $85.5 million,
respectively. As of December 31, 1997, approximately 83% of the Company's
backlog was with the U.S. government and its agencies. Contract backlog of firm
commitments consists of aggregate contract value for firm product orders,
excluding the portion previously included in operating revenues on the basis of
imagery delivered. Contract backlog of firm commitments excludes unexercised
contract options having an aggregate potential contract value at September 30,
1998 of approximately $106.3 million.
SATELLITE AND GROUND SYSTEM OPERATIONS
ORBIMAGE's basic system architecture consists of several major components:
- a fleet of low-Earth orbit, advanced-technology small imaging satellites
carrying sophisticated sensors that collect specific types of land,
ocean, and atmospheric imagery;
- 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
- 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 has exceeded 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 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, Scientific Weather, Fishing, Mapping, Agriculture, Mapping, Agriculture,
Research Agricultural, Oil and Gas, National Oil and Gas, Forestry,
Scientific Research Security Mining, 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 100km(2) Hyperspectral
</TABLE>
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<TABLE>
<CAPTION>
ORBVIEW-1 ORBVIEW-2 ORBVIEW-3 ORBVIEW-4
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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 of the high-resolution OrbView satellites
will be less than two days.
(2) Based on current performance, the satellite has exceeded 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.
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
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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 command the satellites as required to ensure that
proper orbits are maintained, that battery power stays 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 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
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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:
- small, regional aerial photography firms;
- a limited number of existing satellite imagery providers; and
- 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 five existing satellite-based providers of low-resolution
imagery:
- 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;
- 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;
- Radarsat-I, operated by the Canadian Space Agency, provides radar imagery
with a resolution that varies between 10 and 100 meters (Radarsat-2,
which will provide three-meter radar imagery, is scheduled for launch in
2001);
- KVR-1000, a Russian government satellite, provides film-based, two-meter
resolution panchromatic images; and
- 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 Problems Could Cause
Additional Delays."
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, whose major shareholders are 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.
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EMPLOYEES
As of November 15, 1998, the Company had 85 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
"Certain Relationships and Related Transactions -- 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 U.S., remote imaging satellites
generally require licenses from the DoC and from the 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 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.
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
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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. The Company believes that this
application will be granted in the near future. There can be no assurance,
however, 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:
- 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);
- 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
- 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 U.S. 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 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.
44
<PAGE> 50
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......................... 44 Director
Richard Reiss, Jr. ....................... 53 Director
William W. Sprague........................ 39 Director
</TABLE>
DAVID W. THOMPSON is the Chairman of the Board and Chief Executive Officer
of ORBIMAGE, a position he has held since 1993. He is also 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 from 1988 to 1993. Prior to 1988
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.
45
<PAGE> 51
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 Manager/ 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.
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 Communications 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., Wave Transnational LLC, One-On-One Sports,
Inc. and Communications Resources, Inc.
46
<PAGE> 52
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 three 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 POSITIONS 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 and Operations
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.
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 September 30, 1998, there were 2,642,500 options for common stock
outstanding under the Stock Option Plan at exercise prices ranging from $3.60 to
$5.10 per share.
47
<PAGE> 53
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
-------------------------------------------------------- POTENTIAL REALIZED VALUE
PERCENT OF AT ASSUMED ANNUAL
NUMBER OF TOTAL OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED APPRECIATION FOR
UNDERLYING TO EMPLOYEES EXERCISE OR OPTION TERM
OPTIONS IN 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 39,337
Armand D. Mancini.......... 15,000 3 4.17 6/30/07 598,132 99,689
</TABLE>
- ---------------
(1) Options generally 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 options to purchase 5,000 shares of
common stock to each of the non-employee directors of ORBIMAGE. The Company
awarded options to purchase 10,000 shares of common stock to one non-employee
director in April 1998, when that director was elected to serve on the Board.
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
--------------------------- ---------------------------
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>
48
<PAGE> 54
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the common stock and Series A preferred stock as of November 15,
1998: (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 60.4%
21700 Atlantic Boulevard
Dulles, VA 20166
Merrill Lynch KECALP L.P. 1997......................... 245,813(3) 35.8 5,894,796 14.1
225 Liberty Street
South Tower, 23rd Floor
New York, NY 10080-6123
Crest Funding Partners, L.P.(4) ....................... 195,520(5) 28.4 4,688,729 11.2
320 Park Avenue
New York, NY 10022
Morgan Guaranty Trust Company of New York.............. 145,386(6) 21.1 3,486,475 8.4
522 Fifth Avenue
New York, NY 10036
Georgica Advisors LLC(7)............................... 74,295(8) 10.8 1,781,655 4.3
1114 Avenue of the Americas
New York, NY 10036
David W. Thompson(9)................................... -- -- 113,334 *
Gilbert D. Rye(9)...................................... -- -- 141,667 *
Armand D. Mancini(9)................................... -- -- 55,000 *
Edward D. Nicastri(9).................................. -- -- 30,000 *
James A. Abrahamson.................................... -- -- -- --
Bruce W. Ferguson(9)(10)............................... -- -- 101,667 *
William W. Sprague(4)(9)............................... -- -- 1,667 *
Richard Reiss, Jr.(7)(9)............................... -- -- 1,667 *
All executive officers and directors as a
group(9)(10)......................................... -- -- 441,668 1.0
* Less than one percent
</TABLE>
- ---------------
(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 November 15, 1998, are
deemed outstanding.
(2) Each of Crest Funding Partners, L.P., Merrill Lynch KECALP L.P. 1997 Morgan
Guaranty Trust Co. and Georgica Advisors LLC or their respective affiliates
currently owns shares of Series A preferred stock. Each share of Series A
preferred stock is convertible into approximately 24.0 shares of common
stock. See "Description of Capital Stock -- Series A Preferred
Stock -- Conversion Rights."
49
<PAGE> 55
(3) Includes 150,775 shares owned by Merrill Lynch KECALP L.P. 1997, 49,685
shares owned by Merrill Lynch KECALP L.P. 1999, 28,790 shares owned by
Merrill Lynch KECALP International L.P. 1997, and 16,563 shares owned by
Merrill Lynch KECALP International L.P. 1999.
(4) William W. Sprague, a director of the Company, is the founder and President
of Crest Management Company, LLC, the manager of Crest Funding Partners,
L.P.
(5) Includes 142,166 shares owned by Crest Funding Partners, L.P., and 53,354
shares owned by Crest Management Company LLC.
(6) Includes 103,085 shares owned by Morgan Guaranty Trust Company of New York,
as Trustee of the Commingled Pension Trust Fund (Multi-Market Special
Investment Fund II) of Morgan Guaranty Trust Company of New York; 20,494
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 21,807 shares owned by Morgan Guaranty Trust
Company of New York, as Investment Manager and Agent for the Alfred P.
Sloan Foundation (Multi-Market Account).
(7) Richard Reiss, Jr., a director of the Company, is the founder and President
of Georgica Advisors LLC.
(8) Includes 63,256 shares owned by Georgica Partners, 8,662 shares owned by
Georgica International Fund and 2,337 shares owned by Georgica Advisors
LLC.
(9) Consists of shares of common stock issuable upon the exercise of options.
(10) Includes 14,000 shares of common stock issued pursuant to option exercises.
SELLING HOLDERS
The following table sets forth, as of a recent practicable date prior to
the date of this prospectus, certain information with respect to the warrants
owned by the selling holders listed below. As of the date hereof, none of the
selling holders owns any of the warrant shares offered hereby. Such information
has been obtained from such holders, DTC and/or the warrant agent. None of such
holders has, or within the past three years has had, any position, office or
other material relationship with the Company.
<TABLE>
<CAPTION>
WARRANTS
BENEFICIALLY
OWNED PRIOR TO WARRANTS
NAME THE OFFERING PERCENT OF CLASS OFFERED
---- -------------- ---------------- --------
<S> <C> <C> <C>
* * * *
------- ---- -------
150,000 100% 150,000
======= ==== =======
</TABLE>
- ---------------
* To be filed by amendment.
Because the selling holders may, pursuant to this prospectus, offer all or
some portion of the warrants they presently hold, no estimate can be given as to
the number of warrants that will be held by the selling holders upon termination
of any such sales. In addition, the selling holders identified above may have
sold, transferred or otherwise disposed of all or a portion of their warrants
since the date on which they provided the information regarding their warrants,
in transactions exempt from the registration requirements of the Securities Act.
See "Plan of Distribution."
Only selling holders identified above who own the warrants set forth
opposite each such selling holder's name in the foregoing table on the effective
date of the registration statement, or in supplements to this prospectus, may
sell such warrants pursuant to the registration statement. The Company may from
time to time, in accordance with the warrant registration rights agreement,
include additional selling holders in supplements to this prospectus.
50
<PAGE> 56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK PURCHASE AGREEMENT
During 1997, ORBIMAGE sold 372,705 shares of its Series A Cumulative
Convertible Preferred Stock for $100 per share to the Series A holders pursuant
to a stock purchase agreement (the "Initial Sale"). The proceeds of this sale,
approximately $37.3 million, were 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. During 1998,
the Series A holders purchased an additional $22.7 million of Series A preferred
stock pursuant to their rights under the stock purchase agreement. This Series A
offering generated net proceeds of approximately $21.3 million.
Capital Contributions. As part of the Initial Sale, Orbital made a $33.8
million payment to the Company consisting of capital contributions of
approximately $87.9 million plus a payment of $40.9 million representing
payments previously received by Orbital for OrbView-1 and OrbView-2 data, offset
by approximately $95.0 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. The stock purchase agreement requires the Company to
offer to purchase, subject to the rights of the holders of notes, all shares of
Series A preferred stock then outstanding upon the occurrence of a Change of
Control prior to the latest of:
- the successful in-orbit checkout of OrbView-3;
- the closing, under certain circumstances, of a Qualifying Public
Offering; or
- 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.
Upon a Change of Control, the purchase price per share will be equal to the sum
of:
- 101% of the liquidation amount; and
- 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:
- 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);
- 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;
- 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
51
<PAGE> 57
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;
- 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, 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;
- 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);
- 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;
- 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
- 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 a 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 have the
right to elect two members. The fifth member of the board is to be an
independent director, elected by the majority vote of all stockholders, 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
independent member of the board with the consent of one of the Series A
directors, and further, so long as Orbital retains
52
<PAGE> 58
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:
- approve any merger, consolidation, or liquidation or sale of all or
substantially all the assets of ORBIMAGE;
- 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;
- issue or commit to issue equity securities or securities convertible into
or exchangeable or exercisable for equity securities;
- incur indebtedness for borrowed money or any capital lease in excess of
$0.5 million;
- select, approve, or remove any officer; or
- declare any dividends on the common stock.
Restrictions on Transfer. Subject to limited exceptions, the stockholders
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 stockholder 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 stockholders the right to purchase a
proportionate amount of the common stock or Series C preferred stock in the
event Orbital offers 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 give all Series A
holders written notice of the terms of the offering and then offer to issue to
such Series A holders a proportionate amount of the offering based upon each
Series A 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.
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PROCUREMENT AGREEMENT
ORBIMAGE and Orbital have entered into a procurement agreement, pursuant to
which Orbital agreed to provide to ORBIMAGE:
- the design, development, construction, and launch of the OrbView-1
satellite;
- 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;
- the design, development, construction, and launch of the high-resolution
OrbView satellites; and
- 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 $297.0 million (of which $295.1 million is provided for in the
procurement agreement), which includes all satellite design, construction and
launch costs and hyperspectral capability, but excludes insurance costs. Of this
amount, the Company has spent approximately $213.9 million as of September 30,
1998. The Company expects to spend approximately $70.8 million to complete the
high-resolution OrbView satellites and $12.3 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 $1.0 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 -- Contract Revenue is Not Certain."
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 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. Orbital's liability to ORBIMAGE for claims under the
procurement agreement, such as breach of contract or patent indemnification, is
limited to $10.0 million. Orbital is not liable 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
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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.
SERVICES AGREEMENT
ORBIMAGE and Orbital entered into a 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:
- general and administrative, accounting, tax, legal, regulatory, and other
similar services on a cost-reimbursable basis with no additional fee;
- office and other facilities-related services on a cost-reimbursable basis
with no additional fee; and
- 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 a 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 excess of $10.0 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.
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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 $62.7 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:
- ORBIMAGE's discretionary determination that the OrbView-2 satellite has
failed;
- at ORBIMAGE's option, upon Orbital's uncured breach of Orbital's contract
with NASA; or
- 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 THE WARRANTS
Currently there are 150,000 warrants issued and outstanding to purchase the
Company's common stock. The warrants were issued pursuant to a warrant agreement
between the Company and Marine Midland Bank, as warrant agent, in a private
transaction that was not subject to the registration requirements of the
Securities Act. The following summary of certain provisions of the warrant
agreement and a warrant registration rights agreement does not purport to be
complete and is qualified in its entirety by reference to the warrant agreement,
the warrant registration rights agreement and the warrants, including the
definitions therein of certain terms.
GENERAL
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 $0.01 per
share. The exercise price and the number of warrant shares issuable on exercise
of a warrant are both subject to adjustment in certain cases referred to below.
The warrants are exercisable at any time on or after the earlier to occur of:
- February 25, 1999 and
- 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 Company will give notice of expiration not less than 90 nor more
than 120 days prior to the expiration date to the registered holders of the then
outstanding warrants. If the Company fails to give this notice, the warrants
will not expire until 90 days after the Company gives such notice. In no event
will holders be entitled to any damages or other remedy for the Company's
failure to give such notice other than any such extension.
The warrants may be exercised by surrendering to the Company the warrant
certificates evidencing the warrants to be exercised with the accompanying form
of election to purchase, properly completed and executed together with payment
of the exercise price. Payment of the exercise price may be made in the form of
cash or a certified or official bank check, payable to the order of the Company,
or by surrender of additional warrants. Upon surrender of the warrant
certificate and payment of the exercise price, the warrant agent will deliver or
cause to be delivered, to or upon the written order of such holder, stock
certificates representing the number of whole warrant shares or other securities
or property to which such holder is entitled under the warrants and warrant
agreement, including without limitation any cash payment to adjust for
fractional interests in warrant shares issuable upon such exercise. If less than
all of the warrants evidenced by a warrant certificate are exercised, a new
warrant certificate will be issued for the remaining number of warrants.
No fractional warrant shares will be issued upon exercise of the warrants.
If any fraction of a warrant share would, except for the foregoing provision, be
issuable on the exercise of any warrants (or specified portion thereof), the
Company must pay to the holder an amount in cash equal to the current market
price per warrant share, as determined on the day immediately preceding the date
the warrant is presented for exercise, multiplied by such fraction, computed to
the nearest whole cent.
Certificates for warrants will be issued in registered form only, and no
service charge will be made for registration or transfer or exchange upon
surrender of any warrant certificate at the office of the warrant agent
maintained for that purpose. The Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration or transfer or exchange of warrant certificates.
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The holders of the warrants have no right to vote on matters submitted to
the stockholders of the Company and have no right to receive cash dividends. The
holders of the warrants are not entitled to share in the assets of the Company
in the event of the liquidation, dissolution or winding up of the Company's
affairs.
The warrant agreement provides that the warrants will not be exercisable by
any holder if the exercise by such holder would cause the Company to violate the
foreign ownership restrictions imposed by the Licenses.
ADJUSTMENTS
The number of warrant shares purchasable upon the exercise of the warrants
and the exercise price both are subject to adjustment in certain events,
including:
- the payment by the Company of dividends (or other distributions) on
common stock of the Company payable in common stock of the Company or
other shares of the Company's capital stock (other than shares of the
Company's Series A preferred stock issued as paid-in-kind dividends)
convertible into or exchangeable for shares of common stock of the
Company;
- subdivisions, combinations and reclassifications of common stock of the
Company;
- the issuance to all holders of common stock of the Company of rights,
options or warrants entitling them to subscribe for common stock of the
Company, or of securities convertible into or exchangeable for shares of
common stock of the Company, in either case for a consideration per share
of common stock which is less than the current market price per share (as
defined in the warrant agreement) of common stock of the Company; and
- the distribution to all holders of common stock of the Company of any of
the Company's assets, debt securities or any rights or warrants to
purchase securities (excluding those rights and warrants referred to in
the immediately preceding bullet and excluding cash dividends or other
cash distributions from current or retained earnings).
No adjustment in the exercise price will be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the
exercise price; provided, however, that any adjustment that is not made will be
carried forward and taken into account in any subsequent adjustment.
In case of certain consolidations or mergers of the Company, or the sale of
all or substantially all of the assets of the Company to another corporation,
each warrant shall thereafter be exercisable for the right to receive the kind
and amount of shares of stock or other securities or property to which such
holder would have been entitled as a result of such consolidation, merger or
sale had the warrants been exercised immediately prior thereto.
RESERVATION OF SHARES
The Company has authorized and reserved for issuance such number of shares
of common stock as will be issuable upon the exercise of all outstanding
warrants. Such shares of common stock, when paid for and issued, will be duly
and validly issued, fully paid and non-assessable, free of preemptive rights and
free from all taxes, liens, charges and security interests with respect to the
issue thereof.
AMENDMENT
From time to time, the Company and the warrant agent, without consent of
the holders of warrants, may amend or supplement the warrant agreement for
certain purposes, including curing defects or inconsistencies or making changes
that do not materially adversely affect the rights of any holder. Any amendment
or supplement to the warrant agreement that has a material adverse effect on the
interests of the holders of the warrants requires the written consent of the
holders of a majority of the then outstanding warrants. The consent of each
holder of the warrants materially affected is required for any
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amendment pursuant to which the exercise price would be decreased (other than
pursuant to adjustments provided for in the warrant agreement as generally
described above).
REPORTS
Whether or not required by the rules and regulations of the Commission, so
long as any of the warrants remain outstanding, the Company shall cause copies
of certain periodic reports to be filed with the warrant agent and mailed to the
holders at their addresses appearing in the register of warrants maintained by
the warrant agent.
REGISTRATION RIGHTS AND LIQUIDATED DAMAGES
The Company is required under a registration rights agreement with each of
the holders of warrants to file a shelf registration statement under the
Securities Act covering the resale of the warrants and the issuance of the
warrant shares by November 22, 1998 and to use its best efforts to cause the
warrant shelf registration statement to be declared effective on or before
February 25, 1999 and to remain effective until the earlier of such time as all
warrants have been exercised and the expiration date. If the Company does not
comply with its registration obligations under the warrant registration rights
agreement, it will be required to pay liquidated damages to holders of the
warrants under certain circumstances.
During any consecutive 365-day period, the Company is entitled to suspend
the availability of the warrant shelf registration statement for up to two 45
consecutive-day periods (except for the 45 consecutive-day period immediately
prior to the expiration date) if there is a possible acquisition or business
combination or other transaction, business development or event and the Board of
Directors determines in the exercise of its reasonable judgment that disclosure
of the event is not in the best interests of the Company and its stockholders,
or that obtaining any financial statements relating to an acquisition or
business combination required to be included in the shelf registration statement
would be impracticable. In such a case, the Company shall promptly notify the
holders of the suspension of the shelf registration statement's effectiveness;
provided, however, that in no event shall the Company be required to disclose
the business purpose for such suspension if the Company determines in good faith
that such business purpose must remain confidential. There can be no assurance
that the Company will be able to file, cause to be declared effective, or keep a
registration statement continuously effective until all of the warrants have
been exercised or have expired.
Each holder of warrants that sells such warrants and each holder of warrant
shares that sells warrant shares pursuant to the warrant shelf registration
statement generally will be required to be named as a selling security holder in
the related prospectus and to deliver a prospectus to the purchaser, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by certain provisions of the
respective registration rights agreements applicable to such holder (including
certain indemnification obligations). In addition, each holder of warrants and
warrant shares will be required to deliver information to be used in connection
with the warrant shelf registration statement to have its warrants and warrant
shares included in such shelf registration statement.
In the event that:
- the warrant shelf registration statement is not filed with the Commission
on or prior to the date specified for such filing;
- the warrant shelf registration statement has not been declared effective
by the Commission on or prior to the date specified for such
effectiveness; or
- following the date such warrant 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 warrant registration rights agreement, (each such
event referred to in these three bullets, a "Shelf Registration
Default"),
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the Company shall pay as liquidated damages to each holder of warrants or
warrant shares an amount equal to $0.0025 per week per warrant for each week
that the shelf registration default continues. The amount of liquidated damages
will increase by an additional $0.0025 per week per warrant with respect to
subsequent 90-day periods until all Shelf Registration Defaults have been cured,
up to a maximum amount of liquidated damages of $0.0125 per week per warrant.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
ORBIMAGE has authorized 75,000,000 shares of common stock, $0.01 par value
per share, 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 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 that 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 687,576 shares have been issued; (b) 2,000,000
shares of the Series B preferred stock have been authorized, none of which have
been issued; and (c) 2,000,000 shares of the Series C preferred stock 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 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. To date, all dividends have been paid in-kind. 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 --
Stockholders' Agreement." Furthermore, the Series A holders have the right to
elect two
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additional directors to the board upon the occurrence of an "Election Event." An
"Election Event" is the failure by ORBIMAGE:
- 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) days;
- to repurchase the Series A preferred stock upon, among other things, a
Change of Control (see "Certain Relationships and Related
Transactions -- Stock Purchase Agreement -- Change of Control");
- (i) to commence by March 15, 1999 the integration and testing of the
OrbView-3 spacecraft or (ii) to commence by November 15, 1999 the
integration and testing of the OrbView-4 spacecraft. The dates specified
in this bullet 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. The per share
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:
- the closing, under certain circumstances, of a public offering of the
common stock;
- 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
- 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."
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DESCRIPTION OF THE NOTES
GENERAL
The notes were issued pursuant to an indenture between the Company and
Marine Midland Bank, as trustee. The indenture is subject to and governed by the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The terms
of the notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act, and holders of notes are
referred to the indenture and the Trust Indenture Act for a statement thereof.
The following summary of certain provisions of the notes, the indenture and the
registration rights agreement do not purport to be complete and are qualified in
their entirety by reference to the notes, the indenture and the registration
rights agreement. All terms defined in the indenture and not otherwise defined
herein are used in this section with the meanings set forth in the indenture. A
copy of the indenture and the registration rights agreement will be made
available to holders of notes upon request.
The 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 notes
will be secured to the extent set forth below under "-- Security." As of the
date the units offering was consummated, and upon the application of the net
proceeds therefrom, the Company has no indebtedness that is expressly
subordinated in right and priority of payment to the notes.
PRINCIPAL, MATURITY AND INTEREST
The notes were issued in an aggregate principal amount of $150.0 million.
The notes will mature on March 1, 2005. Interest on the notes accrues at the
rate of 11 5/8% per annum and is payable semi-annually in arrears on March 1 and
September 1 of each year to holders of record on the immediately preceding
February 15 and August 15. Interest on the notes is computed on the basis of a
360-day year comprising twelve 30-day months.
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 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.
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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."
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 to pay when due the first four
scheduled interest payments of such securities. The Company used approximately
$32.9 million of the net proceeds of the units offering to acquire the pledged
securities, of which $24.6 million remains as of September 30, 1998. 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
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.
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.
CERTAIN COVENANTS
The indenture restricts, among other things, the Company's ability to pay
dividends or make certain other restricted payments, incur liens, sell assets,
merge or consolidate with any other person, sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of the assets of the Company,
enter into certain transactions with affiliates or incur additional
indebtedness. The indenture permits, under certain circumstances, the Company's
subsidiaries to be deemed unrestricted subsidiaries and thus not subject to the
restrictions.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default:
- default for 30 days in the payment when due of interest on, or liquidated
damages (if any) with respect to, the notes;
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<PAGE> 70
- 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;
- default in the payment of principal and interest or liquidated damages,
if any, on the notes;
- 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 the other covenants in the
indenture for the notes;
- 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:
(i) 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
(ii) 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 (i) and (ii) 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 $5.0 million or more;
- 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 $5.0 million) aggregating in excess
of $5.0 million, which judgments are not paid, discharged or stayed
within 60 days after their entry;
- 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
- certain events of bankruptcy or insolvency with respect to the Company or
any of its Restricted Subsidiaries.
With certain exceptions, 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.
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RELATIONSHIP WITH ORBITAL
Formed in 1982, Orbital is a space and information systems Company which
designs, manufactures, operates, and markets a broad range of space-related
products and services. Orbital's 1997 revenues were approximately $606.0 million
and Orbital and its subsidiaries employ approximately 4,200 people. Orbital's
products and services are grouped into three business sectors:
- space and ground infrastructure systems;
- satellite access products; and
- 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; and a launch vehicle and satellite integration and test
facility at Vandenberg Air Force Base, California. Orbital also has 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 uses certain of Orbital's employees and centralized systems for
corporate and administrative services pursuant to a 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 officers' 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 both ORBIMAGE and Orbital. Certain ORBIMAGE employees including
its executive officers have options to acquire Orbital common stock. Potential
conflicts could include:
- 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
- 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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CERTAIN 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 ownership and disposition of the warrants and the
warrant shares by persons who (a) hold the warrants and warrant shares 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") and
(b) acquired the warrants on original issue for cash. This 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.
This discussion does not discuss every aspect of U.S. federal taxation that
may be relevant to a particular taxpayer in light of its personal circumstances
or to persons who are otherwise subject to special tax treatment (including,
without limitation, banks, broker-dealers, insurance companies, pension and
other employee benefit plans, tax exempt organizations and entities, persons
holding warrants or warrant shares 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 ownership or disposition of the warrants
or warrant shares and, accordingly, there can be no assurance that the IRS will
not successfully challenge the tax consequences described below. YOU SHOULD
CONSULT WITH YOUR OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES TO YOU OF THE
OWNERSHIP AND DISPOSITION OF THE WARRANTS AND WARRANT SHARES, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH OWNERSHIP AND
DISPOSITION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAW.
U.S. HOLDERS
This section states the material U.S. federal income tax consequences of
the ownership and disposition of the warrants and warrant shares 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:
- a citizen or resident of the United States,
- a corporation or partnership (including entities treated as a
corporation or a partnership for federal income tax purposes)
created or organized in or under the laws of the United States or of
any state thereof or the District of Columbia, unless in the case of
a partnership, Treasury Regulations provide otherwise,
- an estate whose income is includible in gross income for U.S.
federal income tax purposes regardless of its source, or
- 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.
Tax Treatment of Warrants.
Generally. Because, among other things, the exercise price of each warrant
will be a nominal amount, it is likely that a warrant will be considered to be
constructively exercised for federal income tax
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purposes on the day on which the warrant first becomes exercisable, or possibly,
on the day of its issuance. In this event,
- no gain or loss would be recognized to a U.S. Holder upon either
such deemed exercise or actual exercise of the warrant;
- the tax basis of the warrant shares deemed received will be equal to
the tax basis of the warrant until the warrant is actually
exercised, at which time the tax basis of the warrant shares would
be increased by the exercise price paid;
- the holding period of the warrant shares deemed received should
begin on the date the warrant is considered to be constructively
exercised (i.e., either the issue date of the warrant or the date
the warrant first becomes exercisable); and
- the federal income tax consequences of the ownership and disposition
of the warrant will be the same as if the warrant deemed exercised
actually was a share of common stock as discussed below under the
heading "-- Tax Treatment of Warrant Shares."
In the event that a warrant is not treated as constructively exercised, a
U.S. Holder will recognize gain or loss upon the sale, lapse or other taxable
disposition of a warrant in an amount equal to the difference between the amount
of cash and the fair market value of other property received (if any) by the
U.S. Holder and the U.S. Holder's tax basis in the warrant. Any gain or loss
realized on the sale, lapse or other taxable disposition of a warrant will be
capital gain or loss. This gain or loss will be long-term capital gain or loss
if a U.S. Holder has held the warrant for more than one year.
In addition, if a warrant is not treated as constructively exercised, the
cash exercise of a warrant by a U.S. Holder will not be taxable to the
exercising U.S. Holder, except with respect to cash (if any) received in lieu of
a fractional share. A U.S. Holder will have a tax basis in the warrant shares
received upon exercise of a warrant equal to such holder's tax basis in the
warrant exercised, plus the amount of cash used to pay the exercise price, minus
the portion of such holder's basis in the warrant and cash used to pay the
exercise price attributable to cash (if any) received in lieu of fractional
shares. A U.S. Holder will have a holding period in shares of warrant shares
received upon exercise of a warrant which commences on the day after the date of
such exercise.
In addition, if a warrant is not treated as constructively exercised,
although the law is not entirely clear, the surrender of one or more warrants in
payment of the exercise price of another warrant should not result in taxable
gain or loss to the U.S. Holder, except with respect to cash (if any) received
in lieu of a fractional share, because such exercise is treated as either (i) a
tax-free recapitalization, or (ii) the exercise of a warrant with a zero
exercise price pursuant to its original terms. In such a case, a U.S. Holder
should have a tax basis in the warrant shares received upon exercise of a
warrant which equals such U.S. Holder's tax basis in the warrant exercised,
minus the portion of such holder's basis in the warrant attributable to cash (if
any) received in lieu of a fractional share. If the exercise of a warrant is
treated as a recapitalization, a U.S. Holder will have a holding period in
warrant shares acquired upon exercise of a warrant which commences on the date
the warrants were first acquired. If, however, such exercise is treated as the
exercise of a warrant with a zero exercise price pursuant to its original terms,
a U.S. Holder will have a holding period that commences the day after the date
of such exercise.
Notwithstanding the foregoing, the IRS could assert that a cashless
exercise of a warrant should be treated as a taxable exchange in which gain or
loss should be recognized.
Adjustment in Exercise Price or Conversion Ratio. An adjustment to the
exercise price or conversion ratio of the warrants, or the failure to make such
adjustments, may in certain circumstances result in constructive distributions
to the Holders of warrants which could be taxable as dividends under Section 305
of the Code. In such event, a Holder's tax basis in the warrant would be
increased by the amount of any such dividend.
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Tax Treatment of Warrant Shares.
Distributions. Dividends paid on warrant shares received upon exercise
will be taxable to U.S. Holders as ordinary income, to the extent paid out of
the Company's current or accumulated earnings and profits, then as a tax-free
return of capital to the extent of the U.S. Holder's tax basis in the warrant
shares, and thereafter as capital gain from the sale or exchange of the warrant
shares. Subject to certain restrictions, dividends received by a corporate U.S.
Holder generally will be eligible for the 70% dividends received deduction.
Dispositions of Warrant Shares. A U.S. Holder will recognize capital gain
or loss upon the sale, exchange or other taxable disposition of the warrant
shares in an amount equal to the difference between the amount of cash and the
fair market value of other property received (if any) by the U.S. Holder and the
U.S. Holder's tax basis in the warrant shares. Any gain or loss realized on the
sale, or other taxable disposition of the warrant shares will be capital gain or
loss. This gain or loss would be long-term capital gain or loss if a U.S. Holder
has held the warrant shares for more than one year.
Liquidated Damages.
The Company intends to take the position that the liquidated damages
described above under "Description of the Warrants -- Registration Rights and
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.
Information Reporting; Backup Withholding.
The Company is required to furnish to record holders of the warrant shares,
other than corporations and other exempt holders, and to the IRS, information
with respect to dividends paid on the warrant shares.
Certain U.S. Holders may be subject to backup withholding at the rate of
31% with respect to dividends paid on the warrant shares or with respect to
proceeds received from a disposition of the warrant shares. Generally, backup
withholding applies only if:
- 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;
- the IRS notifies the payor that the TIN furnished by the payee is
incorrect;
- 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
- 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.
NON-U.S. HOLDERS
The following states the material United States federal income and estate
tax consequences of the ownership and disposition of warrants and warrant shares
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. 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.
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Dividends on Warrant Shares. In general, dividends (i.e., distributions or
deemed distributions) received by a Non-U.S. Holder of warrant shares will be
subject to withholding of U.S. federal income tax at a 30% rate, unless such
rate is reduced by an applicable income tax treaty. Dividends that are
effectively connected with such Non-U.S. Holder's conduct of a trade or business
in the United States (or, if a tax treaty applies, dividends that are
attributable to a U.S. permanent establishment of such Holder) are generally
subject to U.S. federal income tax at on a net income basis and are exempt from
the 30% withholding tax (assuming compliance with certain certification
requirements) discussed above. Any such effectively connected dividends received
by a Non-U.S. Holder that is a corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
such lower rate as may be applicable under an income tax treaty. For withholding
purposes we are required to treat all distributions as if made out of our
current or accumulated earnings and profits.
Gain on Disposition of Warrants or Warrant Shares. Non-U.S. Holders
generally will not be subject to U.S. federal income taxation on gain recognized
on a disposition of warrants or warrant shares 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. Warrants or warrant shares owned or treated as owned
by an individual who is a Non-U.S. Holder at the time of death will be included
in the individual's taxable estate and may be subject to United States federal
estate tax, unless an applicable estate tax treaty provides otherwise.
U.S. Information Reporting Requirements and Backup Withholding Tax.
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to each Non-U.S. Holder on warrant shares (and the tax
withheld with respect thereto), regardless of whether withholding was reduced or
eliminated by an applicable tax treaty. Pursuant to tax treaties or other
agreements, the IRS may make its reports available to tax authorities in the
recipient's country of residence. Under current law, dividends paid to an
address in a foreign country are ordinarily presumed to be paid to a resident of
such country for purposes of U.S. backup withholding and for purposes of
determining the applicability of a tax treaty rate, absent knowledge that such
presumption is not warranted. As such, U.S. backup withholding tax generally
will not apply to dividends paid on warrant shares to a Non-U.S. Holder at an
address outside the United States. See the discussion below under the heading
"New Withholding Regulations" for a change in this presumption for payments
received after December 31, 1999.
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
warrants or warrant shares 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 warrants or warrant shares 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.
New Withholding Regulations. 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. For
example, the new withholding
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regulations adopt a certificate rule under which a foreign stockholder who
wishes to claim the benefit of an applicable treaty rate with respect to
dividends received from a United States corporation will be required to satisfy
certain certification and other requirements. In addition, 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.
YOU SHOULD BE AWARE THAT THE DISCUSSION UNDER "TAXATION OF NON-U.S. HOLDERS"
DOES NOT GIVE EFFECT TO THESE NEW WITHHOLDING REGULATIONS. YOU ARE STRONGLY
URGED TO CONSULT WITH YOUR TAX ADVISOR FOR INFORMATION ON THESE NEW WITHHOLDING
REGULATIONS.
PLAN OF DISTRIBUTION
The warrant shares offered by the Company and the selling holders hereby
are issuable upon exercise of the outstanding warrants. No underwriter has been
or will be engaged by the Company in connection with the offering of the warrant
shares. The exercise price of the warrants was determined through negotiation
between the Company and the initial purchasers in connection with the unit
offering.
The warrants and the warrant shares may be sold from time to time to
purchasers directly by the selling holders. Alternatively, the selling holders
may from time to time offer such securities through underwriters, dealers or
agents who may receive compensation in the form of underwriting discounts,
concessions or commissions from the selling holders and/or the purchasers of the
securities for whom they may act as agents. The selling holders and any
underwriters, dealers or agents that participate in the distribution of the
warrants or the warrant shares may be deemed to be "underwriters" under the
Securities Act, and any profit on the sale of such securities by them and any
discounts, commissions or concessions received by any such underwriters, dealers
or agents might be deemed to be underwriting discounts and commissions under the
Securities Act.
At the time a particular offer of the warrants or the warrant shares is
made, if required, the number of warrants or warrant shares being offered and
the terms of the offering, including the name or names of any underwriters,
dealers or agents, the purchase price paid by any underwriter for warrants or
warrant shares purchased from the selling holders, any discounts, commissions
and other items constituting compensation from the selling holders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers,
and the proposed selling price to the public will be set forth in one or more
supplements to this prospectus.
To the best knowledge of the Company, there are currently no plans,
arrangements or understandings between any selling holders and any broker,
dealer or underwriter regarding the sale of the warrants and warrant shares by
the selling holders. There is no assurance that any selling holder will sell any
or all of the warrants and warrant shares offered by it hereunder or that any
such selling holder will not transfer, devise or gift such warrants or warrant
shares by other means not described herein.
To comply with the securities laws of certain states, if applicable, the
offered securities will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states the offered
securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the offered securities may not simultaneously
engage in market making activities with respect to the common stock of the
Company for a period of two business days prior to the commencement of such
distribution. In addition and without limiting the foregoing, each selling
holder will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder, which provisions may limit the timing of
purchases and sales of shares of the Company's common stock by the selling
holders.
LEGAL MATTERS
The validity of the warrants and warrant shares offered hereby will be
passed upon for the Company by Latham & Watkins, Washington, D.C.
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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.
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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> 79
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> 80
ORBITAL IMAGING CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------------
1995 1996 1997 1997 1998
------- ------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................. $ 4,567 $ 1,055 $ 2,062 $ 525 $ 8,547
Direct expenses...................... 7,998 4,320 6,312 3,423 11,597
------- ------- ----------- ----------- -----------
Gross loss........................... (3,431) (3,265) (4,250) (2,898) (3,050)
Selling, general and administrative
expenses........................... 2,371 1,630 2,845 1,616 5,235
------- ------- ----------- ----------- -----------
Loss from operations................. (5,802) (4,895) (7,095) (4,514) (8,285)
Net interest income.................. -- -- 1,261 864 1,151
------- ------- ----------- ----------- -----------
Loss before benefit for income
taxes.............................. (5,802) (4,895) (5,834) (3,650) (7,134)
Benefit for income taxes............. -- -- (1,752) (1,095) (3,492)
------- ------- ----------- ----------- -----------
Net loss............................. $(5,802) $(4,895) $ (4,082) $ (2,555) $ (3,642)
======= ======= =========== =========== ===========
Loss per common share -- basic and
diluted............................ $ (0.42) $ (0.31) $ (0.36)
Loss available to common
stockholders....................... $ (6,890) $ (4,194) $ (8,953)
Weighted average shares outstanding:
Basic.............................. 16,431,854 13,476,970 25,214,000
Assuming dilution.................. 22,262,975 18,089,175 40,989,902
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE> 81
ORBITAL IMAGING CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1996 1997 1998
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ 10,883 $ 62,760
Available-for-sale securities, at fair value.............. -- 11,337 27,250
Held-to-maturity securities, at amortized cost............ -- -- 8,242
Receivables and other current assets...................... 50 134 2,217
------- -------- --------
Total current assets................................. 50 22,354 100,469
Property, plant, and equipment, at cost, less accumulated
depreciation of $3,486, $5,144 and $6,949, respectively... 9,507 11,054 14,720
Satellites and related rights, at cost, less accumulated
depreciation and amortization of $9,071, $12,947 and
$20,216, respectively..................................... 62,285 104,226 181,829
Held-to-maturity securities, at amortized cost.............. -- -- 16,310
Other assets................................................ 486 115 8,143
------- -------- --------
Total assets......................................... $72,328 $137,749 $321,471
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ -- $ 4,335 $ 26,891
Current portion of deferred revenue....................... 5,669 7,725 8,451
Deferred tax liabilities.................................. 53 468 583
------- -------- --------
Total current liabilities............................ 5,722 12,528 35,925
Long-term obligations....................................... -- -- 141,476
Deferred revenue, net of current portion.................... 29,719 29,667 25,789
Deferred tax liabilities.................................... 10,608 10,194 6,590
------- -------- --------
Total liabilities.................................... 46,049 52,389 209,780
Stockholders' equity:
Preferred stock, par value $0.01, 10,000,000 shares
authorized;
Series A 12% cumulative convertible, 2,000,000 shares
authorized, 0, 392,887 and 648,653 shares issued and
outstanding, respectively (liquidation value of $0,
$40,074 and $68,102, respectively)................... -- 4 7
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 $0.01; 75,000,000 shares
authorized; 0, 25,214,000 and 25,214,000 shares issued
and outstanding, respectively.......................... -- 252 252
Additional paid-in-capital................................ 45,921 111,636 146,911
Unrealized gain on available-for-sale securities.......... -- -- 6
Accumulated deficit....................................... (19,642) (26,532) (35,485)
------- -------- --------
Total stockholders' equity........................... 26,279 85,360 111,691
------- -------- --------
Total liabilities and stockholders' equity........ $72,328 $137,749 $321,471
======= ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE> 82
ORBITAL IMAGING CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
SERIES A GAIN ON
PREFERRED STOCK COMMON STOCK ADDITIONAL AVAILABLE-
---------------- ------------------- PAID-IN FOR-SALE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES DEFICIT TOTAL
------- ------ ---------- ------ ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31,
1994..................... -- $-- -- $ -- $ 20,470 $-- $ (8,945) $ 11,525
Capital contributed...... -- -- -- -- 19,181 -- -- 19,181
Tax-sharing charge....... -- -- -- -- (4,948) -- -- (4,948)
Net loss................. -- -- -- -- -- -- (5,802) (5,802)
------- -- ---------- ---- -------- -- -------- --------
BALANCE AS OF DECEMBER 31,
1995..................... -- -- -- -- 34,703 -- (14,747) 19,956
Capital contributed...... -- -- -- -- 13,625 -- -- 13,625
Tax-sharing charge....... -- -- -- -- (2,407) -- -- (2,407)
Net loss................. -- -- -- -- -- -- (4,895) (4,895)
------- -- ---------- ---- -------- -- -------- --------
BALANCE AS OF DECEMBER 31,
1996..................... -- -- -- -- 45,921 -- (19,642) 26,279
Shares issued in private
offering, net.......... 372,705 4 -- -- 33,543 -- -- 33,547
Issuance of common stock
to Orbital............. -- -- 25,200,000 252 31,066 -- -- 31,318
Issuance of common stock
to director............ -- -- 14,000 -- 50 -- -- 50
Preferred stock dividends
paid in shares......... 20,182 -- -- -- 2,018 -- (2,018) --
Accrual of preferred
stock dividends........ -- -- -- -- 790 -- (790) --
Tax-sharing charge....... -- -- -- -- (1,752) -- -- (1,752)
Net loss................. -- -- -- -- -- -- (4,082) (4,082)
------- -- ---------- ---- -------- -- -------- --------
BALANCE AS OF DECEMBER 31,
1997..................... 392,887 4 25,214,000 252 111,636 -- (26,532) 85,360
Shares issued in private
offering, net
(unaudited)............ 227,295 3 -- -- 21,274 -- -- 21,277
Common stock warrants
issued, net
(unaudited)............ -- -- -- -- 8,690 -- -- 8,690
Preferred stock dividends
paid in shares
(unaudited)............ 28,471 -- -- -- 2,057 -- (2,057) --
Accrual of preferred
stock dividends
(unaudited)............ -- -- -- -- 3,254 -- (3,254) --
Change in unrealized gain
on available-for-sale
securities
(unaudited)............ -- -- -- -- -- 6 -- 6
Net loss (unaudited)..... -- -- -- -- -- -- (3,642) (3,642)
------- -- ---------- ---- -------- -- -------- --------
BALANCE AS OF SEPTEMBER 30,
1998 (UNAUDITED)......... 648,653 $7 25,214,000 $252 $146,911 $6 $(35,485) $111,691
======= == ========== ==== ======== == ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE> 83
ORBITAL IMAGING CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ---------------------
1995 1996 1997 1997 1998
-------- -------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................. $ (5,802) $ (4,895) $ (4,082) $ (2,555) $ (3,642)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization.......... 7,777 3,981 5,541 3,032 9,714
Deferred tax benefit................... -- -- (1,752) (1,095) (3,492)
Changes in assets and liabilities:
(Increase) decrease in receivables and
other current assets................ (200) 150 (84) (276) (655)
(Increase) decrease in other assets.... (67) (419) 371 385 (315)
Increase in accounts payable and
accrued expenses.................... -- -- 4,335 3,566 22,275
Increase (decrease) in deferred
revenue............................. (1,900) 175 2,005 2,574 (3,152)
-------- -------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES.............. (192) (1,008) 6,334 5,631 20,733
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................... (9,869) (4,657) (40,838) (39,410) (89,702)
Purchase of OrbView-2 license.......... (9,120) (7,960) (8,191) -- --
Purchases of held-to-maturity
securities.......................... -- -- -- -- (32,184)
Purchases of available-for-sale
securities.......................... -- -- (115,751) (102,778) (94,968)
Maturities of held-to-maturity
securities.......................... -- -- -- -- 7,568
Maturities of available-for-sale
securities.......................... -- -- 102,442 75,008 52,472
Sales of available-for-sale
securities.......................... -- -- 1,972 1,972 26,842
Payment for business acquisition....... -- -- -- -- (5,000)
-------- -------- --------- --------- ---------
NET CASH USED IN INVESTING
ACTIVITIES:....................... (18,989) (12,617) (60,366) (65,208) (134,972)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term
obligations......................... -- -- -- -- 136,152
Net proceeds from issuance of common
stock warrants...................... -- -- -- -- 8,690
Net proceeds from issuance of preferred
stock............................... -- -- 33,547 33,758 21,274
Net proceeds from issuance of common
stock............................... -- -- 31,368 31,318 --
Capital contributed.................... 19,181 13,625 -- -- --
-------- -------- --------- --------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES...................... 19,181 13,625 64,915 65,076 166,116
-------- -------- --------- --------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.............................. -- -- 10,883 5,499 51,877
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................... -- -- -- -- 10,883
-------- -------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD... $ -- $ -- $ 10,883 $ 5,499 $ 62,760
======== ======== ========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.............................. $ -- $ -- $ -- $ -- $ 9,009
======== ======== ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE> 84
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 $87.9 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> 85
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Certain reclassifications have been made to the prior year financial
statements to conform to the current year 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 September 30, 1998 and for the nine
months ended September 30, 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 nine months ended
September 30, 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 11).
F-8
<PAGE> 86
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Cash and Cash Equivalents and Securities
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. 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 $5.0 million
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
ORBIMAGE capitalizes interest costs in connection with the construction of
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. For the nine
months ended September 30, 1998, capitalized interest totaled $6.9 million
(unaudited).
(3) RELATED PARTY TRANSACTIONS
Pursuant to the System Procurement Agreement, ORBIMAGE has committed to
purchase various satellites, rights, and ground systems for approximately $295.1
million over approximately three years. ORBIMAGE incurred costs of approximately
$19.0 million, $12.6 million, $47.6 million, $35.2 million (unaudited) and $81.3
million (unaudited) for the years ended December 31, 1995, 1996 and 1997, and
F-9
<PAGE> 87
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) RELATED PARTY TRANSACTIONS -- (CONTINUED)
the nine months ended September 30, 1997 and 1998, respectively, under the
System Procurement Agreement. ORBIMAGE incurred costs of approximately $2.6
million, $2.0 million, $3.2 million, $2.4 million (unaudited) and $1.8 million
(unaudited) for the years ended December 31, 1995, 1996 and 1997, and the nine
months ended September 30, 1997 and 1998, respectively, under the Administrative
Services Agreement.
(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 (in thousands):
<TABLE>
<CAPTION>
UNREALIZED
GAINS
COST (LOSSES) FAIR VALUE
------- ---------- ----------
<S> <C> <C> <C>
SHORT-TERM
Commercial paper.................................. $11,337 -$- $11,337
------- --- -------
Total available-for-sale investments......... $11,337 -$- $11,337
======= === =======
</TABLE>
Included in cash and cash equivalents at December 31, 1997 was
approximately $8.9 million of commercial paper.
(5) MAJOR CUSTOMER
Pursuant to imagery contracts with NASA, ORBIMAGE recognized revenues of
approximately $4.1 million, $0.8 million, and $2.0 million 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.
(6) PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
Land........................................................ $ 213 $ 213
Ground segment assets....................................... 12,780 15,985
Accumulated depreciation.................................... (3,486) (5,144)
------- -------
Total............................................. $ 9,507 $11,054
======= =======
</TABLE>
F-10
<PAGE> 88
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) SATELLITES AND RELATED RIGHTS
Satellites and related rights consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- --------
<S> <C> <C>
In service:
OrbView-1.............................................. $12,327 $ 12,327
Accumulated depreciation............................... (9,071) (11,513)
------- --------
3,256 814
------- --------
OrbView-2 license...................................... 56,352 64,543
Accumulated amortization............................... -- (1,434)
------- --------
56,352 63,109
------- --------
Satellites in process....................................... 2,677 40,303
------- --------
Total............................................. $62,285 $104,226
======= ========
</TABLE>
(8) INCOME TAXES
ORBIMAGE recorded a deferred benefit for income taxes of $1.8 million and
$3.5 million (unaudited) for the year ended December 31, 1997 and for the nine
months ended September 30, 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 1995 and 1996 (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 $4.9 million, $2.4 million, and $1.8
million for the years ended December 31, 1995, 1996 and 1997, respectively, as a
direct charge to additional paid-in capital.
The tax effects of significant temporary differences at December 31, 1996
and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Revenue recognition.................................... $14,155 $14,949
Net operating loss carryforward........................ -- 585
Other.................................................. -- 62
------- -------
Deferred tax assets......................................... $14,155 $15,596
======= =======
Deferred tax liabilities:
Differences in the tax treatment of satellites and
related rights........................................ $24,816 $26,258
======= =======
</TABLE>
The income tax 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,
F-11
<PAGE> 89
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) INCOME TAXES -- (CONTINUED)
1997, the Company has a net operating loss carryforward for income tax purposes
of approximately $1.5 million, 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
11 5/8% senior notes due 2005 and 1,312,746 warrants for common stock, raising
net proceedings of approximately $144.8 million (unaudited). Interest is payable
semi-annually. 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 net proceeds of approximately $33.8 million. In
February 1998, the Company issued an additional 227,295 shares of Preferred
Stock in a private placement, generating net proceeds of approximately $21.3
million (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 $87.9 million and
its ownership of common stock to 25,200,000 shares.
(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
F-12
<PAGE> 90
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(11) STOCK OPTION PLAN -- (CONTINUED)
generally vest ratably over a three-year period. The following table summarizes
the activity relating to the ORBIMAGE Plan:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OPTION PRICE AVERAGE OUTSTANDING AND
OF SHARES PER SHARE EXERCISE PRICE EXERCISABLE
--------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
OUTSTANDING AS OF DECEMBER 31,
1995............................ -- -- -- --
Granted...................... 1,408,000 $ 3.60 $3.60
Exercise..................... -- -- --
Canceled or expired.......... -- -- --
--------- ------------- -----
OUTSTANDING AS OF DECEMBER 31,
1996............................ 1,408,000 3.60 3.60 352,000
Granted...................... 498,000 4.17 4.17
Exercise..................... (14,000) 3.60 3.60
Canceled or expired.......... (8,000) 3.60 3.60
--------- ------------- -----
OUTSTANDING AS OF 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 $5.3
million and $5.0 million 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.
F-13
<PAGE> 91
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(12) LOSS PER COMMON SHARE
The following table sets forth the computations of basic and diluted loss
per common share for the year ended December 31, 1997 and the nine months ended
September 30, 1997 and 1998 (in thousands, except share data).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Numerator for basic and diluted loss per common
share:
Net loss........................................ $ (4,082) $ (2,555) $ (3,642)
Preferred stock dividends....................... (2,808) (1,639) (5,311)
----------- ----------- -----------
Loss available to common stockholders................ $ (6,890) $ (4,194) $ (8,953)
=========== =========== ===========
Denominator for basic loss per common
share -- weighted average shares................... 16,431,854 13,476,970 25,214,000
Effect of dilutive securities:
Convertible preferred stock..................... 5,641,668 4,422,752 14,156,984
Warrants........................................ -- -- 1,048,273
Stock options................................... 189,453 189,453 570,645
----------- ----------- -----------
Denominator for diluted loss per common
share -- adjusted weighted average shares assuming
dilution........................................... 22,262,975 18,089,175 40,989,902
=========== =========== ===========
Loss per common share -- basic and diluted(1)........ $ (0.42) $ (0.31) $ (0.36)
=========== =========== ===========
</TABLE>
- ---------------
(1) All potentially dilutive securities, such as convertible preferred stock,
warrants and stock options are antidilutive for each of the periods
presented. Prior to May 8, 1997, ORBIMAGE was an operating division of
Orbital, and loss per common share for the years ended December 31, 1995 and
1996 were not meaningful.
(13) EMPLOYEE BENEFIT PLAN
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 are
made based on certain plan provisions and at the discretion of the Board of
Directors, and in 1997, were approximately $28,000.
(14) SUBSEQUENT EVENTS (UNAUDITED)
Adoption of SFAS No. 130
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 130, Reporting Comprehensive Income. SFAS No.
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of SFAS No. 130 requires unrealized
gains on the Company's available-for-sale securities to be included in
comprehensive income. For the nine months ended September 30, 1998,
comprehensive income (loss) totaled $(3.6 million). For the years ended December
31, 1995, 1996 and 1997 and the nine months ended September 30, 1997, there were
no differences between net loss, as reported, and comprehensive income (loss).
F-14
<PAGE> 92
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(14) SUBSEQUENT EVENTS (UNAUDITED) -- (CONTINUED)
Stock Option Plan Amendment
On March 30, 1998, the Company amended the ORBIMAGE Plan to increase the
number of shares of common stock that may be optioned and sold from 2,800,000 to
4,800,000.
Acquisition
On April 30, 1998, the Company acquired substantially all the assets of
TRIFID Corporation ("TRIFID") for $4.0 million. Based on TRIFID meeting revenue
targets established in the acquisition agreement, the purchase price was
adjusted and the Company paid an additional $1.0 million of consideration to
TRIFID during the nine months ended September 30, 1998. The acquisition was
accounted for using the purchase method of accounting and resulted in excess of
purchase price over net assets acquired of approximately $3.0 million, which is
being amortized on a straight-line basis over ten years.
The following supplemental financial information presents the Company's
results of operations, on a pro forma basis, as though the TRIFID acquisition
were consummated on January 1, 1995 (in thousands except per share data:)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues...................................... $ 8,285 $ 4,167 $ 5,531 $ 3,272 $ 9,370
Net loss...................................... (6,407) (6,550) (7,022) (3,141) (3,646)
Loss per common share -- basic and
diluted(1).................................. $ (0.43) $ (0.23) $ (0.14)
</TABLE>
- ---------------
(1) All potentially dilutive securities, such as convertible preferred stock,
warrants, and stock options are antidilutive for each of the periods
presented. Prior to May 8, 1997, ORBIMAGE was an operating division of
Orbital, and loss per common share for the years ended December 31, 1995 and
1996 were not meaningful.
The allocation of purchase price to net assets acquired may be adjusted if
additional information becomes known about certain business assumptions used to
estimate the fair value of such net assets.
Preferred Stock Dividends
On May 1, 1998 and November 1, 1998, the Company issued 28,471 shares and
38,923 shares, respectively, of Series A preferred stock as a dividend payment.
F-15
<PAGE> 93
GLOSSARY OF TERMS
COMMISSION -- The Securities and Exchange Commission.
COMMON STOCK -- The common stock of the Company, par value $0.01 per share.
COMPANY -- Orbital Imaging Corporation, a Delaware corporation ("ORBIMAGE").
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.
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.
IN-ORBIT INSURANCE -- Insurance covering the period following the date a
satellite has been placed into commercial service.
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, which 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, which is
providing 1-kilometer resolution imagery of the Earth's surface in eight
spectral bands.
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, which is designed to
provide 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 2000, which is designed to
provide 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.
G-1
<PAGE> 94
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.
G-2
<PAGE> 95
================================================================================
ORBITAL IMAGING CORPORATION
150,000 WARRANTS TO PURCHASE COMMON STOCK
1,312,746 SHARES OF COMMON STOCK
--------------
PROSPECTUS
--------------
THE WARRANT AGENT FOR THIS OFFERING IS
MARINE MIDLAND BANK
by Facsimile: (212) 658-6425
Attention: Anthony R. Bufinsky
Confirm by telephone:
(212) 658-6563
By Registered or Certified Mail:
Marine Midland Bank
140 Broadway, 12th Floor
New York, NY 10005
Attention: Anthony R. Bufinsky
By Hand:
Marine Midland Bank
140 Broadway, 12th Floor
New York, NY 10005
Attention: Anthony R. Bufinsky
By Overnight Courier:
Marine Midland Bank
140 Broadway, 12th Floor
New York, NY 10005
Attention: Anthony R. Bufinsky
NOVEMBER , 1998
================================================================================
<PAGE> 96
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, which will be paid
solely by the Company. All amounts shown are estimates, except the Commission
registration fee:
<TABLE>
<S> <C>
Commission registration fee................................. $ 4
Warrant agent and transfer agent fees and expenses.......... 5,000
Printing and mailing expenses............................... 50,000
Legal fees and expenses..................................... 50,000
Accounting fees and expenses................................ 20,000
--------
Total............................................. $125,004
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation and its Second Amended and Restated
Certificate of Incorporation and Bylaws provide for indemnification of its
officers and directors to the fullest extent permitted by law. Section 102(b)(7)
of the Delaware General Corporation Law (the "DGCL") permits a corporation in
its certificate of incorporation to eliminate the liability of a corporation's
directors to a corporation or its stockholders, except for liabilities related
to breach of the duty of loyalty, actions not in good faith and certain other
liabilities.
Section 145 of the DGCL provides that a corporation may indemnify directors
and officers as well as other employees and individuals against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation, a "derivative action") if they acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. A similar standard is applicable in the case of derivative actions,
except that indemnification only extends to expenses (including attorneys' fees)
incurred in connection with the defense or settlement of such actions, and the
status requires court approval before there can be any indemnification where the
person seeking indemnification has been found liable to the corporation. The
statute provides that it is not exclusive of other indemnification that may be
granted by a corporation's bylaws, disinterested director vote, stockholder
vote, agreement, or otherwise.
Delaware law also permits a corporation to purchase and maintain insurance
on behalf of any person who is or was a director or officer against any
liability asserted against him and incurred by him in such capacity or arising
out of his status as such, whether or not the corporation has the power to
indemnify him against that liability under Section 145 of the DGCL.
The above discussion of the Company's Second Amended and Restated
Certificate of Incorporation and Bylaws is not intended to be exhaustive and is
respectively qualified in its entirety by such documents.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
From September 30, 1995 to the present, the Company has sold and issued the
following securities on the dates and for the consideration stated below:
- On February 25, 1998, the Company offered and sold 150,000 units in a
private offering exempt from registration pursuant to Rule 144A of the
Securities Act. The initial purchasers were Bear, Stearns & Co. Inc.,
Merrill Lynch & Co. and NationsBanc Montgomery Securities LLC, who
subsequently resold the units to "qualified institutional buyers" (as
defined in Rule 144A). Each
II-1
<PAGE> 97
unit consisted of an 11 5/8% senior note due 2005 in the principal amount
of $1,000 and a warrant to purchase 8.75164 shares of the Company's
common stock. On July 24, 1998, the Company filed an exchange offer
registration statement offering to exchange a substantially similar
11 5/8% Series B senior note for each outstanding note held by the
qualified institutional buyers.
- Concurrently with the units offering, the Company issued 227,295 shares
of Series A preferred stock for an aggregate purchase price of $22.7
million to a group of "accredited investors."
- On December 30, 1997, the Company issued 14,000 shares of common stock
for an aggregate purchase price of $58,380 to an individual pursuant to
the exercise of certain options.
- On July 3, 1997, the Company issued 72,605 shares of Series A preferred
stock for an aggregate purchase price of $7.3 million to the Export
Development Corporation, an "accredited investor."
- On May 7, 1997, the Company issued 300,100 shares of Series A preferred
stock for an aggregate purchase price of $30.0 million to a group of
"accredited investors."
All of the sales of Series A preferred stock described above were made in
reliance on one or more exemptions from registration under the Securities Act,
including exemptions for sales to accredited investors provided for by
Regulation D and exemptions for sales to non-U.S. persons outside the U.S.
provided for by Regulation S promulgated under the Securities Act.
II-2
<PAGE> 98
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1+ Second Amended and Restated Certificate of Incorporation of
the Company.
3.2+ Bylaws of the Company.
4.2* Specimen of the Company's common stock certificate.
4.3+ Indenture dated as of February 25, 1998, by and among the
Company and Marine Midland Bank, as Trustee, with respect to
the 11 5/8% Senior Notes due 2005 of the Company.
4.4+ Warrant Agreement dated as of February 25, 1998, by and
between the Company and Marine Midland Bank as warrant
agent.
4.5 Specimen of the Company's warrant certificate (included in
Exhibit 4.4).
4.6+ Warrant Registration Rights Agreement, dated as of February
25, 1998 by and among the Company, Bear, Stearns & Co. Inc.,
Merrill Lynch & Co., and NationsBanc Montgomery Securities
LLC as the initial purchasers.
4.7+ Pledge Agreement dated February 25, 1998, by and between the
Company and Marine Midland Bank as collateral agent.
4.8+ Amended and Restated Stock Purchase Agreement dated as of
February 25, 1998, by and among the Company, Orbital
Sciences Corporation and the holders of Series A preferred
stock named therein.
4.9+ Amended and Restated Stockholders' Agreement dated as of
February 25, 1998, by and among the Company, Orbital
Sciences Corporation and the holders of Series A preferred
stock named therein.
5.1* Opinion of Latham & Watkins regarding the validity of the
warrants and warrant shares, including consent.
8.1* Opinion of Latham & Watkins regarding certain federal income
tax matters, including consent.
10.1+ Purchase Agreement, dated as of February 20, 1998 by and
among the Company, Bear, Stearns & Co. Inc., Merrill Lynch &
Co., and NationsBanc Montgomery Securities LLC as the
Initial Purchasers.
10.2+** Amended and Restated Procurement Agreement dated February
26, 1998 by and between the Company and Orbital.
10.3+ Amended and Restated Administrative Services Agreement dated
December 31, 1997 by and between the Company and Orbital.
10.4+ Non-Competition and Teaming Agreement dated as of May 8,
1997 by and between the Company and Orbital.
10.5+ OrbView-2 License Agreement dated as of May 8, 1997 by and
between the Company and Orbital.
10.6+** Distributor Licensee Agreement dated as of January 31, 1997,
as amended from time to time, by and between the Company and
Samsung Aerospace Industries, Ltd.
10.7+ Form of Indemnification Agreement between the Company and
its directors and officers.
10.8+ ORBIMAGE 1996 Stock Option Plan.
10.9+ Agreement between National Aeronautics and Space
Administration and Orbital Sciences Corporation, dated March
29, 1991, as amended.
11* Statement re Computation of Loss Per Common Share (included
in Notes to Financial Statements).
23.1* Consent of KPMG Peat Marwick, LLP, independent auditors.
23.2* Consent of Latham & Watkins (included in Exhibit 5.1).
24* Powers of Attorney of directors and officers of the Company
(included on signature page to this Registration Statement).
27* Financial Data Schedule.
</TABLE>
- ---------------
+ Incorporated by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-4, as amended (Reg. No.
333-49583).
* Filed herewith.
II-3
<PAGE> 99
** Confidential treatment was granted pursuant to Rule 406 under the Securities
Act of 1933, as amended, in connection with the Company's registration
statement on Form S-4, as amended (Reg. No. 333-49583). Certain portions of
the exhibit have been omitted. The omitted portions of such exhibits have
been separately filed with the Securities and Exchange Commission.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provision described under Item 20 or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Loudoun, Commonwealth of Virginia, on November 20,
1998.
ORBITAL IMAGING CORPORATION
By: /s/ GILBERT D. RYE
------------------------------------------
Gilbert D. Rye
President and Chief Operating Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Orbital Imaging Corporation,
do hereby severally constitute and appoint Armand D. Mancini and Gilbert D. Rye
our true and lawful attorneys and agents, to do any and all acts and things in
our name and on our behalf in our capacities as directors and officers and to
execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents may deem necessary or advisable
to enable said Corporation to comply with the Securities Act of 1933, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with the Registration Statement on Form S-1,
including specifically, but without limitation, power and authority to sign for
us or any of us, in our names in the capacities indicated below, any and all
amendments (including post-effective amendments and including any subsequent
registration statement for the same offering which may be filed under Rule
462(b) pursuant to the Securities Act of 1933, as amended) hereto; and we do
hereby ratify and confirm all that said attorneys and agents shall do or cause
to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GILBERT D. RYE President and November 20, 1998
- ------------------------------------------------ Chief Operating Officer
Gilbert D. Rye (Principal Executive Officer)
/s/ ARMAND D. MANCINI Vice President, November 20, 1998
- ------------------------------------------------ Chief Financial Officer
Armand D. Mancini (Principal Financial and
Accounting Officer)
/s/ DAVID W. THOMPSON Chairman of the Board, November 20, 1998
- ------------------------------------------------ Director
David W. Thompson
Director November 20, 1998
- ------------------------------------------------
James A. Abrahamson
/s/ BRUCE W. FERGUSON Director November 20, 1998
- ------------------------------------------------
Bruce W. Ferguson
</TABLE>
II-5
<PAGE> 101
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICHARD REISS, JR. Director November 20, 1998
- ------------------------------------------------
Richard Reiss, Jr.
/s/ WILLIAM W. SPRAGUE Director November 20, 1998
- ------------------------------------------------
William W. Sprague
</TABLE>
II-6
<PAGE> 102
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1+ Second Amended and Restated Certificate of Incorporation of
the Company.
3.2+ Bylaws of the Company.
4.2* Specimen of the Company's common stock certificate.
4.3+ Indenture dated as of February 25, 1998, by and among the
Company and Marine Midland Bank, as Trustee, with respect to
the 11 5/8% Senior Notes due 2005 of the Company.
4.4+ Warrant Agreement dated as of February 25, 1998, by and
between the Company and Marine Midland Bank as warrant
agent.
4.5 Specimen of the Company's warrant certificate (included in
Exhibit 4.4).
4.6+ Warrant Registration Rights Agreement, dated as of February
25, 1998 by and among the Company, Bear, Stearns & Co. Inc.,
Merrill Lynch & Co., and NationsBanc Montgomery Securities
LLC as the initial purchasers.
4.7+ Pledge Agreement dated February 25, 1998, by and between the
Company and Marine Midland Bank as collateral agent.
4.8+ Amended and Restated Stock Purchase Agreement dated as of
February 25, 1998, by and among the Company, Orbital
Sciences Corporation and the holders of Series A preferred
stock named therein.
4.9+ Amended and Restated Stockholders' Agreement dated as of
February 25, 1998, by and among the Company, Orbital
Sciences Corporation and the holders of Series A preferred
stock named therein.
5.1* Opinion of Latham & Watkins regarding the validity of the
warrants and warrant shares, including consent.
8.1* Opinion of Latham & Watkins regarding certain federal income
tax matters, including consent.
10.1+ Purchase Agreement, dated as of February 20, 1998 by and
among the Company, Bear, Stearns & Co. Inc., Merrill Lynch &
Co., and NationsBanc Montgomery Securities LLC as the
Initial Purchasers.
10.2+** Amended and Restated Procurement Agreement dated February
26, 1998 by and between the Company and Orbital.
10.3+ Amended and Restated Administrative Services Agreement dated
December 31, 1997 by and between the Company and Orbital.
10.4+ Non-Competition and Teaming Agreement dated as of May 8,
1997 by and between the Company and Orbital.
10.5+ OrbView-2 License Agreement dated as of May 8, 1997 by and
between the Company and Orbital.
10.6+** Distributor Licensee Agreement dated as of January 31, 1997,
as amended from time to time, by and between the Company and
Samsung Aerospace Industries, Ltd.
10.7+ Form of Indemnification Agreement between the Company and
its directors and officers.
10.8+ ORBIMAGE 1996 Stock Option Plan.
10.9+ Agreement between National Aeronautics and Space
Administration and Orbital Sciences Corporation, dated March
29, 1991, as amended.
11* Statement re Computation of Loss Per Common Share (included
in Notes to Financial Statements).
23.1* Consent of KPMG Peat Marwick, LLP, independent auditors.
23.2* Consent of Latham & Watkins (included in Exhibit 5.1).
24* Powers of Attorney of directors and officers of the Company
(included on signature page to this Registration Statement).
27* Financial Data Schedule.
</TABLE>
- ---------------
+ Incorporated by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-4, as amended (Reg. No.
333-49583).
* Filed herewith.
** Confidential treatment was granted pursuant to Rule 406 under the Securities
Act of 1933, as amended, in connection with the Company's registration
statement on Form S-4, as amended (Reg. No. 333-49583). Certain portions of
the exhibit have been omitted. The omitted portions of such exhibits have
been separately filed with the Securities and Exchange Commission.
II-7
<PAGE> 1
EXHIBIT 4.2
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
NUMBER SHARES
ORBITAL IMAGING CORPORATION
COMMON STOCK $ .01 PAR VALUE
THIS CERTIFIES THAT is the
-------------------------------------------
registered holder of Shares
---------------------------------------
of the Capital Stock of ORBITAL IMAGING CORPORATION Fully Paid and
Non-Assessable
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate
to be signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed
this day of A.D. 19 .
--------- --------------------- --
- --------------------------------- ------------------------------
President Secretary
<PAGE> 1
EXHIBIT 5.1
[LATHAM & WATKINS LETTERHEAD]
November 20, 1998
Orbital Imaging Corporation
21700 Atlantic Boulevard
Dulles, Virginia 20166
Re: 150,000 Warrants and 1,312,746 Shares of Common Stock
of Orbital Imaging Corporation
Ladies and Gentlemen:
At your request, this opinion is being rendered to you in connection
with the registration on the date hereof by Orbital Imaging Corporation, a
Delaware corporation (the "Company"), of 150,000 warrants (the "Warrants") to
purchase shares of common stock of the Company, par value $0.01 per share (the
"Common Stock") and 1,312,746 shares of Common Stock (the "Shares"), pursuant to
a registration statement on Form S-1 under the Securities Act of 1933, as
amended (the "Act"), filed with the Securities and Exchange Commission (the
"Commission") on November 20, 1998 (and as so amended as of the time it becomes
effective) (the "Registration Statement").
As your counsel, we have made such legal and factual examinations and
inquiries as we have deemed necessary or appropriate for purposes of this
opinion. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to authentic original documents of all documents submitted to us
as copies. As to facts material to the opinions, statements and assumptions
expressed herein, we have, with your consent, relied upon oral or written
statements and representations of officers and other representatives of the
Company and others. In addition, we have obtained and relied upon such
certificates and assurances from public officials as we have deemed necessary.
We are opining herein as to the effect on the subject transaction only
of the federal laws of the United States, the internal laws of the State of
New York and the General Corporation Law of the State of Delaware, and we
express no opinion with respect to the applicability thereto, or the effect
thereon, of the laws of any other jurisdiction or, in the case of Delaware, any
other laws, or as to any matters of municipal law or the laws of any local
agencies within any state.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof:
1. The Warrants have been duly authorized, and, upon issuance and
delivery in the manner contemplated in the Registration Statement, will be
validly issued, fully paid and non-assessable securities of the Company.
2. The Shares have been duly authorized, and, upon exercise of
the Warrants and upon issuance and delivery of the Shares in the manner
contemplated in the Registration Statement (including the Company's collection
of the required payment upon exercise of the Warrants), the Shares will be
validly issued, fully paid and non-assessable securities of the Company.
This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be
relied upon by you for any other purpose, or furnished to, quoted to, or relied
upon by any other person, firm or corporation for any purpose, without our
prior written consent.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement and the reference to us under the
heading "Legal Matters" in the Registration Statement. In giving such consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Act or the rules and regulations of the
Commission as promulgated thereunder.
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE> 1
[LATHAM & WATKINS LETTERHEAD]
November 20, 1998
Orbital Imaging Corporation
21700 Atlantic Boulevard
Dulles, VA 20166
Re: Registration Statement on Form S-1
Dear Sir or Madam:
We have acted as tax counsel to Orbital Imaging Corporation, a
Delaware corporation (the "Company"), in connection with its registration of
150,000 warrants to purchase shares of common stock of the Company (the
"Warrants") and its registration of 1,312,746 shares of common stock of the
Company that are issuable upon exercise of the Warrants (the "Common Stock")
pursuant to a registration statement on Form S-1 under the Securities Act of
1933, as amended, filed with the Securities and Exchange Commission on November
20, 1998 (and as so amended as of the time it becomes effective) (the
"Registration Statement").
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Orbital Imaging Corporation:
We consent to the use of our report included herein and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Washington, D.C.
November 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary finanical information extracted from the balance
sheets and statements of operations as of and for the nine months ended
September 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 62,760
<SECURITIES> 51,802
<RECEIVABLES> 2,217
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100,469
<PP&E> 198,549
<DEPRECIATION> (27,165)
<TOTAL-ASSETS> 321,471
<CURRENT-LIABILITIES> 35,925
<BONDS> 141,476
0
7
<COMMON> 252
<OTHER-SE> 111,432
<TOTAL-LIABILITY-AND-EQUITY> 321,741
<SALES> 8,547
<TOTAL-REVENUES> 8,547
<CGS> 11,597
<TOTAL-COSTS> 11,597
<OTHER-EXPENSES> 5,235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,151)
<INCOME-PRETAX> (7,134)
<INCOME-TAX> (3,492)
<INCOME-CONTINUING> (3,642)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,642)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
