<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1999
REGISTRATION NO. 333-80035
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-4
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 STANDARD INDUSTRIAL (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
21700 ATLANTIC BOULEVARD
DULLES, VA 20166
(703) 406-5800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ALAN R. SCHWARTZ OCIO, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
21700 ATLANTIC BOULEVARD
DULLES, VA 20166
(703) 406-5800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
------------------------
With a copy to:
MICHAEL A. BELL, ESQ.
LATHAM & WATKINS
1001 PENNSYLVANIA AVE., N.W. SUITE 1300
WASHINGTON, D.C. 20004-2505
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. [ ]
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(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. [ ] ______
------------------------
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 THAT 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 THAT DATE THAT THE COMMISSION, ACTING UNDER SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
PROSPECTUS
OFFER TO EXCHANGE
11 5/8% SENIOR NOTES DUE 2005, SERIES D FOR ALL ORIGINAL
11 5/8% SENIOR NOTES DUE 2005, SERIES C
($75,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
OF
ORBITAL IMAGING CORPORATION
We are offering to exchange registered 11 5/8% Senior Notes Due 2005,
Series D for all of our outstanding 11 5/8% Senior Notes Due 2005, Series C. For
clarity, we will refer to the Series C notes as the original notes and the
Series D notes as the exchange notes. Where the context does not require this
distinction, we will refer to both securities collectively as the notes. The
terms of the exchange notes are identical to the terms of the original notes,
except that the exchange notes are registered under the Securities Act of 1933
and therefore are freely transferable. We will not receive any proceeds from
this exchange offer.
Please consider the following:
- Our offer to exchange original notes for exchange notes will expire at
5:00 p.m., New York City time, on July 27, 1999, unless we extend the
offer.
- You should carefully review the procedures for tendering original notes
beginning on page 68 of this prospectus.
- If you do not tender your original notes, you will continue to hold
unregistered securities, and your ability to transfer them would be
adversely affected.
- We do not intend to list the exchange notes on any national securities
exchange, and therefore, we do not anticipate that an active public
market in exchange notes will develop. The notes that are exchanged for
original notes from qualified institutional buyers will be eligible for
trading in the Private Offerings, Resale and Trading through Automated
Linkages Market.
<TABLE>
<S> <C>
TERMS OF EXCHANGE NOTES
The following is a summary of the terms of the exchange notes we are offering. For more detail, see
"Description of the Exchange Notes."
- MATURITY - RANKING
March 1, 2005. These exchange notes will rank equally with all
of our existing and future senior debt and will
- REDEMPTION rank senior to all of our existing and future
We may redeem the notes at any time on or subordinated debt.
after March 1, 2002 at the prices listed in this
prospectus. - INTEREST
The notes have a fixed annual rate of 11 5/8%,
- Before March 1, 2001, we may redeem up to 35% paid every six months on March 1 and September 1,
of the principal amount of the exchange notes beginning September 1, 1999.
with the proceeds of qualifying public
offerings of equity in ORBIMAGE that we make. - SECURITY
To secure these notes, we have purchased a
- MANDATORY OFFER TO REPURCHASE portfolio of securities representing funds
If we sell some of our assets or experience sufficient to provide for payment in full of the
specific kinds of changes in control, we must first two scheduled interest payments on the
offer to repurchase the exchange notes. notes, estimated at approximately $7.4 million.
</TABLE>
THIS EXCHANGE OFFER INVOLVES RISKS. SEE THE RISK FACTORS SECTION BEGINNING
ON PAGE 10.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS JUNE 25, 1999.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................................... ii
Cautionary Statement Regarding "Forward-Looking"
Statements................................................ iii
Prospectus Summary.......................................... 1
Risk Factors................................................ 10
Use of Proceeds............................................. 21
Capitalization.............................................. 22
Selected Historical Financial Data.......................... 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Business.................................................... 29
Regulation.................................................. 45
Management.................................................. 48
Principal Stockholders...................................... 53
Certain Relationships and Related Transactions.............. 55
Relationship with Orbital................................... 62
Description of Capital Stock................................ 63
Description of Certain Indebtedness......................... 65
The Exchange Offer.......................................... 66
Description of the Exchange Notes........................... 74
Additional Provisions Applicable to the Exchange Notes...... 107
United States Federal Income Tax Consequences............... 108
Plan of Distribution........................................ 113
Validity of Exchange Notes.................................. 114
Experts..................................................... 114
Index to Financial Statements............................... F-1
</TABLE>
AVAILABLE INFORMATION
We have filed with the Commission a registration statement on Form S-4 under
the Securities Act, covering the exchange notes. This prospectus does not
contain all the information in the registration statement, some parts of which
are omitted to comply with the rules and regulations of the Commission. We will
provide you copies of this material upon request.
We have agreed to file with the Commission, to the extent permitted, and
distribute to holders of the exchange notes reports, information and documents
specified in Sections 13 and 15(d) of the Securities Exchange Act of 1934, for
as long as the exchange notes are outstanding, whether or not the Exchange Act
requires that we do so. You may inspect periodic reports, proxy statements and
other information that we have filed with the Commission at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or at its regional offices located at the Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, 13th Floor, New York, New York 10007. The Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
Their web site is located at http://www.sec.gov. While any exchange notes remain
outstanding, we will make available, upon request, to any holder of the exchange
notes, the information required by Rule 144A(d)(4) under the Securities Act
during any period in which we are not subject to Section 13 or 15(d) of the
Exchange Act. You should direct any request for information to the General
Counsel of ORBIMAGE at 21700 Atlantic Boulevard, Dulles, Virginia, 20166.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT THE TRANSACTIONS WE DISCUSS IN THIS PROSPECTUS OTHER THAN
THE INFORMATION WE HAVE PROVIDED IN THIS PROSPECTUS. IF YOU ARE GIVEN ANY
INFORMATION OR REPRESENTATIONS ABOUT THESE MATTERS THAT WE DO NOT DISCUSS, YOU
MUST NOT RELY ON THAT INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO
WHOM WE ARE NOT PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW. THE
DELIVERY OF THIS PROSPECTUS DOES NOT, UNDER ANY CIRCUMSTANCES, MEAN THAT THERE
HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE OF THIS PROSPECTUS. IT FURTHER
DOES NOT MEAN THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AFTER THIS
DATE.
ii
<PAGE> 4
CAUTIONARY STATEMENT 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 like "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, including
statements regarding:
- market opportunity in our target markets;
- development of our businesses;
- estimates of market size and addressable markets for our imagery products
and services;
- cash projected to be used in operations;
- anticipated capital expenditures for the OrbView-3 and OrbView-4
satellites and the RadarSat-2 License; and
- expected launch and satellite operational dates.
We can provide no assurance that we will achieve anticipated results.
We admonish you that these cautionary remarks expressly qualify in their
entirety all forward-looking statements that are attributable to us or persons
acting on our behalf.
We caution you not to place undue reliance on these forward-looking
statements, which speak only as of the date of this prospectus or, in the case
of documents incorporated by reference, the dates of those documents.
We do not undertake any responsibility to release publicly any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this prospectus. Additionally, we do not undertake
any responsibility to update you on the occurrence of any anticipated events
that may cause actual results to differ from those expressed or implied by the
forward-looking statements contained in or incorporated by reference to this
prospectus.
iii
<PAGE> 5
PROSPECTUS SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire prospectus, including the "Risk Factors" and the
financial data and related notes, for a complete understanding of this exchange
offer. The terms "ORBIMAGE" and "Orbital Imaging Corporation" 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 and its subsidiaries, including its wholly owned
Canadian subsidiary, MacDonald, Dettwiler and Associates, Ltd. ("MDA").
ORBITAL IMAGING CORPORATION
ORBIMAGE is a leading provider of global space-based imagery. We expect to
provide our customers with a comprehensive offering of high-resolution imagery,
imagery-derived products and image processing services at competitive prices. We
are currently operating and expanding a fleet of satellites that collect,
process and distribute digital imagery of the Earth's surface (land and oceans),
the atmosphere and weather conditions. Our imagery products and services are
designed to provide our customers with direct access to timely and competitively
priced information concerning, among other things, locations and movements of
military assets, urban growth, forestry and crop health, land and ocean-based
natural resources and weather patterns and wind conditions. In April 1998, we
acquired a satellite image processing company that complements our core imagery
business by providing sophisticated image processing software, engineering
analysis capability and in-house digital image production capabilities.
Our two operating satellites, OrbView-1 and OrbView-2, the latter of which
we operate under a licensing arrangement with Orbital (the "OrbView-2 License"),
provide imagery to various scientific, government and commercial customers,
including NASA, the U.S. National Imagery and Mapping Agency ("NIMA") and
commercial fishing companies. We expect to place two additional satellites,
OrbView-3 and OrbView-4, into operation during the first quarter of 2000 and the
fourth quarter of 2000, respectively. OrbView-3 and OrbView-4 will provide
high-resolution imagery based on advanced optical technology.
In December 1998, we acquired the exclusive worldwide rights to market and
sell imagery from RadarSat-2 (the "RadarSat-2 License"), a high-resolution
commercial radar imaging satellite. We expect RadarSat-2 to be operational in
early 2002. Unlike optical imaging technology, radar technology permits imagery
to be collected in all weather conditions and at night. RadarSat-2 will also
have unique multipolarization capabilities that will enable it to detect
features on the Earth's surface, such as ice flows, oil seepage and metallic
objects, more effectively than conventional optical imaging systems.
The table below shows the imaging capability and current status of each of
the satellites:
<TABLE>
<CAPTION>
SATELLITE IMAGING CAPABILITY OPERATIONAL DATE
- --------- ------------------ ----------------
<S> <C> <C>
OrbView-1 Low-resolution, black and white May 1995
(panchromatic) meteorological data
OrbView-2 Medium-resolution, color and November 1997
infrared (multispectral) optical
imagery
OrbView-3 High-resolution, panchromatic and Targeted for the first quarter
multispectral optical imagery of 2000
OrbView-4 High-resolution, panchromatic, Targeted for the fourth
multispectral, and enhanced color quarter of 2000
and infrared (hyperspectral)
optical imagery
RadarSat-2 High-resolution, multipolarized Targeted for early 2002
radar imagery
</TABLE>
1
<PAGE> 6
BUSINESS STRATEGY
The key elements of our business strategy include:
- Providing a comprehensive offering of high-resolution satellite imagery
at competitive prices. We expect to provide a comprehensive offering of
commercially available satellite imagery products and services, using a
cost structure that will give us flexibility to price our products and
services competitively.
- Penetrating existing markets and creating new markets. We believe we can
gain market share rapidly in the existing and in future markets for
imagery products and services because of the breadth and expected pricing
of our product and service offerings.
- Achieving global distribution of products and services on a timely
basis. We plan to expand our global market coverage by providing our
customers with imagery both directly and through value-added resellers
("VARs") and other third party distributors. We expect our international
distributors to purchase or upgrade and operate ground stations in their
territories, which will allow them to receive, process and distribute
imagery in a timely manner.
- Expanding the "orbimage.com" digital catalogue. Our digital catalogue is
located at our orbimage.com website. The site is designed to display,
archive and distribute imagery from our satellites as well as imagery
from other aerial sources. For a per-image fee, we can deliver imagery
from our digital catalogue to customers over the Internet or on CD.
- Leveraging the expertise of Orbital. Orbital, our majority stockholder,
is a space and information systems company that designs, manufactures,
operates and markets a broad range of space-related products and
services, with a heritage of designing and building satellites and
providing launch services for various satellites operating today,
including OrbView-1 and OrbView-2. We have used and will continue to use
Orbital's capabilities and experience to develop our business cost
effectively.
RECENT DEVELOPMENTS
In December 1998, ORBIMAGE acquired the RadarSat-2 License from Orbital,
which provides us with the exclusive worldwide rights to market and sell
RadarSat-2 imagery. ORBIMAGE's cost for the RadarSat-2 License will be
approximately $60 million, which amount does not include approximately $140
million to be funded by the Canadian Space Agency through a contract with MDA.
See "Certain Relationships and Related Transactions -- RadarSat-2 License
Agreement." RadarSat-2 is expected to be operational in early 2002. We believe
RadarSat-2 will be the world's first satellite with commercially available
high-resolution radar imagery.
Our executive offices are located at 21700 Atlantic Boulevard, Dulles,
Virginia 20166 and our telephone number is 703-406-5800. You can also reach us
at our website, http://www.orbimage.com. Be advised, however, that this
prospectus does not incorporate by reference any information contained on our
website.
2
<PAGE> 7
SOURCES AND USES OF FUNDING
We will not receive any proceeds from this exchange offer. However, we
received net proceeds of approximately $68.1 million from the sale of the
original notes at a price to investors of 94.4%, after paying discounts,
commissions and expenses. We used approximately $7.4 million of the net proceeds
to purchase the pledged securities, representing funds sufficient to provide for
payment in full of the first two scheduled interest payments. We will apply all
remaining proceeds to purchase the RadarSat-2 License, to provide working
capital and for general corporate purposes. See "Description of the Exchange
Notes -- Restrictive Covenants -- Use of Proceeds."
The table below summarizes the sources and uses of funding for the period
from inception through October 1, 2000, by which date we expect OrbView-3 to be
operational and OrbView-4 to be launched.
SOURCES AND USES OF FUNDING
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SOURCES OF FUNDING:
-------------------
<S> <C>
Equity investments:
Orbital(2)......................... $92
Series A preferred stockholders,
net............................. 55
Advance payments received under
contracts.......................... 41
Net proceeds of the units
offering(4)........................ 145
Net proceeds of the original notes
offering........................... 68
----
Total sources...................... $401
====
</TABLE>
<TABLE>
<CAPTION>
USES OF FUNDING:(1)
-------------------
<S> <C>
OrbView satellites................... $240
RadarSat-2 License(3)................ 30
OrbView ground systems............... 36
Insurance............................ 20
Purchase of pledged securities(5).... 40
Cash and working capital used in and
available for operations(6)........ 35
----
Total uses......................... $401
====
</TABLE>
- ---------------
(1) We have incurred costs of approximately $244 million through March 31, 1999,
$5 million of which represents accrued expenses, for satellites, ground
systems and insurance. Our accumulated deficit as of March 31, 1999 was
approximately $42 million.
(2) Represents both cash and working capital contributions.
(3) Includes the first two payments due under the RadarSat-2 License. Our cost
for the RadarSat-2 License is $60 million, which we will pay in installments
through 2002.
(4) In February 1998, we completed a units offering under which we sold 150,000
units, each consisting of $1,000 principal amount of 11 5/8% senior notes
due 2005 (the "1998 notes") and one warrant to purchase 8.75164 shares of
common stock at an exercise price of $0.01 per share.
(5) Includes approximately $33 million of pledged securities purchased in
connection with the units offering.
(6) Approximately $10 million was available for operations as of March 31, 1999,
pro forma for the offering of the original notes and net of remaining costs
through September 30, 2000 for the OrbView satellites, the RadarSat-2
License, the OrbView ground systems and insurance.
We believe that the net proceeds of the original notes offering, together
with available cash and expected net cash from advance payments from customers
and operations, will be sufficient to fund our operations through at least the
fourth quarter of 2000, when we expect OrbView-3 and OrbView-4 to be
operational. We may need additional funding in the event of a satellite launch
delay or failure, cost overruns or any shortfall in estimated levels of
operating cash flow, or to meet unanticipated expenses.
3
<PAGE> 8
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
SECURITIES TO BE
EXCHANGED.................. $75.0 million in aggregate principal amount of
11 5/8% Senior Notes due 2005, Series D.
THE EXCHANGE OFFER......... We are offering to exchange up to $75.0 million in
aggregate principal amount of the exchange notes
for a like principal amount of the original notes.
The exchange notes may be exchanged only in
multiples of $1,000 principal amount. We will issue
the exchange notes on or promptly after the
expiration date.
Based on interpretations by the staff of the
Commission as articulated in no-action letters
issued to third parties, we believe that you may
offer for resale, resell or otherwise transfer the
exchange notes issued in the exchange offer in
exchange for the original notes without complying
with the registration and prospectus delivery
requirements of the Securities Act, unless you are:
- an "affiliate" of ORBIMAGE within the
meaning of Rule 405 under the Securities
Act;
- a broker-dealer who acquired the original
notes directly from ORBIMAGE; or
- a broker-dealer who acquired the original
notes as a result of market making or other
trading activities;
provided that you acquired the exchange notes in
the ordinary course of your business and you are
not engaged in, do not intend to engage in, and
have no arrangement or understanding with any
person to participate in the distribution of
exchange notes.
Each broker-dealer that receives the exchange notes
for its own account in the exchange offer must
acknowledge that it will deliver a prospectus in
connection with any resale of exchange notes. The
letter of transmittal states that by so
acknowledging and by delivering a prospectus, a
participating broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This prospectus may
be used by a participating broker-dealer in
connection with resales of exchange notes received
in exchange for original notes where the original
notes were acquired by the participating
broker-dealer as a result of market-making
activities or other trading activities, other than
a resale of an unsold allotment from the original
sale of original notes. We have agreed that, for a
period of 180 days after the exchange offer
registration statement is declared effective, we
will make this prospectus available to any
participating broker-dealer for use in connection
with any resale.
If you tender original notes in the exchange offer
and you intend to participate in a distribution of
the exchange notes you must not rely on the
position of the staff of the Commission stated in
no-action letters and, in the absence of an
exemption, you must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with any resale
transaction. If you fail to comply with these
requirements, you may be subject to liability under
the Securities Act for which we will not indemnify
you. See "Plan of Distribution."
To comply with the securities laws of some
jurisdictions, we may be required to qualify for
sale or register the exchange notes before offering
4
<PAGE> 9
or selling the notes. If you do not exchange your
original notes for the exchange notes in the
exchange offer, your original notes will continue
to have transfer restrictions. In general, original
notes may not be offered or sold unless registered
under the Securities Act, or unless exempt or
excepted from the registration requirements of the
Securities Act and applicable state securities
laws.
EXPIRATION DATE............ The exchange offer will expire at 5:00 p.m., New
York City time, on July 27, 1999, unless extended.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
ORIGINAL NOTES........... Each exchange note will bear interest from the most
recent date on which interest has been paid on the
original note surrendered in exchange for the
exchange note or, if no interest has been paid,
from April 22, 1999. Interest on the exchange notes
is payable semi-annually on each March 1 and
September 1, beginning on September 1, 1999. No
additional interest will be paid on the original
notes tendered and accepted for exchange.
CONDITIONS TO THE EXCHANGE
OFFER.................... The exchange offer is subject to customary
conditions, some of which we may waive. The
exchange offer is not conditioned upon any minimum
aggregate principal amount of original notes being
tendered for exchange.
PROCEDURES FOR TENDERING
THE ORIGINAL NOTES......... If you wish to accept the exchange offer, you must
complete, sign and date the letter of transmittal,
or a facsimile of it, following the instructions in
the letter and in this prospectus, and mail or
otherwise deliver the letter of transmittal,
together with the original notes and any other
required documentation, to the exchange agent at
the address listed in this prospectus. By executing
the letter of transmittal, unless you are a
participating broker-dealer, you are representing
to us that, among other things, you acquired the
exchange notes in the exchange offer in the
ordinary course of business, that you do not have
an arrangement or understanding with any person to
participate in the distribution of exchange notes
and that you are not an affiliate of ORBIMAGE as
defined in Rule 405 under the Securities Act. Any
original notes not accepted for exchange for any
reason will be returned without expense to you as
promptly as practicable after the expiration or
termination of the exchange offer.
SHELF REGISTRATION
STATEMENT.................. If (a) the exchange offer is not available to any
holder or may not be consummated because it would
violate applicable securities laws or because the
applicable interpretations of the staff of the
Commission would not permit us to conduct the
exchange offer, or (b) in specific circumstances
the holder notifies ORBIMAGE that it is unable to
participate in the exchange offer or is unable to
use this prospectus, we will cause to be filed with
the Commission a shelf registration statement no
later than 45 days after our obligation arises. We
will use our best efforts to cause the shelf
registration statement to be declared effective on
or before the 150th day after the date we became
obligated to file the shelf registration statement.
We have agreed to maintain the effectiveness of the
shelf registration statement, under specific
circumstances, for
5
<PAGE> 10
a maximum of two years following the date of the
completion of the original notes offering.
WITHDRAWAL RIGHTS.......... Holders may withdraw tenders of original notes at
any time before the expiration date. For a
withdrawal to be effective, the exchange agent must
receive a written or facsimile notice of
withdrawal. The notice must: (a) specify the name
of the person that tendered the original notes to
be withdrawn; (b) identify the original notes to be
withdrawn (including the serial number or numbers
and principal amount of original notes to be
withdrawn); (c) be signed by the holder in the same
manner as the original signature on the letter of
transmittal by which the original notes were
tendered; and (d) specify the name in which the
original notes are to be registered, if different
from that of the withdrawing holder.
CONSEQUENCES OF FAILURE TO
EXCHANGE................. Holders of original notes who were eligible to
participate in the exchange offer but who do not
tender their original notes for exchange will
continue to be subject to existing restrictions on
transfer. In general, the original notes that are
not exchanged in the exchange offer may not be
offered or sold under the Securities Act without an
exemption from registration and in compliance with
applicable state securities laws. If we complete
the exchange offer, the interest rate on original
notes that have not been exchanged will remain as
stated on the original notes and holders of
original notes will have no further rights under
the registration rights agreement.
FEDERAL INCOME TAX
CONSIDERATIONS........... We believe that because the exchange notes will not
be considered to differ materially from the
original notes, the exchange of the original notes
for exchange notes will not result in any material
federal income tax consequences to holders
exchanging the original notes for the exchange
notes. See "United States Federal Income Tax
Consequences."
REGISTRATION RIGHTS
AGREEMENT.................. Under a registration rights agreement among
ORBIMAGE and the initial purchasers of the original
notes, we have agreed (a) to file a registration
statement offering to exchange the original notes
for a like principal amount of exchange notes and
(b) to use our reasonable best efforts to cause the
registration statement to become effective under
the Securities Act. This exchange offer is intended
to satisfy the rights of holders of original notes
under the registration rights agreement, which
rights terminate upon completion of the exchange
offer. The holders of the exchange notes are not
entitled to any exchange or registration rights.
EXCHANGE AGENT............. HSBC Bank USA is the exchange agent. The address
and telephone number of the exchange agent are
listed on the back cover page of this prospectus.
USE OF PROCEEDS............ We will receive no cash proceeds from this exchange
offer.
6
<PAGE> 11
SUMMARY OF THE TERMS OF THE EXCHANGE NOTES
ISSUER..................... Orbital Imaging Corporation
SECURITIES OFFERED......... $75.0 million aggregate principal amount of 11 5/8%
Senior Notes due 2005, Series D.
MATURITY................... March 1, 2005
INTEREST PAYMENT DATES..... Interest on the exchange notes will accrue at the
rate of 11 5/8% per year, payable semi-annually in
arrears on March 1 and September 1 of each year,
beginning on September 1, 1999.
RANKING.................... The exchange notes will be senior obligations, will
rank equally in right of payment with all of our
existing and future senior indebtedness, and will
rank senior in right of payment to any existing or
future subordinated indebtedness that we may incur.
As of March 31, 1999, after giving pro forma effect
to the original notes offering and the application
of the net proceeds from that offering, the total
amount of our senior indebtedness would have been
approximately $212.6 million net of debt discount.
ASSETS PLEDGED TO SECURE
FIRST TWO INTEREST PAYMENTS
ON THE EXCHANGE NOTES.... To secure the notes, we have used approximately
$7.4 million of net proceeds from the original
notes offering to purchase pledged securities,
representing funds sufficient to provide for
payment in full of the first two scheduled interest
payments on the notes.
OPTIONAL REDEMPTION........ We may redeem some or all of the notes at any time
on or after March 1, 2002, at the redemption prices
listed in this prospectus.
PUBLIC EQUITY OFFERING
OPTIONAL REDEMPTION...... Before March 1, 2001, we may redeem outstanding
notes at 111.625% of their principal amount plus
accrued interest, with the proceeds of public
equity offerings, if at least 65% of the aggregate
principal amount of the notes originally issued
remains outstanding after the redemption.
CHANGE OF CONTROL.......... Upon specific kinds of change of control events,
each holder of notes may require us to repurchase
all or a portion of its notes at a price equal to
101% of their principal amount, plus accrued
interest.
RESTRICTIVE INDENTURE
PROVISIONS............... The indenture governing the notes limits our
ability, and the ability of any of our future
restricted subsidiaries, to:
- borrow money;
- pay dividends on stock or purchase stock;
- make investments;
- make specific kinds of restricted payments;
- create specific kinds of liens;
- engage in transactions with affiliates;
- sell assets;
- issue or sell securities of subsidiaries;
and
- merge, consolidate or transfer all or
substantially all of our assets.
7
<PAGE> 12
For more details, see "Description of the Exchange
Notes -- Restrictive Covenants."
RISK FACTORS............... See "Risk Factors" for a discussion of factors you
should consider carefully in evaluating an exchange
of original notes for exchange notes.
For additional information concerning the exchange notes and the
definitions of technical terms used above, see "Description of the Exchange
Notes."
8
<PAGE> 13
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ -- $ 4,567 $ 1,055 $ 2,062 $ 11,663 $ 2,417 $ 3,316
Direct expenses............. 800 7,998 4,320 6,312 15,215 4,189 4,025
Selling, general and
administrative expenses... 3,156 2,371 1,630 2,845 7,124 987 1,893
------- ------- ------- ------- -------- ------- -------
Loss from operations........ $(3,956) $(5,802) $(4,895) $(7,095) $(10,676) $(2,759) $(2,602)
======= ======= ======= ======= ======== ======= =======
OTHER DATA:
Capital expenditures........ $13,832 $18,989 $12,617 $49,029 $108,541 $17,436 $22,875
EBITDA(1)................... (3,157) 1,975 (914) (1,554) 2,448 704 534
Deficiency of earnings
(losses) to fixed
charges................... (3,956) (5,802) (4,895) (5,834) (19,763) -- (6,316)
Pro forma deficiency of
earnings (losses) to fixed
charges(2)................ -- -- -- -- (29,448) -- (8,750)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and available-for-sale securities.... $ 36,572 $ 97,252
Pledged securities.......................................... 16,798 24,198
Total assets................................................ 296,706 367,536
Long-term obligations(4).................................... 141,814 212,724
Preferred stock subject to repurchase....................... 67,017 67,017
Total stockholders' equity.................................. 45,480 45,480
</TABLE>
- ---------------
(1) EBITDA consists of earnings (losses) before interest, income taxes,
depreciation, amortization and other non-cash charges. EBITDA data is
presented because this data is used by investors to determine our ability to
incur debt and to meet our debt service requirements. We consider EBITDA to
be a useful measure of our operating performance, because EBITDA can be used
to measure our ability to service debt, fund capital expenditures and expand
our business. However, this 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
governing the notes. See "Description of the Exchange Notes -- Certain
Definitions -- Consolidated Cash Flow." Adjusted EBITDA, which includes
deferred revenue payments and does not include amortization of deferred
revenues, is approximately $3,111,000, $75,000, ($739,000), $451,000,
($2,724,000), $1,646,000 (unaudited) and ($1,686,000) (unaudited) for the
years ended December 31, 1994, 1995, 1996, 1997 and 1998 and the three
months ended March 31, 1998 and 1999, respectively.
(2) Pro forma deficiency of earnings (losses) to fixed charges is calculated
based upon the annual interest rate on the notes plus the amortization of
deferred financing fees and the debt discount as of the beginning of the
period.
(3) Gives effect to the sale of the original notes at a price to investors of
94.4% and the application of the net proceeds from the sale as described
under "Use of Proceeds." See "Use of Proceeds" and "Capitalization."
(4) Net of the debt discount of approximately $8.2 million (unaudited), and
$12.4 million (unaudited), as adjusted.
9
<PAGE> 14
RISK FACTORS
You should carefully consider the following factors as well as the other
information in this prospectus before deciding whether to participate in the
exchange offer.
THE SIGNIFICANT AMOUNT OF OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL
HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We currently have a significant amount of indebtedness and, therefore, are
highly leveraged. The original notes offering increased the amount of our
indebtedness and resulted in even greater leverage. The following chart shows
some important "pro forma" credit statistics, assuming we completed the original
notes offering as of March 31, 1999 and applied the proceeds as intended:
<TABLE>
<CAPTION>
PRO FORMA AT
MARCH 31, 1999
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Total indebtedness....................................... $212,724
Stockholders' equity..................................... $ 45,480
Debt to equity ratio..................................... 4.68x
</TABLE>
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31, 1999
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Pro forma deficiency of earnings (losses) to fixed
charges................................................ $(8,750)
</TABLE>
Our substantial leverage could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations to you as
holders of the notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future working capital, capital expenditures,
acquisitions and other general corporate requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to repaying indebtedness, thereby reducing the availability of
our cash flow to fund working capital, capital expenditures, acquisitions
and other general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the remote imaging industry; and
- limit our ability to borrow additional funds.
The indenture governing the notes and the indenture governing the $150.0
million aggregate principal amount of 11 5/8% Senior Notes due 2005, Series A,
which we will call the 1998 notes, permit us to incur additional indebtedness
under some specific circumstances. We may incur additional indebtedness in the
future in one or more fixed asset financings or under other facilities, to the
extent that the indentures permit us to do so. Any additional borrowings would
further increase the amount of our leverage and the associated risks.
COVENANTS IN THE INDENTURES RESTRICT OUR FINANCIAL FLEXIBILITY.
The indentures contain restrictive covenants. These covenants limit our
ability to:
- borrow money;
- make specific kinds of restricted payments;
- pay dividends on stock or purchase stock;
- make investments;
10
<PAGE> 15
- transact business with our affiliates;
- create liens on our assets;
- issue or sell capital stock of our subsidiaries; and
- merge, consolidate or transfer all or substantially all of our assets.
Our failure to comply with these covenants could result in an event of
default under the indentures which, if not cured or waived, would have a
material adverse effect on our business. See "Description of the Exchange
Notes."
WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH TO SERVICE OUR INDEBTEDNESS. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on our indebtedness, including the notes, and
to fund planned capital expenditures, development and initial operating costs
will depend on our ability to generate cash in the future through sales of our
imagery products and services. Our ability to generate cash is dependent on the
successful deployment of our high-resolution satellites, implementation of our
marketing and distribution strategy and, to some extent, on general economic,
financial, competitive, legislative, regulatory and other factors beyond our
control.
We believe that the net proceeds of the original notes offering, together
with cash on hand, expected cash flows from operations and advance payments from
customers, will be sufficient to fund our capital expenditures and operations
through the fourth quarter of 2000, at which time we expect OrbView-3 and
OrbView-4 to be operational. We cannot assure you that these funds will be
sufficient to service our indebtedness, including the notes, or to fund our
other liquidity needs. We may need to refinance all or a portion of our
indebtedness, including the notes, on or before maturity, but we may not be able
to do so on commercially reasonable terms, or at all. Without sufficient funds
to service our indebtedness, we would have serious liquidity constraints and
would need to seek additional financing from other sources, but we may not be
able to do so on commercially reasonable terms, or at all.
GIVEN OUR LIMITED OPERATING HISTORY AND NET LOSSES, THE NOTES ARE A HIGHLY
SPECULATIVE INVESTMENT.
Limited operating and financial data. We did not begin commercial service
until 1995, when we launched OrbView-1. We have a history of net losses from
operations and have generated only limited revenues from the operations of
OrbView-1 and OrbView-2 and our image processing business. Accordingly, you have
limited operating and financial data on which to evaluate our performance when
deciding whether to participate in the exchange offer.
Our business plan depends upon:
- the timely construction and deployment of OrbView-3, OrbView-4 and
RadarSat-2 and development of the related ground systems; and
- our ability to develop a customer base and distribution channels for our
imagery products and services.
Given ORBIMAGE's limited operating history, and in light of the risks,
expenses, difficulties and delays encountered in a high technology, highly
regulated industry, we cannot assure you that OrbView-3, OrbView-4 or RadarSat-2
will be constructed and deployed as scheduled or that we will be able to develop
a sufficiently large revenue-generating customer base to compete successfully in
the remote imaging industry.
Expectation of continued losses. Our business strategy requires
significant capital expenditures. We will incur a substantial portion of these
expenditures before we generate significant revenues. Combined with our
operating expenses, these capital expenditures will cause negative cash flow
until we establish an adequate revenue-generating customer base. We had an
accumulated deficit of approximately $42.5 million through March 31, 1999. We do
not expect to generate net positive cash flow from operations sufficient to fund
both operations and capital expenditures until both OrbView-3 and OrbView-4 are
operational, currently expected to be in the fourth quarter of 2000. We cannot
assure you that the OrbView satellites will become operational
11
<PAGE> 16
on this timetable, or at all, or that we will 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."
OUR INABILITY TO FUND POTENTIAL ADDITIONAL CAPITAL REQUIREMENTS COULD DELAY
SATELLITE CONSTRUCTION AND DEPLOYMENT.
We believe that the net proceeds of the original notes offering, together
with cash on hand, expected cash flows from operations and advance payments from
customers will be sufficient to fund our operations through the fourth quarter
of 2000. We cannot assure you that we will generate sufficient cash from
operations to pay for our anticipated capital expenditures, or that these
expenditures will fall within our estimates. If we do not generate sufficient
cash flow by the fourth quarter of 2000, or if our capital expenditures exceed
our estimates, we would need additional capital.
A significant portion of our capital requirements are related to
developing, constructing and launching the OrbView satellites, constructing and
activating the related U.S. ground systems and acquiring the RadarSat-2 License.
While most of these costs are currently fixed under agreements with Orbital, we
cannot assure you that these costs will not increase over time. For example, in
December 1998, we modified the existing contract, which resulted in a $17
million increase in the price of our procurement agreement with Orbital. We will
pay for launch and on-orbit insurance and technological assistance for OrbView-3
and OrbView-4 on a cost-plus or cost-reimbursable basis. Many factors outside
our control influence the costs of these and other items and services, and we
may need to raise more capital if any of these costs increase materially.
We may also need to raise additional capital if, for example:
- significant delays occur in deploying OrbView-3, OrbView-4 or RadarSat-2;
- we do not enter into agreements with customers, value-added resellers or
distributors for high-resolution imagery in the time frames or on the
terms that we anticipate;
- our estimated net operating deficit increases because we incur
significant unanticipated expenses, such as costs for resolving satellite
operational difficulties;
- we have to modify all or part of OrbView-3 and OrbView-4 or ground system
designs to meet changed or unanticipated market, regulatory or technical
requirements; or
- we decide to further expand our fleet of satellites or to acquire
additional imagery distribution rights through licensing arrangements or
otherwise.
If these or other events occur, we cannot assure you that we could raise
additional capital 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 and the RadarSat-2 satellite.
DELAYS IN THE COMMERCIAL OPERATION OF OUR SATELLITES COULD ADVERSELY AFFECT OUR
BUSINESS.
We could experience delays in the commercial operation of OrbView-3,
OrbView-4 and/or RadarSat-2 from a variety of causes, including:
- delays in designing, constructing, integrating or testing the satellites,
satellite components and related ground systems;
- delayed or unsuccessful launches;
- subcontractor or manufacturer delays;
- delays in receiving the licenses necessary to construct and operate the
satellite systems;
- delays under our procurement agreement with Orbital for the procurement
and launch of OrbView-3 and OrbView-4, or delays under the contract
between the Canadian Space Agency, or "CSA" and
12
<PAGE> 17
MDA, Orbital's wholly-owned Canadian subsidiary, for the procurement of
RadarSat-2, including delays by CSA in procuring a launch vehicle on a timely
basis for RadarSat-2; or
- other events beyond our control.
The perceived and actual timing of satellite launches may affect
competition in the remote imaging industry. We previously encountered
significant delays in the design, production and testing of the OrbView-2
satellite that was launched in August 1997. We have also experienced slight
delays in the production schedule of OrbView-3 and OrbView-4. Significant delays
in the deployment of OrbView-3, OrbView-4 or RadarSat-2 could increase
pre-launch operating costs, delay revenues, result in revocation of our FCC
licenses and negatively affect our marketing efforts. The perception of
potential delays also could affect our marketing efforts. We cannot assure you
that any of these satellites will be launched or deployed on a timely basis.
A LAUNCH VEHICLE FAILURE WOULD ADVERSELY AFFECT OUR ABILITY TO DELIVER IMAGERY
PRODUCTS AND SERVICES.
There are significant risks associated with satellite launches, 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. We have contracted with Orbital to launch
OrbView-3 on a Pegasus launch vehicle, which has flown 27 missions and has a
success rate of approximately 90%. However, there are several additional Pegasus
launches planned before OrbView-3's scheduled launch, and the failure of any one
of those launch vehicles could result in delayed deployment of OrbView-3. The
Pegasus is launched from beneath Orbital's modified Lockheed L-1011 aircraft. If
Orbital's L-1011 aircraft is unavailable, we could experience significant
delays. Orbital would have to acquire and modify a new carrier aircraft or we
would have to arrange to deploy OrbView-3 using an alternative launch vehicle.
We cannot assure you that Orbital could obtain another aircraft and properly
modify the aircraft or that we could obtain alternate launch services on a
timely basis, or at all. We have contracted with Orbital to launch OrbView-4 on
its Taurus launch vehicle, which has flown three missions to date, all of which
were successful. We expect CSA to provide a launch vehicle for RadarSat-2, which
has not yet been identified. We cannot assure you that OrbView-3, OrbView-4 or
RadarSat-2 will be successfully launched. A launch failure of OrbView-3,
OrbView-4 or RadarSat-2 or the failure of CSA to provide a launch vehicle for
RadarSat-2 could negatively affect our business, financial condition, results of
operations, our ability to deliver our products and services and our ability to
service our debt.
WE CANNOT ASSURE YOU THAT THE MARKET WILL ACCEPT OUR PRODUCTS AND SERVICES.
Our success depends on existing markets accepting our imagery products and
services and our ability to develop new markets. Our business plan is based on
the assumption that we will generate significant future revenues from sales of
high-resolution imagery produced by OrbView-3, OrbView-4 and RadarSat-2 to
existing markets and new markets. High-resolution satellite imagery is not yet
commercially available. Consequently, it is difficult to predict accurately the
ultimate size of the market and the market acceptance of products and services
based on this type of imagery.
Our strategy to target specific markets for our satellite imagery relies on
a number of assumptions, some or all of which may be incorrect. Our description
of potential markets for our products and services and estimates of the
addressable markets that we discuss in this prospectus represent our view as of
the date of this prospectus. Actual markets could vary materially from these
markets.
We cannot accurately predict whether our products and services will achieve
market acceptance or whether the market will demand our products and services on
terms we find acceptable. Market acceptance depends on a number of factors,
including the spatial and spectral quality, scope, timeliness, sophistication
and price of our imagery products and services and the availability of
substitute products and services. Lack of significant market acceptance of our
products and services, particularly our high-resolution imagery products and
services, delays in acceptance, or failure of some of our target markets to
develop would negatively affect our business, financial condition and results of
operations and our ability to service our debt.
13
<PAGE> 18
WE CANNOT ASSURE YOU THAT OUR SATELLITES WILL OPERATE AS DESIGNED.
The designs for OrbView-3 and OrbView-4 are complete, and the design for
RadarSat-2 is in progress. These satellites' designs may require modifications
to achieve the desired performance criteria, which could result in delays in
satellite deployment. Each of these satellites will employ advanced technologies
and sensors that will encounter severe environmental stresses during launch or
in space that could affect the satellites' performance. Employing advanced
technologies is further complicated by the fact that the satellites will be in
space. Hardware component problems in space could require premature satellite
replacement, with attendant costs and revenue losses. In addition, human
operators may execute improper implementation commands that negatively affect a
satellite's performance.
We cannot assure you that OrbView-3, OrbView-4 or RadarSat-2 will operate
successfully in space, or that each of these satellites will perform or continue
operating throughout their expected design lives. Even if these satellites are
launched and operated properly, minor technical flaws in the satellites' sensors
could significantly degrade their performance, which could materially affect our
ability to market our products successfully.
We have not arranged for a spare high-resolution OrbView satellite, nor do
we maintain an inventory of long lead-time parts. If either OrbView-3 or
OrbView-4 were to fail prematurely, we could experience significant delays while
obtaining the necessary spares or replacement parts to replace or repair the
satellite. These delays would negatively affect our business, results of
operations and financial condition. In addition, we would be required to
allocate additional capital expenditures earlier than expected to replace a
satellite. We cannot assure you that we would have on hand, or be able to obtain
in a timely manner, the necessary funds to cover accelerated replacement and
repair costs of a satellite if it fails prematurely.
We do not presently have plans to construct and launch a replacement
satellite for OrbView-2 if it fails prematurely. Similarly, there is no
provision for a replacement RadarSat-2 satellite if it fails prematurely.
Permanent loss of OrbView-2 or RadarSat-2 could adversely affect our operations
and financial condition.
SATELLITES HAVE LIMITED DESIGN LIVES AND ARE EXPENSIVE TO REPLACE.
Satellites have limited useful lives. We determine a satellite's useful
life, or its design life, using a complex calculation involving the
probabilities of failure of the satellite's components from design or
manufacturing defects, environmental stresses or other causes. The design lives
of our satellites are as follows:
<TABLE>
<CAPTION>
SATELLITE EXPECTED DESIGN LIFE
--------- --------------------
<S> <C>
OrbView-1 3 years from April 1995, although it
continues to operate into its fifth
year
OrbView-2 7 1/2 years from August 1997
OrbView-3 5 years
OrbView-4 5 years
RadarSat-2 7 years
</TABLE>
The expected design lives of these satellites are affected by a number of
factors, including the quality of construction, the expected gradual
environmental degradation of solar panels, the durability of various satellite
components and the orbits in which the satellites are placed. Random failure of
satellite components could cause damage to or loss of a satellite before the end
of its design life. In rare cases, electrostatic storms or collisions with other
objects could damage our satellites. We cannot assure you that each satellite
will remain in operation for its expected design life. We expect the performance
of each satellite to decline gradually near the end of its design life, although
this has not yet happened with OrbView-1.
We anticipate using funds generated from operations to develop follow-on
high-resolution satellites. If we do not generate sufficient funds from
operations, and if we are unable to obtain financing from outside sources, we
will not be able to deploy follow-on satellites to replace OrbView-3 or
OrbView-4 at the end of their expected design lives. We cannot assure you that
we will be able to raise additional capital, on favorable terms or on a timely
basis, if at all, to develop follow-on high-resolution satellites.
14
<PAGE> 19
LIMITED INSURANCE MAY NOT COVER ALL RISKS OF LOSS.
We maintain or expect to maintain the following insurance policies:
- OrbView-1. OrbView-1 is not insured.
- OrbView-2. We have a renewable on-orbit insurance policy for OrbView-2
to cover losses up to $12 million for its current operational year. We
have not yet determined the amounts and types of coverage, if any, we
will purchase for OrbView-2 in the future.
- OrbView-3 and OrbView-4. The indentures require us to maintain launch,
on-orbit checkout and on-orbit operations insurance for OrbView-3 and
OrbView-4. This insurance may not be sufficient to cover the cost of a
replacement high-resolution satellite.
- RadarSat-2. We will purchase up to $60 million of insurance coverage for
the RadarSat-2 License against launch or on-orbit failure of the
RadarSat-2 satellite. This insurance would allow us to recover our
initial capital investment in the RadarSat-2 License, but would not be
sufficient to cover additional business losses or the cost of a
replacement radar satellite.
We may find it difficult to insure some risks, including partial functional
degradation of a satellite. Insurance market conditions or factors outside our
control at the time we buy the required insurance, including 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 we can obtain or may
prevent us from obtaining insurance at all. Furthermore, we cannot assure you
that proceeds from insurance we are able to purchase will be sufficient to
replace a satellite due to cost increases and other factors beyond our control.
WE MAY BE UNABLE TO REPAY THE NOTES IF WE DO NOT SUCCESSFULLY COMPETE IN THE
REMOTE IMAGING INDUSTRY.
Our 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. Some of these entities may have greater financial,
personnel and other resources than we have. Our major potential competitors for
high-resolution satellite imagery include:
- Space Imaging EOSAT, which had an unsuccessful launch of its first
one-meter high-resolution satellite in April 1999 and has announced plans
to launch a replacement one-meter high-resolution satellite in mid-1999;
- EarthWatch, which had one unsuccessful satellite launch in 1997 and has
announced plans to launch a one-meter high-resolution satellite in late
1999; and
- West Indian Space, Ltd., which has announced plans to launch and operate
the Earth Remote Observation System ("EROS") constellation of
high-resolution commercial imaging satellites and whose 1998 satellite
launch was unsuccessful.
The U.S. government and foreign governments also may develop, construct,
launch and operate remote imaging satellites that generate imagery competitive
with our products and services. In addition, the U.S. government will probably
continue to rely on government-owned and operated systems for some of its highly
classified satellite-based high-resolution imagery.
We believe we will have a competitive advantage because we expect to have
sufficient pricing flexibility to be a low-price commercial provider within our
targeted markets and applications due to the relatively lower cost of our
satellite systems as compared to those of our competitors. But the low marginal
cost of producing satellite imagery once a satellite is operating could cause
adverse pricing pressure, decreased profits or even losses. Our competitors or
potential competitors with greater resources than ours could in the future offer
satellite-based imagery or other products having more attractive features than
our products. New technologies, even if not ultimately successful, could
negatively affect our marketing efforts. More importantly, if
15
<PAGE> 20
competitors develop and launch satellites with more advanced capabilities and
technologies than ours, this competition could harm our business and our ability
to repay the notes. See "Business -- Competition."
DEPENDENCE ON ONE SUPPLIER COULD RESULT IN DELAYS IF THE SUPPLIER FAILS TO
PERFORM, AND OUR RECOURSE AGAINST THE SUPPLIER IS LIMITED.
We depend on one supplier, Orbital:
- to design, develop and launch OrbView-3 and OrbView-4 and to construct
the ground system for these satellites;
- to design, develop and construct the RadarSat-2 satellite and the related
ground system; and
- through its wholly-owned subsidiary MDA, to operate RadarSat-2, and to
receive, process and archive RadarSat-2 imagery.
We also rely on the OrbView-2 License from Orbital to market the OrbView-2
imagery, because Orbital, rather than ORBIMAGE, owns the OrbView-2 satellite.
Similarly, we will rely on the RadarSat-2 License from Orbital's wholly-owned
subsidiary, MDA, to market the RadarSat-2 imagery. We expect to continue to rely
on third parties, including Orbital and MDA, to design, construct or launch
satellites for us and to modify the existing ground systems to accommodate these
satellites. Orbital's obligations to provide design, construction and launch
services for the OrbView satellites are governed by a procurement agreement
between us and Orbital. If Orbital fails to perform its obligations adequately
under the procurement agreement, we would be forced to delay deployment of
OrbView-3 and/or OrbView-4 until we located an alternate provider. Orbital's
liability to us for claims under the procurement agreement is limited to $10
million. We also rely on Orbital and MDA to design and construct the RadarSat-2
satellite. Neither Orbital nor MDA is liable to us for any costs or other
damages arising from schedule delays in the operation of the high-resolution
OrbView satellites or RadarSat-2.
Under a services agreement with Orbital, Orbital has agreed to provide us
with 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 OrbView-2, OrbView-3 and OrbView-4. If Orbital fails to
perform its obligations under the services agreement, we may not be able to
operate these satellites properly. The services agreement terminates for each
OrbView satellite three years after the launch of each satellite. We cannot
assure you that we will be able to renew the services agreement on favorable
terms, or 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. We have not identified any alternate providers. In any
case, we can provide no assurance that an alternate provider would be available
or, if available, would be available on terms favorable to us or to Orbital.
DEPENDENCE ON A SINGLE DISTRIBUTOR FOR RADARSAT-2 IMAGERY COULD RESULT IN
MARKETING AND DISTRIBUTION DELAYS IF THE DISTRIBUTOR FAILS TO PERFORM.
As of December 31, 1998, we acquired the RadarSat-2 License from MDA and
granted MDA an exclusive unrestricted worldwide license, including the right to
sublicense with our prior consent, to market and sell RadarSat-2 imagery. MDA
will perform all RadarSat-2 marketing operations, under our supervision and only
with our approval. MDA's failure to market RadarSat-2 imagery successfully would
have a material adverse effect on our ability to distribute and sell
satellite-based radar imagery, which would materially adversely affect our
business.
WE RELY ON ORBITAL FOR CERTAIN OPERATIONS AND SERVICES THAT ARE CRITICAL TO OUR
BUSINESS. ORBITAL'S INTERESTS MAY CONFLICT WITH OURS.
Orbital owns approximately 54% of our outstanding voting stock on a fully
diluted basis. Some of our executive officers and directors are also employees
or directors of Orbital. These relationships may produce conflicts on matters
involving both ORBIMAGE and Orbital. Although we have adopted policies we
believe
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<PAGE> 21
will prevent a conflict from arising, these policies cannot ensure that a
conflict will not arise. See "Relationship with Orbital -- Policies and
Procedures for Addressing Conflicts."
We have several agreements with Orbital, including a procurement agreement
relating to OrbView-1, OrbView-3, OrbView-4 and the related ground system, the
OrbView-2 License, the RadarSat-2 License, a services agreement and a
non-compete agreement, each of which is material to our business. Orbital's
interests as an equity holder in our business may at times conflict with our
interests under these agreements, and may conflict with your interests as a
holder of our notes. Our recourse against Orbital is limited if Orbital breaches
the procurement agreement or the RadarSat-2 License.
Orbital provides products and services to our direct competitors. Under our
non-compete agreement with Orbital, which terminates on the earlier of June 30,
2003, the first anniversary of an initial public offering of our common stock or
the occurrence of other events described in the agreement, Orbital cannot sell
turn-key satellite optical imaging systems, comprising the satellite, sensors,
launch vehicles and ground system, to anyone other than ORBIMAGE. Orbital can,
however, sell radar systems and components of optical systems to our current or
future customers or competitors. For example, MDA has a contract to provide
ground system work to EarthWatch relating to its planned one-meter satellite
system. As a result of an acquisition, Orbital holds approximately a 4% equity
interest in EarthWatch. We expect to compete directly with EarthWatch. RadarSat
International, Inc., or "RSI," a company that markets imagery from the
RadarSat-1 satellite, is a wholly-owned subsidiary of MDA. Although RadarSat-2
uses more advanced imaging technology than the technology employed by
RadarSat-1, these two satellites have some overlapping capabilities, making RSI
a potential competitor.
FAILURE TO OBTAIN REGULATORY APPROVALS COULD RESULT IN SERVICE INTERRUPTIONS.
Domestic. Our business generally requires licenses from the U.S.
Department of Commerce ("DoC") and the U.S. Federal Communications Commission
("FCC"). Our operation of OrbView-1 does not require these licenses because the
only customer for OrbView-1 imagery is the U.S. government. Our DoC licenses to
operate OrbView-2, OrbView-3 and OrbView-4 expire in 2004. We cannot assure you
that the DoC will renew our licenses. If the DoC does not renew these licenses,
our business would be materially adversely affected.
The DoC license for OrbView-4 hyperspectral imagery restricts the
resolution for OrbView-4 hyperspectral imagery sold commercially and restricts
our ability to process and distribute hyperspectral imagery outside the United
States. These resolution restrictions and other limitations may affect our
ability to market and sell hyperspectral imagery, and accordingly could have an
adverse effect on our financial condition and results of operations. ORBIMAGE
has appealed for a relaxation of the terms of the OrbView-4 hyperspectral
license. We cannot assure you that we will prevail in our appeal.
While we do not believe that we require a DoC license to function as a
RadarSat-2 distributor, and Orbital has informed us that it does not believe a
DoC license will be required for MDA's operation of RadarSat-2, the DoC may
impose a licensing requirement for RadarSat-2 in the future. If the DoC imposed
a license requirement and we could not obtain a license on acceptable terms, our
financial condition and results of operations would be materially adversely
affected.
The DoC licenses provide that the U.S. government can interrupt service
during periods of national emergency. Actual or threatened interruptions could
adversely affect our ability to market our products abroad. In addition, the DoC
has the right to review and approve our agreements with international customers
for high-resolution optical imagery. These reviews could delay or prohibit us
from executing these agreements. Canada does not have licensing requirements
similar to the DoC's requirements. However, the Canadian government can
interrupt RadarSat-2 service during periods of national emergency.
We currently operate OrbView-2 under Orbital's renewal application for an
experimental FCC license. We cannot assure you that the FCC will grant any
future renewals. If the FCC does not renew this license, we would not be able to
operate the OrbView-2 satellite in the United States.
Our application for an FCC license to launch and operate OrbView-3 and
OrbView-4 was granted in February 1999 and our applications to operate the
associated U.S. ground systems were granted in May 1999.
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<PAGE> 22
These licenses will expire in 10 years, but may be revoked for failure to comply
with their terms or failure to meet construction and launch milestones.
International. All satellite systems operating internationally must follow
general international regulations and the specific laws of the countries in
which satellite imagery is downlinked.
The CSA has agreed to coordinate with the International Telecommunications
Union to secure the necessary authorizations to operate the RadarSat-2 satellite
in Canada and the FCC is undertaking the ITU coordination process on behalf of
OrbView-3 and OrbView-4. The CSA's or the FCC's failure to obtain the necessary
coordination in a timely manner could have a material adverse effect on our
business, financial condition and results of operations.
Our customers or distributors are responsible for obtaining local
regulatory approval from the governments in the countries in which they do
business to receive imagery directly from OrbView-2, OrbView-3, OrbView-4 and
RadarSat-2. If these regional distributors are not successful in obtaining the
necessary approvals, we will not be able to distribute real time OrbView or
RadarSat-2 imagery in those regions. Our inability to offer real time service in
a significant number of foreign countries could negatively affect our business.
In addition, regulatory provisions in countries where we wish to operate may
impose unduly burdensome restrictions on our operations. Our business may also
be adversely affected if the national authorities where we plan to operate adopt
treaties, regulations or legislation unfavorable to foreign companies.
Launch license. Commercial U.S. space launches require licenses from the
U.S. Department of Transportation ("DoT"). Under our procurement agreement with
Orbital, Orbital must ensure that the appropriate DoT commercial launch licenses
are in place for the OrbView-3 and OrbView-4 satellite launches. We cannot
assure you 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 our
business, financial condition and results of operations and our ability to
service our debt.
Export License. Under some of our distributor agreements, we expect to
supply our international customers with ground stations that enable these
customers to downlink data directly from the high-resolution OrbView satellites.
Exporting these ground stations may require that we obtain an export license
from the DoC or the U.S. Department of State. Orbital also requires an export
license from the State Department to export components of the RadarSat-2
satellite that Orbital will construct in the U.S. and deliver to MDA in Canada.
If the DoC or the State Department does not issue these export licenses, or if
these licenses are significantly delayed, our financial condition and results of
operations could be materially adversely affected.
FOREIGN DISTRIBUTORS AND VALUE-ADDED RESELLERS MAY NOT EXPAND COMMERCIAL
MARKETS.
We will rely on foreign regional distributors to market and sell
internationally a significant portion of our imagery from OrbView-3, OrbView-4
and RadarSat-2. We expect our existing and future foreign regional distributors
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
our products and services. If we fail to enter into regional distribution
agreements on a timely basis or if our foreign regional distributors fail to
market and sell our imagery products and services successfully, these failures
would negatively impact our business, financial condition and results of
operations, and our ability to service our debt.
We intend to rely on value-added resellers to develop, market and sell our
products and services to address our target markets. If our value-added
resellers fail to develop, market and sell OrbView products and services
successfully, their failure would negatively affect our business, financial
condition and results of operations, and our ability to service our debt.
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<PAGE> 23
OUR INTERNATIONAL BUSINESS EXPOSES US TO RISKS RELATING TO INCREASED REGULATION
AND POLITICAL OR ECONOMIC INSTABILITY IN FOREIGN MARKETS.
We expect to derive substantial revenues from international sales of
products and services. International operations expose us to several risks,
including:
- changes in domestic and foreign governmental regulations and licensing
requirements;
- deterioration of once-friendly relations between the United States and
the foreign entity;
- increases in tariffs and taxes and other trade barriers; 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.
These risks are beyond our control and could have a material adverse effect
on our business.
WE DEPEND ON CONTRACTS WITH GOVERNMENT AGENCIES FOR A SUBSTANTIAL PORTION OF OUR
REVENUES. GOVERNMENT AGENCIES CAN TERMINATE THEIR CONTRACTS AT ANY TIME.
Revenues from government contracts accounted for approximately 76%, 95%,
94% and 86% of our revenues for 1996, 1997, 1998 and for the three months ended
March 31, 1999, respectively. At March 31, 1999, contracts with U.S. government
agencies constituted approximately 45% of our backlog. Government agencies may
terminate or suspend their contracts at any time, with or without cause, or may
change their policies, priorities or funding levels by reducing agency or
program budgets or by imposing budgetary constraints. If a government agency
terminates or suspends any of its contracts with us or Orbital, or changes its
policies, priorities, or funding levels, these actions would have a material
adverse effect on our business, financial condition and results of operations.
Specifically, if the Air Force terminates or suspends its contract with Orbital
and we wish to proceed with our hyperspectral program, we would incur the
remaining cost of upgrading OrbView-4 with hyperspectral capability. Similarly,
if the CSA terminates the CSA contract and we wish to proceed with our own radar
program, we would have to incur the cost of constructing, deploying and
operating our own radar satellite system.
THE HOLDERS OF SERIES A PREFERRED STOCK COULD TAKE CONTROL OF OUR BOARD OF
DIRECTORS UPON CERTAIN EVENTS.
We are a party to a stockholders' agreement with the holders of our Series
A preferred stock. This stockholders' agreement and our charter contain
provisions relating to the election of directors.
Our charter permits the Series A holders to designate additional members to
the board of directors, and thus gain control of the board of directors, if:
- we fail to pay timely dividends or to repurchase the Series A preferred
stock under specific circumstances; or
- Orbital does not start the integration and testing of the OrbView-4
spacecraft by November 15, 1999. We may extend the date by 30 days under
specific circumstances.
If the Series A holders designated these additional directors, the Series A
directors would control our management and policies and could make decisions
affecting the control of ORBIMAGE. These additional directors would serve until
the event giving rise to their appointment has been resolved. Even without the
appointment of these additional directors, the Series A holders have de facto
control over some corporate actions including the merger, consolidation,
liquidation or sale of substantially all of our assets, the issuance of equity
securities under specific circumstances, and the incurrence of indebtedness of
more than $500,000, because these actions require the approval of at least one
of the Series A directors.
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<PAGE> 24
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURES.
Upon the occurrence of specific kinds of change of control events, we will
be required to offer to repurchase all of our outstanding notes at a price equal
to 101% of their principal amount and to offer to repurchase all of the
outstanding Series A preferred stock. It is possible that we will not have
sufficient funds at the time of the change of control to make, the required
repurchases. If we are not able to make the required repurchases, we would be in
default under the indentures. See "Description of the Exchange Notes --
Repurchase at the Option of Holders," and "Certain Relationships and Related
Transactions -- Stock Purchase Agreement."
WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE EXCHANGE
NOTES.
The exchange notes are a new issue of securities with no established
trading market and will not be listed on any national securities exchange or
admit the notes to trading in the Nasdaq National Market. However, we expect the
notes to trade in the Private Offerings, Resales and Trading Through Automated
Linkages Market. The liquidity of the trading market in the exchange notes, and
the market price quoted for the exchange notes may be adversely affected by
changes in the overall market for high yield securities and by changes in our
financial performance or prospects or in the prospects for companies in our
industry generally. As a result, we cannot assure you that an active trading
market will develop for the exchange notes.
YEAR 2000 PROBLEMS COULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS.
We have completed a review of our information technology systems and
embedded systems to assess our exposure to Year 2000 issues. For details of the
review, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- "Year 2000' Compliance." If, despite our assessment,
unforeseen Year 2000 problems arise for us, or if our significant suppliers and
customers, including various agencies of the U.S. government, do not
successfully and timely achieve Year 2000 compliance, we may have to bear Year
2000 costs and expenses that are greater than anticipated, which could have a
material adverse effect on our business.
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<PAGE> 25
USE OF PROCEEDS
We will not receive any cash proceeds from this exchange offer. This
exchange offer is intended to satisfy our obligations under the registration
rights agreement.
We received approximately $68.1 million of the proceeds from the sale of
the original notes at a price to investors of 94.4%, after paying discounts,
commissions and expenses. We used approximately $7.4 million of the net proceeds
to purchase the pledged securities. All remaining proceeds will be applied to
purchase the RadarSat-2 License, to provide working capital and for general
corporate purposes.
Before we apply the net proceeds of the original notes offering as
described above, those proceeds, other than amounts used to purchase the pledged
securities, will be invested in short-term investment-grade securities.
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<PAGE> 26
CAPITALIZATION
The following table states the capitalization of ORBIMAGE as of March 31,
1999 on an actual basis and as adjusted to give effect to the sale of the
original notes at a price to investors of 94.4% and the application of the
estimated net proceeds as described in "Use of Proceeds." You should read this
table together with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements, including the notes to
the financial statements, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and available-for-sale securities.... $ 36,572 $ 97,252
Pledged securities.......................................... 16,798 24,198
-------- --------
Total cash, cash equivalents, available-for-sale
securities and pledged securities..................... $ 53,370 $121,450
======== ========
Long-term obligations:
1998 notes(2).......................................... $141,814 $141,814
Original notes(3)...................................... -- 70,830
Capitalized lease obligation........................... 80 80
-------- --------
Total long-term obligations............................ 141,894 212,724
Preferred stock subject to repurchase, par value $0.01 per
share; 10,000,000 shares authorized; Series A 12%
cumulative convertible, 2,000,000 shares authorized, and
687,576 shares issued and outstanding (liquidation value
of $72,196)(4)............................................ 67,017 67,017
Stockholders' equity:
Common stock, par value $0.01 per share, 75,000,000
shares authorized, and 25,214,000 shares issued and
outstanding(5)........................................ 252 252
Additional paid-in capital............................. 87,699 87,699
Accumulated deficit.................................... (42,471) (42,471)
-------- --------
Total stockholders' equity........................ 45,480 45,480
-------- --------
Total capitalization.............................. $254,391 $325,221
======== ========
</TABLE>
- ---------------
(1) Gives effect to the sale of the original notes at a price to investors of
94.4% and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds."
(2) Net of the debt discount of approximately $8.2 million.
(3) Net of the debt discount, estimated to be $4.2 million.
(4) Dividends are payable semi-annually on May 1 and November 1 in cash or
in-kind, subject to restrictions contained in the indentures. On May 1,
1999, we declared a preferred stock dividend of 41,256 shares payable in
kind.
(5) Excludes 4,800,000 shares of common stock reserved for issuance under
ORBIMAGE's 1996 Stock Option Plan. Options to purchase 2,624,900 shares of
common stock were outstanding under the Stock Option Plan at March 31, 1999
and options to purchase 1,349,893 shares of common stock were exercisable at
March 31, 1999. See "Management -- Stock Option Plan."
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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, 1994, 1995, 1996, 1997 and 1998 have been derived
from the audited financial statements of ORBIMAGE. The following selected
historical financial data of ORBIMAGE as of and for the three months ended March
31, 1998 and 1999 have been derived from the unaudited financial statements,
included elsewhere in this prospectus. You should read the selected historical
financial data below in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and notes to the financial statements, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------ -----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $ -- $ 4,567 $ 1,055 $ 2,062 $ 11,663 $ 2,417 $ 3,316
Direct expenses................................ 800 7,998 4,320 6,312 15,215 4,189 4,025
------- ------- ------- ------- -------- ------- -------
Gross loss..................................... (800) (3,431) (3,265) (4,250) (3,552) (1,772) (709)
Selling, general and administrative expenses... 3,156 2,371 1,630 2,845 7,124 987 1,893
------- ------- ------- ------- -------- ------- -------
Loss from operations........................... (3,956) (5,802) (4,895) (7,095) (10,676) (2,759) (2,602)
Interest income................................ -- -- -- 1,261 1,845 1,043 949
------- ------- ------- ------- -------- ------- -------
Loss before benefit for income taxes........... (3,956) (5,802) (4,895) (5,834) (8,831) (1,716) (1,653)
Benefit for income taxes....................... -- -- -- (1,752) (3,312) (1,716) (620)
------- ------- ------- ------- -------- ------- -------
Net loss....................................... $(3,956) $(5,802) $(4,895) $(4,082) $ (5,519) $ -- $(1,033)
======= ======= ======= ======= ======== ======= =======
OTHER DATA:
Capital expenditures........................... $13,832 $18,989 $12,617 $49,029 $108,541 $17,436 $22,875
EBITDA(1)...................................... (3,157) 1,975 (914) (1,554) 2,448 704 534
Deficiency of earnings (losses) to fixed
charges...................................... (3,956) (5,802) (4,895) (5,834) (19,763) -- (6,316)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1994 1995 1996 1997 1998 MARCH 31, 1999
------- ------- ------- -------- -------- --------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and available-for-sale
securities...................................... $ -- $ -- $ -- $ 22,220 $ 59,483 $ 36,572
Total assets...................................... 51,944 63,423 72,328 137,749 307,969 296,706
Long-term obligations(2).......................... -- -- -- -- 141,728 141,814
Preferred stock subject to repurchase............. -- -- -- 36,355 64,954 67,017
Stockholders' equity.............................. 11,526 19,956 26,279 49,005 48,418 45,480
</TABLE>
- ---------------
(1) EBITDA consists of earnings (losses) before interest, income taxes,
depreciation, amortization and other non-cash charges. EBITDA data is
presented because this data is used by investors to determine our ability to
incur debt and to meet our debt service requirements. We consider EBITDA to
be a useful measure of our operating performance, because EBITDA can be used
to measure our ability to service debt, fund capital expenditures and expand
our business. However, this 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 we define it may not conform to the definition
of Consolidated Cash Flow as defined in the indentures. See "Descriptions of
the Exchange Notes -- Certain Definitions -- Consolidated Cash Flow."
Adjusted EBITDA, which includes deferred revenue payments and does not
include amortization of deferred revenues, is approximately $3,111,000,
$75,000, ($739,000), $451,000, ($2,724,000), $1,646,000 (unaudited) and
($1,686,000) (unaudited) for the years ended December 31, 1994, 1995, 1996,
1997, 1998 and the three months ended March 31, 1998 and 1999, respectively.
(2) Net of the debt discount of approximately $8.4 million (unaudited) and $8.2
million (unaudited) as of December 31, 1998 and March 31, 1999,
respectively.
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<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
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, ORBIMAGE 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, ORBIMAGE acquired at
historical cost all the assets and liabilities of the operating division. Prior
to May 8, 1997, ORBIMAGE was an operating division of Orbital. Orbital now owns
approximately 59% of ORBIMAGE (54% on a fully diluted basis) and has the ability
to exercise significant influence, but not control, over ORBIMAGE's operating
and financial policies. Pursuant to the terms of ORBIMAGE's charter and the
stockholders' agreement, Orbital does not have unilateral control over
ORBIMAGE's assets.
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 the OrbView-2 License. The terms
of the OrbView-2 License require ORBIMAGE to operate and control the OrbView-2
satellite. Under a license agreement with Orbital and MDA, ORBIMAGE has acquired
the RadarSat-2 License and granted MDA exclusive rights to market and sell
RadarSat-2 imagery. MDA will own and operate the RadarSat-2 satellite and
provide operations, data reception, processing, archiving, marketing and
distribution services to ORBIMAGE. See "Certain Relationships and Related
Transactions -- RadarSat-2 License." 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."
ORBIMAGE expects OrbView-3 to be operational in the first quarter of 2000,
OrbView-4 to be operational in the fourth quarter of 2000 and RadarSat-2 to be
operational in early 2002.
Business Acquisition. In 1998, ORBIMAGE acquired substantially all of the
assets of St. Louis-based TRIFID Corporation for $5 million. 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.
Revenues. ORBIMAGE's principal source of revenue is the sale of satellite
imagery to customers, value-added resellers and distributors. ORBIMAGE is
performing under several long-term sales contracts to provide imagery products
and receives contractual payments in advance of product delivery. In these
circumstances, ORBIMAGE initially records deferred revenue for the total amount
of the payment and recognizes revenue over the contractual delivery period. At
March 31, 1999, ORBIMAGE had approximately $30 million of deferred revenue
primarily related to advance payments for OrbView-2 imagery.
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 intends to amortize
the cost of OrbView-3, OrbView-4 and the RadarSat-2 License over the design
lives of the satellites, estimated to be five, five and seven years,
respectively. 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 systems are placed in service.
Interest Expense. A portion of the proceeds of the units offering
representing the estimated debt discount has been accounted for as a discount to
the par value of the notes. Amortization of this discount,
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<PAGE> 29
together with the stated interest on the notes, is capitalized as the historical
costs of assets under construction, when appropriate. ORBIMAGE expects to
capitalize a significant portion of its interest expense through 2001 as it
completes construction of the OrbView-3 and OrbView-4 satellites and makes
payments due under the RadarSat-2 License.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
Revenues. Revenues for the three months ended March 31, 1998 and 1999 were
approximately $2.4 million and $3.3 million, respectively. The increase in 1999
revenues was primarily due to the acquisition of TRIFID. Revenues during the
three months ended March 31, 1999 included $0.6 million in sales generated from
the image processing business acquired from TRIFID in April 1998.
Revenues for the three years ended December 31, 1996, 1997 and 1998 were
approximately $1.1 million, $2.1 million and $11.7 million, respectively. The
increase in 1998 revenues was primarily due to the recognition of deferred
revenue upon the commencement of the OrbView-2 satellite's commercial operations
in November 1997. Revenues during the year ended December 31, 1998 also included
$1.6 million in sales generated from the TRIFID image processing business.
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.
Revenues in 1996 were attributable solely to the sale of OrbView-1 imagery
products to NASA and the University Corporation for Atmospheric Research.
Direct Expenses. Direct expenses include the costs of operating and
depreciating the OrbView-1 satellite, the OrbView-2 License and the related
ground system. Satellite operating costs primarily consist of labor expenses.
Direct expenses for the three months ended March 31, 1998 and 1999 were
approximately $4.2 million and $4.0 million, respectively.
Direct expenses for the three years ended December 31, 1996, 1997 and 1998
were approximately $4.3 million, $6.3 million and $15.2 million, respectively.
Direct expenses increased from 1997 to 1998 primarily as a result of the
OrbView-2 License amortization, additional ground system 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
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.
ORBIMAGE expects direct expenses to increase when OrbView-3, OrbView-4 and
RadarSat-2 are placed in operation.
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 ORBIMAGE. SG&A expenses were
approximately $1.0 million and $1.9 million for the three months ended March 31,
1998 and 1999, respectively.
SG&A expenses were approximately $1.6 million, $2.8 million and $7.1
million for the years ended December 31, 1996, 1997 and 1998, respectively. The
increase in SG&A expenses in 1998 and continuing into 1999 was primarily
attributable to the increase in salaries and related benefits as ORBIMAGE
expanded its operations. 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 ORBIMAGE's staffing levels as ORBIMAGE expanded its
operations. SG&A expenses in 1997 included costs incurred to support the launch
and initial checkout of the OrbView-2 satellite. ORBIMAGE 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 for OrbView-2.
Interest Income and Interest Expense. Interest income reflects interest
earnings on investments made primarily with proceeds from ORBIMAGE's financing
activities. Interest expense reflects interest incurred on the notes, net of
applicable capitalized interest. Interest income for the three months ended
March 31, 1999 was approximately $0.9 million. Interest income was approximately
$1.0 million for the three months ended March 31, 1998, which is net of interest
expense of approximately $2.2 million. For the three months ended
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March 31, 1998 and 1999, capitalized interest in connection with the
construction of the OrbView-3 and OrbView-4 satellites and related ground system
totaled $1.7 million and $4.7 million, respectively.
Net interest income for the year ended December 31, 1998 was approximately
$1.8 million, which is net of interest expense of approximately $4.9 million.
For the year ended December 31, 1998, capitalized interest in connection with
the construction of the OrbView-3 and OrbView-4 satellites and related ground
system totaled $10.9 million. Net interest income was approximately $1.3 million
for the year ended December 31, 1997 and none in 1996. The capitalized interest
is recorded as part of the historical cost of the assets to which it relates and
will be amortized over the assets' useful lives when placed in service.
Benefit for Income Taxes. ORBIMAGE recorded an income tax benefit of
approximately $1.7 million and $0.6 million for the three months ended March 31,
1998 and 1999, respectively. ORBIMAGE recorded an income tax benefit of
approximately $3.3 million for the year ended December 31, 1998. ORBIMAGE
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 net operating
losses generated during the period in addition to decreases in deferred tax
liabilities for depreciation of satellite assets, which were previously deducted
for tax purposes. 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 March 31, 1999, ORBIMAGE had approximately $36.6 million of cash,
cash equivalents and available-for-sale securities. On April 22, 1999, ORBIMAGE
completed the original notes offering raising net proceeds of approximately
$60.6 million. On February 25, 1998, ORBIMAGE issued units consisting of senior
notes and common stock warrants raising net proceeds of $144.6 million. The
total effective interest rate on the notes, including the discount attributable
to the value of the warrants and issuance expenses, is approximately 13.6%. Out
of the net proceeds of the two offerings, ORBIMAGE purchased approximately $39.0
million of U.S. Treasury securities to fund the interest payments on the notes
through March 31, 2000. As of March 31, 1999, restricted held-to-maturity
securities totaled $16.8 million. Concurrent with the units offering, ORBIMAGE
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 placements, in which it sold 372,705 shares of Series A
preferred stock, generating net proceeds of approximately $33.5 million. Orbital
also increased its equity investment in ORBIMAGE, bringing its total equity
invested to $91.5 million.
Operating activities provided cash of approximately $4.9 million and used
cash of $8.8 million during the three months ended March 31, 1998 and 1999,
respectively. The decrease in operating cash flow from 1998 to 1999 is
attributable primarily to decreases in accounts payable and accrued expenses,
and deferred revenue of $7.7 million and $2.2 million, respectively. Operating
activities provided cash of approximately $6.3 million and $9.9 million during
the years ended December 31, 1997 and 1998, respectively. Operating activities
used cash during the year ended December 31, 1996 of approximately $1 million.
The increase in operating cash flow from 1997 to 1998 is primarily attributable
to an increase in accounts payable and accrued expenses of $12.4 million. The
increase in operating cash flows from 1996 to 1997 was primarily attributable to
the receipt of advance customer payments for imagery purchases.
Investing activities used cash of approximately $53.7 million and provided
cash of $4.1 million for the three months ended March 31, 1999. Investing
activities used cash of approximately $12.6 million, $60.4 million and $161.2
million for the years ended December 31, 1996, 1997 and 1998, respectively. The
increase in the cash provided by investing activities from 1997 to 1998 and
continuing into 1999 is attributable primarily to the purchase of the pledged
securities and the net maturities (net of purchases) of available-for-sale
securities, partially offset by increased capital expenditures. After completion
of its private equity and debt financings in 1997, 1998 and 1999, ORBIMAGE
invested the proceeds from the financings in various short- and long-term
investments, consisting primarily of commercial paper and U.S. Treasury
securities.
Capital expenditures related primarily to the construction of OrbView-3 and
OrbView-4 for the three months ended March 31, 1998 and 1999 were approximately
$15.7 million and $18.2 million, respectively
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(excluding capitalized interest). Capital expenditures for the years ended
December 31, 1996, 1997 and 1998 were approximately $12.6 million, $49 million
and $97.6 million, respectively (excluding capitalized interest). Capital
expenditures in 1996 consisted primarily of costs under the procurement
agreement relating to the acquisition of the U.S. ground system, the OrbView-1
satellite and the OrbView-2 License. Beginning in 1997, capital expenditures
were also related to OrbView-3 and OrbView-4. The total cost of the OrbView-1,
OrbView-3 and OrbView-4 satellites, the OrbView-2 License and the related U.S.
ground systems, is estimated to be approximately $285 million, which amount does
not include contracts of approximately $31 million to be funded by the U.S. Air
Force through a contract with Orbital. Of this amount, as of March 31, 1999,
ORBIMAGE had spent approximately $241 million, excluding insurance.
Through the third quarter of 2000, we expect to incur capital expenditures
of approximately $90 million for the OrbView-3 and OrbView-4 satellites and the
RadarSat-2 License. Of this amount, approximately $60 million will be used for
the OrbView-3 and OrbView-4 satellites and $30 million will be used for the
RadarSat-2 License. In total, ORBIMAGE's cost for the RadarSat-2 License will be
approximately $60 million, which amount does not include approximately $140
million to be funded by the CSA through a contract with MDA. We expect to make
installment payments on the RadarSat-2 License through the operational date of
RadarSat-2, which we expect to be in early 2002. ORBIMAGE expects to fund future
capital expenditures as well as negative cash flows from operating activities
using the net proceeds of the recently completed original notes offering,
together with available cash, cash equivalents and securities.
ORBIMAGE does not expect to generate net positive cash flow from operations
sufficient to fund both operations and capital expenditures before the fourth
quarter of 2000, when both OrbView-3 and OrbView-4 are expected to be
operational. While ORBIMAGE 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. We cannot assure you that additional capital will be available, if
needed, 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 at least through mid-2000. 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
products and services and numerous other factors. See "Risk Factors -- Limited
History of Operations and Net Losses -- Given our limited operating history and
net losses, the notes are a highly speculative investment," "Potential
Additional Capital Requirements -- Our inability to fund potential additional
capital requirements could delay satellite construction and deployment," and
"Market Acceptance -- We cannot assure you that the market will accept our
products and services."
"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.
ORBIMAGE has completed an assessment of the potential Year 2000 issues with
respect to various financial, technical and operational computer-related
systems. This assessment consisted of reviewing software code and hardware
system components to determine whether a system failure or miscalculations
causing disruption of operations could occur as a result of the system's
inability to distinguish between the year 2000 and the year 1900. ORBIMAGE
intends to correct any Year 2000 issues, or develop alternative "work-around"
procedures that address the problem by September 1999. ORBIMAGE has also
inquired of its primary vendor, Orbital, as to whether products and services
provided by Orbital may be adversely affected by the Year 2000 issue. Orbital
has informed ORBIMAGE that it has identified no material Year 2000 issues with
respect to its provision of administrative services. Orbital has substantially
completed the awareness and assessment phases of its Year 2000 plan and intends
to achieve a goal of Year 2000 readiness in late 1999.
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Our largest customers are U.S. government agencies. If these agencies'
systems are not Year 2000 compliant, payments they owe us could be delayed. A
significant delay in payments could have a material impact on ORBIMAGE's
financial results.
ORBIMAGE does not currently anticipate that addressing Year 2000 problems
for its internal systems will have a material impact on its operations or
financial results. ORBIMAGE expects that it will spend no more than $500,000 on
Year 2000 compliance. 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 ORBIMAGE or its primary 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 ORBIMAGE's capitalization policies. Contingency plans will be
developed if it appears ORBIMAGE or its key supplier will not be Year 2000
compliant and such noncompliance is expected to have a material adverse impact
on ORBIMAGE's operations.
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BUSINESS
OVERVIEW
In 1991, ORBIMAGE was established as an operating division of Orbital to
manage the development and operation of remote imaging satellites that would
collect, process and distribute digital imagery of the world's land areas,
oceans and atmosphere. In 1992, ORBIMAGE incorporated in Delaware as a wholly
owned subsidiary of Orbital. In 1997, ORBIMAGE completed a private placement of
Series A preferred stock to fund a significant portion of the remaining costs of
existing projects. Contemporaneously with that financing, ORBIMAGE acquired at
historical cost all the assets and liabilities of the operating division.
ORBIMAGE is a leading provider of global space-based imagery. We expect to
provide our customers with a comprehensive offering of high-resolution imagery,
imagery-derived products and image processing services at competitive prices. We
are currently operating and expanding a fleet of satellites that collect,
process and distribute digital imagery of the Earth's surface, including land
and oceans, the atmosphere and weather conditions. Our imagery products and
services are designed to provide our customers with direct access to timely and
competitively priced information concerning, among other things, locations and
movements of military assets, urban growth, forestry and crop health, land and
ocean-based natural resources and weather patterns and wind conditions. In April
1998, we acquired substantially all of the assets of TRIFID Corporation, a
satellite image processing company that complements our core imagery business by
providing sophisticated image processing software, engineering analysis
capability and in-house digital image production capabilities.
In April 1995, we launched our first satellite, OrbView-1, which provides
dedicated weather-related imagery and meteorological products to NASA. We
launched our second satellite, OrbView-2, in August 1997. OrbView-2 provides
images of land and ocean surfaces to commercial customers, as well as to NASA
and other scientific users. We believe that OrbView-2 is the only satellite of
its kind providing daily color images of the entire Earth's surface. We expect
to place two additional satellites, OrbView-3 and OrbView-4, into operation
during the first quarter of 2000 and the fourth quarter of 2000, respectively.
OrbView-3 and OrbView-4 will provide high-resolution imagery based on optical
technology. We believe that OrbView-3 will be among the first commercial
satellites with high-resolution optical imagery capability and that OrbView-4
will be the first satellite with commercially available hyperspectral
capability.
In December 1998, we acquired the exclusive worldwide rights to market and
sell imagery from RadarSat-2, a high-resolution commercial radar imaging
satellite. We expect RadarSat-2 to be operational in early 2002. RadarSat-2 is
expected to be the world's first satellite with commercially available
high-resolution radar imagery. Unlike optical imaging technology, radar
technology permits imagery to be collected in all weather conditions and at
night. RadarSat-2 will also have unique multipolarization capabilities that will
enable it to detect features on the Earth's surface, such as ice flows, oil
seepage and metallic objects, more effectively than conventional optical imaging
systems. RadarSat-2 is a follow-on to RadarSat-1, CSA's medium-resolution radar
imaging satellite that was launched in 1995.
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 and
aircraft. This market includes satellite development, construction and
operations by both domestic and international commercial and government users
who decide to build and operate their own satellite systems, as well as
purchased imagery and related services currently addressable by existing imagery
suppliers. Historically, in the United States, the only "commercial" operators
of remote imaging satellites were quasi-governmental programs such as the
low-resolution Landsat satellite systems in operation since the 1970s. The
opportunities for commercialization of space-based imagery expanded
significantly in 1994 when the U.S. government implemented a policy permitting
the worldwide commercial sale of high-resolution satellite imagery. The U.S.
government has estimated that the worldwide market for remote imagery products
and services addressable by commercial imagery providers, excluding satellite
and ground hardware sales, will be approximately $2 billion by the year 2000. We
believe that this
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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.
Historically, in the United States, satellite imagery systems were either
military surveillance platforms or were sponsored by large national and
international civil space agencies that 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 market 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 some areas and high cost limit
widespread use of aerial 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 timeliness requirements.
As the remote imaging market develops, we expect that primary competitive
factors will include:
- spatial and/or spectral resolution;
- breadth of product offering;
- frequency of revisit times;
- pricing;
- timeliness of imagery distribution; and
- extent of geographic coverage.
OrbView-2, OrbView-3, OrbView-4 and RadarSat-2 have been or are being
designed to offer a number of strategic advantages over currently available
commercial remote imaging systems. These advantages include increased spatial
resolution and increased spectral capability. Some markets, such as the national
security, mapping and surveying markets, require spatial resolution of three
meters or less. 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 are easier to identify on an
infrared or radar image than in a conventional black and white aerial
photograph. 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, we expect that OrbView-3 will be able to map over 20,000 square
kilometers at one meter resolution 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. We expect that
OrbView-3, OrbView-4 and RadarSat-2 will be able to image areas that are not
accessible by airplanes because the air space is restricted or because the areas
are too remote. In addition, up-to-date maps are key for serving various
high-technology segments of the national security market, such as digital
terrain modeling for aircraft and missile guidance. We believe that real-time
global satellite imagery 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. This imagery will also
permit users to monitor agricultural, forestry and fishing areas frequently to
provide timely information to enhance business and government effectiveness.
In addition, we expect RadarSat-2 to extend ORBIMAGE's competitive
advantage over other high-resolution commercial satellite operators.
RadarSat-2's high-resolution radar imaging capability will enable
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ORBIMAGE to provide imagery "on demand" twenty-four hours a day regardless of
light and weather conditions. RadarSat-2 will also be able to detect specific
materials on the Earth's surface, such as oil seepages, ice flows and metallic
objects more effectively than optical imaging satellites.
MARKETING STRATEGY
Our marketing strategy is to increase our market penetration by entering
into pre-launch contracts, directly targeting large customers, further
developing our network of international distributors and entering into strategic
relationships with value-added resellers. To date, customers have contracted to
purchase approximately $407 million of imagery products and services, including
approximately $135 million in options. Of this amount, approximately $181
million represents amounts due under contracts between Orbital and third
parties.
Advance contract payments. We seek to enter into contracts with advance
payments to reduce capital expenditures and to develop a customer base before
satellite launch. Approximately $214 million of advance payments from pre-launch
contracts directly with our customers or between Orbital and third parties
provide funding for approximately 40% of the total capital expenditures required
for our satellite systems and acquisition of imagery distribution licenses.
These contracts include the following:
- OrbView-1 was partially paid for under an $8 million pre-launch contract
with NASA, $5 million of which was funded before launch;
- OrbView-2 was partially paid for under a $43 million pre-launch contract
between Orbital and NASA, $38 million of which was funded before launch;
- OrbView-4's hyperspectral modifications will be partially paid for under
a $33 million contract between Orbital and the U.S. Air Force, $31
million of which will be funded before launch. The contract includes an
option for additional post-launch imagery purchases up to $8 million; and
- RadarSat-2 will be partially paid for under a $140 million contract
between MDA, Orbital's wholly owned Canadian subsidiary, and CSA, all of
which will be funded before launch.
International distributors. We are developing relationships with a network
of international commercial distributors while also dealing directly with
potential foreign national security government customers. In addition to the
contracts we have signed, we are negotiating exclusive regional distribution
partnerships for Europe, the Middle East, and several countries in Asia, while
pursuing other opportunities with regional distributors in Australia, South
Africa and South America. We have entered into three international distributor
contracts totaling approximately $73 million, including $30 million in options,
with:
- Samsung Aerospace Industries, Ltd. for distribution of imagery in South
Korea;
- NTT Data Corporation for distribution of imagery in Japan; and
- GTT NetCorp., Inc. for distribution of imagery in Mexico, Central
America, Colombia and the Caribbean.
Direct customer sales. We also market our imagery products and services
directly, with our initial focus primarily on U.S. government customers. In
October 1998, we entered into a contract with NIMA under which the U.S.
government authorized the purchase of up to $100 million of OrbView-2, OrbView-3
and OrbView-4 imagery and systems upgrades. NIMA has committed to purchase $3
million of imagery, services and compatibility upgrades to ORBIMAGE's ground
systems.
Value-added resellers. We are developing value-added applications for
imagery products internally as well as through VARs. We have entered into
agreements with several VARs who already have established expertise in producing
aerial and satellite imagery-based value-added products in specific industries
such as utility monitoring, oil and gas exploration, agriculture forecasting and
national security. We are working with these VARs to enhance existing
applications and develop new products that will use OrbView-3, OrbView-4 and
RadarSat-2 high-resolution imagery. As an example of our internally-developed
value-added products, we
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are using OrbView-2 imagery to provide our proprietary fish-finding maps to
approximately 150 commercial fishing vessels.
BUSINESS STRATEGY
The key elements of our business strategy include:
Providing a comprehensive offering of high-resolution satellite imagery at
competitive prices. Building on the wide range of imagery that will be
available from our fleet of OrbView satellites and RadarSat-2, we expect to
offer a comprehensive selection of commercially available satellite imagery
products and services. The cost we expect to incur in the deployment and
operation of our satellite systems is less than the announced costs of our
competitors' high-resolution systems. We expect that our cost structure will
provide us with flexibility to competitively price our imagery products and
services.
Penetrating existing markets and creating new markets. There is currently
a large existing market for imagery products and services, which includes
mapping, new construction and wireless infrastructure site selection,
agricultural and forestry assessment, oil, gas, and mineral exploration,
scientific and environmental monitoring and U.S. national security applications.
We believe we can gain market share rapidly in this existing market because of
the breadth and expected pricing of our product and service offerings.
Additionally, we believe new markets will develop rapidly for satellite-based
imagery, including foreign national security, real estate assessment, travel
planning and entertainment applications.
Achieving global distribution of products and services on a timely
basis. We plan to expand our global market coverage by providing imagery to end
users both directly and through VARs and other third party distribution
channels. We intend to focus our direct distribution efforts on larger customers
in the commercial, scientific, environmental and U.S. and foreign national
security markets. We expect that VARs will perform application-specific
processing of our imagery for various commercial markets. Internationally, we
intend to market primarily through regional partners who have existing marketing
and distribution infrastructures. We expect these distributors to purchase or
upgrade and operate the ground imagery receiving and processing stations in
their territories that will permit them to receive, process and distribute
imagery on a timely basis.
Expanding the "orbimage.com" digital catalogue. We have developed a
digital catalogue located at our orbimage.com website to display, archive, and
distribute imagery collected from our satellites as well as from other aerial
sources. The digital catalogue currently includes OrbView-2 imagery products and
will ultimately be a full-service on-line digital catalogue of OrbView
high-resolution imagery products. On April 23, 1999, we launched our OrbView
Cities catalogue, which initially includes high resolution aerial imagery of
approximately 14 major U.S. cities. We can deliver imagery from our digital
catalogue to customers over the Internet or on CD for a per-image fee.
Leveraging the expertise of Orbital. Orbital, our majority stockholder, is
a space technology and satellite services company with extensive experience
designing and constructing remote imaging satellites and related ground systems.
We have used and will continue to use Orbital's integrated space capabilities,
infrastructure and experience to develop our business in a cost effective
manner.
PRODUCTS AND SERVICES
We expect to offer a comprehensive selection of commercially available
satellite-based imagery products and services. These products and services will
include high-resolution optical imagery, high-resolution radar imagery,
multispectral and hyperspectral imagery and imagery processing services.
Weather, climate and atmospheric monitoring. The OrbView-1 satellite
provides the U.S. government with daily atmospheric and weather condition
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, including atmospheric
temperature, pressure, and water vapor profiles. Because of the radio
frequencies used by the OrbView-1 satellite, OrbView-1 imagery may be sold only
to the U.S. government.
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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 downlink OrbView-2 imagery directly 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 downlink OrbView-2 imagery directly.
In addition, OrbView-2 provides value-added products that we generally can
deliver within 24 hours of collection. These 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.
We also use OrbView-2 imagery to generate commercial fishing maps. We
currently offer two types of fishing maps, a coastal product targeted at sport
and smaller commercial fishing customers and a deep ocean product targeted at
larger, high seas fishing fleets.
High spatial resolution optical and radar imagery. High-resolution optical
imagery enables users to identify from space objects as small as one-meter in
size, approximately the size of a phone booth. We plan to sell our
high-resolution imagery products in the form of hard copies and electronic
copies that can be stored and processed on a computer. We intend to base our
product pricing, in part, on the level of processing required and the customer's
delivery-time requirements. We will target sales of unprocessed imagery to
sophisticated end-users, such as U.S. and foreign national security customers or
value-added resellers who have the internal capability to perform their own
imagery enhancement and processing. While we intend to sell unprocessed imagery
through the ORBIMAGE digital catalogue, we believe 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
this imagery from the satellite.
We may also offer various value-added precision-corrected products. We
believe that these products will have applications in all three of our target
markets, discussed below in the Target Markets section. Precision-corrected
imagery is processed based on known geographic points, terrain, elevation and
topography to enable the user to identify the position of the image on the
Earth's surface. These products will address the needs of customers who require
detailed topographical and elevation information. One example 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, land use maps that can segment land tracts based on population density,
identify sites for wireless communication towers and other 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 detect more efficiently the
location of precious metals such as gold and silver, and other natural resources
including 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.
Radar imagery. High-resolution radar imagery from RadarSat-2 with a
spatial resolution of three meters will complement the high-resolution optical
imagery available from OrbView-3 and OrbView-4. Radar and optical technology
share many of the same capabilities. Unlike optical imaging technology, however,
radar technology permits imagery to be collected in all weather conditions and
at night. Additionally, radar imagery can detect some materials on the Earth's
surface more effectively than optical imagery, such as oil seepages and ice
flows, making radar technology useful for offshore and onshore oil and gas
exploration, ship navigation and crop health monitoring. RadarSat-2 will have
unique multipolarization capabilities, which means that it will be able to image
vertical as well as horizontal features of the Earth over land or water.
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TARGET MARKETS
We target our imagery product and service offerings toward three distinct
markets: the U.S. and foreign national security market, the commercial/consumer
market and the scientific/environmental market. These markets are currently
serviced by aerial photography or lower-resolution government-operated satellite
imagery systems.
U.S. and foreign 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. We believe that potential
budget cutbacks in DoD and the U.S. National Reconnaissance Office budgets,
combined with changes in military strategies, for example, fewer military assets
dispersed over a wider geographic area, could further increase the government's
need for commercially available high-resolution imagery. Commercial satellite
imagery can augment current classified government satellite programs that 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 cruise missiles. We believe that our radar imagery,
which can be acquired in all weather conditions and at night, may be useful to
governmental agencies during times of international conflict when "real time"
imagery is essential regardless of the time of day, weather or other conditions,
including the presence of smoke or haze. We believe that we can capture a
significant share of the addressable national security market once OrbView-3 or
OrbView-4 is operational.
The U.S. government has turned to commercial providers like ORBIMAGE for a
portion of its satellite imagery requirements. The U.S. Air Force is funding the
hyperspectral modifications to the OrbView-4 sensor under a $31 million
contract, with up to $10 million in data purchases and contract options, to
acquire real-time hyperspectral imagery from OrbView-4. In October 1998, we
entered into a contract with the U.S. National Imagery and Mapping Agency, under
which the U.S. government authorized the purchase of up to $100 million of
OrbView-2, OrbView-3 and OrbView-4 imagery and systems upgrades. Under this
contract, NIMA has committed to purchase $3 million of imagery, services and
compatibility upgrades to ORBIMAGE's ground systems. The U.S. Navy has made an
initial purchase of OrbView-2 imagery and has also expressed an interest in
procuring additional 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. The Canadian Navy uses
RadarSat-1 imagery to detect the presence of other ships through wave analysis
and to monitor the location and movement of icebergs in connection with
submarine and ship deployments. We expect other navy fleets to rely on
RadarSat-2 imagery for similar purposes.
In addition, many foreign countries have a strong national security
interest in obtaining real-time high-resolution satellite imagery that can be
collected during all weather conditions and at night. This imagery will be used
by national security customers to help generate up-to-date wide area maps,
gather intelligence, identify and target enemy forces and assets, plan missions
and deploy resources and assess battle damage. Many countries have aerial
reconnaissance aircraft, but these aircraft may be 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 imaging 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 over a foreign government customer's area of interest
provides the same
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high-resolution imagery capability as other alternatives, but is less expensive
and more readily attainable. This "time share" arrangement is the one we offer
to our regional high-resolution OrbView imagery distributors.
We are currently in discussions with several foreign national security
customers and have already entered into an agreement with Samsung for imagery of
the Korean peninsula. The interest expressed by potential regional distributors
during the course of these discussions strengthens our belief that there exists
substantial unmet demand for this imagery. We believe that our products and
services will provide an effective means for foreign governments to acquire
high-resolution imagery for national security purposes.
Commercial/consumer market. We believe that the near-term
commercial/consumer market will include domestic and foreign companies and local
governments such as municipalities that currently use aerial photographs and
medium-resolution satellite imagery products. In the long term we expect this
market will also include individual consumers who will use satellite imagery
from the ORBIMAGE digital catalogue in various consumer oriented applications
including real estate assessment, travel planning, education and entertainment.
We have already begun targeting the market segments described below, which we
believe represent attractive near-term marketing opportunities.
- Commercial fishing. We are currently marketing fishing maps designed to
assist the commercial ocean fishing industry. 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, including tuna and
swordfish, congregate at the boundary between phytoplankton-rich water
and clear water. Fishing fleets are using OrbView-2 imagery to identify
this boundary accurately in a timely fashion. Based on customer feedback,
our fishing maps significantly reduce search time and related hardware
and operating costs, are more accurate, and cover a broader area than
existing alternatives.
Our customers for fishing maps include 28 fishing companies comprising
approximately 150 fishing vessels operated by commercial fishing
companies 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 our proprietary software, or
receive the maps in a hard copy format via facsimile.
- Mapping and surveying. The key mapping and surveying markets that we
have targeted are new construction and wireless infrastructure site
selection, utility and telecommunications planning and monitoring and
local and regional tax assessment. High-resolution imagery is used for
planning the optimal location for construction projects including
wireless communication towers, retail development, new housing
developments and highways. For example, telecommunications providers use
high-resolution imagery extensively, including digital terrain elevation
models, 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. We believe that high-resolution imagery can also help retail
businesses to select the optimal locations for new stores by providing
valuable information including population density, residential versus
industrial land use patterns, locations of competitive businesses and
other factors useful in the site selection process. The availability of
radar technology that can identify metallic objects on the Earth's
surface as well as subtle geological features, such as fault lines and
land elevation, will enable us to more efficiently interpret
high-resolution optical imagery from OrbView-3 and OrbView-4 and generate
a more comprehensive product offering in these markets.
We believe that our high-resolution OrbView imagery also will be used by
gas and electric utilities, which are among the largest current
high-resolution aerial imagery users. Spatial data, including 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. We recently entered into a strategic relationship with a
value-added reseller that uses aerial imagery to monitor power lines for
utility companies. Under the agreement, we will be the VAR's preferred
supplier of high-resolution satellite imagery and we are working with the
VAR to develop a broad product base targeted at the utility market. We
have an agreement with one of the leading
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providers of value-added aerial products to oil and gas companies for
pipeline monitoring and oil field monitoring and mapping. Finally, we
believe our 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. We expect 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. We believe products based
on multispectral, hyperspectral and radar 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,
we believe that our broad-area multispectral, hyperspectral and radar
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, we
believe the multispectral and radar imagery generated by OrbView-2,
OrbView-3, OrbView-4 and RadarSat-2 will be beneficial in monitoring the
overall health of forests. In addition, RadarSat-2's imagery will be
useful in monitoring deforestation and land use changes. We believe this
information will be beneficial both to private forest product companies
and to government agencies like the U.S. Forest Service.
- Oil, gas and mineral exploration. We believe that OrbView-3, OrbView-4
and RadarSat-2 imagery will be valuable for oil, gas and mineral
exploration companies for planning operations in remote regions of the
world. In many locations where exploration occurs there is a great need
for improved mapping information for activities including equipment
transport planning, seismic field testing and drilling operations.
Hyperspectral imagery from OrbView-4 will be useful for identifying
promising locations for new oil, gas and mineral reserves. Spectral
matching techniques can be used to identify specific "pathfinder
minerals" that signify high probability locations for petroleum and other
mineral reserves. Oil and gas exploration companies are using RadarSat-1
imagery products in their exploration endeavors. These companies should
also benefit from RadarSat-2's multipolarization capabilities that enable
it to detect seepages in the oceans as well as on land better than
RadarSat-1.
- Ice flow monitoring. We believe that imagery from RadarSat-2 will be
valuable for potential customers engaging in marine navigation and
offshore drilling operations. RadarSat-2's ability to detect the
presence, size and movement of icebergs will be useful to government
agencies and private companies for safely routing cargo ships and fishing
vessels. In addition, RadarSat-2's ability to measure the edge of and
track the movement of major ice flows will be valuable to oil and gas
companies for managing the operation of offshore oil rigs located in the
arctic regions of the world.
Scientific/environmental market. The scientific/environmental market
comprises government entities that use commercially provided satellite imagery
to monitor environmental, climate-related and meteorological phenomena, 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. A substantial portion of the cost of development, construction
and launch of the OrbView-2 and RadarSat-2 satellites has been or will be funded
in advance through pre-launch contracts with government agencies intending to
rely on the imagery generated by these satellites for scientific and
environmental research and monitoring. We are currently selling imagery from
OrbView-2 to national government agencies including NASA, NIMA and the National
Oceanic and Atmospheric Administration ("NOAA"). NOAA recently announced its
intention to purchase additional OrbView-2 imagery over a three year period. All
of these agencies currently use aerial and satellite imagery for diverse
applications, including weather prediction, monitoring of ocean conditions,
natural
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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. OrbView-2's ability to monitor
phytoplankton levels in the world's oceans on a global basis is being used by
scientists to study global climate change and by coastal fisheries to track
dangerous and costly "red tide" events. Scientists and government agencies are
using satellite radar imagery to map the Antarctic ice field to analyze the
effects of glaciers and global climate changes in Antarctica. We believe the
imagery available from our high-resolution optical satellites and RadarSat-2
will be helpful to government agencies in a variety of environmental
applications including assessment of the damage from natural disasters including
floods, forest fires, earthquakes, severe storms and the environmental impact of
industrial activities.
MARKETING AND DISTRIBUTION
We currently plan to market and distribute imagery from our satellite
network through:
- our direct sales force;
- market- or application-specific value-added resellers;
- foreign regional distributors; and
- the ORBIMAGE digital catalogue.
Direct customer sales. Our initial strategy for direct customer sales is
to market and sell our basic imagery products to U.S. government agencies or to
companies with internal image processing capabilities like large oil and gas
producers. Since mid-1995, we have 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. We may also directly market and will distribute our products
and services, including our fishing maps, to commercial and scientific customers
worldwide.
We will continue to market our 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. We anticipate 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 our U.S.
central ground system and then delivered to the end user.
International distributors. We expect to sell high-resolution OrbView
satellite imagery in international markets principally through arrangements with
international commercial distributors. We expect that our distribution
agreements will give international commercial distributors priority in "tasking"
the satellite's camera while the satellite is over its geographic region. We
generally expect to retain the right to market and sell imagery of a
distributor's territories, although we will pay the distributor a royalty for
these sales. In some cases, we may agree that a distributor's approval is
required for some sales of imagery, including sales to specified customers or of
specific areas. We anticipate that a single geographic distribution region
normally will have a maximum radius of approximately 2,400 kilometers from the
ground station, which 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.
We have three regional distribution partnerships for (1) Japan, (2) Mexico,
Central America, Colombia, and the Caribbean and (3) South Korea, and we are
negotiating similar arrangements for Europe, the Middle East and several
countries in Asia. In addition, we are pursuing opportunities with regional
distributors in Australia, South Africa and South America.
We anticipate that our regional distribution partnerships will generally
provide for significant annual minimum guaranteed royalty payments, additional
royalties for taskings or image purchases above agreed minimums, and the
purchase or upgrade of a regional ground station. We will also provide training
and technical support services to regional distributors, the extent and price of
which we will negotiate on a case-by-case basis.
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Value-added resellers. While we expect to perform some value-added
services internally we also intend to distribute our imagery to end users
through VARs who process it into complex maps and other products for specific
markets or applications. We have also entered into agreements with several VARs
who already have established expertise in the production of aerial and satellite
imagery-based value-added products in specific industries including utility
monitoring, agriculture monitoring and national security. As an example of a
value-added product that we develop internally, using OrbView-2 imagery, we
provide our proprietary fish-finding maps to approximately 150 commercial
fishing vessels. In addition, we provide imaging processing services to NIMA as
a result of our acquisition of the assets of TRIFID Corporation. We are working
with these value-added resellers to exploit existing applications and develop
new products that will incorporate OrbView-3, OrbView-4 and RadarSat-2
high-resolution data.
ORBIMAGE digital catalogue. We market imagery through our on-line
electronic digital catalogue. The ORBIMAGE digital catalogue will be a
comprehensive, digital-imagery catalogue in which we display, archive and
distribute imagery derived from our satellites and other satellite and aerial
sources. We can deliver the images to customers over the Internet, on CD or on
computer tape. Through strategic alliances with existing imaging satellite
operators, aerial photography firms and imagery value-added resellers, we intend
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. On April 23, 1999, we launched our OrbView
Cities catalogue, which initially includes high resolution aerial imagery of
approximately 14 major U.S. cities.
RISK MITIGATION
ORBIMAGE has a comprehensive strategy designed to mitigate the financial,
business, and technical risks associated with developing new and existing
markets and constructing, launching and operating its satellites.
- Financial. We have reduced the financial risks associated with the
OrbView satellites and the RadarSat-2 License through pre-launch
contracts that provide for advance payments. Approximately 40% of the
total capital expenditures required for these satellites and acquisition
of imagery distribution licenses has been or will be funded by advance
payments under pre-launch contracts. We have further limited our
financial risks through fixed-price contracts with Orbital to build and
launch OrbView-3 and OrbView-4 and to build the related ground systems,
and have acquired the OrbView-2 License and the RadarSat-2 License for a
fixed price. In addition, we have insured the OrbView-2 satellite for on-
orbit failures and we will procure insurance to cover some losses in the
event of an OrbView-3, OrbView-4 or RadarSat-2 launch or satellite
failure.
- Market development. We are seeking to develop the imagery market before
the launch of OrbView-3 and OrbView-4 to accelerate revenue growth when
the satellites become operational. In addition to contracts with advance
payments, we have entered into approximately $173 million in pre-launch
contracts, including $127 million in options, for OrbView-3 and OrbView-4
high-resolution imagery.
- Technical. U.S. government surveillance and various other space programs
have already successfully deployed many of the imaging technology and
sub-system components that Orbital will use in OrbView-3, OrbView-4 and
RadarSat-2, thereby reducing our technical risks. These satellites
incorporate system redundancies for some of the critical components.
Because OrbView-3 and OrbView-4 have similar performance parameters, they
can provide back-up for each other.
SATELLITE AND GROUND SYSTEM OPERATIONS
ORBIMAGE's basic system architecture consists of several major components:
- a fleet of advanced-technology low-Earth orbit small imaging satellites
carrying sophisticated sensors that collect specific types of land,
ocean, and atmospheric imagery;
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- 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.
We believe that our system will provide global economies of scale in image
collection, processing and distribution. In particular, we believe the satellite
system will be able to collect, produce and sell high spatial and
spectral-resolution imagery worldwide on a daily basis.
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 and RadarSat-2 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. As it constructs OrbView-3 and
OrbView-4, Orbital is drawing upon its satellite imaging experience not only
from OrbView-1 and OrbView-2, but also from large national satellite programs
like Landsat 4, Landsat 5 and RadarSat-1 to minimize overall program risk.
RadarSat-2 will build on the heritage of RadarSat-1 and will use redundant
components and subsystems that were used in RadarSat-1. The OrbView-1 and
OrbView-2 satellites are, and OrbView-3 and OrbView-4 will be, commanded and
controlled from ORBIMAGE's main operations center located in Dulles, Virginia.
The RadarSat-2 satellite will be operated and controlled by MDA and/or CSA under
the CSA contract.
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The following table summarizes the primary technical characteristics of the
satellites.
<TABLE>
<CAPTION>
ORBVIEW-1 ORBVIEW-2 ORBVIEW-3 ORBVIEW-4 RADARSAT-2
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Principal Applications Weather, Weather, Fishing, Mapping, All Weather and All Weather and
Scientific Agricultural, Agriculture, Oil Night Mapping, Night Mapping,
Research Scientific and Gas, National Agriculture, Oil Agriculture, Oil
Research Security and Gas, and Gas,
Forestry, Mining, Forestry, Mining,
National Security National Security
Best Ground Resolution 10 km 1 km to 4 km 1 m Panchromatic 1 m Panchromatic 3 m to 100 m
Panchromatic Multispectral 4 m Multispectral 4 m Multispectral Multipolarization
8 m
Hyperspectral(1)
Scene-Width 1,300 km 2,800 km 8 km Panchromatic 8 km Panchromatic 20 km to
and Multispectral and Multispectral 500 km
5 km
Hyperspectral
Image Area N.A. N.A. 64 km(2) 64 km(2) 400 km(2) to
Panchromatic and Panchromatic and 250,000 km(2)
Multispectral Multispectral
100 km(2)
Hyperspectral
On-Board Storage 80 Megabytes 128 Megabytes 4 Gigabytes 4 Gigabytes 32 Gigabytes
Revisit Time 12 Days 1 Day 3 Days(2) 3 Days(2) 3 Days(3)
Orbital Altitude 740 km 705 km 470 km 470 km 800 km
Design Life 3 Years(4) 7 1/2 Years 5 Years 5 Years 7 Years
</TABLE>
- ---------------
(1) The best spatial resolution permitted for commercial applications is 24
meters.
(2) The combined revisit time of both of OrbView-3 and OrbView-4 will be less
than two days.
(3) The combined revisit time of OrbView-3, OrbView 4 and RadarSat-2 will be
less than one day.
(4) As it enters it fifth year of operation, OrbView-1 has exceeded its design
life.
ORBVIEW-1 SATELLITE
The OrbView-1 satellite was launched in April 1995 and 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 can not be observed from the ground and that 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
system. The satellite had a design life of three years but is expected to be
operable for approximately two additional years into 2000.
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ORBVIEW-2 SATELLITE
The OrbView-2 satellite was launched in August 1997 and we believe it is
the 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. We expect it 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 and
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 ORBIMAGE
operates it under the OrbView-2 License.
ORBVIEW-3 AND ORBVIEW-4 SATELLITES
The OrbView-3 and OrbView-4 satellites, currently targeted to be
operational in the first and fourth quarters of 2000, respectively, 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 hyperspectral imagery. These two
satellites will have substantially similar performance capabilities, thereby
reducing the impact of a satellite failure, increasing revisit frequency, and
improving our overall capacity to supply timely imagery to our customers. We
plan to either downlink imagery in real-time to regional ground stations or
store it on board the satellite and later downlink it to the U.S. central ground
system. We plan to forward copies of most imagery downlinked to regional ground
stations to the ORBIMAGE digital catalogue.
The partially redundant designs of OrbView-3 and OrbView-4 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. OrbView-3 and OrbView-4 are
designed to provide maximum maneuvering agility together with a stable optical
platform for high quality image collection. Their 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 a minimum.
OrbView-3 and OrbView-4 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,
their combined 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 OrbView-3 and OrbView-4
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 a 25 degrees latitude ground station location, and producing
approximately 200 images per day, assuming a specific mix of image types per
territory. While each satellite is within communication 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
satellites' high-resolution "seeing" range, which is approximately 940
kilometers in diameter, is less than its communications range, which is
approximately 4,800 kilometers in diameter.
We expect the total annual realizable capacity of OrbView-3 and OrbView-4
to be approximately 400,000 to 500,000 images each, depending on customer
preferences for the various images available and various operating assumptions,
including cloud cover of targeted areas and availability of regional ground
stations.
RADARSAT-2
The RadarSat-2 satellite will acquire imagery in all weather conditions and
at night across a range of modes that spans from three-meter spatial resolution
imagery with a swath width of 20 km to 100-meter spatial resolution imagery with
a swath width of 500 km. RadarSat-2 will also be capable of acquiring imagery
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using multipolarization technology that will enable better identification and
measurement of materials on the Earth's surface including oil seepage in the
oceans and wood mass in timber stands. RadarSat-2 imagery will either be stored
on board its spacecraft recorder or downlinked in real-time to the same antennas
that downlink OrbView-3 and OrbView-4 imagery. As with OrbView-3 and OrbView-4
most of the downlinked RadarSat-2 imagery will be available at the ORBIMAGE
digital catalogue for sale to customers around the world.
RadarSat-2 will build on the heritage of the RadarSat-1 satellite. It will
use redundant components and subsystems that were used in RadarSat-1 and will
have a design life of seven years. RadarSat-1 is expected to be at the end of
its design life at the time RadarSat-2 is expected to be launched. RadarSat-2
will be launched into a sun-synchronous orbit at an altitude of approximately
800 km. RadarSat-2 will have the ability to acquire imagery on either side of
its orbital track not by physically turning the imaging instrument, as is the
case with OrbView-3 and OrbView-4, but by purely electronic means using a
sophisticated phased-array antenna. This "electronic" steering of RadarSat-2's
radar signal will enable the satellite to maintain a very stable imaging
platform that will enhance overall product quality. This steering capability
will provide RadarSat-2 with a three day revisit time. Its polar orbit will
allow it to pass over and communicate with Canadian ground stations during the
majority of its orbits. In addition, RadarSat-2 will have the ability to
down-link directly, in real-time, high resolution radar imagery to foreign
distributor stations worldwide. RadarSat-2 will be capable of providing
real-time imagery within a 4,000 km radius of any ground station. RadarSat-2
will have an annual image capacity in excess of 220,000 images.
GROUND OPERATIONS CENTERS AND IMAGE PROCESSING FACILITIES
ORBIMAGE's central U.S. ground systems monitor the OrbView satellites while
they are in orbit and command the satellites as required to ensure that proper
orbits are maintained, that electrical power and other operating variables stay
within acceptable limits and that appropriate communications links are
maintained. For OrbView-3 and OrbView-4, 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.
MDA will operate the RadarSat-2 satellite in Canada on similar terms.
The image receiving and processing center for the OrbView satellites is
located at our U.S. facility and consists 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 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
ORBIMAGE digital catalogue accessible by customers using the Internet.
ORBIMAGE's ground systems and image recovery and processing center currently
downlink and process imagery from the OrbView-1 and OrbView-2 satellites. We
expect our ground network to be compatible with OrbView-3 and OrbView-4 by the
respective time each satellite is launched. Last year, we acquired an image
processing company to complement our core business by providing engineering
analysis, sophisticated imaging processing software and production of high
quality digital imagery products.
We expect that the imagery collected by OrbView-2, OrbView-3, OrbView-4,
and RadarSat-2 will either downlink directly to a distributor or be stored
on-board for later downlink to an ORBIMAGE ground system located in the United
States. OrbView-2, OrbView-3, OrbView-4 and RadarSat-2 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 ground system in Virginia and a planned second system
in Alaska, we expect to down-link high-resolution and hyperspectral OrbView
imagery on an average of 12 out of every 16 daily orbits for subsequent
processing, archiving and distribution by ORBIMAGE. Imagery collected by
RadarSat-2 will be downlinked in Canada for subsequent processing, archiving and
distribution. This procedure ensures timely delivery of imagery even to those
customers without a dedicated ground station. The high-gain directional antennae
on board OrbView-3 and OrbView-4, which continually track our ground system, are
designed to provide a strong signal to the ground with very low
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transmission errors. Even with compression and encryption of the signal, we
expect coding and transmission errors 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
- several 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 the OrbView satellites. We expect that our
satellites will provide customers with more timely 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, which is operated by SPOTImage S.A., provides multispectral
imagery that is competitive with OrbView-2 in some markets, including
agricultural assessment. There are five existing satellite-based providers of
low- and medium-resolution imagery:
- SPOTImage S.A., a French-owned company, currently produces unprocessed
imagery using three satellites with resolution capability of 10 meters in
panchromatic and 20 meters in 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-1, operated by CSA, provides radar imagery with a resolution
that varies between 10 and 100 meters. Based on its seven year design
life, RadarSat-1 is expected to be phased out when RadarSat-2 is placed
into service in 2002;
- KVR-1000, a series of Russian government satellites, provides film-based,
two-meter resolution panchromatic images but operates only on a sporadic
basis; and
- IRS-IC, an Indian Space Agency satellite, provides six-meter panchromatic
and 25 meter multispectral imagery.
We view these providers as indirect competitors to our high-resolution
OrbView satellite imagery in some of our target markets.
Future Satellite Competitors. The high-resolution OrbView satellites and
RadarSat-2 are expected to face significant future competition in the satellite
imagery market primarily 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, had an unsuccessful launch
of its first one-meter high-resolution satellite in April 1999 and has
announced plans to launch a replacement one-meter high-resolution
satellite in mid 1999;
- EarthWatch, whose major shareholders include Ball Aerospace and
Technology Corporation, Telespazio and Hitachi, Ltd., had one
unsuccessful satellite launch in 1997 and has announced plans to launch a
one-meter high resolution satellite in late 1999; and
- West Indian Space, Ltd. has announced plans to launch and operate the
EROS constellation of high-resolution commercial imaging satellites.
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<PAGE> 48
Additional potential future competitors are the U.S. government and foreign
governments who 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 and RadarSat-2. 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, and the European Space Agency
has announced that it plans to launch its Envisat satellite in late 1999 that
will include a radar instrument with 8-meter spatial resolution that may compete
with RadarSat-2. The U.S. Navy has also announced its intention to procure a
satellite with low resolution hyperspectral capability from Space Technology
Development Corporation, which would retain some commercial marketing rights.
BACKLOG
ORBIMAGE's contract backlog of firm commitments at March 31, 1998 and 1999
was approximately $55 million and $79 million, respectively. As of March 31,
1998 and 1999, 73% and 45%, respectively, of ORBIMAGE's backlog was with
government 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 at March 31,
1999 of approximately $135 million.
EMPLOYEES
As of April 30, 1999, ORBIMAGE had 116 full-time permanent employees. None
of our employees is represented by a collective bargaining agreement.
PROPERTIES
ORBIMAGE currently leases approximately 13,000 square feet of office and
operations space in Dulles, Virginia from Orbital at cost. See "Certain
Relationships and Related Transactions -- Services Agreement." We also lease
approximately 16,000 square feet of office and operations space in St. Louis,
Missouri.
LEGAL PROCEEDINGS
ORBIMAGE 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 ORBIMAGE, see "Regulation."
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<PAGE> 49
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 may 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 ORBIMAGE'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 these interruptions of service could adversely affect our ability to
market our products to some foreign distributors or end-users. In addition, the
DoC has the right to review and approve the terms of agreements with our
international customers and distributors for high-resolution optical imagery.
The OrbView-1 satellite does not fall under DoC-NOAA regulation because 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. The DoC license for OrbView-4 imagery restricts the
spatial resolution to 24 meters and the spectral resolution to 11 nanometers for
hyperspectral imagery sold commercially. This license also requires additional
governmental oversight and imposes limitations on our ability to process imagery
outside of the United States. ORBIMAGE has appealed for a relaxation of the
terms of the DoC license applicable to OrbView-4 hyperspectral imagery. We
cannot assure you, however, that we will prevail in our appeal.
The DoC licenses for OrbView-2, OrbView-3 and OrbView-4 expire in 2004.
While we believe that the DoC will renew our licenses at that time, the DoC's
failure to renew the license for the OrbView-3 and OrbView-4 satellites could
materially affect our business. While we do not believe that we require a DoC
license to function as a RadarSat-2 distributor, and Orbital has informed us
that it does not believe a DoC license will be required in connection with MDA's
operation of RadarSat-2, the DoC may in the future impose some form of licensing
requirement. If the DoC imposed a requirement and Orbital or we were not able to
obtain a license, our inability to obtain the license on favorable terms and
consistent with our business plan could have a material adverse effect on our
results of operations.
NTIA and FCC regulation. The DoC also regulates federal governmental use
of some imagery satellite systems through the National Telecommunications and
Information Administration. The NTIA regulates and manages domestic use of the
radio frequency spectrum by U.S. federal agencies. A 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
these systems as regulated 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.
Both NTIA and the FCC regulate the operation of OrbView-2. NASA has the
NTIA license to downlink 4-kilometer OrbView-2 imagery on a government-only
frequency. NASA provides us with the imagery to sell to our commercial
customers, and NASA provides this imagery to government researchers as well.
Orbital has an experimental license issued by the FCC to operate and receive
1-kilometer imagery from OrbView-2. This experimental license was set to expire
in January 1999, but Orbital has timely filed for renewal. Under the FCC's
rules, Orbital's license continues in effect until the FCC acts on the renewal
application. Although the FCC routinely grants renewal of an experimental
license, we cannot assure you that the FCC will in fact grant the renewal of
Orbital's experimental license.
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<PAGE> 50
In February 1999, the FCC granted our application for a ten-year license to
launch and operate the OrbView-3 and OrbView-4 satellites and to obtain a
frequency allocation in the FCC's Earth Exploration-Satellite Service ("EESS")
to transmit wideband imagery directly to Earth for commercial use and to perform
telemetry, tracking and command of the satellites. Unless extended by the FCC,
this FCC license could become null and void if OrbView-3 is not constructed by
August 2001 and launched by February 2002, or if OrbView-4 is not constructed by
February 2003 and launched by August 2003. Currently, two of our potential
satellite-based competitors, EarthWatch and Space Imaging EOSAT, hold licenses
to use the same frequency band that we intend to use for our imagery
transmissions, and the band is allocated by the FCC for use by other EESS
licensees, as well as terrestrial fixed and mobile services. In May 1999, the
FCC granted our applications for ten-year authority to operate the associated
ground systems for OrbView-3 and OrbView-4.
The RadarSat-2 satellite will be operated only in Canada. Therefore, the
RadarSat-2 satellite does not fall under the FCC licensing requirements. While
Canada does not have licensing requirements analogous to the DoC regulatory
scheme in the United States, under the CSA contract, the Canadian government has
reserved the right to interrupt service during periods of national emergency
that affect Canadian or allied national security interests.
ORBIMAGE could in the future be subjected to new laws, policies or
regulations, or changes in the interpretation or application of existing laws,
policies and regulations, that modify the present regulatory environment in the
United States. U.S. regulators could decide to impose limitations on U.S.
companies that are currently applicable only to other countries, or other
regulatory limitations that affect satellite remote imaging operations. Any
limitations of this kind could adversely affect our business.
INTERNATIONAL REGULATION
All satellite systems operating internationally must comply with general
international regulations and the specific laws of the countries in which
satellite imagery is downlinked. Applicable regulations include:
- 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 require that operators of
international satellite systems 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 FCC is undertaking the ITU coordination process on behalf of OrbView-3
and OrbView-4. Under the CSA contract, the CSA is obligated to coordinate with
the ITU to secure the necessary authorizations to operate the RadarSat-2
satellite in Canada. The CSA's or the FCC's failure to obtain the necessary
coordination in a timely manner could have a material adverse effect on our
results of operations.
The U.S. government, on our behalf, 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 satellite systems. In addition, this
coordination is a necessary prerequisite for the issuance of approvals and
licenses from some foreign countries. The ITU coordination process has been
completed for OrbView-2, and we intend to have the U.S. government initiate the
ITU coordination process for the high-resolution OrbView satellites as quickly
as possible. We believe that the ITU registration process will not prevent us
from obtaining necessary foreign licenses in a timely manner.
In addition to compliance with ITU regulations and coordination processes,
we must also demonstrate that our satellites will not cause technical harm to
Intelsat and Inmarsat, under the Intelsat and Inmarsat agreements signed under
international treaty. We have completed this process for OrbView-2 and believe
that
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<PAGE> 51
because of the frequencies we intend to use, the high-resolution OrbView
satellites will not cause any technical harm to the Intelsat or Inmarsat
systems.
Within foreign countries, we expect that our regional distributors or
customers will secure appropriate licenses and operational authority to use the
required spectrum in each country into which we will downlink high-resolution
OrbView satellite imagery. For the most part, we anticipate that our
distributors or customers will perform these activities, with our assistance
when required.
While we believe that we will be able to obtain all U.S. and international
licenses and authorizations necessary to operate effectively, we cannot assure
you that we will be successful in doing so. Our failure to obtain some or all
necessary licenses or approvals could adversely affect our business.
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<PAGE> 52
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF ORBIMAGE
The following table sets forth the directors, executive officers and key
employees of ORBIMAGE as of the date of this prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
David W. Thompson......................... 45 Chairman of the Board and Chief Executive
Officer
Gilbert D. Rye............................ 58 President and Chief Operating Officer
Edward D. Nicastri........................ 52 Vice President, Engineering and Operations
Armand D. Mancini......................... 41 Vice President, Chief Financial Officer
Marshall B. Faintich...................... 52 Vice President, Strategic Development
Steven M. Cox............................. 53 Vice President, International Marketing
Joseph K. Dodd............................ 44 Vice President, Government Marketing
Mark G. Pastrone.......................... 34 Vice President, Commercial Marketing
Raymond J. Helmering...................... 61 Vice President, Image Products and
Services
James A. Abrahamson....................... 66 Director
Bruce W. Ferguson......................... 44 Director
Richard Reiss, Jr. ....................... 55 Director
William W. Sprague........................ 41 Director
</TABLE>
DAVID W. THOMPSON is our Chairman of the Board and Chief Executive Officer,
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. Before
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 our President and Chief Operating Officer, 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 U.S. Air Force colonel with over 25 years of
experience in various intelligence and space-related program management and
policy-making positions.
EDWARD D. NICASTRI has been our Vice President of Engineering and
Operations 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
ORBIMAGE 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.
DR. MARSHALL B. FAINTICH has been the Vice President for Strategic
Development for ORBIMAGE since 1997. From 1987 to early 1997, Dr. Faintich was
employed by TRIFID Corporation, a leading satellite-based geographic information
services company, where he was a co-founder and Chief Technical Officer. Prior
to that, Dr. Faintich's career in government service spanned more than 16 years,
including positions at the Naval
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<PAGE> 53
Weapons Laboratory and the Defense Mapping Agency, now the National Imaging and
Mapping Agency. He has received numerous DoD awards and has served in leading
positions on imaging industry working groups and associations, including as a
National Director of the American Cartographic Association.
STEVEN M. COX has been the Vice President for International Marketing for
ORBIMAGE since 1997. From 1996 to 1997, Mr. Cox was Vice President of Marketing
for ImageLinks, Inc., a satellite imagery processing company. From 1994 to 1996
he was in charge of worldwide marketing for an imaging satellite joint venture
formed by CORE Software Technology and Israel Aircraft Industries. From 1989 to
1994, he served as the Executive Director of Worldwide Sales for Space Imaging
EOSAT, the operator of the U.S. Landsat low-resolution Imagery satellite
services.
JOSEPH K. DODD has been the Vice President of Government Programs for
ORBIMAGE since 1997. Mr. Dodd has over 18 years experience in the satellite
remote sensing and space industry. From 1996 to 1997, Mr. Dodd was employed as
director of systems development at Hughes Electronics' Space and Communications
group. From 1979 to 1996, Mr. Dodd worked on a number of U.S. government imaging
satellite programs at The Aerospace Corporation.
MARK G. PASTRONE has been Vice President of Marketing and Business
Development for ORBIMAGE since 1997 and has been employed by ORBIMAGE in various
capacities since 1995. From 1992 to 1995, Mr. Pastrone was employed by Orbital.
From 1987 to 1988, Mr. Pastrone was employed as an aerospace engineer for
Integrated Systems Incorporated, and from 1989 to 1990 as Manager of Air
Vehicles, specializing in guidance, navigation and control of aerospace
vehicles.
DR. RAYMOND J. HELMERING was appointed our Vice President of Image Products
and Services in May 1998 He joined ORBIMAGE as a result of the TRIFID
acquisition. Before joining us, Dr. Helmering was President and Chief Operating
Officer of TRIFID Corporation from 1987 to 1998. Dr. Helmering also served for
over twenty years within the U.S. Department of Defense Mapping, Charting and
Geodesy Programs where his duties included managing a $100 million research and
development program. Dr. Helmering has served as an affiliate professor of
geodetic science at Washington University in St. Louis, Missouri.
GENERAL (RET.) JAMES A. ABRAHAMSON has been a member of the Board since
April 1998. General 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. General 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. General Abrahamson is also a director of
Western Digital Corporation and Stratesec Corporation.
BRUCE W. FERGUSON has been a member of the Board 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 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 that 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.
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<PAGE> 54
WILLIAM W. SPRAGUE has been a member of the Board 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.
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned for services
rendered to ORBIMAGE in the fiscal years ended December 31, 1997 and 1998, by
ORBIMAGE's chief executive officer and the three most highly compensated
executive officers in all capacities in which they served.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS OPTIONS(#) COMPENSATION(1)
---------------------------- -------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
David W. Thompson
Chairman and Chief Executive Officer(2)
1998......................................... $ -- $ -- 50,000 $ --
1997......................................... -- -- 40,000 --
Gilbert D. Rye
President and Chief Operating Officer
1998......................................... 215,000 97,200 60,000 15,120
1997......................................... 200,000 110,000 50,000 11,658
Edward D. Nicastri
Vice President, Engineering and Operations
1998......................................... 162,500 48,260 20,000 11,271
1997......................................... 116,000 64,500 90,000 8,488
Armand D. Mancini
Vice President, Chief Financial Officer
1998......................................... 132,000 39,200 20,000 8,774
1997......................................... 115,000 39,300 15,000 6,789
</TABLE>
- ---------------
(1) Includes matching and profit-sharing contributions earned under a 401(k)
plan and the dollar value of premiums paid by ORBIMAGE for life insurance
for their benefit.
(2) Mr. Thompson's salary, bonus and long-term compensation, other than options,
are paid by Orbital. Except as indicated in the above table, Mr. Thompson is
not compensated for services rendered in his capacity as an officer of
ORBIMAGE.
ORBIMAGE pays Gen. Abrahamson a $1,000 director's fee for each meeting of
the Board that he attends. In addition, ORBIMAGE reimburses all directors for
out of pocket expenses incurred for their services rendered as directors.
INDEMNIFICATION AGREEMENTS
We have entered into an indemnification agreement with each of our
executive officers and directors. Each agreement provides that if an executive
officer or director is or is threatened to be made a party to a civil, criminal,
administrative or investigative action, suit or proceeding, other than a
derivative action brought by or
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<PAGE> 55
in the right of ORBIMAGE, we will indemnify that executive officer or director
against expenses, including attorneys' fees, judgments, fines and amounts
actually and reasonably incurred by him or her in connection with that action,
suit or proceeding, if he or she acted in good faith and in a manner that he or
she reasonably believed to be in, or not opposed to, the best interests of
ORBIMAGE. As regards any criminal action or proceeding, our obligation to
indemnify the executive officer or director applies so long as he or she had no
reasonable cause to believe that his or her conduct was unlawful. If an
executive officer or director is or is threatened to be made a party to a
derivative action or suit that is brought by or in the right of ORBIMAGE, we are
still obligated to indemnify that officer or director unless he or she is
determined to be liable to ORBIMAGE.
STOCK OPTION PLAN
In November 1996, our 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 stock option plan,
incentive stock options may not be granted at less than 100% of the fair market
value at the date of grant, and non-qualified options may not be granted at less
than 85% of the fair market value at the date of grant. Each option under the
stock option plan vests at a rate set by the board in each individual's option
agreement, generally in one-third increments over a three-year period following
the date of grant. Options expire no more than ten years following the grant
date.
As of March 31, 1999, 4,800,000 shares of common stock were authorized for
issuance under the stock option plan, of which 2,624,900 options were
outstanding at exercise prices ranging from $3.60 to $5.10 per share. Of the
total number of options outstanding, 1,349,893 were currently exercisable.
Effective April 26, 1999, ORBIMAGE granted 774,323 options to purchase
shares of common stock to employees, directors and consultants, including 30,000
options which were granted to non-employee directors. The stock options were
granted with an exercise price of $6.25 and generally vest in one-third
increments over a three-year period. ORBIMAGE will expense the value of the
70,250 compensatory options that were issued to consultants totaling $0.2
million over the three-year vesting period of the options.
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information on grants of stock options to the named officers
under the stock option plan during the fiscal year ended December 31, 1998,
which options are reflected in the Summary Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED
------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE
SECURITIES GRANTED APPRECIATION FOR
UNDERLYING TO EMPLOYEES EXERCISE OR OPTION TERM
OPTIONS IN FISCAL YEAR BASE PRICE EXPIRATION -------------------
NAME GRANTED(1) 1998 PER SHARE(2) DATE 5% 10%
---- ---------- -------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
David W. Thompson.............. 50,000 7% 4.17 1/14/08 131,125 332,295
Gilbert D. Rye................. 60,000 8% 4.17 1/14/08 157,349 398,754
Edward D. Nicastri............. 20,000 3% 4.17 1/14/08 52,450 132,918
Armand D. Mancini.............. 20,000 3% 4.17 1/14/08 52,450 132,918
</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. Several factors considered by the board in
determining the fair market value of options include, without limitation,
valuations done in connection with recent financings, the conversion price
of ORBIMAGE's Series A preferred stock, results of operations, whether
ORBIMAGE has entered into any new contracts, and the lack of a market for
ORBIMAGE common stock.
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<PAGE> 56
The board has implemented an incentive bonus plan. Members of senior
management are eligible for bonuses equal to between 10% and 50% of their base
salary, based upon their success in meeting team and individual incentives that
are defined by the board.
ORBIMAGE 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, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David W. Thompson.............................. 141,111 148,889 $204,066 $179,634
Gilbert D. Rye................................. 204,167 155,833 296,750 180,550
Edward D. Nicastri............................. 30,000 80,000 27,900 74,400
Armand D. Mancini.............................. 80,000 55,000 117,150 65,400
</TABLE>
- ---------------
(1) The value of unexercised in-the-money options at December 31, 1998 assumes a
fair value of $5.10 for ORBIMAGE's common stock.
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following table provides certain information regarding the beneficial
ownership of the common stock and Series A preferred stock as of May 31, 1999 by
each person who beneficially owns more than five percent of the Series A
preferred stock, which votes as a class on certain matters, 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, by each director and named
officer and by all executive officers and directors as a group.
All persons listed below have an address in care of ORBIMAGE'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 59.0%
21700 Atlantic Boulevard
Dulles, VA 20166
Merrill Lynch KECALP L.P............................... 260,562(3) 35.8 6,248,489 14.6
225 Liberty Street
South Tower, 23rd Floor
New York, NY 10080-6123
Crest Funding Partners, L.P.(4)........................ 207,251(5) 28.4 4,970,048 11.6
320 Park Avenue
New York, NY 10022
Morgan Guaranty Trust Company of New York.............. 154,109(6) 21.1 3,695,659 8.7
522 Fifth Avenue
New York, NY 10036
Georgica Advisors LLC(7)............................... 78,752(8) 10.8 1,888,537 4.4
1114 Avenue of the Americas
New York, NY 10036
David W. Thompson(9)................................... 171,111 *
Gilbert D. Rye(9)...................................... -- -- 240,834 *
Armand D. Mancini(9)................................... -- -- 91,667 *
Edward D. Nicastri(9).................................. -- -- 66,667 *
James A. Abrahamson.................................... -- -- 3,334 *
Bruce W. Ferguson(9)(10)............................... -- -- 151,667 *
William W. Sprague(4)(9)............................... -- -- 1,667 *
Richard Reiss, Jr.(7)(9)............................... -- -- 1,667 *
All executive officers and directors as a
group(9)(10)......................................... -- -- 728,614 1.7
</TABLE>
- ---------------
* Less than one percent
(1) The persons named in this table have sole voting power for all shares shown
as beneficially owned by them, except as indicated in other footnotes to
this table. In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of common stock subject
to options held by that person that are currently exercisable or exercisable
within 60 days after May 31, 1999, are deemed outstanding.
(2) Each of Crest Funding Partners, L.P., Merrill Lynch KECALP L.P., 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 shares of common stock.
See "Description of Capital Stock -- Series A Preferred Stock -- Conversion
Rights."
(3) Includes 159,822 shares owned by Merrill Lynch KECALP L.P. 1997, 52,666
shares owned by Merrill Lynch KECALP L.P. 1999, 30,517 shares owned by
Merrill Lynch KECALP International L.P. 1997, and 17,557 shares owned by
Merrill Lynch KECALP International L.P. 1999.
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(4) William W. Sprague, an ORBIMAGE director, is the founder and President of
Crest Management Company, LLC, the manager of Crest Funding Partners, L.P.
(5) Includes 150,696 shares owned by Crest Funding Partners, L.P., and 56,555
shares owned by Crest Management Company LLC.
(6) Includes 109,270 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; 21,724
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 23,115 shares owned by Bost & Co. for the beneficial
interest of 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., an ORBIMAGE director, is the founder and President of
Georgica Advisors LLC.
(8) Includes 66,476 shares owned by Georgica Partners, 9,182 shares owned by
Georgica International Fund and 3,094 shares owned by Roaring Fork Partners
LLC.
(9) Consists of shares of common stock issuable upon the exercise of options.
(10) Includes 14,000 shares of common stock issued under option exercises.
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<PAGE> 59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK PURCHASE AGREEMENT
During 1997, we sold 372,705 shares of our Series A Cumulative Convertible
Preferred Stock for $100 per share under a stock purchase agreement, generating
net proceeds of approximately $33.5 million. We used these proceeds to fund a
portion of the purchase of the OrbView satellites and the OrbView-2 License, and
for initial operating expenses and other general corporate purposes. During
1998, the Series A holders exercised their rights under the stock purchase
agreement to purchase an additional $22.7 million of Series A preferred stock.
This 1998 Series A offering generated net proceeds of approximately $21.3
million.
Capital Contributions. As part of the initial sale of Series A preferred
stock in 1997, Orbital contributed approximately $91.5 million to our capital
and paid us $40.9 million to purchase OrbView-1 and OrbView-2 imagery, for total
payments to us of $132.4 million. These payments were offset by approximately
$95 million that we owed to Orbital under the procurement agreement and the
services agreement, resulting in net payments to us of $37.4 million. See
"-- Procurement Agreement," and "-- Services Agreement."
Change of Control. We have obligations to our Series A holders upon a
"change of control." If a change of control occurs before the latest of:
- the successful on-orbit checkout of OrbView-3;
- the closing of an initial public offering that meets specified criteria;
or
- the end of a 180-day period in which the average price of the common
stock exceeds a specified level relative to the conversion price of the
Series A preferred stock,
then we must offer to purchase, which offer is qualified by the rights of the
holders of any of our senior notes, all outstanding shares of Series A preferred
stock for a purchase price of 101% of the liquidation amount of the stock. If
the change of control occurs before May 2001, then we must also pay each Series
A holder an amount equal to the dividends that would have accrued on the
holder's shares of Series A preferred stock from the date of the change of
control through the fourth anniversary of the initial 1997 sale of the Series A
preferred stock.
For these purposes, a "change of control" means:
- the failure by Orbital to hold at least 50% of the shares of common stock
of ORBIMAGE;
- the failure by Orbital to hold at least 30% of the common stock of
ORBIMAGE on a fully diluted basis, without giving effect to the
conversion of capital stock of ORBIMAGE issued as a paid-in-kind dividend
on the Series A preferred stock or upon the exercise of options granted
under the stock option plans for our employees or directors;
- the acquisition of beneficial ownership by any person or group of persons
of an amount of voting equity securities of ORBIMAGE that equals or
exceeds the amount of voting equity interests held by Orbital, excluding
purchases by our current Series A holders and their affiliates from other
Series A holders or their affiliates and purchases by the Series A
holders from us from the exercise of their subscription rights under the
stockholders' agreement;
- the acquisition of ORBIMAGE, or the sale, lease, transfer, conveyance or
other disposition, including through a liquidation or dissolution, of all
or substantially all of our assets, or the combination of ORBIMAGE with
another entity, unless immediately after that transaction, our
stockholders hold more than 50% of the voting equity interests in the
acquiring or surviving entity;
- the adoption of a plan relating to the liquidation or dissolution of
ORBIMAGE, other than a liquidation or dissolution to or for the benefit
of any of our wholly owned subsidiaries;
- our failure to obtain any applicable license or license amendment so that
it is in full force and effect within 30 days before the scheduled launch
of either of OrbView-3 or OrbView-4;
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- the revocation of any license necessary to operate OrbView-2, OrbView-3
or OrbView-4 consistent with our current and planned commercial
operations if it is not cured within 30 days, unless we are appealing the
revocation and have received regulatory approval to continue operations
under the revoked license pending the outcome of the appeal; or
- unless consented to by a majority of the Series A holders, the
acquisition of beneficial ownership by any person or group of persons of
35% or more of the voting equity securities of Orbital, and at any time
thereafter, if less than a majority of Orbital's board of directors are
"continuing directors," meaning directors as of February 25, 1998 or
their nominees, or Orbital or an acquiror announces, or Orbital's board
approves a business plan, in either case that indicates an intention to
de-emphasize or curtail our relationship with Orbital.
STOCKHOLDERS' AGREEMENT
In connection with the 1997 sale of our Series A preferred stock, we
entered into a stockholders' agreement with Orbital and the Series A holders.
The stockholders' agreement governs specific voting rights of, and restrictions
upon transfer on, the Series A preferred stock.
Board of Directors. The stockholders' agreement provides that the board
will consist of up to five members. The majority of the Series A holders have
the right to elect two directors, and may be entitled to elect two additional
directors upon the occurrence of specific events described in "Description of
Capital Stock -- Series A Preferred Stock -- Voting." The majority of the
holders of the common stock also have the right to elect two directors. The
fifth member of the board of directors must be an independent director elected
by a majority vote of all stockholders, where each Series A holder is entitled
to vote the number of shares of common stock into which that holder's Series A
preferred stock would be convertible. However, as long as Orbital holds 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 as long as
Orbital holds 20% of the voting stock of ORBIMAGE, it may appoint one of the two
common directors. The stockholders' agreement provides for vacancies to be
filled using the same nomination procedures that are used for elections.
A majority vote of the board, including in some cases the affirmative vote
of at least one Series A director, is required before we can, among other
things:
- merge, consolidate, liquidate or sell all or substantially all of our
assets;
- modify the stock purchase agreement, the stockholders' agreement, the
procurement agreement, the services agreement or the OrbView-2 License,
if the modifications would affect satellite performance or, in the case
of modifications to the procurement agreement or the services agreement,
would increase our costs by more than $1 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
$500,000;
- select, approve or remove any officer; or
- declare any dividends on the common stock.
Restrictions on Transfer. As qualified by some limited exceptions, the
stockholders have agreed not to transfer, pledge, mortgage, hypothecate or
otherwise encumber any shares of common stock or Series A preferred stock. The
stockholders have also agreed as follows:
Right of First Purchase. Any stockholder desiring to transfer common
stock or Series A preferred stock must first give Orbital the right to
purchase the shares.
Right of First Refusal. Conversely, if Orbital desires to transfer
common stock or Series C preferred stock, it must give stockholders the
right to purchase a proportionate amount of the common stock or Series C
preferred stock.
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Tag-Along Rights. If Orbital proposes to transfer any shares of
common stock or Series C preferred stock, the Series A holders will have
the right to require Orbital to sell a proportionate amount of their Series
A preferred stock.
Drag-Along Rights. If 70% of the common holders on a fully diluted
basis propose to transfer 70% or more of their common stock, the Series A
holders may be required to convert their Series A preferred stock into
common stock and transfer the common stock to the proposed transferee.
Subscription Rights. If we plan to offer to issue private equity
securities, including warrants, options or other rights to acquire equity
securities, we must notify our Series A holders of the terms of the offering and
offer a proportionate amount of the securities being offered, based on each
Series A holder's current ownership, to each Series A holder. These subscription
rights will expire upon a public offering of the common stock.
Registration Rights. Holders of more than 35% of our outstanding common
stock may demand that we file up to three registration statements to permit the
sale and distribution of their common stock. Additionally, if we register any of
our common stock, excluding registrations on Form S-8, Form S-4 or that are
incident to the registration of convertible securities, the common holders may
require us to include their common stock within that registration statement.
These registration rights are circumscribed by customary underwriters' cutbacks
and other standard exceptions, and are not exercisable until 180 days after an
initial public offering of common stock or after June 30, 2002, if we have not
consummated an initial public offering of our common stock by that time.
PROCUREMENT AGREEMENT
ORBIMAGE and Orbital are parties to a procurement agreement. The
procurement agreement requires Orbital to:
- design, develop, construct and launch OrbView-1, OrbView-3 and OrbView-4;
- grant us a license to market OrbView-2 imagery, including the right to
receive all payments to Orbital from NASA under Orbital's contract to
provide OrbView-2 imagery to NASA; and
- build the U.S. central imagery receiving, processing and command and
control ground segment and any necessary infrastructure upgrades for all
four OrbView satellites.
Orbital or its subcontractors will retain ownership of all intellectual
property rights underlying the OrbView satellites and related ground systems and
has granted us a license to use the necessary intellectual property to operate
the OrbView satellites.
System Costs. We estimate that the total cost of the OrbView-1, OrbView-3
and OrbView-4 satellites, the OrbView-2 License and the related U.S. ground
systems will be approximately $285 million, which amount does not include $31
million to be funded by the U.S. Air Force through an agreement with Orbital. Of
this amount, we have agreed to pay $280 million under the procurement agreement.
These estimated costs include all satellite design, construction and launch
costs and hyperspectral capability, but exclude insurance costs. As of March 31,
1999, we had spent approximately $241 million under the procurement agreement
and $1 million outside of the procurement agreement for ground system
construction. We expect to spend approximately $26 million to complete OrbView-3
and OrbView-4 and $17 million to complete modifications to the related U.S.
ground systems. We generally pay our costs under the procurement agreement on a
monthly schedule based on the costs incurred by Orbital, and pay the remaining
amounts upon completion of specified project milestones, such as critical design
review and launch events. Our costs under the procurement agreement include an
extended performance incentive to Orbital of: (a) up to $1 million per year
during each year of the five-year design lives of OrbView-3 and OrbView-4 based
on the operational efficiency of the satellites, for a maximum payment of up to
$10 million; and (b) an additional $1 million per year per satellite for each
year that OrbView-3 or OrbView-4 remains in operation beyond its five year
design life.
Risk of Loss. Delivery by Orbital and passing of the risk of loss from
Orbital to us of the OrbView-3 satellite will occur upon separation of the
Pegasus launch vehicle from its carrier aircraft. Delivery and passing
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of the risk of loss from Orbital to us of the OrbView-4 satellite will occur
upon intentional ignition of the Taurus launch vehicle. Orbital has already
delivered the OrbView-2 ground command and control system to us. Orbital will
deliver the OrbView-3 and OrbView-4 ground receiving, processing, and command
and control systems consistent with the OrbView-3 and OrbView-4 satellite launch
dates, although risk of loss of the command and control and the data processing
systems will pass to us on successful completion of specified acceptance test
procedures.
Modifications. We have the right to make changes to the procurement
agreement relating to the specifications for OrbView-3 and OrbView-4, including
changes to Orbital's statement of work, the method of packing or shipment, place
or time of delivery, quantity or type of items to be delivered or services
required to be performed, except that Orbital has a right to demand negotiations
for "equitable adjustment" to the contract price and board approval in some
instances. Modifications to the procurement agreement that increase our costs by
more than $1 million or materially delay launch or decrease performance of
OrbView-3 or OrbView-4 require approval of a majority of our board, including at
least one director appointed by the Series A holders. We have agreed to
negotiate with Orbital any price adjustments due to changes we request and to
resolve disputes regarding any adjustments through arbitration.
Termination. We may terminate the procurement agreement if Orbital fails
to comply with the material terms of the agreement and does not cure the failure
within 60 days of our notice. Orbital may terminate the procurement agreement if
we fail to make the payments required by the agreement.
Limited Remedies. Orbital has made one-year warranties to us regarding the
workmanship of the items delivered by it under the procurement agreement. It has
also assigned to us third-party warranties that it has or may have for these
items. However, upon launch, insurance represents our sole remedy for OrbView-3
and OrbView-4 launch failures, defects, failures to conform to applicable
specifications or any other requirements. Orbital's liability to us for all
claims under the procurement agreement, including breach of its warranties, is
limited to $10 million. Orbital is not liable to us for any costs or other
damages arising from schedule delays.
Amendment. On December 31, 1998, we agreed with Orbital to amend the
procurement agreement to, among other things, (a) provide that Orbital would
launch the OrbView-4 satellite from a Taurus launch vehicle and (b) require us
to pay performance incentives to Orbital during the five-year design lives of
each of OrbView-3 and OrbView-4. The modifications in this amendment increased
our costs under the procurement agreement by $17 million.
SERVICES AGREEMENT
ORBIMAGE and Orbital are parties to a services agreement under which
Orbital has agreed to provide to us, upon our request, for 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 satellites on a cost plus
10% fee basis.
NON-COMPETITION AND TEAMING AGREEMENT
Under a non-compete agreement, Orbital has agreed that it will not, and
will not allow any of its affiliates to, enter into contracts to provide
integrated remote sensing satellite-based systems consisting of satellite bus,
payload, launch services and ground systems. Orbital may respond to a request
for a proposal for an integrated system only if Orbital allows us to have
primary responsibility to provide imagery services from the system. In addition,
Orbital must offer us any satellite-based remote imaging project that emerges
from its research and development.
The non-compete agreement permits Orbital to provide components for
integrated systems or subsystems, but does not permit Orbital to design, develop
or construct sensors capable of generating imagery similar, or technologically
superior, to the imagery of OrbView-2, OrbView-3, OrbView-4 or any satellite
that
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we purchase from Orbital or its affiliates. Orbital has also agreed, with
certain exceptions, not to invest, and not to let its affiliates invest, more
than $10 million in any entity that gathers and distributes satellite- based
imagery similar or technologically superior to the imagery of OrbView-2,
OrbView-3, OrbView-4 or any similar satellite that we purchase from Orbital or
its affiliates. The non-compete agreement will terminate on the earlier of (a)
June 30, 2003, (b) the date on which the procurement agreement is terminated,
(c) the first anniversary of an initial public offering by ORBIMAGE, or (d) the
end of a 180-day period in which ORBIMAGE's average common stock price exceeds
specified thresholds.
ORBVIEW-2 LICENSE
Orbital has granted us an exclusive worldwide license to market and sell
OrbView-2 imagery and to sublicense third parties to distribute OrbView-2
imagery for a license fee of approximately $62.7 million. The OrbView-2 License
contains the limitations imposed by Orbital's contract with NASA for OrbView-2
imagery and the DoC license applicable to OrbView-2. Orbital has agreed to use
reasonable commercial efforts to obtain and maintain the permits and licenses
that are necessary for the continued operation of the OrbView-2 satellite.
Orbital also has assigned to us all payments under Orbital's contract with NASA.
We have the sole responsibility for operating and controlling the OrbView-2
satellite.
The OrbView-2 License terminates:
- automatically, if Orbital assigns its contract with NASA to us;
- upon our discretionary determination that the OrbView-2 satellite has
failed;
- at our option, upon Orbital's uncured breach of its contract with NASA;
or
- by either party upon the other's insolvency.
Orbital retains a right of access to our ground station facilities to
perform its obligations under its contract with NASA if we fail to perform our
obligations under the OrbView-2 License.
RADARSAT-2 LICENSE
We have entered into a license agreement with Orbital and MDA, dated as of
December 31, 1998, and amended as of April 1, 1999, under which MDA has granted
us:
- a ten-year exclusive worldwide license to market and sell RadarSat-2
imagery products and services, with an option to renew this license at a
renewal price of $10,000 per year;
- a ten-year non-exclusive, royalty-free worldwide sublicense to use the
mark "RadarSat"; and
- a perpetual, fully paid non-exclusive license for all RadarSat-2 image
processing and archiving software.
Under the license agreement, MDA has further agreed to:
- construct and operate the RadarSat-2 satellite;
- provide us with RadarSat-2 imagery reception, processing and archiving
services; and
- serve as our exclusive worldwide distributor to market and sell
RadarSat-2 imagery.
In addition, we have licensed MDA to create and sell its own value-added
products based on RadarSat-2 imagery on a non-exclusive basis.
Purchase Price. The RadarSat-2 License will cost ORBIMAGE $60 million,
which amount does not include approximately $140 million to be funded by CSA
through a contract with Orbital. We will pay the $60 million purchase price in
installments based on milestones during the satellite construction phase. These
payments will not exceed: $15 million per year in 1999-2001; $10 million in
2002; and $5 million upon the successful checkout of RadarSat-2.
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Other Fees and Arrangements. We will pay MDA 12% of our annual net
revenues from RadarSat-2 imagery sales for data reception, processing and
archiving services. We will also pay MDA its costs plus 10% for marketing and
distribution services, and no more than $10 million per year to operate the
RadarSat-2 satellite.
Regulatory Approvals. MDA is responsible for obtaining the necessary
Canadian and U.S. government regulatory and other approvals necessary for it to
launch, operate and receive data from RadarSat-2. Neither we nor Orbital
believes that a DoC license is required to launch and operate RadarSat-2.
Nonetheless, if the DoC determines that Orbital, MDA and/or ORBIMAGE requires a
DoC license, then all three parties agree to use commercially reasonable efforts
to obtain the license on acceptable terms. If the responsible party fails to
obtain the DoC license on terms that preserve the commercial viability of
RadarSat-2, then Orbital, MDA and ORBIMAGE will negotiate in good faith an
equitable adjustment to the purchase price for the RadarSat-2 License.
Termination. Either ORBIMAGE or MDA may terminate the RadarSat-2 License
if the other party defaults on its obligations to pay amounts when due, breaches
its representations or warranties, or fails to perform any other of its material
obligations under the license agreement. In addition, either party may terminate
the agreement if the CSA contract is terminated for any reason, including
termination by the Canadian government for convenience.
Effects of Termination. Upon termination of the license agreement, our
exclusive license to market and sell RadarSat-2 imagery will terminate, except
in the case of imagery we have already received, for which we will continue to
hold a non-exclusive license. In addition, MDA will have no further imagery
purchase obligations under the agreement.
If we or MDA terminate the license agreement because the CSA contract
terminates, or if we terminate because MDA fails to obtain the regulatory
approvals needed for it to perform its obligations under the license agreement,
MDA has agreed to reimburse us for an amount equal to the lesser of (a) our
payments toward the purchase price of the RadarSat-2 License as of the date of
termination and (b) the remaining book value of the RadarSat-2 License. In
addition, if MDA has not selected a launch vehicle by December 31, 1999, we are
not required to make any more payments under the license agreement until a
launch vehicle is selected. If a RadarSat-2 launch vehicle has not been selected
by June 30, 2000, we are entitled to a refund of 50% of the license fee that we
have paid as of that date.
If MDA terminates the license agreement because of our default before
RadarSat-2 becomes operational, we must pay MDA the balance of the purchase
price of the RadarSat-2 License. If our default occurs after RadarSat-2 is
operational, we do not have to pay MDA any additional amounts for the RadarSat-2
License other than those cost-reimbursable amounts we already owe to MDA before
MDA's termination.
Indemnification. MDA has agreed to indemnify us for breaches of its
representations and warranties and other covenants under the license agreement.
We have agreed to indemnify MDA for breaches of our representations and
warranties and other covenants under the license agreement. These indemnities
survive expiration or termination of the RadarSat-2 License.
Guarantee. Orbital has unconditionally guaranteed MDA's full and timely
performance of its obligations under the RadarSat-2 License. If MDA defaults,
Orbital agrees to pay all amounts due to us.
Additional projects. Orbital and MDA have agreed to offer us exclusive
commercial distribution rights to any follow-on RadarSat-2 or similar projects
before June 30, 2003, if MDA or Orbital obtains these rights. If CSA and MDA
enter into any agreements that will be integrated into the operations of
RadarSat-2, they must receive our prior written approval. If we disapprove of a
project and CSA and MDA proceed with the project despite our disapproval, then
MDA will negotiate with us in good faith an equitable adjustment to the purchase
price for the RadarSat-2 License.
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ORBIMAGE GROUND STATIONS CONTRACT
Purpose and term. In May 1999, ORBIMAGE and MacDonald Dettwiler and
Associates, Ltd. entered into the five-year ORBIMAGE Ground Stations Contract
under which MDA has agreed to provide to ORBIMAGE up to eight ORBIMAGE ground
stations ("OGS"). ORBIMAGE will sell the OGS systems to its regional
distributors. Each basic OGS will be capable of receiving, archiving,
cataloging, ordering and processing OrbView-3 and OrbView-4 data. Each basic OGS
system includes all turnkey equipment and services, including hardware,
software, training, documentation and support services. In addition, MDA has
agreed to provide training, maintenance, storage enhancement and redundant
archive processing options that ORBIMAGE may order when it places its order for
a basic OGS system.
Timing of orders and payments. If ORBIMAGE were to order all eight OGS
systems, the total cost would be $45,035,000. ORBIMAGE is not obligated to order
any specified minimum number of OGS. MDA may adjust the prices of each OGS for
any orders received after December 31, 1999 to allow for changes in applicable
Canadian government labor rates and other rate structures, currency fluctuations
or changes in prices charged by MDA's suppliers. ORBIMAGE may place orders at
any time throughout the contract's five-year term. Payments to MDA for each OGS
ordered are due in installments based on specified milestones, including the
completion of a systems requirements review, a systems design review and
satisfactory completion of acceptance test procedures.
System support services. MDA has agreed to provide ORBIMAGE a one-year
warranty from the date of the on-site acceptance test for each OGS system. The
warranty covers defects arising out of faulty or defective material or
components, including software design and inferior workmanship. MDA has provided
ORBIMAGE a yearly option to enter into a post-warranty system support
maintenance agreement after the expiration of the one-year warranty for any OGS
system ORBIMAGE orders.
Intellectual Property. MDA maintains ownership and unrestricted rights to
all software for the OGS systems; however, it has granted ORBIMAGE a perpetual,
irrevocable, nonexclusive, royalty-free license to use the software and
supporting documentation for ORBIMAGE's own purposes or for a customer that buys
an OGS system directly from ORBIMAGE.
Termination. ORBIMAGE may terminate the contract for convenience at any
time. In addition, by written notice of default, ORBIMAGE may terminate the
contract if MDA:
- is three months delayed in the performance of any OGS project;
- fails in any way to make progress in the performance of the contract;
- notifies ORBIMAGE that it is unable or unwilling to complete performance
required under the contract;
- commits any substantial breach of the contract; or
- becomes insolvent.
ORBIMAGE's termination rights described above, other than for convenience,
may be exercised only if MDA does not submit a formal correction plan
satisfactory to ORBIMAGE within 15 days after ORBIMAGE provides MDA with a
notice of default.
OTHER AGREEMENTS
The distributorship contracts that we expect to offer to foreign
high-resolution imagery distributors may require the distributor to purchase
from us an imagery ground station or an OrbView upgrade to an existing ground
station. We are contractually obligated to procure any of these ground stations
or upgrades from MDA, provided that the price is commercially competitive.
Orbital has guaranteed our performance under our distribution agreement
with Samsung. This agreement grants Samsung an exclusive license to receive,
process and sell high resolution OrbView-3 imagery of the
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Korean peninsula, and a non-exclusive license to receive, process and sell
high-resolution OrbView-4 imagery of South Korea.
RELATIONSHIP WITH ORBITAL
Formed in 1982, Orbital is a space and information systems company that
designs, manufactures, operates, and markets a broad range of space-related
products and services. Orbital 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, including OrbView-1 and
OrbView-2. Orbital owns approximately 54% of the outstanding voting stock of
ORBIMAGE on a fully diluted basis. Its 1998 revenues were approximately $734
million. Orbital and its subsidiaries employ over 5,000 people. Its 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.
To date, Orbital has contributed approximately $91.5 million in capital to
ORBIMAGE. We have entered into various agreements with Orbital that require us
to pay Orbital a fixed price of approximately $340 million, which amount does
not include contracts of $140 million and $31 million which will be funded by
CSA and the U.S. Air Force, respectively, through contracts with Orbital. We
have paid approximately $240 million to Orbital through March 31, 1999. Under
these agreements, Orbital has:
- designed, developed, and launched OrbView-1;
- granted us the OrbView-2 License;
- provided the U.S. ground segment for OrbView-1 and OrbView-2; and
- designed and begun construction of OrbView-3 and OrbView-4.
In addition, under these agreements, Orbital is:
- finishing construction of and will test and launch OrbView-3 and
OrbView-4;
- building the U.S. ground system for OrbView-3 and OrbView-4; and
- through MDA, providing us with the RadarSat-2 License.
We use some of Orbital's employees and centralized systems for corporate
and administrative services under a services agreement. In addition, some of our
officers overlap. We anticipate that each of our executive officers will
generally devote a sufficient portion of his or her time to our business.
However, any ORBIMAGE executive officer who is also an Orbital employee also may
devote a significant portion of his or her time to the business of Orbital and
its other subsidiaries.
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POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS
The ongoing relationships between ORBIMAGE and Orbital may present conflict
situations for David W. Thompson, who serves as chairman of the board 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 ORBIMAGE, and may face
similar conflicts. These 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. Several ORBIMAGE employees,
including its executive officers, also 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 ORBIMAGE.
ORBIMAGE and Orbital have adopted appropriate policies and procedures to be
followed in conflict situations by the board of directors of each company to
limit the involvement of Mr. Thompson or any other officers and directors having
a significant ownership interest in the companies or who are serving in similar
capacities for both companies, including conflicts over matters relating to
contractual relationships or litigation between ORBIMAGE and Orbital. These
procedures include requiring directors of both Orbital and ORBIMAGE to abstain
from voting as directors of each company on 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 factors such 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.
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. Although
subordinate to the powers, preferences and rights of any holder of preferred
stock, the common holders are entitled to receive dividends that the board may
declare from time to time from legally available funds. Upon ORBIMAGE's
liquidation, dissolution or winding-up, the common holders will be entitled to
share ratably in all assets available for distribution to stockholders after
payment of liabilities, which ratable share is subordinate 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 warrants may be converted, when issued, will be fully paid and
non-assessable. The rights, preferences and privileges of common holders will be
subordinate to the rights, preferences and privileges of any preferred stock and
of any other series of preferred stock that ORBIMAGE may issue in the future.
PREFERRED STOCK
ORBIMAGE has authorized 10,000,000 shares of preferred stock, $0.01 par
value per share, including: (a) 2,000,000 shares of Series A preferred stock, of
which 728,832 shares have been issued; (b) 2,000,000 shares of Series B
preferred stock, none of which have been issued; and (c) 2,000,000 shares of
Series C preferred stock, none of which have been issued. The board is
authorized to issue preferred stock from time to time in one or more series,
with voting powers, full or limited, or no voting powers, and designations,
preferences and relative participating, optional or other special rights, and
qualifications, limitations or restrictions, as the board determines by
resolution providing for the issuance of preferred stock, other than as a
paid-in-kind dividend. The board currently has no plans to issue preferred
stock. The issuance of preferred stock could adversely affect the rights of
holders of our senior notes.
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SERIES A PREFERRED STOCK
Dividends. The Series A preferred stock is assigned a stated value of $100
per share and is entitled to a cumulative dividend of 12% per year payable
semi-annually on May 1 and November 1 of each year, payable in cash or in-kind
with shares of Series A preferred stock. In-kind dividends are paid 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. If an event occurs that triggers a mandatory
conversion of the Series A preferred stock before the fourth anniversary of the
issuance of the Series A preferred stock, each holder of Series A stock shall
receive the dividends that would have accrued on that Series A preferred stock
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 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 the number of votes to
which the Series A holder would be entitled if the Series A holder had converted
its Series A preferred stock into shares of common stock. Furthermore, the
Series A holders have the right to elect two additional directors to the board
upon the occurrence of an "election event." An "election event" is our failure
to:
- declare and pay dividends on the Series A preferred stock when due if
uncured for more than thirty (30) days;
- repurchase the Series A preferred stock upon, among other things, a
change of control as more fully described in "Certain Relationships and
Related Transactions -- Stock Purchase Agreement -- Change of Control";
or
- begin the integration and testing of the OrbView-4 satellite by November
15, 1999. We may extend this date by up to thirty (30) days if our
president, in consultation with the Series A directors, determines in his
discretion that a delay is advisable.
The directors elected upon the occurrence of an election event will serve
only as long as the election event continues. Some transactions, including some
additional issuances of our securities, 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 common stock.
The number of shares of common stock issued upon conversion will be determined
by multiplying each Series A holder's number of shares 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, after giving
effect to anti-dilutive adjustments. The per share conversion price of the
Series A preferred stock is currently $4.17. The Series A preferred stock will
be converted automatically into shares of common stock upon the earliest to
occur of any one of the following events:
- the closing of a public offering of our common stock that meets specific
criteria;
- the culmination of a 180-day period in which the average price of the
common stock exceeds a specific level relative to the conversion price of
the Series A preferred stock; or
- the proposed sale of 70% or more of our 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 CERTAIN INDEBTEDNESS
1998 NOTES
We have outstanding $150 million in aggregate principal amount at maturity
of the 11 5/8% Senior Notes due 2005 that we issued in February 1998. The terms
and covenants in the indenture relating to the 1998 notes are substantially
identical to the terms and covenants in the indenture relating to the exchange
notes.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Under a purchase agreement between us and the initial purchasers of the
original notes, we sold the original notes on April 22, 1999. The initial
purchasers then resold the original notes to qualified buyers. As a condition to
the completion of the original notes offering, we entered into the registration
rights agreement with the initial purchasers under which we agreed to file with
the Commission the exchange offer registration statement to exchange the
original notes for exchange notes. Under existing interpretations of the staff
of the Commission, the exchange notes would, in general, be freely transferable
after the exchange offer without further registration under the Securities Act.
Participation in the exchange offer is voluntary and holders should
carefully consider whether to accept our offer. Holders of the original notes
are urged to consult their financial and tax advisors before making their own
decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of, all
validly tendered original notes in this exchange offer, we will have fulfilled a
covenant contained in the original notes and the registration rights agreement.
We may in the future seek to acquire untendered original notes in open market or
privately negotiated transactions, through subsequent exchange offers or
otherwise. We have no present plan to acquire any original notes that are not
tendered in the exchange offer.
The original notes and the exchange notes will be considered collectively
to be a single class for all purposes under the indenture, including, without
limitation, waivers, amendments, redemptions and offers to repurchase under the
circumstances described in this prospectus. If:
- We are not required to file the exchange offer registration statement or
permitted to commence or accept tenders under the exchange offer because
the exchange offer is not permitted by applicable law or Commission
policy;
- any holder of original notes notifies us within 20 business days after
the completion of the exchange offer that (a) he or she was prohibited by
applicable law or Commission policy from participating in the exchange
offer; (b) he or she may not resell exchange notes acquired in the
exchange offer to the public without delivering a prospectus, and the
prospectus contained in the exchange offer registration statement is not
appropriate or available for the resales or (c) the holder is a
broker-dealer and owns original notes acquired directly from us or our
affiliate; or
- the exchange offer is for any other reason not completed by October 19,
1999,
then we will file with the Commission a shelf registration statement.
LIQUIDATED DAMAGES
In the event that:
(1) the exchange offer registration statement or the shelf registration
statement is not filed with the Commission on or before the date
specified for the filing;
(2) the exchange offer registration statement or the shelf registration
statement has not been declared effective by the Commission on or
before the date specified for the effectiveness;
(3) the exchange offer is not completed on or before the date specified for
its completion; or
(4) following the date the exchange offer registration statement or shelf
registration statement is declared effective by the Commission, it
shall cease to be effective without being restored to effectiveness by
amendment or otherwise within the time period specified in the
registration rights agreement, (each such event referred to in clauses
(1) through (4), a "Registration Default"),
ORBIMAGE shall pay as liquidated damages to each holder of the original notes an
amount equal to 0.25% per year of the face amount of the original notes during
the first 90-day period or any portion of the face
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amount immediately following the occurrence of the Registration Default. The
damage amount will be increased by an additional 0.25% per year of the face
amount of the original notes for each subsequent 90-day period that the damage
amount continues to accrue, and the damage amount will accrue at the rate
specified above until the Registration Default is cured; provided that in no
event shall the damage amount be increased by more than 1% of the face amount of
the original notes. In some circumstances, if the shelf registration statement
ceases to be effective for certain periods, then liquidated damages shall be
payable.
TERMS OF THE EXCHANGE OFFER
Upon the terms and conditions stated in this prospectus and in the letter
of transmittal, we will accept any and all original notes validly tendered and
not withdrawn before 5:00 p.m., New York time, on the expiration date. We will
issue $1,000 principal amount of exchange notes in exchange for each $1,000
principal amount of outstanding original notes accepted in the exchange offer.
Holders may tender some or all of their original notes in the exchange offer,
however, original notes may be tendered only in integral multiples of $1,000.
The form and terms of the exchange notes are the same as the form and terms
of the original notes except that:
- the exchange notes bear a Series D designation and a different CUSIP
number from the original notes;
- the exchange notes have been registered under the Securities Act and
therefore will not bear legends restricting their transfer; and
- the holders of the exchange notes will not be entitled to rights under
the registration rights agreement, including the provisions providing for
an increase in the interest rate on the original notes under specific
circumstances relating to the timing of the exchange offer, all of which
rights generally will terminate when the exchange offer is completed. The
exchange notes will evidence the same debt as the original notes and will
be entitled to the benefits of the indenture governing the original
notes.
The exchange offer is not conditioned upon any minimum number of original
notes being tendered. As of the date of this prospectus, $75.0 million aggregate
principal amount of original notes was outstanding.
Holders of original notes do not have any appraisal or dissenters rights
under the General Corporation Law of Delaware or the indenture in connection
with the exchange offer. We intend to conduct the exchange offer according to
the applicable requirements of the exchange act and the rules and regulations of
the Commission.
We will be deemed to have accepted validly tendered original notes when, as
and if we have given oral or written notice of our acceptance to the exchange
agent. The exchange agent will act as agent for the tendering holders for the
purpose of receiving the exchange notes from us.
If any tendered original notes are not accepted for exchange because of an
invalid tender or for any other reason, the certificates for any unaccepted
original notes will be returned, without expense, to the tendering holder as
promptly as practicable after the expiration date. See "-- Procedures for
Tendering," "-- Book-Entry Transfer," "-- Guaranteed Delivery Procedures" and
"-- Conditions."
EXPIRATION DATE; EXTENSION; AMENDMENTS
The expiration date for the exchange offer is 5:00 p.m., New York time, on
July 27, 1999, unless we, in our sole discretion, extend the exchange offer.
To extend the exchange offer, we will notify the exchange agent of any
extension by oral or written notice before 9:00 a.m., New York time, on the next
business day after the previously scheduled expiration date. Any extension will
be followed as promptly as practicable by notice of the extension by press
release or other public announcement, or by written notice to the holders of the
original notes.
We reserve the right, in our sole discretion, to delay accepting any
original notes, to extend the exchange offer or to terminate the exchange offer
if any of the conditions described below under "-- Conditions" is not satisfied,
by giving oral or written notice to the exchange agent of the delay, extension
or termination.
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Furthermore, we reserve the right, in our sole discretion to amend the terms of
the exchange offer in any manner.
INTEREST ON THE EXCHANGE NOTES
Interest on the exchange notes will accrue at the rate of 11 5/8% per year
from the most recent date to which interest has been paid on the original notes
surrendered in exchange for the exchange notes or, if no interest has been paid
on the original notes, from April 22, 1999. Holders whose original notes have
been accepted for exchange will be deemed to have waived the right to receive
any interest accrued on the original notes.
PROCEDURES FOR TENDERING
For a holder of original notes to tender original notes validly under the
exchange offer, a properly completed and signed letter of transmittal, or
facsimile of it, with any required signature guarantee, or, in the case of a
book-entry transfer, an agent's message in lieu of the letter of transmittal,
and any other required documents, must be received by the exchange agent at the
address given in the letter of transmittal before 5:00 p.m., New York time, on
the expiration date. In addition, before 5:00 p.m., New York time on the
expiration date, either (a) certificates for tendered original notes must be
received by the exchange agent at the exchange agent's address or (b) the
original notes must be transferred using the procedures for book-entry transfer
described below, and a confirmation of the tender received by the exchange
agent, including an agent's message if the tendering holder has not delivered a
letter of transmittal.
The term "agent's message" means a message transmitted by the depositary,
received by the exchange agent and forming part of the confirmation of a
book-entry transfer, that states that the depositary has received an express
acknowledgment from the tendering participant in the depositary that the
participant has received and agrees to be bound by the terms of the letter of
transmittal and that we may enforce the agreement against the participant. In
the case of an agent's message relating to guaranteed delivery, the term means a
message transmitted by the depositary and received by the exchange agent, that
states that the depositary has received an express acknowledgment from the
participant in the depositary that the participant has received and agrees to be
bound by the notice of guaranteed tendering delivery.
By tendering original notes using the procedures described above, each
holder will make to us the representations listed above in the third paragraph
under the heading "-- Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance by us of original notes will
constitute agreement between us and that holder according to the terms and
conditions stated in this prospectus and in the letter of transmittal. THE
METHOD OF DELIVERY TO THE EXCHANGE AGENT OF ORIGINAL NOTES AND THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND SOLE RISK OF
THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, THE HOLDER SHOULD ALLOW
SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO ORBIMAGE.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR THEM.
Any beneficial owner whose original notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender the original notes, that beneficial owner must, before
completing and executing the letter of transmittal and delivering the original
notes in the beneficial owner's name, either make appropriate arrangements to
register ownership of the original notes in that beneficial owner's name or
obtain a properly completed bond power from the registered holder of the
original notes. The transfer of registered ownership may take considerable time
and the beneficial owner may not be able to complete the transfer before the
expiration date.
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Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible institution unless the original notes so tendered are
tendered (a) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal or (b) for the account of an eligible institution. If signatures
on a letter of transmittal or a notice of withdrawal are required to be
guaranteed, the guarantee must be by a member firm of a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 of the Exchange
Act.
If the letter of transmittal is signed by a person other than the
registered holder of any original notes listed in the letter of transmittal, the
original notes must be endorsed or accompanied by a properly completed bond
power, signed by the registered holder as the registered holder's name appears
on the original notes with the signature guaranteed by an eligible institution.
If the letter of transmittal or any original notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
offices of corporations or others acting in a fiduciary or representative
capacity, these persons should so indicate when signing, and evidence
satisfactory to ORBIMAGE of their authority to so act must be submitted with the
letter of transmittal.
The exchange agent and DTC have confirmed that the exchange offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the exchange offer
by causing DTC to transfer original notes to the exchange agent using DTC's ATOP
procedures for transfer. DTC will then send an agent's message to the exchange
agent.
We will determine in our sole discretion all questions concerning the
validity, form, eligibility, acceptance of tendered original notes and
withdrawal of tendered original notes and our determination will be final and
binding. We reserve the absolute right to reject any and all original notes not
properly tendered or any original notes that our counsel opines would be
unlawful for us to accept. We also reserve the right in our sole discretion to
waive any defects, irregularities or conditions of tender concerning particular
original notes. Our interpretation of the terms and conditions of the exchange
offer will be final and binding on all parties. Unless waived, any defects or
irregularities concerning tenders of original notes must be cured within the
time that we determine. Although we intend to notify holders of defects or
irregularities involving tenders of original notes, neither we, the exchange
agent nor any other person shall incur any liability for failure to give
notification. Tenders of original notes will not be deemed to have been made
until the defects or irregularities have been cured or waived. Unless otherwise
provided in the letter of transmittal, the exchange agent will return to
tendering holders, as soon as practicable following the expiration date, any
original notes it receives that are not properly tendered and as to which the
defects or irregularities have not been cured or waived.
BOOK-ENTRY TRANSFER
We understand that the exchange agent will make a request promptly after
the date of this prospectus to establish accounts for the original notes at the
book-entry transfer facility, The Depository Trust Company ("DTC"), to
facilitate the exchange offer, and any financial institution that is a
participant in the book-entry transfer facility's system may make book-entry
delivery of original notes by causing the book-entry transfer facility to
transfer original notes into the exchange agent's account according to the
book-entry transfer facility's procedures for transfer. Although delivery of the
original notes may be made through book-entry transfer into the exchange agent's
account at the book-entry transfer facility, an appropriate letter of
transmittal properly completed and signed with any required signature guarantee,
or, in the case of a book-entry transfer, an agent's message in lieu of the
letter of transmittal, and all other required documents, must be transmitted to
and received or confirmed by the exchange agent at its address listed in the
letter of transmittal on or before the expiration date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under those procedures. Delivery of documents to the book-entry
transfer facility does not constitute delivery to the exchange agent.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the exchange agent will
be required to withhold 31% of the gross proceeds otherwise payable to a holder
in the exchange offer if the holder does not provide its taxpayer identification
number and certify that the number is correct. Each tendering holder should
complete and sign the main signature form
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and the Substitute Form W-9 included as part of the letter of transmittal, to
provide the information and certification necessary to avoid backup withholding,
unless an applicable exemption exists and is proved in a manner satisfactory to
us and the exchange agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their original notes and (a) whose original
notes are not immediately available, (b) who cannot deliver to the exchange
agent their original notes, the letter of transmittal or any other required
documents or (c) who cannot complete the procedures for book-entry transfer
before the expiration date, may still tender their original notes if:
- the tender is made through an eligible institution;
- before the expiration date, the exchange agent receives from the eligible
institution a properly completed and executed notice of guaranteed
delivery indicating the name and address of the holder, the certificate
number(s) and principal amount of original notes tendered and a statement
indicating that the tender is being made and guaranteeing that, within
five New York Stock Exchange trading days after the expiration date, the
letter of transmittal, or a facsimile of it, together with the
certificate(s) representing the original notes, or a confirmation of
book-entry transfer of original notes into the exchange agent's account
at the book-entry transfer facility, and any other documents required by
the letter of transmittal will be deposited by the eligible institution
with the exchange agent; and
- the properly completed and signed letter of transmittal, or facsimile of
it, as well as the certificates representing all tendered original notes
in proper form for transfer, or a confirmation of book-entry transfer of
original notes into the exchange agent's account at the book-entry
transfer facility, and all other documents required by the letter of
transmittal are received by the exchange agent upon five New York Stock
Exchange trading days after the expiration date.
Upon request, the exchange agent will send a notice of guaranteed delivery
to holders who wish to tender their original notes according to the guaranteed
delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of original notes
may be withdrawn at any time before 5:00 p.m., New York time, on the expiration
date.
To withdraw a tender of original notes in the exchange offer, the exchange
agent must receive at its address listed in the letter of transmittal a
telegram, telex, letter or facsimile transmission notice of withdrawal before
5:00 p.m., New York time, on the expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the original notes to be
withdrawn;
- identify the original notes to be withdrawn, (including the certificate
number(s) and principal amount of the original notes, or, in the case of
original notes transferred by book-entry transfer, the name and number of
the account at the book-entry transfer facility to be credited;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the original notes were tendered or be
accompanied by documents of transfer sufficient to have the trustee
register the transfer of the original notes into the name of the person
withdrawing the tender; and
- specify the name in which any original notes are to be registered, if
different from the name of the person having deposited the original
notes.
We will determine all questions concerning the validity, form and
eligibility of the notices and our determination will be final and binding on
all parties. Any original notes withdrawn using the procedures described above
will be deemed not to have been validly tendered for purposes of the exchange
offer and we will not issue exchange notes in exchange for those original notes,
unless the original notes that were withdrawn are validly retendered. Any
original notes that have been tendered but that are not accepted for
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exchange will be returned to the holder without cost as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer.
Properly withdrawn original notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time
before the expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange any original notes, and may terminate or amend
the exchange offer as provided in this prospectus before accepting original
notes, if:
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency regarding the exchange offer which, in
our reasonable discretion, might materially impair our ability to proceed
with the exchange offer, or any material adverse development has occurred
in any existing action or proceeding involving us or any of our
subsidiaries;
- any law, statute, rule, regulation or interpretation by the staff of the
Commission is proposed, adopted or enacted, which, in our reasonable
discretion, might materially impair our ability to proceed with the
exchange offer or materially impair the contemplated benefits to us of
the exchange offer; or
- any governmental approval has not been obtained, which approval we, in
our reasonable discretion, deem necessary to complete the exchange offer
as contemplated.
If we determine in our reasonable discretion that any of the above
conditions are not satisfied, we may:
- refuse to accept any original notes and return all tendered original
notes to the tendering holders;
- extend the exchange offer and retain all original notes tendered before
the expiration date, subject, however, to the rights of holders to
withdraw their original notes (see "-- Withdrawal of Tenders"); or
- waive any unsatisfied conditions under the exchange offer and accept all
properly tendered original notes that have not been withdrawn.
The conditions described above are solely for the benefit of ORBIMAGE and
we may assert the above conditions in good faith regardless of the circumstances
giving rise to the conditions or we may waive the conditions in whole or in part
at any time in our discretion. Our failure at any time to exercise our rights
concerning the conditions described above will not mean that we have waived any
right and each right will be deemed an ongoing right that we may assert at any
time. In addition, we have reserved the right, even if each of the conditions
above has been satisfied, to terminate or amend the exchange offer.
EXCHANGE AGENT
HSBC Bank USA has been appointed the exchange agent for the exchange offer.
Questions and requests for assistance, requests for additional copies of this
prospectus or of the letter of transmittal and requests for a notice of
guaranteed delivery should be directed to the exchange agent at the address
indicated in the letter of transmittal. DELIVERY TO AN ADDRESS OTHER THAN THE
ONE INDICATED IN THE LETTER OF TRANSMITTAL WILL NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We are making the
principal solicitation by mail; however, we may make an additional solicitation
by telecopy, telephone or in person by our and our affiliates' officers and
regular employees.
We have not retained any dealer-manager in this exchange offer and will not
make any payments to brokers, dealers or others soliciting acceptances of the
exchange offer. However, we will pay the exchange agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses.
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We will pay the cash expenses incurred for the exchange offer. These
expenses include fees and expenses of the exchange agent and trustee, accounting
and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
original notes as reflected in our accounting records on the date of exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes. We
will expense the expenses of the exchange offer over the term of the exchange
notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders whose original notes are not tendered or are tendered but not
accepted in the exchange offer will continue to hold their original notes, will
be entitled to all the rights and preferences, and will be restricted by all the
limitations, applicable to the original notes under the indenture. Following
completion of the exchange offer, the holders will continue to be affected by
the existing transfer restrictions and we will have no further obligation to
these holders to provide for the registration under the Securities Act of their
original notes. To the extent that original notes are tendered and accepted in
the exchange offer, the trading market for untendered and tendered but
unaccepted original notes could be adversely affected.
RESALE OF EXCHANGE NOTES
As regards exchange note resales, based on interpretations by the staff of
the Commission found in no-action letters issued to third parties, we believe
that a holder or other person, other than a person that is one of our affiliates
within the meaning of Rule 405 under the Securities Act, who receives exchange
notes in exchange for original notes in the ordinary course of business and who
is not participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of exchange
notes, will be allowed to resell the exchange notes to the public without
further registration under the Securities Act and without delivering to the
purchasers of the exchange notes a prospectus that satisfies the requirements of
Section 10 of the Securities Act.
If any holder of original notes is our affiliate or acquires exchange notes
in the exchange offer for the purpose of distributing or participating in a
distribution of exchange notes, that holder cannot rely on the position of the
staff of the Commission stated in no-action letters or any similar interpretive
letters, and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
unless an exemption from registration is otherwise available.
Each holder of original notes who wishes to exchange original notes for
exchange notes in the exchange offer will be required to represent that:
- it is not an ORBIMAGE affiliate;
- it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the exchange notes; and
- it is acquiring the exchange notes in its ordinary course of business.
Further, each participating broker-dealer that receives exchange notes for
its own account in exchange for original notes, where the participating broker
dealer acquired the original notes as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with a resale of the exchange notes. The letter of transmittal states
that by making this acknowledgement and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Division of Corporation Finance of the Commission in interpretive letters, we
believe that participating broker-dealers who acquired original notes for their
own accounts as a result of market-making activities or other trading activities
may fulfill their prospectus delivery requirements regarding the exchange notes
with a prospectus meeting the requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so long as it contains a
description of the plan of distribution for the resale of the exchange notes.
Accordingly, participating broker-
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dealers may use this prospectus during the period referred to below in
connection with resales of exchange notes where the participating broker-dealer
acquired the original notes for its own account as a result of market-making or
other trading activities.
We have agreed that this prospectus may be used by a participating
broker-dealer for resales of exchange notes for a period ending 180 days after
the date on which the exchange offer registration statement is declared
effective. However, a participating broker-dealer who intends to use this
prospectus for the resale of exchange notes must notify us on or before the
expiration date that it is a participating broker-dealer. This notice may be
given in the space provided for that purpose in the letter of transmittal or may
be delivered to the exchange agent at its address indicated in the letter of
transmittal. See "Plan of Distribution."
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DESCRIPTION OF THE EXCHANGE NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions."
We have issued the original notes and will issue the exchange notes under
an indenture between us and HSBC Bank USA, as trustee. The terms of the exchange
notes include those stated in the indenture and those made part of the indenture
by reference to the Trust Indenture Act of 1939. The pledge agreement referred
to under the subcaption "Security" also defines the terms of the pledges that
will secure the exchange notes.
The following description is a summary of the material provisions of the
indenture, the pledge agreement and the registration rights agreement. It does
not restate those agreements in their entirety. We urge you to read the
indenture, the pledge agreement and the registration rights agreement because
they, and not this description, define your rights as holders of these exchange
notes. We have filed copies of the indenture, the pledge agreement and the
registration rights agreement as exhibits to the registration statement that
includes this prospectus. The form and terms of the exchange notes will be the
same as the form and terms of the original notes, except that you will be able
to transfer the exchange notes freely, except as otherwise provided in this
prospectus. See "The Exchange Offer -- Purpose and Effect."
BRIEF DESCRIPTION OF THE EXCHANGE NOTES
These exchange notes:
- are senior obligations of ORBIMAGE;
- are secured by the pledged securities, which are a portfolio of
securities we have purchased and pledged as security for the notes;
- are senior in right and priority of payment to all of our existing and
future subordinated indebtedness; and
- are ranked pari passu in right and priority of payment with all of our
other existing and future indebtedness that is not expressly
subordinated.
We have no Restricted Subsidiaries. Under certain circumstances, we may be
required to designate future subsidiaries that we create or acquire as
Restricted or as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants in the indenture.
PRINCIPAL, MATURITY AND INTEREST
We will issue the exchange notes with a maximum aggregate principal amount
of $75 million. We will issue the exchange notes in denominations of $1,000 and
integral multiples of $1,000. The notes will mature on March 1, 2005.
Interest on the notes will accrue at the rate of 11 5/8% per annum and will
be payable semi-annually in arrears on March 1 and September 1 of each year,
commencing on September 1, 1999. We will make each interest payment to the
holders of record on the immediately preceding February 15 and August 15.
Interest on the notes will accrue from the date of original issuance, or if
no interest has been paid, from the Issue Date. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder has given us wire transfer instructions we will make all
payments on the notes according to those instructions. All other payments on the
notes will be made at the office or agency of the paying agent that we maintain
for that person unless we elect to make interest payments by check mailed to the
holders at their addresses indicated in the register of holders.
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PAYING AGENT AND REGISTRAR FOR THE EXCHANGE NOTES
The trustee will initially act as paying agent and registrar. We may change
the paying agent or registrar without prior notice to the holders of notes, and
we or any of our subsidiaries may act as paying agent or registrar.
OPTIONAL REDEMPTION
Before March 1, 2001, we may redeem up to 35% of the aggregate principal
amount of notes outstanding at a redemption price of 111.625% of their principal
amount, plus accrued and unpaid interest to the redemption date, with the net
cash proceeds of one or more sales of capital stock; provided that
(1) at least 65% of the aggregate principal amount of notes remains
outstanding immediately after the occurrence of the redemption
(excluding notes held by us and our subsidiaries); and
(2) the redemption must occur within 60 days of the date of the closing of
the sale of capital stock.
Except as indicated in the preceding paragraph, these notes will not be
redeemable at our option before March 1, 2002.
After March 1, 2002, we may redeem all or a part of the notes upon not less
than 30 nor more than 60 days' notice at the redemption prices indicated below,
expressed as percentages of the principal amount, plus accrued and unpaid
interest on the notes and liquidated damages, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on March 1
of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................ 105.8125%
2003........................................................ 102.9063%
2004 and thereafter......................................... 100.0000%
</TABLE>
MANDATORY REDEMPTION
We will not be required to make mandatory redemption or sinking fund
payments on the notes. However, as described below, we may be obligated, under
specific circumstances, to make an offer to purchase: (a) all outstanding notes
at a redemption price of 101% of their principal amount plus accrued and unpaid
interest and any liquidated damages to the date of purchase, upon a change of
control; and (b) outstanding notes with a portion of the net proceeds of Asset
Sales at a redemption price of 100% of their principal amount, plus accrued and
unpaid interest and any liquidated damages to the date of purchase. See
"-- Repurchase at the Option of Holders -- Change of Control" and "-- Limitation
on Sales of Assets and Subsidiary Interests."
SECURITY
To comply with the indenture, we purchased and pledged the pledged
securities to the collateral agent for the benefit of the holders of the notes
in an amount sufficient to pay in full the first two scheduled interest payments
due on the notes. We used approximately $7.4 million of the net proceeds of the
original notes offering to acquire the pledged securities. We have pledged the
pledged securities to the trustee as collateral agent for the benefit of the
holders of the notes to comply with the pledge agreement. They will be held by
the collateral agent in the pledge account. Under the pledge agreement,
immediately before an interest payment date, we may either deposit with the
collateral agent from funds otherwise available to us cash sufficient to pay the
interest scheduled to be paid on that date, or we may direct the collateral
agent to release from the pledge account proceeds sufficient to pay interest
then due. If we exercise the former option, we may direct the collateral agent
to release to us from the pledge account proceeds or pledged securities in like
amount.
We will add interest earned on the pledged securities to the pledge
account. If, in the opinion of a nationally recognized firm of independent
certified public accountants that we select, the funds or pledged securities
held in the pledge account exceed the amount sufficient to provide for payment
in full of the first two scheduled interest payments due on the notes, the
collateral agent will be permitted to release to us at our
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request any excess amount. The notes are secured by a first priority security
interest in the pledged securities and in the pledge account and, accordingly,
the pledged securities and the pledge account also secure repayment of the
principal amount of the notes to the extent of the security. The pledge
agreement allows us to substitute marketable securities for the government
securities originally pledged as collateral; provided, however, that the
substituted marketable securities must have a value, measured at the date of
substitution, in the opinion of a nationally recognized firm of independent
public accountants that we select, at least equal to 125.0% of the amount of any
of the first two scheduled interest payments on the notes that are unpaid, or
the pro rata portion of those interest payments equal to the percentage of the
interest payments to be secured by the marketable securities, as of the date the
marketable securities are proposed to be substituted as security for our
obligation under the pledge agreement.
Under the pledge agreement, assuming that we make the first two 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
If a Change of Control occurs, each holder of notes will have the right to
require us to repurchase all or any part equal to $1,000 or an integral multiple
thereof of that holder's notes according to the terms of the Change of Control
offer. In the Change of Control offer, we will offer a Change of Control Payment
in cash equal to 101% of the aggregate principal amount of notes repurchased
plus accrued and unpaid interest on the notes, if any, to the date of purchase.
Within ten days following any Change of Control, we will mail a notice to each
holder describing the transaction or transactions that constitute the Change of
Control and offering to repurchase notes on the Change of Control Payment Date
specified in the notice, using the procedures required by the indenture and
described in the notice. We will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations to the
extent these laws and regulations are applicable to the repurchase of the notes
as a result of a Change of Control.
On the Change of Control Payment Date, to the extent lawful, we will:
(1) accept for payment all notes or portions of notes properly tendered
under the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all notes or portions of notes so tendered; and
(3) deliver or cause to be delivered to the trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of notes or portions of notes that we are purchasing.
The paying agent will promptly mail to each holder of notes so tendered the
Change of Control Payment, and the trustee will promptly authenticate and mail
or cause to be transferred by book entry to each holder a new note equal in
principal amount to any unpurchased portion of the notes surrendered, if any;
provided that each new note will be in a principal amount of $1,000 or an
integral multiple of $1,000.
We will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date. The provisions
described above that require us to make a Change of Control Offer following a
Change of Control will be applicable regardless of whether any other provisions
of the indenture are applicable. Except as described above, the indenture does
not contain provisions that permit the holders of the notes to require that we
repurchase or redeem the notes in the event of a takeover, recapitalization or
similar transaction.
We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements described in the
indenture applicable to a Change of Control Offer made by us and purchases all
notes validly tendered and not withdrawn under the Change of Control Offer.
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Within the restrictions discussed below, we could in the future enter into
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the indenture but that could
increase the amount of indebtedness outstanding at that time or otherwise affect
our capital structure or credit ratings. Due to our highly leveraged structure,
we may not have sufficient funds to repurchase all of the notes tendered in a
Change of Control Offer. Our failure to purchase any notes tendered in a Change
of Control Offer will constitute an Event of Default under the indenture. See
"-- Events of Default and Remedies."
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the properties or assets of ORBIMAGE and its subsidiaries taken as a whole.
Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of notes to require
us to repurchase the notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of ORBIMAGE and its
subsidiaries taken as a whole to another Person or group may be uncertain.
Limitation on Sales of Assets and Subsidiary Interests
We will not, and will not permit any of our Restricted Subsidiaries, to
consummate an Asset Sale unless:
(1) we, or the Restricted Subsidiary, as the case may be, receives
consideration at the time of the Asset Sale at least equal to the fair
market value of the assets sold or otherwise disposed of;
(2) at least 75% of the consideration that we or our Restricted
Subsidiaries receive is in cash. For purposes of this provision, each
of the following shall be deemed to be cash:
(a) any of our or our Restricted Subsidiaries' liabilities, as shown
on our or our Restricted Subsidiaries' most recent balance sheet,
and liabilities that are by their terms subordinated to the notes,
that are assumed by the transferee of any of the transferred
assets under a customary novation agreement that releases us or
our Restricted Subsidiaries from further liability; and
(b) any securities, notes or other obligations that we or our
Restricted Subsidiaries receive from the transferee that we or our
Restricted Subsidiaries, allowing for ordinary settlement periods,
contemporaneously convert into cash, to the extent of the cash
received in that conversion.
(3) the aggregate Fair Market Value of all non-Cash Consideration that we
or our Restricted Subsidiaries receive, when aggregated with the Fair
Market Value of all other non-Consideration that we and our Restricted
Subsidiaries receive from all other Asset Sales since the First Issue
Date that has not been converted into cash or Cash Equivalents does not
exceed 5% of our aggregate Consolidated Tangible Net Assets at the time
of the Asset Sale.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
we may apply the Net Proceeds at our option:
(1) to make a capital expenditure or acquire Business Assets;
(2) to acquire 100% of the Equity Interests of a Related Satellite
Business;
(3) market imagery products and services;
(4) to repay indebtedness under a Credit Facility; and
(5) provide working capital.
Pending the final application of any Net Proceeds, we may temporarily
reduce revolving credit borrowings or otherwise invest the Net Proceeds in any
manner that is not prohibited by the indenture.
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Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $7.5 million, we will make an Asset
Sale offer to all holders of notes, to purchase the maximum principal amount of
notes that may be purchased out of the Excess Proceeds. The offer price in any
Asset Sale offer will be 100% of principal amount plus accrued and unpaid
interest and liquidated damages, if any, to the date of purchase. If any Excess
Proceeds remain after completion of an Asset Sale offer, we may use the Excess
Proceeds for general business purposes. If the aggregate principal amount of
notes tendered into the Asset Sale offer exceeds the amount of Excess Proceeds,
the trustee shall select the notes to be purchased on a pro rata basis using the
procedures below. Upon completion of each Asset Sale offer, the amount of Excess
Proceeds shall be reset at zero. The Asset Sale offer shall remain open for 20
business days or any longer period as may be required by law.
The above provisions will not apply to the sale, lease, conveyance or other
disposition of all or substantially all of our assets, which will be governed by
the provisions of the indenture described below in "-- Merger, Consolidation and
Sale of Assets" and "-- Repurchase at the Option of Holders."
SELECTION AND NOTICE OF NOTES FOR REDEMPTION OR REPURCHASE
If less than all of the notes are to be redeemed or repurchased at any
time, the trustee will select notes for redemption or repurchase as follows:
(1) if the notes are listed, then the trustee will comply with the
requirements of the principal national securities exchange on which the
notes are listed; or
(2) if the notes are not listed, the trustee will make the selection on a
pro rata basis, by lot or by any method that the trustee deems fair and
appropriate.
No notes of $1,000 or less shall be redeemed or repurchased in part.
Notices of redemption or repurchase shall be mailed by first class mail at least
30 but not more than 60 days before the redemption or repurchase date to each
holder of notes to be redeemed or repurchased at its registered address.
If any note is to be redeemed or repurchased in part only, the notice of
redemption or repurchase that relates to that note shall state the portion of
the principal amount to be redeemed or repurchased. A new note in principal
amount equal to the unredeemed or unrepurchased portion of the old note will be
issued in the name of the holder upon cancellation of the old note. Notes called
for redemption or repurchase become due on the date fixed for redemption or
repurchase. On and after the redemption or repurchase date, interest ceases to
accrue on notes or portions of them called for redemption or repurchase.
RESTRICTIVE COVENANTS
Restricted Payments
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of our or any of our Restricted Subsidiaries' Equity
Interests (including, without limitation, any payment in connection
with any merger or consolidation involving us or any of our Restricted
Subsidiaries) (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of ORBIMAGE or to ORBIMAGE or
a Restricted Subsidiary of ORBIMAGE);
(2) purchase, redeem, defease, retire for value or otherwise acquire or
return for value any Equity Interests of ORBIMAGE, other than any
Equity Interests owned by ORBIMAGE or any wholly-owned Restricted
Subsidiary of ORBIMAGE;
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(3) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any indebtedness that is
subordinated (whether pursuant to its terms, by operation of law,
structurally or otherwise) to the notes;
(4) make any Restricted Investment (all such payments and other actions set
forth in clauses (1) through (4) above being collectively referred to
as "Restricted Payments"),
unless, at the time of and after giving effect to a Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence of the payment;
(2) ORBIMAGE would, at the time of the Restricted Payment and after giving
pro forma effect to it as if the Restricted Payment had been made at
the beginning of the immediately preceding fiscal quarter, have been
permitted to incur at least $1.00 of additional indebtedness according
to the first paragraph of the covenant described below under the
caption "-- Incurrence of Indebtedness or Issuance of Disqualified
Stock;" and
(3) the Restricted Payment, together with the aggregate of all other
Restricted Payments made by ORBIMAGE and its Restricted Subsidiaries
after the First Issue Date (excluding Restricted Payments permitted by
clauses (2), (3) and (4) of the next succeeding paragraph), is less
than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of ORBIMAGE for the period
(taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the First Issue Date to the end of
ORBIMAGE's most recently ended fiscal quarter for which financial
statements are available at the time of the Restricted Payment
(or, if the Consolidated Net Income for the period is a deficit,
less 100% of that deficit); plus
(b) 100% of the aggregate net cash proceeds received by ORBIMAGE since
the First Issue Date as a contribution to its common equity
capital or from the issue or sale of Equity Interests of ORBIMAGE
(other than Disqualified Stock) or from the issue or sale of
Disqualified Stock or debt securities of ORBIMAGE that have been
converted into Equity Interests (other than (A) Equity Interests
(or Disqualified Stock or convertible debt securities) sold to a
Subsidiary of ORBIMAGE), (B) Disqualified Stock or debt securities
that have been converted into Disqualified Stock, (C) equity
capital contributions described in clause (6) of the definition of
"Permitted Investment," (D) to the extent that the net cash
proceeds of the issuance of the Equity Interests are used to
redeem the notes as permitted under the section entitled "Optional
Redemption," and (E) Series A Preferred Stock issued in the Series
A offering) plus
(c) to the extent that any Restricted Investment that was made after
the First Issue Date is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (A) the cash return of capital with
respect to the Restricted Investment (less the cost of
disposition, if any) and (B) the initial amount of the Restricted
Investment; plus
(d) to the extent that ORBIMAGE designates any Unrestricted Subsidiary
as a Restricted Subsidiary, an amount equal to the lesser of (A)
the Fair Market Value of the Restricted Investment and (B)
ORBIMAGE's Investment in the Unrestricted Subsidiary at the time
of its designation as a Restricted Subsidiary.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of its
declaration, if at that date of declaration the payment would have
complied with the provisions of the indenture;
(2) so long as no default has occurred and is continuing or will arise
therefrom, the redemption, repurchase, retirement or other acquisition
of any Equity Interests of ORBIMAGE in exchange for, or out of the
proceeds of the substantially concurrent sale (other than to a
Subsidiary of ORBIMAGE) of other Equity Interests of ORBIMAGE (other
than any Disqualified Stock);
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provided that the amount of any of these net cash proceeds that are
used for any redemption, repurchase, retirement or other acquisition
shall be excluded from clause (3) (b) of the preceding paragraph;
(3) so long as no default has occurred and is continuing or will arise
therefrom, the repayment, defeasance, redemption or repurchase of
Intercompany Indebtedness (as defined in clause 6 of the covenant
entitled "Incurrence of Indebtedness or Issuance of Disqualified
Stock") or indebtedness with the net cash proceeds from an incurrence
of Permitted Refinancing Indebtedness or the substantially concurrent
sale (other than to a Subsidiary of ORBIMAGE) of Equity Interests of
ORBIMAGE (other than Disqualified Stock); provided that the amount of
any of these net cash proceeds used for any such redemption,
repurchase, retirement or other acquisition shall be excluded from
clause 3(b) of the preceding paragraph;
(4) the issuance of shares of Series A preferred stock as paid-in-kind
dividends according to the terms of the Series A preferred stock as in
effect on the First Issue Date.
(5) ORBIMAGE's purchase, redemption or retirement of shares of its common
stock held by an employee or former employee of ORBIMAGE or its
Subsidiaries issued under ORBIMAGE's stock option plan; provided that
the amount of any of these payments in any fiscal year does not exceed
$1,000,000; provided further, that the limitation in the foregoing
proviso does not apply to the purchase, redemption or retirement of
shares of common stock with funds of other property or amounts paid by
ORBIMAGE for which ORBIMAGE receives concurrent reimbursement from any
other person (other than ORBIMAGE's Subsidiaries); and
(6) payments made in respect of (a) the cancellation of fractional shares
of common stock in connection with the conversion of the Series A
preferred stock and the exercise of the warrants in the Units Offering
and (b) the repurchase or redemption of any shares of Series A
preferred stock in an amount not to exceed $500,000.
In determining the amount of Restricted Payments permissible under clause
(3) above, amounts expended under clauses (1), (5) and (6) in the preceding
paragraph shall be included as Restricted Payments. Notwithstanding the
foregoing, payments made by ORBIMAGE to Orbital under the Orbital Agreements
shall not be deemed Restricted Payments.
We may designate any of our Restricted Subsidiaries to be an Unrestricted
Subsidiary if that designation would not cause a Default and, at the time of and
after giving effect to that designation, we could incur $1.00 of additional
indebtedness under the applicable provisions of the first paragraph of the
covenant entitled "Incurrence of Indebtedness or Issuance of Disqualified
Stock;" provided, that, in no event shall all or any portion of the material
assets or properties other than cash owned by ORBIMAGE on the First Issue Date
be transferred to or held by an Unrestricted Subsidiary of ORBIMAGE; and
provided, further, that the ability to incur $1.00 of additional indebtedness
shall not be required in the case of any newly created Unrestricted Subsidiary
funded solely with an Investment described in clause (6) of the definition of
"Permitted Investment." For purposes of making this determination, all
Investments by ORBIMAGE and its Restricted Subsidiaries outstanding on the First
Issue Date, except to the extent repaid in cash and except for Investments
described in clause (6) of the definition of "Permitted Investment," in the
Subsidiary so designated will be deemed to be Restricted Payments at the time of
the designation and will reduce the amount available for Restricted Payments
under the first paragraph of this covenant. All of these outstanding Investments
will be deemed to constitute Investments in an amount equal to the greatest of:
(1) the net book value of the Investments at the time of the designation;
(2) the Fair Market Value of the Investments at the time of the
designation; and
(3) the original Fair Market Value of the Investments at the time they were
made.
The designation will be permitted only if the Restricted Payment would be
permitted at that time and if the Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
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The amount of all Restricted Payments, if not made in cash, shall be the
Fair Market Value on the date of the Restricted Payment of the asset(s) proposed
to be transferred by ORBIMAGE or the Restricted Subsidiary, as the case may be,
under the terms of the Restricted Payment. Not later than the date of making any
Restricted Payment, ORBIMAGE shall deliver to the Trustee an Officers'
Certificate stating that the Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this covenant were computed,
which calculations may be based upon the latest available financial statements
of ORBIMAGE.
Incurrence of Indebtedness or Issuance of Disqualified Stock
The indenture provides that ORBIMAGE will not, and will not permit any of
its Restricted Subsidiaries, to directly or indirectly, create, incur, issue,
assume, guaranty or otherwise become directly or indirectly liable, contingently
or otherwise, with respect to any indebtedness, including Acquired Debt, or any
Disqualified Stock; provided, however, that ORBIMAGE may incur indebtedness,
including Acquired Debt, or issue shares of Disqualified Stock and the
Restricted Subsidiaries may incur indebtedness if, after giving pro forma effect
to the incurrence of the indebtedness and the use of the proceeds of the
indebtedness, the aggregate Indebtedness to Cash Flow Ratio of ORBIMAGE does not
exceed 4.0 to 1. Notwithstanding the foregoing, before June 30, 2001, ORBIMAGE
or any Restricted Subsidiary may incur indebtedness if immediately after giving
pro forma effect to the incurrence of the indebtedness and the receipt and
application of the proceeds of the indebtedness, the Indebtedness to Capital
Ratio would be less than or equal to 65.0%.
The foregoing provisions will not apply to:
(1) the incurrence by ORBIMAGE or any of its Restricted Subsidiaries of
indebtedness under Credit Facilities; provided that the aggregate
principal amount of all indebtedness outstanding under all Credit
Facilities after giving effect to the incurrence does not exceed an
amount equal to the greater of (a) $25 million and (b) 85% of Eligible
Receivables, with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of ORBIMAGE and its
Subsidiaries under those letters of credit;
(2) the incurrence by ORBIMAGE of indebtedness represented by the notes and
the indenture or the issuance of shares of Series A preferred stock
accrued or issued as paid-in-kind dividends;
(3) Existing Indebtedness;
(4) the incurrence by ORBIMAGE or any of its Restricted Subsidiaries of
indebtedness under (a) Hedging Obligations, provided that (A) the
notional principal amount of any interest rate protection agreement
does not significantly exceed the principal amount of the indebtedness
to which the interest rate protection agreement relates and (B) any
agreements related to fluctuations in currency rates do not increase
the outstanding indebtedness other than as a result of fluctuations in
foreign currency exchange rates, and (b) performance, surety and
workers' compensation bonds or other obligations of a like nature
incurred in the ordinary course of business;
(5) the incurrence by any Unrestricted Subsidiary of ORBIMAGE of
Non-Recourse Debt; provided that if any of the indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary this event shall be
deemed to constitute an incurrence of indebtedness by a Restricted
Subsidiary;
(6) the incurrence by ORBIMAGE or any of its Restricted Subsidiaries of
indebtedness owed to and held by ORBIMAGE or any of its Wholly Owned
Restricted Subsidiaries, the indebtedness incurred under this clause
(6) being hereafter referred to as "Intercompany Indebtedness";
provided that an incurrence of indebtedness shall be deemed to have
occurred upon (a) any sale or other disposition of Intercompany
Indebtedness to a Person other than ORBIMAGE or any of its Restricted
Subsidiaries, (b) any sale or other disposition of Equity Interests of
ORBIMAGE's Restricted Subsidiaries that holds Intercompany Indebtedness
such that the Restricted Subsidiary ceases to be a Restricted
Subsidiary after the sale or other disposition or (c) designation of a
Restricted Subsidiary as an Unrestricted Subsidiary;
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(7) the incurrence by ORBIMAGE or any of its Restricted Subsidiaries of
Non-Recourse Debt to finance purchase money obligations;
(8) the incurrence by ORBIMAGE or any of its Restricted Subsidiaries of
indebtedness ("Permitted Refinancing Indebtedness") incurred to
refinance, replace or refund indebtedness ("Refinanced Indebtedness")
incurred under the first paragraph of this covenant or under clause (1)
or (3) of this covenant; provided that:
(a) the aggregate principal amount of the Permitted Refinancing
Indebtedness does not exceed the aggregate principal amount of the
Refinanced Indebtedness, including accrued and unpaid interest on
the Refinanced Indebtedness;
(b) the Permitted Refinancing Indebtedness shall have a final maturity
equal to or later than, and a Weighted Average Life to Maturity
equal to or greater than, the final maturity and Weighted Average
Life to Maturity of the Refinanced Indebtedness, respectively; and
(c) the Permitted Refinancing Indebtedness shall rank no higher
relative to the notes than the Refinanced Indebtedness and in no
event may any indebtedness of ORBIMAGE, or any of its Restricted
Subsidiaries be refinanced with indebtedness of any Restricted
Subsidiary under this clause (8);
(9) the incurrence by ORBIMAGE or any of its Restricted Subsidiaries of
Capital Lease Obligations in an aggregate amount for all such Persons
not to exceed $15 million at any one time outstanding;
(10) the incurrence by ORBIMAGE or any of its Restricted Subsidiaries of
indebtedness not to exceed $15 million outstanding at any time under a
Fixed Asset Financing; and
(11) the incurrence by ORBIMAGE or any of its Restricted Subsidiaries of
indebtedness in addition to that described in clauses (1) through (10)
above, so long as the aggregate principal amount of all indebtedness,
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any indebtedness incurred under this clause (11),
together with any indebtedness incurred under Section 4.12(b)(xi) of
the 1998 Indenture, shall not exceed $10 million outstanding at any
one time in the aggregate.
Liens
The indenture provides that ORBIMAGE will not, and will not permit any of
its Restricted Subsidiaries, to directly or indirectly create, incur, assume or
suffer to exist any Lien on any asset or property now owned or hereafter
acquired, or any income or profits from that asset or property, or assign or
convey any right to receive income from that asset or property, unless:
(1) in the case of Liens securing obligations subordinate to the notes, the
notes are secured by a valid, perfected Lien on that asset or property
that is senior in priority to the Liens;
(2) in the case of Liens securing obligations subordinate to a Subsidiary
Guarantee, the Subsidiary Guarantee is secured by a valid, perfected
Lien on the asset or property that is senior in priority to the Liens;
and
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(3) in all other cases, these notes and, if such Lien secures obligations
of a Restricted Subsidiary, a Subsidiary Guarantee of such Restricted
Subsidiary, are equally and ratably secured;
provided, however, that the foregoing shall not prohibit or restrict Permitted
Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The indenture provides that ORBIMAGE will not, and will not permit any of
its Restricted Subsidiaries, to directly or indirectly create or otherwise cause
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions to ORBIMAGE or any of its
Restricted Subsidiaries on its Capital Stock or with respect to any
other interest or participation in, or measured by, its profits;
(2) pay any indebtedness owed to ORBIMAGE or any of its Restricted
Subsidiaries;
(3) make loans or advances to ORBIMAGE or any of its Restricted
Subsidiaries; or
(4) transfer any of its properties or assets to ORBIMAGE or any of its
Restricted Subsidiaries, except for encumbrances or restrictions
existing under or by reason of:
(a) the indentures, the pledge agreement, these notes, or the 1998
notes;
(b) Existing Indebtedness;
(c) applicable law;
(d) any instrument governing indebtedness or Capital Stock of a Person
acquired by ORBIMAGE or any of its Restricted Subsidiaries as in
effect at the time of the acquisition (except to the extent the
indebtedness was incurred in connection with or in contemplation
of the acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the
Person, so acquired;
(e) customary non-assignment provisions in leases or other agreements
entered into in the ordinary course of business;
(f) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature
described in clause (d) above on the property so acquired;
(g) Permitted Refinancing Indebtedness; provided that the restrictions
contained in the agreements governing the Permitted Refinancing
Indebtedness are no more restrictive than those contained in the
agreements governing the Refinanced Indebtedness;
(h) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(i) secured indebtedness otherwise permitted to be incurred under the
provisions of the covenant described above under the caption
"-- Liens" that limits the right of the debtor to dispose of the
assets securing the indebtedness; or
(j) in the case of clauses (a), (b), (d), (e), (f), (g), (h) and (i)
above, any amendments, modifications, restatements, renewals,
increases, supplements, modifications, restatements or
refinancings thereof, provided that those amendments,
modifications, restatements or refinancings are not materially
more restrictive with respect to dividend and other payment
restrictions than those contained in the instruments as in effect
on the date of their incurrence.
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Merger, Consolidation or Sale of Assets
Whether or not ORBIMAGE is the surviving Person, the indenture provides
that ORBIMAGE may not consolidate or merge with or into or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, another Person
unless:
(1) ORBIMAGE is the surviving Person or, if other than ORBIMAGE, the Person
formed by or surviving any consolidation or merger or to which the
sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized and existing under the
laws of the United States, any state of the United States or the
District of Columbia;
(2) if other than ORBIMAGE, the Person formed by or surviving the
consolidation or merger or the entity or Person to which the sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of ORBIMAGE under the notes, the
indenture and the pledge agreement under a supplemental indenture in
form reasonably satisfactory to the trustee;
(3) immediately after the transaction, no Default or Event of Default
exists;
(4) ORBIMAGE, or, if other than ORBIMAGE, the Person formed by or surviving
the consolidation or merger or to which the sale, assignment, transfer,
lease, conveyance or other disposition shall have been made will have
Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of ORBIMAGE immediately
preceding the transaction; and
(5) ORBIMAGE, or, if other than ORBIMAGE, the Person formed by or surviving
the consolidation or merger or to which the sale, assignment, transfer,
lease, conveyance or other disposition shall have been made, at the
time of the transaction and after giving pro forma effect thereto as if
the transaction had occurred at the beginning of the immediately
preceding fiscal quarter, will be permitted to incur at least $1.00 of
additional indebtedness under the first paragraph of the covenant
entitled "Incurrence of Indebtedness or Issuance of Disqualified
Stock."
Transactions with Affiliates
The indenture provides that ORBIMAGE will not, and will not permit any of
its Restricted Subsidiaries to, sell, lease transfer or otherwise dispose of any
of their properties or assets to, or purchase any property or assets from, or
enter into or make any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable to
ORBIMAGE or the Restricted Subsidiary than those that would have been
obtained in a comparable transaction by ORBIMAGE or the Restricted
Subsidiary with an unrelated Person;
(2) ORBIMAGE delivers to the trustee:
(a) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $2.5 million, (A) a determination by
the disinterested members of the board of directors of ORBIMAGE
made in good faith (evidenced by a resolution approved by at least
a majority of the disinterested members of the board and set forth
in an Officers' Certificate delivered to the trustee) or (B) an
opinion as to the fairness of the Affiliate Transaction to
ORBIMAGE or the Restricted Subsidiary involved in the Affiliate
Transaction from a financial point of view issued by an
Independent Financial Advisor or, with respect to development,
launch and operations of satellites and remote imaging-related
matters, a nationally recognized expert in the respective
applicable industry; and
(b) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $10 million, an opinion as to the
fairness of the Affiliate Transaction to ORBIMAGE or the
Restricted Subsidiary involved in the Affiliate Transaction from a
financial point of view issued by an Independent Financial Advisor
or, with respect to development, launch and operations of
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satellites and remote imaging-related matters, a nationally
recognized expert in the respective applicable industry;
provided, however, that the following shall be deemed not to be Affiliate
Transactions:
(1) any employment agreement, stock option or stock purchase agreement
entered into by ORBIMAGE or any of its Restricted Subsidiaries with any
of their respective employees in the ordinary course of business;
(2) transactions between or among ORBIMAGE and/or its Wholly Owned
Restricted Subsidiaries;
(3) Restricted Payments permitted by clauses (1), (2), (4), (5) and (6) of
the second paragraph of the covenant entitled "Restricted Payments" and
Permitted Investments of a type referred to in clauses (1), (3) and (6)
of the definition of Permitted Investments;
(4) the sale of common Equity Interests (other than Disqualified Stock,
except as contemplated by the stock purchase agreement) of ORBIMAGE for
cash to an Affiliate of ORBIMAGE;
(5) transactions under agreements entered into with resellers of ORBIMAGE's
products and services on terms substantially the same as ORBIMAGE's
standard agreements entered into with those parties in the ordinary
course of business;
(6) transactions under the Orbital Agreements, including transactions under
any amendments to the procurement agreement involving the selection of
the launch vehicle for the satellite designated on the First Issue Date
as the OrbView-4 satellite;
(7) amendments, supplements or other modifications to the Orbital
Agreements that do not involve the payment of cash by ORBIMAGE or any
of its Restricted Subsidiaries;
(8) payment of reasonable directors fees to Persons who are not otherwise
Affiliates of ORBIMAGE; and
(9) the sale of securities (other than common Equity Interests) of ORBIMAGE
for cash to an Affiliate of ORBIMAGE; provided that:
(a) an amount of these securities at least equal to the amount sold to
the Affiliate have been or are being sold substantially
simultaneously to Persons that are not Affiliates of ORBIMAGE;
(b) the price per security paid by the Affiliate is no less than the
price paid by the non-Affiliates; and
(c) ORBIMAGE shall not have entered into any other arrangement with
non-Affiliates to induce the non-Affiliates to purchase the
securities.
Maintenance of Insurance
The indenture provides that ORBIMAGE shall obtain or maintain, as
applicable, in full force and effect:
(1) launch and on-orbit checkout insurance with respect to each OrbView
Satellite, which insurance shall be procured promptly before the launch
of each satellite and shall be in effect on the launch date and remain
in effect through the launch and the initial check-out period of each
OrbView Satellite, in an amount sufficient to provide for the
construction, launch and insurance of a Replacement Satellite to be
payable in the event of a launch or satellite failure during the
initial check-out period; provided, however, that at the time ORBIMAGE
is required to procure launch and on-orbit check-out insurance with
respect to an OrbView Satellite, ORBIMAGE may reduce the amount to be
insured if another OrbView Satellite is fully operational, is being
used in commercial service and is insured in accordance with clause (2)
below, by (a) the amount of cash, cash equivalents and short-term
investments (excluding proceeds of the original notes offering, the
units offering and the Series A offering and amounts allocated or
expected to be allocated for capital expenditures) currently available
to ORBIMAGE to construct a Replacement Satellite as deter-
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mined in good faith by the board of directors of ORBIMAGE (evidenced by
a resolution approved by at least a majority of the board of directors
of ORBIMAGE and set forth in an Officers' Certificate delivered to the
trustee), and (b) the value of any long lead-time spare parts that
ORBIMAGE has procured to date for any satellite that is comparable to
the technological capability of the OrbView Satellite being insured, as
that value is determined in good faith by the board of directors of
ORBIMAGE (evidenced by a resolution approved by at least a majority of
the board of ORBIMAGE and set forth in an Officers' Certificate
delivered to the trustee);
(2) on-orbit operations insurance with respect to each OrbView Satellite,
at all times following the date an OrbView Satellite is placed in
commercial service, representing the value of the satellite (taking
into account the foregone useful life of the satellite) and the pro
rata cost of a launch vehicle, payable in the event the satellite
ceases to be used for commercial revenue producing service (provided
that the insurance may contain customary provisions for deductible
payments and minimum thresholds for satellite failure); provided,
however, that at the time ORBIMAGE is required to procure or renew
on-orbit operations insurance with respect to an OrbView Satellite,
ORBIMAGE may reduce the amount to be insured if another OrbView
Satellite is fully operational, is being used in commercial service,
and is insured in accordance with this clause (2), by (a) the amount of
cash, Cash Equivalents and short-term investments (excluding proceeds
of the units offering, the original notes offering and the Series A
offering and amounts allocated or expected to be allocated for capital
expenditures) currently available to ORBIMAGE to construct a
Replacement Satellite as determined in good faith by the board of
directors of ORBIMAGE (evidenced by a resolution approved by at least a
majority of the board of ORBIMAGE and set forth in an Officers'
Certificate delivered to the trustee), and (b) the value of any long
lead-time spare parts that ORBIMAGE has procured to date for any
satellite that is comparable to the technological capability of the
OrbView Satellite being insured, as that value is determined in good
faith by the board of ORBIMAGE (evidenced by a resolution approved by
at least a majority of the board of ORBIMAGE and set forth in an
Officers' Certificate delivered to the trustee);
(3) launch and on-orbit check-out insurance with respect to the RadarSat-2
satellite in the amount of $55 million, which insurance shall be
procured promptly before the RadarSat-2 satellite is launched and shall
be in effect on the launch date and shall remain in effect through the
launch and the initial check-out period of the RadarSat-2 satellite and
be payable to ORBIMAGE in the event of a launch or satellite failure
during the initial check-out period; and
(4) following the date the RadarSat-2 satellite is placed in commercial
operation, on-orbit operations insurance with respect to the RadarSat-2
satellite in an amount representing the book value of the undepreciated
portion of the $60 million component of the fee for the RadarSat-2
License as recorded on ORBIMAGE's balance sheet, and payable to
ORBIMAGE in the event the satellite ceases to be used for commercial
revenue producing service, provided that this insurance may contain
customary provisions for deductible payments and minimum thresholds for
satellite failure.
The obligation of ORBIMAGE to maintain insurance under this covenant may be
satisfied by any combination of:
(1) insurance commitments obtained from any recognized insurance provider;
(2) insurance commitments obtained from any entity other than an entity
referred to in clause (1) if the board of directors of ORBIMAGE
determines in good faith (evidenced by a majority resolution of the
board of ORBIMAGE and set forth in an Officer's Certificate delivered
to the trustee) that the entity is creditworthy and otherwise capable
of bearing the financial risk of providing the insurance and making
payments in respect of any claims on a timely basis; and
(3) unrestricted cash segregated and maintained by ORBIMAGE in a segregated
account established with an Eligible Institution (the "Insurance
Account") solely for disbursement in accordance with the terms of this
covenant ("Cash Insurance"), and to be held in trust for the sole and
express benefit of the holders of the notes.
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Within 30 days following any date on which ORBIMAGE is required to obtain
insurance UNDER the indenture, ORBIMAGE will deliver to the trustee an insurance
certificate certifying the amount of insurance then carried and in full force
and effect, and an Officer's Certificate stating that THE insurance, together
with any other insurance or Cash Insurance maintained by ORBIMAGE, complies with
the indenture. In addition, ORBIMAGE will cause to be delivered to the trustee
no less than once each year an insurance certificate setting forth the amount of
insurance then carried, which insurance certificate shall entitle the trustee
to:
(1) notice of any claim under the applicable insurance policy; and
(2) at least 30 days' notice from the provider of the insurance before the
cancellation of that insurance and an Officers' Certificate that
complies with the first sentence of this paragraph.
If ORBIMAGE maintains any Cash Insurance in satisfaction of any part of its
obligation to maintain insurance under this covenant, ORBIMAGE shall deliver, in
lieu of any insurance certificate otherwise required by this covenant, an
Officers' Certificate to the trustee certifying the amount of the Cash
Insurance.
If ORBIMAGE receives any proceeds of any insurance that it is required to
maintain under this covenant, ORBIMAGE shall promptly deposit the insurance
proceeds into an escrow account established with an Eligible Institution for
that purpose. If ORBIMAGE maintains any Cash Insurance in satisfaction of any
part of its obligation to maintain insurance under this covenant, ORBIMAGE shall
transfer the cash maintained in the Insurance Account to that escrow account
upon the occurrence of the event (e.g., a launch failure) that would have
entitled ORBIMAGE to the payment of insurance had ORBIMAGE purchased insurance
from a recognized insurance provider. ORBIMAGE may use monies on deposit in the
escrow account for the design, development, construction, procurement, launch
and insurance of any Replacement Satellite or replacement radar satellite or to
procure a license substantially similar to the RadarSat-2 License, if: (1)
ORBIMAGE delivers to the trustee a certificate of ORBIMAGE's president
certifying that the Replacement Satellite or replacement radar satellite is
comparable to the technological capability of the satellite being replaced, and
with respect to a replacement license, that the license is substantially similar
to the RadarSat-2 License, (2) within 30 days following the receipt of the
insurance proceeds, ORBIMAGE delivers to the trustee an Officers' Certificate
certifying that (a) ORBIMAGE will use its reasonable best efforts to ensure that
the Replacement Satellites or replacement radar satellite are launched within 24
months following delivery from the escrow account of the insurance proceeds; and
(b) ORBIMAGE will have sufficient funds to service its projected debt service
requirements until the scheduled launch of the Replacement Satellite or
replacement radar satellite and to develop, construct, launch and insure the
Replacement Satellite or replacement radar satellite.
Business Activities
The indenture provides that ORBIMAGE will not, and will not permit any of
its Restricted Subsidiaries, to engage in any business other than that which is
related to the design, development and operation of remote imaging satellites
and the worldwide marketing and sales of remote imagery-based products and
services.
Limitations on Sale and Leaseback Transactions
The indenture provides that ORBIMAGE will not, and will not permit any of
its Subsidiaries, to directly or indirectly enter into any Sale and Leaseback
Transaction with respect to any property or assets, whether now owned or
hereafter acquired, except for a Sale and Leaseback Transaction not exceeding
365 days, unless (1) the sale or transfer of the property or assets to be leased
is treated as an Asset Sale and complies with the "-- Limitations on Sales of
Assets and Subsidiary Interests" covenant and (2) ORBIMAGE or its Subsidiary
would be entitled under the "Incurrence of Indebtedness or Issuance of
Disqualified Stock" covenant to incur any indebtedness in respect of the Sale
and Leaseback Transaction, with the lease obligations being treated as
indebtedness for purposes of ascertaining compliance with this covenant.
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Additional Guarantors
The indenture provides that ORBIMAGE shall cause each Person that becomes a
Restricted Subsidiary after the date of the indenture, upon becoming a
Restricted Subsidiary, to become a Subsidiary Guarantor with respect to the
notes. That person shall become a Subsidiary Guarantor by executing and
delivering to the trustee (1) a supplemental indenture, in form and substance
satisfactory to the trustee, which subjects the person to the provisions of the
indenture as a Subsidiary Guarantor and (2) an opinion of counsel to the effect
that the supplemental indenture has been duly authorized and executed by the
Subsidiary Guarantor.
The indenture contains provisions the intent of which is to provide that
the obligations of any Subsidiary Guarantor will be limited to the maximum
amount that will, after giving effect to all other contingent and fixed
liabilities of the Subsidiary Guarantor, and after giving effect to any
collections from, rights to receive contribution from, or payments made by or on
behalf of any other Subsidiary Guarantor in respect of the obligations of the
other Subsidiary Guarantor under its Subsidiary Guarantee or under its
contribution obligations under the indenture, result in the obligations of the
Subsidiary Guarantor under its Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under any applicable federal, state
or foreign law. Any Subsidiary Guarantor that makes a payment or distribution
under a Subsidiary Guarantee shall be entitled to contribution from each other
Subsidiary Guarantor so long as the exercise of that right does not impair the
rights of the holders of the notes under the Subsidiary Guarantees.
Limitation on Sale of Capital Stock of Subsidiaries
The indenture provides that ORBIMAGE may not, and may not permit any
Restricted Subsidiary, to issue, transfer, convey, lease or otherwise dispose of
any shares of Capital Stock or other ownership interests in a Restricted
Subsidiary or securities convertible or exchangeable into, or options, warrants,
rights or other interest with respect to, Capital Stock of or other ownership
interests in a Restricted Subsidiary to any Person (other than to ORBIMAGE or a
Wholly Owned Restricted Subsidiary) except in a transaction that consists of a
sale of all of the Capital Stock of or other ownership interests owned by
ORBIMAGE in the Restricted Subsidiary and any Subsidiary of ORBIMAGE that
complies with the provisions described under the section above entitled
"Repurchase at the Option of Holders -- Limitations on Sales of Assets and
Subsidiary Interests" to the extent those provisions apply.
Reports
The indenture provides that, so long as any notes are outstanding, ORBIMAGE
will furnish to the holders:
(1) all Forms 8-K, 10-Q and 10-K filed with the commission and, with
respect to the annual information only, a report thereon by ORBIMAGE's
independent certified public accountants;
(2) if ORBIMAGE is not required to file the above reports with the
Commission, all quarterly and annual financial information that would
be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if ORBIMAGE were required to file these Forms, including
a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" that describes the financial condition and
results of operations of ORBIMAGE and its Restricted Subsidiaries and,
with respect to the annual information only, a report thereon by
ORBIMAGE's independent certified public accountants; and
(3) all information that would be required to be filed with the Commission
on Form 8-K if ORBIMAGE were required to file such reports.
In addition, following completion of the exchange offer, whether or not
required by the rules and regulations of the Commission, but only if then
permitted by the Commission, ORBIMAGE will file a copy of all such information
and reports with the Commission for public availability and make the information
available to securities analysts and prospective investors upon request. In
addition, for so long as any notes remain outstanding, ORBIMAGE will furnish to
the holders and to securities analysts and prospective
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investors, upon their request, the information required to be delivered under
Rule 144A(d)(4) of the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The indenture provides that each of the following constitutes an Event of
Default:
(1) default for 30 days in the payment when due of interest on, or
liquidated damages, if any, with respect to, the notes;
(2) default in the payment when due, whether at maturity, upon redemption
or repurchase, or otherwise, of the principal of or premium, if any, on
the notes;
(3) default in the payment of principal and interest or liquidated damages,
if any, on the notes required to be purchased under the provisions
described under the captions "-- Repurchase at the Option of
Holders -- Change of Control," "-- Repurchase at the Option of
Holders -- Limitations on Sales of Assets and Subsidiary Interests," or
failure by ORBIMAGE to comply with the provisions described under
"-- Restrictive Covenants -- Merger, Consolidation or Sale of Assets;"
(4) failure by ORBIMAGE or any of its Restricted Subsidiaries for 30 days
after notice to ORBIMAGE by the trustee or to ORBIMAGE and the trustee
by the holders of at least 25% of the outstanding principal amount of
the notes, to comply with any of their other covenants in the
indentures;
(5) default under the 1998 Indenture, or any other indenture, mortgage, or
instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by ORBIMAGE or
any of its Restricted Subsidiaries, or the payment of which is
guaranteed by ORBIMAGE or any of its Restricted Subsidiaries, whether
this indebtedness or guarantee now exists, or is created after the date
of the indenture, which default:
(a) is caused by a failure to pay principal of, or premium, if any, or
interest on, the indebtedness before the expiration of the grace
period provided in the indebtedness on the date of the default (a
"Payment Default"); or
(b) results in the acceleration, which acceleration has not been
rescinded, of the indebtedness before its express maturity, and,
in each case described in clauses (a) and (b) of this paragraph,
the principal amount of any the indebtedness, together with the
principal amount of any other indebtedness under which there has
been a Payment Default or the maturity of which has been so
accelerated, aggregates $5 million or more;
(6) failure by ORBIMAGE or any of its Restricted Subsidiaries to pay final
judgments (other than any judgments as to which a reputable insurance
company has accepted full liability and whose bond, premium or similar
charge therefor is not in excess of $5 million) aggregating in excess
of $5 million, which judgments are not paid, discharged or stayed
within 60 days after their entry;
(7) breach by ORBIMAGE of any representation or warranty in the pledge
agreement, or default by ORBIMAGE in the performance of any covenant in
the pledge agreement, or repudiation by ORBIMAGE of any of its
obligations under the pledge agreement or the unenforceability of the
pledge agreement against ORBIMAGE 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
(8) specific events of bankruptcy or insolvency involving ORBIMAGE or any
of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing with respect to the notes,
the trustee or the holders of at least 25% of the aggregate principal amount of
the then outstanding notes may declare all the notes to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from specific events of bankruptcy or insolvency involving ORBIMAGE, any
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding notes
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will become due and payable without further action or notice. Holders of these
notes may not enforce the indenture or the notes except as provided in the
indenture. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding notes may direct the trustee in its exercise of
any trust or power. The trustee may withhold from holders of the notes notice of
any continuing Default or Event of Default, except a Default or Event of Default
relating to the payment of principal or interest, if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of ORBIMAGE with the
intention of avoiding payment of the premium that ORBIMAGE would have had to pay
if it then had elected to redeem the notes under the optional redemption
provisions of the indenture, an equivalent premium shall also become and be
immediately due and payable upon the acceleration of the notes. If an Event of
Default occurs before March 1, 2002 by reason of any such willful action or
inaction, by or on behalf of ORBIMAGE with the intention of avoiding the
prohibition on redemption of the notes before March 1, 2002, then the premium
specified in the indenture shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the notes.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture, except a continuing Default or Event of Default in interest or
principal payments on the notes.
ORBIMAGE is required to deliver to the trustee annually a statement
regarding compliance with the indenture, and ORBIMAGE is required, upon becoming
aware of any Default or Event of Default, to deliver to the trustee a statement
specifying the Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, PARTNERS, OFFICERS, EMPLOYEES,
INCORPORATORS AND STOCKHOLDERS
No director, officer, employee, incorporator, stockholder or authorized
representative of ORBIMAGE, acting in those capacities, shall have any liability
for any obligations of ORBIMAGE under the notes, the indenture or the pledge
agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of notes, by accepting a note, waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. This waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that this type of waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
ORBIMAGE may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, and premium, if any, interest and
liquidated damages, if any, on such notes when the payments are due
from the trust referred to below;
(2) ORBIMAGE's obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
ORBIMAGE's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, ORBIMAGE may, at its option and at any time, elect to have its
obligations of ORBIMAGE released with respect to certain covenants that are
described in the indenture ("Covenant Defeasance") and thereafter any omission
to comply with these obligations shall not constitute a Default or Event of
Default with respect to the notes. If Covenant Defeasance occurs, certain
events, other than non-
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payment, bankruptcy, receivership, rehabilitation and insolvency events
described under "-- Events of Default," will no longer constitute an Event of
Default with respect to the notes.
To exercise either Legal Defeasance or Covenant Defeasance with respect to
the notes:
(1) ORBIMAGE must irrevocably deposit with the trustee, in trust for the
benefit of the holders of the notes, cash in U.S. dollars, non-callable
Government Securities or a combination thereof, in amounts sufficient,
in the opinion of a nationally recognized firm of independent certified
public accountants, to pay the principal of, and premium, if any,
interest and liquidated damages, if any, on the outstanding notes on
the Stated Maturity or on the applicable redemption date, as the case
may be, and ORBIMAGE must specify whether the notes are being defeased
to maturity or to a redemption date;
(2) in the case of Legal Defeasance, ORBIMAGE shall have delivered to the
trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that:
(a) ORBIMAGE has received a ruling from, or a ruling has been
published by, the Internal Revenue Service; or
(b) since the date of the indenture, there has been a change in the
applicable federal income tax law,
in either case to the effect, and based thereon such opinion of counsel
shall confirm, that the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, ORBIMAGE shall have delivered to
the trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that the holders of the
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the
date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute default under any material
agreement or instrument, other than the indenture, to which ORBIMAGE or
any of its Restricted Subsidiaries is a party or by which ORBIMAGE or
any of its Restricted Subsidiaries is bound;
(6) ORBIMAGE shall have delivered to the trustee an opinion of counsel to
the effect that after the 91st day or such other applicable date
following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally;
(7) ORBIMAGE shall have delivered to the trustee an Officers' Certificate
stating that the deposit was not made by ORBIMAGE with the intent of
preferring the holders of notes over the other creditors of ORBIMAGE
with the intent of defeating, hindering, delaying or defrauding
creditors of ORBIMAGE or others; and
(8) ORBIMAGE shall have delivered to the trustee an Officers' Certificate
and an opinion of counsel, each stating that all conditions precedent
provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
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TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and ORBIMAGE may require
a holder to pay any taxes and fees required by law or permitted by the
indenture. ORBIMAGE is not required to transfer or exchange any notes selected
for redemption. Also, ORBIMAGE is not required to transfer or exchange any notes
for a period of 15 days before a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of the note
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the indenture, these
notes and the pledge agreement may be amended or supplemented with the consent
of the holders of at least a majority in principal amount of the notes then
outstanding, including consents obtained in connection with a purchase of, or
tender offer or exchange offer for, notes, and any existing default or
compliance with any provision of the indenture, the notes or the pledge
agreement may be waived with the consent of the holders of a majority in
principal amount of the then outstanding notes, including consents obtained in
connection with a purchase of, or tender offer or exchange offer for notes.
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any note held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes, other
than provisions relating to the covenants described above under the
caption "Repurchase at the Option of Holders -- Change of Control" and
"Limitation on Sales of Assets and Subsidiary Interests;"
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of,
premium, if any, interest or liquidated damages, if any, on the notes,
except a rescission of acceleration of the notes by the holders of at
least a majority in aggregate principal amount of the notes and a
waiver of the payment default that resulted from such acceleration;
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers
of past Defaults or the rights of holders of notes to receive payments
of principal of, premium, if any, interest or liquidated damages on,
the notes;
(7) waive a redemption payment with respect to any note other than a
payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders;" or
(8) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of notes,
ORBIMAGE and the trustee may amend or supplement the indenture, the notes or the
pledge agreement to cure any ambiguity, defect or inconsistency, to provide for
uncertificated notes in addition to or in place of certificated notes, to
provide for the assumption of ORBIMAGE's obligations to holders of notes in the
case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the holders of notes or that does not adversely
affect the legal rights under the indenture of any holder, or to comply with
requirements of the Commission to effect or maintain the qualification of the
indenture under the Trust Indenture Act.
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CONCERNING THE TRUSTEE
The indenture contains limitations on the rights of the trustee, should it
become a creditor of ORBIMAGE, to obtain payment of claims in some cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The trustee will be permitted to engage in other transactions;
however, if the trustee acquires any conflicting interest, it must eliminate the
conflict within 90 days, apply to the Commission for permission to continue or
resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur, which shall not be cured, the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of his or her own affairs. Subject to these provisions, the trustee will
be under no obligation to exercise any of its rights or powers under the
indenture at the request of any holder of notes, unless that holder shall have
offered to the trustee security and indemnity satisfactory to it against any
loss, liability or expense.
CERTAIN DEFINITIONS
Below are certain defined terms used in the indenture. Reference is made to
the indenture for a full disclosure of all terms, as well as any other
capitalized terms used in this prospectus for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) indebtedness of any other Person existing at the time the other Person
is merged with or into or became a Restricted Subsidiary of the
specified Person, including, without limitation, indebtedness incurred
in connection with, or in contemplation of, the other Person merging
with or into or becoming a Restricted Subsidiary of the specified
Person; and
(2) indebtedness secured by a Lien encumbering any asset acquired by the
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the specified Person. For purposes of this definition, "control,"
including, with correlative meanings, the terms "controlling, controlled by" and
"under common control with," as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of that Person, whether through the
ownership of Voting Equity Interests, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Equity Interests, or the
equivalent, of a Person shall be deemed to be control.
"Asset Sale" means:
(1) the sale, lease, license, conveyance or other disposition of any assets
or rights (including, without limitation, by way of a Sale and
Leaseback or similar arrangement) by ORBIMAGE or a Restricted
Subsidiary (a "disposition"), provided that the disposition of all or
substantially all of the assets of ORBIMAGE and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
indenture described above under the caption "-- Repurchase at the
Option of Holders -- Change of Control" and/or the provisions described
above under the caption "-- Restrictive Covenants -- Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset
Sale covenant); and
(2) except to the extent excluded by clause (1) above, the issuance or
disposition by ORBIMAGE or any of its Restricted Subsidiaries of Equity
Interests of ORBIMAGE's Restricted Subsidiaries,
in the case of either clause (1) or (2) above, whether in a single transaction
or a series of related transactions: (a) that have a Fair Market Value in excess
of $2.5 million; or (b) for net proceeds in excess of $2.5 million.
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Notwithstanding the foregoing, the following will not be deemed to be Asset
Sales:
(1) sales of imagery, imagery distribution or satellite tasking rights,
software or rights in software for processing and storing imagery,
license grants to imagery value-added resellers or distributors and
other associated rights, and sales of services, products or inventory
in the ordinary course of business;
(2) a transfer of assets by ORBIMAGE to any of its Restricted Subsidiaries
or by a Restricted Subsidiary to ORBIMAGE;
(3) an issuance of Equity Interests by a Restricted Subsidiary to ORBIMAGE
or to a Wholly Owned Restricted Subsidiary of ORBIMAGE;
(4) an exchange of an asset held by ORBIMAGE or a Restricted Subsidiary for
an asset of a third party upon a determination by the disinterested
members of the board of directors of ORBIMAGE made in good faith
(evidenced by a resolution approved by a majority of the disinterested
members of the board of ORBIMAGE and set forth in an Officers'
Certificate delivered to the trustee) that the asset received by
ORBIMAGE or a Restricted Subsidiary in the exchange (a) is a Related
Asset, (b) has a Fair Market Value at least equal to the fair market
value of the asset transferred by ORBIMAGE or the Restricted Subsidiary
and (c) is usable in the ordinary course of ORBIMAGE's business to at
least the same extent as the asset transferred by ORBIMAGE or the
Restricted Subsidiary;
(5) sales or dispositions of damaged, worn out or other obsolete property
in the ordinary course of business so long as the property is no longer
necessary for the proper conduct of the business of ORBIMAGE or any of
its Restricted Subsidiaries; and
(6) a Restricted Payment that is permitted by the covenant entitled
"Restricted Payments."
"Attributable Debt" means, with respect to any sale and leaseback
transaction, the present value at the time of determination (discounted at a
rate consistent with accounting guidelines, as determined in good faith by
ORBIMAGE) of the payments during the remaining term of the lease (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended) or until the earliest date on which the lessee may
terminate such lease without penalty or upon payment of a penalty (in which case
the rental payments shall include such penalty, after excluding all amounts
required to be paid on account of maintenance and repairs, insurance, taxes,
assessments, water, utilities and similar charges).
"Business Assets" means any hardware, software, technology, intellectual
property or other rights in or assets (or, in the case of clause (6), inventory)
relating to:
(1) the remote imaging satellites owned and/or operated by ORBIMAGE on the
First Issue Date;
(2) the OrbView Satellites;
(3) the Replacement Satellites;
(4) any other remote imaging satellites developed, constructed or acquired
by ORBIMAGE;
(5) the ground segment or any components thereof related to the operation
of, and processing of data from, the satellites described in clauses
(1)-(5) above; and
(6) ORBIMAGE's imagery catalogue and archive.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents, however
designated, of corporate stock;
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(3) in the case of a partnership, partnership interests, whether general or
limited; and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Consideration" means any consideration received from an Asset Sale in
the form of cash or Cash Equivalents, in either case in U.S. dollars or freely
convertible into U.S. dollars.
"Cash Equivalents" means:
(1) United States dollars;
(2) Government Securities;
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances
or money market deposit accounts with maturities not exceeding six
months and overnight bank deposits, in each case with any Eligible
Institution;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any Eligible Institution;
(5) commercial paper having the highest rating obtainable from Moody's or
S&P and in each case maturing within six months after the date of
acquisition; and
(6) mutual funds or other pooled investment vehicles investing solely in
investments of the types described in (1) through (5) above.
"Change of Control" means:
(1) the failure by Orbital to hold at least 12,600,000 shares of common
stock of ORBIMAGE, that number being 50% of the shares of common stock
of ORBIMAGE held by Orbital on May 8, 1997, adjusted for stock splits,
stock combinations and the like;
(2) the failure by Orbital to hold at least thirty percent (30%) of the
common stock of ORBIMAGE on a fully diluted basis, without giving
effect to the conversion of Capital Stock of ORBIMAGE issued as a
dividend paid-in-kind with respect to shares of Series A preferred
stock or Capital Stock of ORBIMAGE issued under options granted under
the stock option plan or any other option plan adopted for the benefit
of ORBIMAGE's employees or directors;
(3) the direct or indirect acquisition of beneficial ownership of Voting
Equity Interests of ORBIMAGE by any Person or group of Persons acting
in concert, in an amount greater than the amount of Voting Equity
Interests held contemporaneously by Orbital except (a) purchases by
record holders of Series A preferred stock as of the First Issue Date
(and their affiliates, to the extent that such holders are permitted to
transfer their shares of Series A preferred stock to affiliates under
the Amended and Restated Stock Purchase Agreement, dated February 25,
1998 ("Series A Affiliates")) from other holders of Series A preferred
stock and their Series A Affiliates and (b) purchases permitted under
the Series A holders' subscription rights under Section 4.1 of the
stockholders' agreement;
(4) the acquisition of ORBIMAGE, 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 ORBIMAGE
and its Restricted Subsidiaries or the combination of ORBIMAGE or all
or substantially all its assets with another Person (other than any
such transfer to any Wholly Owned Restricted Subsidiary of ORBIMAGE),
unless the acquiring or surviving Person shall be a corporation more
than fifty percent (50%) of the combined voting power of which
corporation's then outstanding Voting Equity Interests, after giving
effect to such acquisition or combination, are owned, immediately after
such acquisition or combination, by the owners of the Voting Equity
Interests of ORBIMAGE outstanding immediately before the acquisition or
combination;
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(5) the adoption of a plan relating to the liquidation or dissolution of
ORBIMAGE (other than any liquidation or dissolution to or for the
benefit of any Wholly Owned Restricted Subsidiary of ORBIMAGE);
(6) the failure by ORBIMAGE to obtain any applicable License, or License
amendment, as applicable, so that it is in full force and effect within
thirty (30) days before the scheduled launch of any of the OrbView
Satellites;
(7) the revocation of any License necessary to operate OrbView-2 or the
OrbView Satellites consistent with ORBIMAGE'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 ORBIMAGE has received regulatory approval to continue operations
under the License pending the outcome of the appeals; or
(8) at any time before the latest to occur of (a) the successful on-orbit
checkout of the imaging satellite known as OrbView-3, (b) a Qualifying
Public Offering or (c) the business day next following the end of a 180
consecutive day period during which the average closing price per share
of ORBIMAGE's common stock shall have exceeded the Threshold Price (as
defined in the definition of "Qualifying Public Offering" below) then
in effect, and unless consented to in writing by the holders of at
least fifty percent (50%) of the shares of Series A preferred stock
then outstanding, the acquisition by any Person or group of Persons
acting in concert of beneficial ownership, direct or indirect, of
securities of Orbital representing thirty-five percent (35%) or more of
the combined voting power of Orbital's then outstanding equity
securities and at any time thereafter either (A) less than a majority
of Orbital's board of directors shall be Continuing Directors or (B)
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 ORBIMAGE and Orbital.
"Collateral Agent" means the collateral agent under the pledge agreement.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of that Person for that period:
(1) plus, to the extent deducted or otherwise excluded in computing the
Consolidated Net Income:
(a) an amount equal to any extraordinary loss plus any net loss
realized in connection with a sale of assets;
(b) provision for taxes based on income or profits of that Person and
its Restricted Subsidiaries for that period;
(c) Consolidated Interest Expense; and
(d) depreciation, amortization, including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period, and other non-cash
charges, excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future
period or amortization of a prepaid cash expense that was paid in
a prior period, of that Person and its Restricted Subsidiaries for
that period;
(2) minus, to the extent added or otherwise included in computing
Consolidated Net Income, consolidated interest income of that Person
and its Restricted Subsidiaries for that period and non-cash items
increasing the Consolidated Net Income, including, without limitation,
(a) unrealized currency exchange gains and (b) amortized non-cash
contract revenues related to (A) cash received before the First Issue
Date and (B) cash received after the First Issue Date that is
specifically intended to fund capital expenditures, including, but not
limited to that certain contract between Orbital and the U.S. Air Force
with respect to hyperspectral imagery, and that certain contract dated
December 18, 1998 between MDA and CSA relating to RadarSat-2, as the
same may be amended from time to time, in each case, on a consolidated
basis and determined in accordance with GAAP.
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Notwithstanding the foregoing, the provision for taxes on the income or
profits of, and the depreciation and amortization and other non-cash
charges of, a Restricted Subsidiary of any such Person shall be added
to Consolidated Net Income to compute Consolidated Cash Flow only to
the extent and in the same proportion that the Net Income of the
Restricted Subsidiary was included in calculating the Consolidated Net
Income of that Person and only if a corresponding amount would be
permitted at the date of determination to be distributed by dividend to
that Person by the Restricted Subsidiary without prior approval that
has not been obtained, under the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules
and governmental regulations applicable to the Restricted Subsidiary or
its stockholders.
"Consolidated Interest Expense" means, for any Person for any period, (1)
the consolidated interest expense of that Person and its Restricted Subsidiaries
for that period, on a consolidated basis, determined in accordance with GAAP,
whether paid or accrued and whether or not capitalized including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financing, and net payments if any pursuant to
Hedging Obligations plus (2) the aggregate amount for such period of cash or
non-cash dividends on any Disqualified Stock of ORBIMAGE and its Subsidiaries.
"Consolidated Net Income" means, for any Person for any period, the
aggregate of the Net Income of that Person and its Restricted Subsidiaries for
that period, on a consolidated basis, determined in accordance with GAAP;
provided that:
(1) the Net Income of any Person that is not a Subsidiary Guarantor or that
is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions actually
paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary that is not a Subsidiary
Guarantor shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by such Restricted
Subsidiary of such Net Income is not at the date of determination
permitted without any prior governmental approval which has not been
obtained or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to such Restricted
Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period before the date of the acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded; and
(5) the Net Income of any Unrestricted Subsidiary shall be included only to
the extent of the amount of dividends or distributions actually paid in
cash to the referent Person or a Restricted Subsidiary thereof.
"Consolidated Net Worth" means, for any Person as of any date:
(1) the consolidated equity of the equity holders of that Person and its
consolidated Restricted Subsidiaries as of that date; plus
(2) the respective amounts reported on that Person's balance sheet as of
that date for any series of preferred Equity Interests, other than
Disqualified Stock, that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of
net earnings in respect of the year of such declaration and payment,
but only to the extent of any cash received by such Person upon
issuance of such preferred stock; minus
(3) all write-ups in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person other than write-ups resulting
from foreign currency translations and write-ups of
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tangible assets of a going-concern business made within 12 months after
the acquisition of such business, after the First Issue Date; minus
(4) all investments as of such date in unconsolidated Subsidiaries and in
Persons that are not Restricted Subsidiaries; minus
(5) all unamortized debt discount and expense and unamortized deferred
charges as of such date.
"Consolidated Tangible Net Assets" means, for any Person, the Consolidated
Net Worth of such Person less goodwill and any other intangible assets shown on
the consolidated balance sheet of such Person and its Restricted Subsidiaries.
"Continuing Director" means a director of Orbital that is a director on the
First Issue Date or is nominated as a director by a majority of Orbital's board
of directors, which majority consists of directors in place for at least 12
months (other than in connection with replacements or vacancies occurring in the
ordinary course) before the acquisition representing 35% or more of the combined
voting power of Orbital's outstanding equity securities.
"Credit Facilities" means, with respect to ORBIMAGE, one or more debt
facilities or commercial paper facilities with banks or other institutional
lenders providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof, or upon the happening of any
event: (1) matures or is mandatorily redeemable, under a sinking fund obligation
or otherwise at the option of the holder thereof; or (2) is redeemable or is
convertible or exchangeable for indebtedness at the option of the holder
thereof, in whole or in part, on or before the date on which the notes are
repaid, redeemed or retired in full; provided however, that Disqualified Stock
shall not include any Capital Stock that would constitute Disqualified Stock
solely because the holders thereof have the right to require ORBIMAGE to
repurchase the Capital Stock if the terms of the Capital Stock provide that
ORBIMAGE may not repurchase or redeem any the Capital Stock under such
provisions unless the repurchase or redemption complies with the covenant
described above under the caption "-- Restrictive Covenants -- Restricted
Payments." The Series A preferred stock shall not be Disqualified Stock.
"Eligible Institution" means a domestic commercial banking institution that
has combined capital and surplus of not less than $500 million or its equivalent
in foreign currency, whose debt is rated "A" or higher according to S&P or
Moody's at the time any investment or rollover therein is made.
"Eligible Receivables" means the accounts receivable of ORBIMAGE (net of
accounts more than 90 days past due and reserves and allowances for doubtful
accounts determined in accordance with GAAP).
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"Existing Indebtedness" means indebtedness of ORBIMAGE in existence on the
First Issue Date, until those amounts are repaid.
"Fair Market Value" means, for any asset, the sale value that would be
obtained in an arm's-length free market transaction, between a willing seller
and a willing buyer, neither of which is under pressure or compulsion to
complete the transaction; provided that the Fair Market Value of any such asset
or assets shall be determined by the board of directors of ORBIMAGE, acting in
good faith and by unanimous resolution, and which determination shall be
evidenced by an Officers' Certificate delivered to the trustee.
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"First Issue Date" means, February 25, 1998, the date on which ORBIMAGE
issued 150,000 units consisting of 11 5/8% Senior Notes due 2005 and warrants to
purchase 1,312,746 shares of common stock.
"Fixed Asset Financing" means indebtedness that is secured by ground-based
equipment and other tangible assets of ORBIMAGE or a sale and leaseback
transaction with respect to such assets, in which case the Attributable Debt
shall be treated as indebtedness for purposes of this definition.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in other statements by any other
entity as have been approved by a significant segment of the accounting
profession and that are in effect on the Issue Date.
"Government Securities" means securities that are direct obligations of, or
obligations fully guaranteed by, the United States of America for the payment of
which guarantee or obligations the full faith and credit of the United States is
pledged.
"Guarantee" or "guarantee" means a guarantee, other than by endorsement of
negotiable instruments for collection in the ordinary course of business, direct
or indirect, in any manner, including, without limitation, letters of credit and
reimbursement agreements in respect thereof, of all or any part of any
indebtedness.
"Hedging Obligations" means, for any Person, the obligations of that Person
under: (1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; (2) foreign currency hedge obligations; and (3)
other agreements or arrangements designed to protect such Person against
fluctuations in interest and foreign currency rates.
"Indebtedness" means, for any Person, any indebtedness of that Person,
whether or not contingent, in respect of borrowed money or evidenced by bonds,
notes, debentures or similar instruments or letters of credit, or reimbursement
agreements in respect thereof, or bankers' acceptances or representing Capital
Lease Obligations or the balance deferred and unpaid of the purchase price of
any property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable to the extent that any such
accrued expense or trade payable is not more than 90 days overdue or is
otherwise being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted, if and to the extent any of the foregoing
indebtedness, other than letters of credit and Hedging Obligations, would appear
as a liability upon a balance sheet of such Person prepared in accordance with
GAAP, as well as all indebtedness of others secured by a Lien on any asset of
such Person (whether or not such indebtedness is assumed by such Person and, in
the event such indebtedness is not assumed by, and is otherwise non-recourse to,
such Person, the amount of such indebtedness shall be deemed to equal the
greater of book value or Fair Market Value of such assets) all obligations to
purchase, redeem, retire, defease or otherwise acquire for value any
Disqualified Stock or any warrants, rights or options to acquire such
Disqualified Stock valued, in the case of Disqualified Stock, at the greatest
amount payable in respect thereof on a liquidation, whether voluntary or
involuntary, plus accrued and unpaid dividends, the liquidation value of any
preferred stock issued by Subsidiaries of such Person, plus accrued and unpaid
dividends, and, to the extent not otherwise included, the Guarantee by such
Person of any indebtedness of any other Person; and provided,that "indebtedness"
shall be calculated without duplication and after elimination of Intercompany
Indebtedness (as defined in clause (6) of the covenant entitled "Incurrence of
Indebtedness or Issuance of Disqualified Stock").
"Indebtedness to Capital Ratio" means, on any date of determination for
ORBIMAGE and its Restricted Subsidiaries, on a consolidated basis, the ratio,
expressed as a percentage, of indebtedness on such date to Total Invested
Capital on such date.
"Indebtedness to Cash Flow Ratio" means, for any Person as of any date of
determination, the ratio of:
(1) total indebtedness of that Person and its Restricted Subsidiaries as of
such date; to
(2) two times Consolidated Cash Flow of that Person and its Restricted
Subsidiaries for the two most recently ended fiscal quarters for which
financial statements of that Person are available (the "Measurement
Period");
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provided, however, that: (a) in making this computation, the total indebtedness
of the Person and its Restricted Subsidiaries shall include the total amount of
funds outstanding under any credit facilities; and (b) in the event the Person
or any of its Restricted Subsidiaries consummates a material acquisition or sale
of assets, or issues or redeems Disqualified Stock subsequent to the
commencement of the Measurement Period, then the Indebtedness to Cash Flow Ratio
shall be calculated giving pro forma effect to such material acquisition, sale
of assets or issuance or redemption of Disqualified Stock as if the same had
occurred at the beginning of the Measurement Period. For purposes of this
definition, whenever the pro forma effect is to be given to a transaction, the
pro forma calculations shall be made in good faith by a responsible financial or
accounting officer of ORBIMAGE.
"Indentures" means the indenture governing the notes and the 1998
Indenture.
"1998 Indenture" means the indenture dated as of February 25, 1998 between
ORBIMAGE and Marine Midland Bank, as trustee.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the good
faith judgment of the board of directors of ORBIMAGE, which good faith judgment
is evidenced by a resolution of the majority of the board of ORBIMAGE as set
forth in an Officers' Certificate delivered to the trustee, qualified to perform
the task for which it has been engaged and is disinterested and independent with
respect to ORBIMAGE and its Affiliates.
"Investments" means, for any Person, all investments by that Person in
other Persons, including Affiliates, in the forms of direct or indirect loans,
guarantees, advances or capital contributions, excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business, purchases or other acquisitions for consideration of indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
ORBIMAGE for consideration consisting of common Equity Interests other than
Disqualified Stock of ORBIMAGE shall not be deemed to be an Investment.
Notwithstanding the foregoing, Investments shall not include advance payments
for satellite capacity or imagery related services or products in the ordinary
course of business.
"Issue Date" means April 22, 1999.
"Joint Venture" means a Person in a Related Business in which ORBIMAGE or
one of its Subsidiaries holds 50% or less of the Voting Equity Interests.
"License" means any Federal Communications Commission license or Department
of Commerce license issued to ORBIMAGE relating to the operation of OrbView-2 or
the OrbView Satellites, including the Department of Commerce license and the
Federal Communications Commission license currently owned by Orbital relating to
the operation of OrbView-2.
"Lien" means, for any asset, any mortgage, lien, pledge, charge, security
interest or encumbrance of any kind in respect of that asset, whether or not
filed, recorded or otherwise perfected under applicable law, including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code or equivalent statutes of any jurisdiction.
"Marketable Securities" means:
(1) Government Securities or, for purpose of determining whether the
Government Securities may serve as substitute pledged securities,
Government Securities having a maturity date on or before the date on
which the payments of interest or principal on the notes to which such
Government Securities are pledged occur;
(2) any certificate of deposit maturing not more than 270 days after the
date of acquisition issued by, or time deposit of, an Eligible
Institution;
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(3) commercial paper maturing not more than 270 days after the date of
acquisition issued by a corporation other than an Affiliate of ORBIMAGE
with a rating at the time any investment therein is made, of "A-1" or
higher according to S&P or "P-1" or higher according to Moody's;
(4) any banker's acceptances or money market deposit accounts issued or
offered by an Eligible Institution; and
(5) any fund investing exclusively in investments of the types described in
clauses (1) through (4) above; and in the case of (2) through (4)
above, which have a maturity date on or before the date on which occur
the payments of interest in the notes to which the securities are
pledged.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Net Income" means, for any Person, the net income OR LOSS of that Person,
determined in accordance with GAAP and before any reduction in respect of
preferred stock dividends, excluding, however:
(1) any gain, but not loss, together with any related provision for taxes
on such gain, but not loss, realized in connection with:
(a) any sale of assets including, without limitation, dispositions
under Sale and Leaseback Transactions; or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any indebtedness
of such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary or nonrecurring gain, but not loss, together with any
related provision for taxes on such extraordinary or nonrecurring gain,
but not loss.
"Net Proceeds" means:
(1) for any Asset Sale, the aggregate cash proceeds received by ORBIMAGE or
any of its Restricted Subsidiaries in respect of such Asset Sale,
including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale,
net of the direct costs relating to such Asset Sale, including, without
limitation, legal, accounting and investment banking fees, and sales
commissions, and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof after taking into account any
available tax credits or deductions and any tax sharing arrangements
and provided that any such amount not so required to be paid for taxes
shall be deemed to constitute Net Proceeds at the time such amount is
not retained for such purpose, amounts required to be applied to the
repayment of indebtedness secured by a Lien on the asset or assets
including Equity Interests that were the subject of such Asset Sale and
any reserve for adjustment in respect of the sale price of such asset
or assets including Equity Interests established in accordance with
GAAP, provided that the amount of any such reserve shall be deemed to
constitute Net Proceeds at the time such reserve shall have been
released or is not otherwise required to be retained for such purpose;
and
(2) with respect to any issuance or sale of Capital Stock, the proceeds of
such issuance or sale in the form of cash or Cash Equivalents,
including payments in respect of deferred payment obligations, to the
extent corresponding to the principal, but not interest, component
thereof, when received in the form of cash or Cash Equivalents, except
to the extent such obligations are financed or sold with recourse to
ORBIMAGE or any Restricted Subsidiary of ORBIMAGE, and proceeds from
the conversion of other property received when converted to cash or
Cash Equivalents, net of legal, accounting and investment banking fees,
discounts and sales commissions and net of taxes paid or payable as a
result thereof.
"Non-Recourse Debt" means indebtedness:
(1) as to which neither ORBIMAGE nor any of its Restricted Subsidiaries:
(a) provides credit support of any kind including any undertaking,
agreement or instrument that would constitute indebtedness;
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(b) is directly or indirectly liable as a guarantor or otherwise; or
(c) constitutes the lender;
(2) no default that (including any rights that the holders thereof may have
to take enforcement action against an Unrestricted Subsidiary) would
permit (upon notice, lapse of time or both) any holder of any other
indebtedness of ORBIMAGE or any of its Restricted Subsidiaries to
declare a default on such other indebtedness or cause the payment
thereof to be accelerated or payable before its Stated Maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of any of ORBIMAGE or any
of its Restricted Subsidiaries.
"1998 Notes" means the 11 5/8% Senior Notes due 2005 issued under the 1998
Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any indebtedness.
"Officers' Certificate" means, for any Person, a certificate signed by the
chief executive officer or president and the chief financial and accounting
officer of that Person.
"Orbital" means Orbital Sciences Corporation, a Delaware corporation, or
any successor entity whether by merger, sale of all or substantially all its
assets or otherwise.
"Orbital Agreements" means each of the Amended and Restated Procurement
Agreement between ORBIMAGE and Orbital, dated as of February 25, 1998 and
amended as of December 31, 1998, the Amended and Restated ORBIMAGE Services
Agreement between Orbital and ORBIMAGE, dated as of December 31, 1997; the
Non-Compete and Teaming Agreement between ORBIMAGE and Orbital, dated as of May
8, 1997; the OrbView-2 License Agreement between ORBIMAGE and Orbital, dated as
of May 8, 1997; the Software License Agreement between ORBIMAGE and Earth
Observation Sciences dated March 14, 1996, as amended; the RadarSat-2 Master
Agreement dated as of December 31, 1998 and amended as of April 1, 1999, among
ORBIMAGE, Orbital and MacDonald, Dettwiler and Associates, Ltd., a wholly-owned
subsidiary of Orbital, and the Software Maintenance and Support Agreement
between ORBIMAGE and Earth Observation Sciences, dated as of October 1, 1997;
each agreement as in effect as of the Issue Date and as amended from time to
time if such amendment is not prohibited by the indenture.
"OrbView Satellites" means each of the high-resolution satellites currently
designated as OrbView-3 and OrbView-4 under the procurement agreement, and any
Replacement Satellite.
"Permitted Investment" means:
(1) any Investments in ORBIMAGE or any Wholly Owned Restricted Subsidiary
of ORBIMAGE;
(2) any Investments in cash or Cash Equivalents;
(3) Investments by ORBIMAGE or any of its Restricted Subsidiaries in a
Person if, as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of ORBIMAGE; or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, ORBIMAGE or any Restricted Subsidiary of
ORBIMAGE;
(4) any Investment made as a result of the receipt of non-Cash
Consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"Repurchase at the Option of Holders -- Limitation on Sales of Assets
and Subsidiary Interests;"
(5) any Investment made with Excess Proceeds remaining after the
consummation of an Asset Sale offer as described above under the
caption "Repurchase at the Option of Holders -- Limitation on Sales of
Assets and Subsidiary Interests;"
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(6) any Investment made by ORBIMAGE or any of its Restricted Subsidiaries
in any Unrestricted Subsidiary using the proceeds of a substantially
concurrent contribution to the equity capital of ORBIMAGE; and
(7) any Investment made by ORBIMAGE or any of its Restricted Subsidiaries
in a Related Business, Related Satellite Business or a Joint Venture;
provided that at the time any such Investment is made, such Investment
will not cause the aggregate amount of Investments at any one time
outstanding under clause (8) of the defined term "Permitted Investment"
in Section 1.1 of the 1998 Indenture and this clause 7 to exceed the
greater of (a) $10 million or (b) 7.5% of the Consolidated Net Worth of
ORBIMAGE.
"Permitted Liens" means:
(1) Liens securing the notes;
(2) Liens in favor of ORBIMAGE;
(3) Liens on property of a Person existing at the time such Person is
merged into or consolidated with ORBIMAGE or any of its Restricted
Subsidiaries; provided that such Liens were in existence before the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
ORBIMAGE or its Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by
ORBIMAGE or any of its Restricted Subsidiaries, provided that such
Liens were in existence before the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety,
appeal or performance bonds or other obligations of a like nature or
mechanics' or purchase money Liens incurred in the ordinary course of
business;
(6) Liens existing on the First Issue Date;
(7) Liens on inventory, accounts receivable or domestic and/or
international ground operation centers and related systems securing
indebtedness incurred under clause (1), (7), (10) or (11) of the
covenant entitled "Incurrence of Indebtedness or Issuance of
Disqualified Stock", or securing Permitted Refinancing Indebtedness
incurred under the indenture to refinance indebtedness incurred under
clause (1), (8), (10) or (11) of the covenant entitled "Incurrence of
Indebtedness or Issuance of Disqualified Stock;"
(8) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) Liens incurred in the ordinary course of business of ORBIMAGE or any
Subsidiary of ORBIMAGE for obligations that do not exceed $5 million at
any one time outstanding whether incurred under this Clause 9 or Clause
(ix) of the defined term "Permitted Liens" in Section 1.1 of the 1998
Indenture and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit other than
trade credit in the ordinary course of business, (b) do not in the
aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by
ORBIMAGE or its Subsidiaries and (c) are not for the benefit of an
Affiliate of ORBIMAGE; and
(10) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Debt of Unrestricted Subsidiaries.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
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"Pledge Account" means the account established with the collateral agent
under the terms of the pledge agreement for the deposit of the pledged
securities.
"Pledge Agreement" means the pledge agreement dated as of April 22, 1999 by
and between ORBIMAGE and the collateral agent governing the pledge account.
"Pledged Securities" means the portfolio of securities initially consisting
of U.S. government securities, including any Marketable Securities substituted
in respect thereof, purchased by ORBIMAGE with a portion of the net proceeds
from the original notes offering to be deposited in the pledge account and
pledged as security for the notes.
"Qualifying Public Offering" means a public offering of common stock
registered under the Securities Act: (1)(a) that shall have resulted in an
aggregate price to the public of not less than $30 million or (b) that involves
the sale to the public of common stock constituting at least twenty percent
(20%) of the common stock immediately outstanding after the offering, in either
case at a price per share of common stock equal to or greater than the Threshold
Price; and (2) that shall have resulted in listing or admission to trading of
the common stock on the New York Stock Exchange, a national securities exchange,
the Nasdaq National Market System or the Nasdaq over-the-counter market. For the
purposes of this definition, Threshold Price means:
(1) as of any date through May 1, 1999, 100% of the then current Conversion
Price, as defined in the stock purchase agreement;
(2) from May 2, 1999 through May 1, 2000, the then current Conversion
Price, multiplied by the amount, expressed as a percentage, equal to
100% plus the result of 30% times a fraction, the numerator of which is
the number of days after May 1, 1999 that the calculation of the
Threshold Price occurs and the denominator of which is 365;
(3) from May 2, 2000 through May 1, 2001, the then current Conversion
Price, multiplied by the amount, expressed as a percentage, equal to
130% plus the result of 20% times a fraction, the numerator of which is
the number of days after May 1, 2000 that the calculation of the
Threshold Price occurs and the denominator of which is 365; and
(4) from May 2, 2001 forward, 150% of the then current Conversion Price.
"RadarSat-2 License" means the ten-year license for (1) the exclusive
distribution and marketing rights for RadarSat-2 imagery products and services
and (2) the non-exclusive right to use the mark "RadarSat" to market and
distribute RadarSat-2 imagery products and services, including renewal options,
granted to ORBIMAGE by MacDonald Dettwiler and Associates Ltd., a wholly-owned
subsidiary of Orbital, under the RadarSat-2 Master Agreement dated as of
December 31, 1998 and amended as of April 1, 1999 among ORBIMAGE, Orbital and
MacDonald, Dettwiler and Associates Ltd.
"Related Asset" means any asset used in connection with a Related Business
or Related Satellite Business.
"Related Business" means any Related Satellite Business and any business
relating to the worldwide acquisition, marketing, processing and sales of remote
imagery-based products and services.
"Related Satellite Business" means any business relating to the design,
development, and operation of remote imaging satellites and the worldwide
marketing and sales of satellite-based remote imagery-based products and
services.
"Replacement Satellite" means any satellite constructed to replace an
OrbView Satellite in the event of a failure of an OrbView Satellite; provided,
however, that any Replacement Satellite shall not include hyperspectral imagery
capacity, if it is determined in good faith by the board of ORBIMAGE which
determination shall be evidenced by a resolution approved by at least a majority
of the board of ORBIMAGE and set forth in an Officers' Certificate delivered to
the trustee, that hyperspectral imagery is not required to maintain the
competitiveness of ORBIMAGE's satellites.
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"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of that Person
that is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
under which any property other than Capital Stock or assets is sold by a Person
or a Subsidiary and is thereafter leased back from the purchaser or transferee
thereof by that Person or one or more of its Subsidiaries, except a Fixed Asset
Financing.
"S&P" means Standard & Poor's Ratings Services or its successors.
"Securities Act" means the Securities Act of 1933.
"Series A offering" means the sale of shares of Series A preferred stock
that was completed on February 25, 1998.
"Series A preferred stock" means the Series A Cumulative Convertible
Preferred Stock, $.01 par value, of ORBIMAGE.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article I, Rule 1-02 of Regulation S-X, promulgated
under the Securities Act, as that regulation is in effect on the date hereof.
"Stated Maturity" means, when used with respect to any original note or
exchange note, March 1, 2005.
"Stock Purchase Agreement" means the Series A Preferred Stock Purchase
Agreement, dated May 7, 1997, as amended, by and among ORBIMAGE and the
purchasers of Series A preferred stock, as in effect on the First Issue Date.
"Stockholders' Agreement" means the agreement by and among ORBIMAGE and its
stockholders, dated May 8, 1997, as amended, as in effect on the First Issue
Date.
"Stock Option Plan" means the Orbital Imaging Corporation 1996 Stock Option
Plan, adopted as of November 15, 1996 and any successor stock option plan
adopted for the benefit of ORBIMAGE's directors and/or employees.
"Subsidiary" means, for any Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
to vote, without regard to the occurrence of any contingency, in the
election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or
more of the other Subsidiaries of that Person or a combination thereof;
and
(2) any partnership (a) the sole general partner or the managing general
partner of which is that Person or a Subsidiary of that Person or (b)
the only general partners of which are that Person or one or more
Subsidiaries of that Person or any combination thereof.
"Subsidiary Guarantee" means any Guarantee of ORBIMAGE's obligations under
the indenture and the notes given by a Subsidiary Guarantor.
"Subsidiary Guarantor" means any Person that becomes a Restricted
Subsidiary of ORBIMAGE after the First Issue Date.
"Total Invested Capital" means, as of any date of determination, the sum of
(1) total indebtedness as of that date and (2) $91.5 million plus the aggregate
proceeds received by ORBIMAGE or any Restricted Subsidiary in respect of the
issuance of Capital Stock other than Disqualified Stock of ORBIMAGE or the
Restricted Subsidiary, including the fair value of property other than cash, as
such fair value is determined in good faith by the board of ORBIMAGE, evidenced
by a resolution approved by at least a majority of the board of directors of
ORBIMAGE and set forth in an Officers' Certificate delivered to the trustee,
less any
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redemptions of, or dividends or other distributions on, Capital Stock of
ORBIMAGE made after the First Issue Date and on or before the date of
determination.
"Units Offering" means the issuance by ORBIMAGE on February 25, 1998 of
150,000 units consisting of 11 5/8% Senior Notes due 2005 and warrants to
purchase 1,312,746 shares of common stock, resulting in gross proceeds of $150
million.
"Unrestricted Subsidiary" of a Person means any Subsidiary of that Person
that is designated by that Person as an Unrestricted Subsidiary, but only if and
for so long as that Subsidiary:
(1) has no indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with ORBIMAGE or any Restricted Subsidiary unless the terms of any
agreement, contract, arrangement or understanding are no less favorable
to ORBIMAGE or the Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of ORBIMAGE;
(3) is a Person with respect to which neither ORBIMAGE nor any of its
Restricted Subsidiaries has any direct or indirect obligation:
(a) to subscribe for additional Equity Interests; or
(b) to maintain or preserve that Person's financial condition or to
cause the Person to achieve any specified levels of operating
results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any indebtedness of ORBIMAGE or any of its Restricted
Subsidiaries; and
(5) in the case of a corporate entity or limited liability company, has at
least one director on its board of directors and at least one executive
officer, in each case who is not a director or executive officer of
ORBIMAGE or any of its Restricted Subsidiaries.
"Voting Equity Interests" means the Equity Interest in a corporation or
other Person with voting power under ordinary circumstances entitling the
holders thereof to elect or appoint the board of directors, executive committee
or other governing body of such corporation or Person, whether at all times or
only so long as no senior class of securities has such voting power by reason of
any contingency.
"Weighted Average Life to Maturity" means, when applied to any indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying: (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years, calculated to the nearest
one-twelfth, that will elapse between that date and the making of the
payment; by
(2) the then outstanding principal of such indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of that Person all of the outstanding Capital Stock or other
ownership interests of which, other than directors' qualifying shares, shall at
the time be owned by that Person and/or one or more other Wholly Owned
Restricted Subsidiaries of that Person.
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ADDITIONAL PROVISIONS APPLICABLE TO THE EXCHANGE NOTES
BOOK-ENTRY, DELIVERY AND FORM
Except as indicated in the next paragraph, the exchange notes will
initially be issued in the form of one or more global notes. The global notes
will be deposited on the date of the closing of the sale of the exchange notes
offered in this exchange offer with, or on behalf of, the depositary and
registered in the name of Cede & Co., as nominee for the depositary. We will
refer to Cede & Co. as the "global note holder."
Exchange notes that are issued as described below under "-- Certificated
Securities" will be issued in registered form. Upon the transfer of certificated
securities, these certificated securities may, unless the global notes have
previously been exchanged for certificated securities, be exchanged for an
interest in a global note representing the principal amount of notes being
transferred.
The depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations and to facilitate the clearance
and settlement of transactions in securities between participants through
electronic book-entry changes in accounts of its participants. The depositary's
participants include securities brokers and dealers, including the initial
purchasers of the original notes, banks and trust companies, clearing
corporations and other organizations. Access to the depositary's system is also
available to other entities including banks, brokers, dealers and trust
companies, which we refer to as indirect participants, that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly. Persons who are not participants may beneficially own securities
held by or on behalf of the depositary only through the depositary's
participants or the depositary's indirect participants.
ORBIMAGE expects that under procedures established by the depositary (1)
upon deposit of the global notes, the depositary will credit the accounts of
participants with portions of the principal amount of the global notes and (2)
ownership of the exchange notes evidenced by the global notes will be shown on,
and the transfer of ownership of the exchange notes will be effected only
through, records maintained by the depositary (with respect to the interests of
the depositary's participants), the depositary's participants and the
depositary's indirect participants. We advise prospective purchasers that the
laws of some states require that certain Persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer exchange notes evidenced by the global notes will be limited to that
extent.
So long as the global note holder is the registered owner of any exchange
notes, the global note holder will be considered the sole owner or holder of the
exchange notes outstanding under the indenture. Beneficial owners of exchange
notes evidenced by the global note will not be considered the owners or holders
of the exchange notes under the indenture for any purpose, including for
purposes of giving any directions, instructions or approvals to the trustee. The
ability of a Person having a beneficial interest in exchange notes represented
by a global note to pledge his or her interest to Persons or entities that do
not participate in the depositary's system or to otherwise take actions in
respect of his or her interest, may be affected by the lack of a physical
certificate evidencing that interest.
Neither ORBIMAGE nor the trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
exchange notes by the depositary, or for maintaining, supervising or reviewing
any records of the depositary relating to exchange notes.
Payments in respect of the principal of, premium, if any, interest and
liquidated damages, if any, on any exchange notes registered in the name of a
global note holder on the applicable record date will be payable by the trustee
to or at the direction of the global note holder in its capacity as the
registered holder under the indenture. Under the terms of the indenture,
ORBIMAGE and the trustee may treat the Persons in whose names the exchange
notes, including the global notes, are registered as the owners of the exchange
notes for the purpose of receiving payments and for any and all other purposes
whatsoever. Consequently, neither ORBIMAGE nor the trustee has or will have any
responsibility or liability for payments to beneficial owners of exchange notes,
including principal, premium, if any, interest and liquidated damages, if any.
ORBIMAGE believes, however, that it is currently the policy of the
depositary to credit immediately the accounts of the relevant participants with
payment, in amounts proportionate to their respective holdings in
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principal amount of beneficial interests in the relevant security as shown on
the records of the depositary. Payments by the depositary's participants and the
depositary's indirect participants to the beneficial owners of exchange notes
will be governed by standing instructions and customary practice and will be the
responsibility of the depositary's participants or the depositary's indirect
participants.
CERTIFICATED SECURITIES
Qualified by specific conditions, any Person having a beneficial interest
in a global note may, upon request to ORBIMAGE or the trustee, exchange its
beneficial interest for exchange notes in the form of definitive notes. Upon any
issuance of definitive notes, the trustee is required to register the exchange
notes in the name of, and cause the same to be delivered to, that Person or
Persons. In addition, if (1) ORBIMAGE notifies the trustee in writing that the
depositary is no longer willing or able to act as a depositary and ORBIMAGE is
unable to appoint a qualified successor within 90 days or (2) ORBIMAGE, at its
option, notifies the trustee in writing that it elects to cause the issuance of
exchange notes in the form of definitive notes under the indenture, then, upon
surrender by the relevant global note holder of its global note, exchange notes
in the form of definitive notes will be issued to each Person that the
depositary identifies as the beneficial owner of the related exchange notes.
Neither ORBIMAGE nor the trustee shall be liable for any delay by the
depositary in identifying the beneficial owners of the related exchange notes
and each Person may conclusively rely on, and shall be protected in relying on,
instructions from the depositary for all purposes, including with respect to the
registration and delivery, and the respective principal amounts, of the exchange
notes to be issued.
SAME DAY SETTLEMENT AND PAYMENT
The indenture requires that payments in respect of the exchange notes
represented by the global notes, including principal, premium, if any, interest
and liquidated damages, if any, be made by wire transfer of immediately
available funds to the accounts specified by the global note holder. As regards
certificated securities, ORBIMAGE will make all payments of principal, premium,
if any, interest and liquidated damages, if any, by wire transfer of immediately
available funds to the accounts specified by the holders certificated securities
or, if no account is specified, by mailing a check to each holder's registered
address. The exchange notes represented by the global notes are expected to
trade in the depositary's same day funds settlement system, and any permitted
secondary market trading activity in exchange notes will therefore be required
by the depositary to be settled in immediately available funds. ORBIMAGE expects
that secondary trading in the certificated securities will also be settled in
immediately available funds.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Latham & Watkins, counsel to ORBIMAGE, has advised ORBIMAGE that the
following discussion expresses its opinion on the material federal income tax
consequences (1) expected to result to holders whose original notes are
exchanged for the exchange notes in this exchange offer; and (2) relevant to the
ownership and disposition of the notes by persons who hold the notes as capital
assets, generally property held for investment, within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended, or the Code. The signed
opinion of Latham & Watkins is filed as an exhibit to the registration statement
of which this prospectus forms a part. The opinion and the discussion set forth
below are based upon current provisions of the Code, applicable Treasury
regulations, judicial authority and administrative rulings and practice.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions stated
below. Any changes or interpretations may or may not be retroactive and could
affect the tax consequences to holders.
The discussion below and the opinion of Latham & Watkins do not address
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 a special tax treatment, including, without limitation, banks,
broker-dealers, insurance companies, pension and other employee benefit plans,
tax exempt organizations and entities, certain U.S. expatriates, traders in
securities that elect mark-to-market accounting treatment, persons holding notes
as a
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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. In addition, this discussion and the opinion of Latham &
Watkins do not discuss the effect of any applicable U.S. state or local or
non-U.S. tax laws. ORBIMAGE has not sought and will not seek any rulings from
the Internal Revenue Service concerning the tax consequences of the exchange of
the original notes for the exchange notes or the purchase, ownership or
disposition of the exchange notes, and, accordingly, ORBIMAGE cannot assure that
the Internal Revenue Service will not successfully challenge the tax
consequences described below. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR WITH
RESPECT TO THE U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES OF THE EXCHANGE
OF ORIGINAL NOTES FOR THE EXCHANGE NOTES AND OF HOLDING AND DISPOSING OF
EXCHANGE NOTES, AS WELL AS ANY TAX CONSEQUENCES APPLICABLE UNDER THE LAWS OF ANY
U.S. STATE, LOCAL, OR NON-U.S. TAXING JURISDICTION.
THE EXCHANGE
The exchange of the original notes for the exchange notes in the exchange
offer will not be treated as an "exchange" for federal income tax purposes,
because the exchange notes will not be considered to differ materially in kind
or extent from the original notes. Accordingly, the exchange of original notes
for exchange notes will not be a taxable event to holders for federal income tax
purposes. Moreover, the exchange notes will have the same tax attributes as the
original notes and the same tax consequences to holders as the original notes
have to holders, including without limitation, the same issue price, adjusted
issue price, original issue discount, adjusted tax basis and holding period.
Therefore, references to "notes" apply equally to the exchange notes and the
original notes.
U.S. HOLDERS
This Section summarizes certain U.S. federal income tax consequences of the
ownership and disposition of the notes by U.S. persons. We refer to a U.S.
person as a "U.S. Holder." The term U.S. person generally means a holder of a
note who for U.S. federal income tax purposes:
- is a citizen or resident of the United States, including an individual
deemed to be a resident alien under the "substantial presence" test of
Section 7701(b) of the Code;
- is a corporation or partnership, including entities treated as
partnerships or corporations for federal income tax purposes, created or
organized in the United States 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;
- is an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source; or
- is 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 clause, 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. persons.
STATED INTEREST
Stated interest paid or accrued on the notes will be taxable to a U.S.
Holder as ordinary income in accordance with the holder's method of accounting
for federal income tax purposes.
ORIGINAL ISSUE DISCOUNT
The notes were issued with original issue discount ("OID") for U.S. federal
income tax purposes. The amount of OID on a note equals the excess of the
"stated redemption price at maturity" of a note over its "issue price." The
"stated redemption price at maturity" of a note equals the sum of its principal
amount plus all other payments thereunder, other than payments of "qualified
stated interest" (defined generally as stated interest that is unconditionally
payable in cash or other property (other than debt instruments of ORBIMAGE) at
least
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annually at a single fixed rate). The "issue price" of a note equals the first
price at which a substantial amount of notes were sold for money, excluding
sales to underwriters, placement agents or wholesalers.
Because each note was issued with OID, each U.S. Holder (whether reporting
on the cash or accrual basis of accounting for tax purposes) will be required to
include in taxable income for any particular taxable year the daily portion of
the OID described in the preceding paragraph that accrues on the note for each
day during the taxable year on which the U.S. Holder holds the note. Thus, a
U.S. Holder would be required to include OID in income in advance of the receipt
of the cash to which the OID is attributable. The daily portion is determined by
allocating to each day of an accrual period (generally, the period between
interest payments or compounding dates) a pro rata portion of the OID allocable
to such accrual period. The amount of OID that will accrue during an accrual
period is the product of the "adjusted issue price" of the note at the beginning
of the accrual period multiplied by the yield to maturity of the note less the
amount of any qualified stated interest allocable to such accrual period. The
"adjusted issue price" of a note at the beginning of an accrual period will
equal its issue price, increased by the aggregate amount of OID that has accrued
on the note in all prior accrual periods, and decreased by any payments made
during all prior accrual periods of amounts included in the stated redemption
price at maturity of the note.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
If the notes are considered to have "significant original issue discount"
and if the yield to maturity on the notes equals or exceeds the sum of 5% and
the "applicable federal rate" (within the meaning of Section 1274(d) of the
Code) in effect for the month in which the notes were issued ("AFR"), the notes
will be considered "applicable high yield discount obligations" within the
meaning of Section 163(i) of the Code. In such a case, ORBIMAGE will not be
permitted to take a deduction for U.S. federal income tax purposes for OID
accrued on the notes until such OID is actually paid. Moreover, to the extent
that the yield to maturity of the notes exceeds the sum of 6% and the AFR, such
excess (the "Dividend-Equivalent Interest") will not be deductible at any time
by ORBIMAGE for U.S. federal income tax purposes (regardless of whether ORBIMAGE
actually pays such Dividend-Equivalent Interest) and a corporate U.S. Holder may
be entitled to treat such Dividend-Equivalent Interest as a dividend to the
extent of the current and accumulated earnings and profits of ORBIMAGE, which
may then qualify for the dividends received deduction. In such event, corporate
U.S. Holders should consult with their tax advisors concerning the availability
of the dividends received deduction.
AMORTIZABLE BOND PREMIUM
If a U.S. Holder purchases a note for an amount that is greater than the
sum of all amounts payable on the note after the purchase date other than
payments of qualified stated interest, the U.S. Holder will be considered to
have purchased the note with "amortizable bond premium" equal in amount to such
excess. A U.S. Holder may elect under Section 171 of the Code to amortize such
premium under a constant yield method over the remaining term of the note and
may offset interest otherwise required to be included in respect of the note
during any taxable year by the amortized amount of such excess for the taxable
year. However, under Treasury Regulations, the amount of amortizable bond
premium that a U.S. Holder may deduct in any accrual period is limited to the
amount by which the holder's total interest inclusions on the notes in prior
accrual periods exceed the total amount treated by the holder as a bond premium
deduction in prior accrual periods. If any of the excess bond premium is not
deductible under Section 171 of the Code, that amount is carried forward to the
next accrual period and is treated as bond premium allocable to that period.
An election under Section 171 of the Code is available only if the notes
are held as capital assets. Such election is revocable only with the consent of
the IRS and applies to all debt obligations owned or subsequently acquired by
the taxpayer. To the extent the excess of the issue price of the note over the
amount payable at the maturity date (or earlier redemption date if appropriate)
is deducted as amortizable bond premium, the U.S. Holder's tax basis in the note
will be reduced. A U.S. Holder that purchases a note for an amount (i) less than
or equal to the sum of all amounts payable on the note after the purchase date,
other than payments of qualified stated interest and (ii) in excess of its
adjusted issue price (any such excess being "acquisition premium") and does not
elect to treat all interest on the notes as OID under Treasury Regulation
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Section 1.1272-3 shall reduce the daily portions of OID otherwise included in
income by a fraction, the numerator of which is the excess of the U.S. Holder's
adjusted basis in the note immediately after its purchase over the adjusted
issue price of the notes, and the denominator of which is the excess of the sum
of all amounts payable on the notes after the purchase date, other than
qualified stated interest, over the note's adjusted issue price.
SALE, RETIREMENT, OR OTHER TAXABLE DISPOSITION OF NOTES
Upon the sale, retirement or other taxable disposition of a note, a U.S.
Holder will recognize gain or loss to the extent of the difference between the
sum of the cash and the fair market value of any property received in exchange
therefor (except to the extent attributable to the payment of accrued and unpaid
interest on the notes, which generally will be taxed as ordinary income), and
the U.S. Holder's adjusted tax basis in the notes. A U.S. Holder's tax basis in
a note will initially equal the price paid for such note plus any OID included
in the holder's income prior to the disposition of the note and reduced by any
payments received on the note of amounts included in the stated redemption price
at maturity of the note and any amortizable bond premium applied against the
holder's income prior to the disposition of the note. Any such gain or loss
recognized by a U.S. Holder upon the sale, retirement or other taxable
disposition of a note will be capital gain or loss and will be long-term capital
gain or loss if the notes have been held for more than one year.
Holders of notes should be aware that the market discount rules may affect
resale of the notes. If a subsequent purchaser of a note purchases the note at a
"market discount" and thereafter recognizes gain upon its disposition, such gain
will be taxable as ordinary interest income (rather than capital gain) to the
extent of the "market discount" that has accrued (and has not otherwise been
included in income pursuant to an election made by such subsequent purchaser)
during the period the subsequent purchaser held such note. Generally, "market
discount" will exist on the purchase of a note if the purchase price is less
than the adjusted issue price of the note and any such market discount will
accrue over the remaining term of the note on a straight line basis or, at the
election of the subsequent purchaser, on a constant yield to maturity basis.
INFORMATION REPORTING; BACKUP WITHHOLDING
ORBIMAGE is required to furnish to record holders of the notes, other than
corporations and other exempt holders, and to the Internal Revenue Service,
information with respect to interest paid and the amount of any OID accrued on
the notes.
Certain U.S. Holders may be subject to backup withholding at the rate of
31% with respect to interest and any OID paid on the notes or with respect to
proceeds received from a disposition of the notes. 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 Internal Revenue Service 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 Internal Revenue Service 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 Internal Revenue Service.
NON-U.S. HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of the notes by "Non-U.S. Holders" who hold the notes as capital
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assets. The term "Non-U.S. Holder" refers to a person that is not classified for
U.S. federal tax purposed as a U.S. person as defined in "-- U.S. Holders,"
above. Prospective investors who are Non-U.S. Holders are urged to consult their
tax advisors regarding the United States federal income tax consequences that
may arise under the laws of any foreign, state, local or other taxing
jurisdiction.
INTEREST AND OID
In general, a Non-U.S. Holder will not be subject to U.S. federal income
tax or withholding tax with respect to stated interest or OID received or
accrued on the notes by reason of the portfolio interest exemption so long as:
- the interest and OID is not effectively connected with the conduct of a
trade or business within the United States;
- the Non-U.S. Holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock of ORBIMAGE
entitled to vote;
- the Non-U.S. Holder is not a "controlled foreign corporation" (within the
meaning of the Code) that is "related" to ORBIMAGE (within the meaning of
the Code) actually or constructively through stock ownership; and
- the Non-U.S. Holder certifies, under penalties of perjury that such
holder is not a U.S. person and provides such holder's name and address
in an appropriate form (currently Internal Revenue Service Form W-8) to
ORBIMAGE or an agent appointed by ORBIMAGE (or, a security clearing
organization, bank or other financial institution that holds the notes on
a holder's behalf in the ordinary course of its trade or business
certifies on the holder's behalf that it has received such certification
from the holder and provides a copy to ORBIMAGE or its agent).
If a Non-U.S. Holder is not qualified for an exemption under these rules,
interest and OID paid on the notes may be subject to withholding tax at the rate
of 30% (or any lower applicable treaty rate). The payment of interest and OID
effectively connected with a Non-U.S. Holder's trade or business within the
United States, however, would not be subject to a 30% withholding tax so long as
the Non-U.S. Holder provides ORBIMAGE or its agent an adequate certification
(currently Internal Revenue Service Form 4224), but such interest and OID would
be subject to U.S. federal income tax on a net basis at the rates applicable to
U.S. persons generally. In addition, a Non-U.S. Holder that is a corporation may
also be subject to a 30% branch profits tax on interest and OID that is
effectively connected with such Non-U.S. Holder's trade or business within the
United States.
GAIN ON DISPOSITION OF NOTES
Non-U.S. Holders generally will not be subject to U.S. federal income
taxation on gain recognized on a disposition of notes so long as:
- 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
- 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.
Payments received on the disposition of a note by a Non-U.S. Holder whose
investment in the note is effectively connected with such Non-U.S. Holder's
trade or business would be subject to U.S. federal income tax on a net basis at
the rates applicable to U.S. persons generally. In addition, in the case of
payments received on the disposition of a note by a corporate Non-U.S. Holder
whose investment in the note is effectively connected with such Non-U.S.
Holder's trade or business within the United States, the payments may also be
subject to a 30% branch profits tax.
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FEDERAL ESTATE TAXES
A note held by an individual who, at the time of death, is a Non-U.S.
Holder generally will not be subject to U.S. federal estate tax as a result of
such individual's death if:
- the individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of ORBIMAGE entitled
to vote; and
- at the time of the individual's death, interest payments with respect to
such note would not have been effectively connected with the conduct by
such individual of a trade or business in the United States.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under current U.S. federal income tax law, a 31% backup withholding tax
requirement applies to certain payments of interest and OID on, and the proceeds
of a sale, exchange or redemption of the notes. ORBIMAGE will, where required,
report to holders of notes and the IRS the amount of any payments on the notes
and the amounts of tax withheld, if any, from those payments.
Generally, payments of interest on the notes to Non-U.S. Holders will not
be subject to information reporting or backup withholding if the Non-U.S. Holder
certifies, under penalties of perjury, that such Holder is not a U.S. Holder and
provides such Holder's name and address as described above.
Non-U.S. Holders will not be subject to information reporting or backup
withholding with respect to the payment of proceeds from the disposition of
notes effected by, to or through the foreign office of a broker; provided,
however, that if the broker is a U.S. person or a U.S.-related person,
information reporting (but not backup withholding) would apply unless the broker
has documentary evidence in its records as to the Non-U.S. Holder's foreign
status, and has no actual knowledge to the contrary, or the Non-U.S. Holder
certifies as to its non-U.S. status under penalty of perjury or otherwise
establishes an exemption. Non-U.S. Holders will be subject to information
reporting and backup withholding at a rate of 31% with respect to the payment of
proceeds from the disposition of notes effected by, to or through the U.S.
office of a broker, unless the Non-U.S. Holder certifies as to its non-U.S.
status under penalty of perjury or otherwise establishes an exemption.
Amounts withheld under the backup withholding rules do not constitute a
separate U.S. federal income tax. Rather, amounts withheld under the backup
withholding rules from a payment to a Non-U.S. Holder will be allowed as a
credit against such Non-U.S. Holder's U.S. federal income tax liability and any
amounts withheld in excess of such Non-U.S. Holder's U.S. federal income tax
liability would be refunded, provided that the required information is furnished
to the Internal Revenue Service.
Non-U.S. Holders should be aware that the Treasury Department promulgated
revised 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.
The final regulations would generally be effective for payments made after
December 31, 2000, subject to certain transition rules. NON-U.S. HOLDERS SHOULD
BE AWARE THAT THIS DISCUSSION DOES NOT GIVE EFFECT TO THESE NEW WITHHOLDING
REGULATIONS. WE STRONGLY URGE NON-U.S. HOLDERS TO CONSULT THEIR TAX ADVISORS FOR
INFORMATION ON THESE NEW WITHHOLDING REGULATIONS.
PLAN OF DISTRIBUTION
Each participating broker-dealer that receives exchange notes for its own
account in the exchange offer must acknowledge that it will deliver a prospectus
for any resale of exchange notes. This prospectus may be used by participating
broker-dealers during the period referred to below for resales of exchange notes
received in exchange for original notes where the original notes were acquired
by the participating broker-dealers for their own accounts as a result of
market-making activities or other trading activities, other than a resale of an
unsold allotment from the original sale of original notes. ORBIMAGE has agreed
that this prospectus may be used by a participating broker-dealer for resales of
exchange notes for a period ending 180 days from the date on which the exchange
offer registration statement is declared effective. However, a participating
broker-dealer who intends to use this prospectus for the resale of exchange
notes received in exchange for original
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notes in the exchange offer must notify ORBIMAGE, or cause ORBIMAGE to be
notified, on or before the expiration date, that it is a participating
broker-dealer. This notice may be given in the space provided for that purpose
in the letter of transmittal or may be delivered to the exchange agent at one of
the addresses indicated in the letter of transmittal. See "The Exchange
Offer -- Resales of Exchange Notes."
ORBIMAGE will not receive any proceeds from the issuance of the exchange
notes offered in this exchange offer. Exchange notes received by participating
broker-dealers for their own accounts in the exchange offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the exchange notes or
a combination of these methods of resale, at market prices prevailing at the
time of resale, at prices related to prevailing market prices or at negotiated
prices. Any resale may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any exchange
notes. Any participating broker-dealer that resells exchange notes that it
received for its own account in the exchange offer and any broker or dealer that
participates in a distribution of exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on the
resale of exchange notes and any commissions or concessions received by these
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a participating broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period ending 180 days from the date on which the exchange offer
registration statement is declared effective, ORBIMAGE will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any participating broker-dealer that requests these documents in
the letter of transmittal.
VALIDITY OF EXCHANGE NOTES
The validity of the exchange notes offered in this exchange offer will be
passed upon for ORBIMAGE by Latham & Watkins, Washington, D.C.
EXPERTS
The financial statements of Orbital Imaging Corporation as of December 31,
1998 and 1997, and for each of the years in the three-year period ended December
31, 1998, have been included herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
114
<PAGE> 119
INDEX TO FINANCIAL STATEMENTS
ORBITAL IMAGING CORPORATION
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Statements of Operations for the years ended December 31,
1996, 1997 and 1998....................................... F-3
Balance Sheets as of December 31, 1997 and 1998............. F-4
Statements of Stockholders' Equity for the years ended
December 31, 1996, 1997 and 1998.......................... F-5
Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998....................................... F-6
Notes to Financial Statements............................... F-7
Condensed Consolidated Balance Sheets as of December 31,
1998 and March 31, 1999 (unaudited)....................... F-19
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1998 and 1999 (unaudited).... F-20
Condensed Consolidated Statements of Cash Flow for the Three
Months Ended March 31, 1998 and 1999 (unaudited).......... F-21
Condensed Consolidated Statements of Stockholders' Equity
for the Three Months Ended March 31, 1998 and 1999
(unaudited)............................................... F-22
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................... F-23
</TABLE>
F-1
<PAGE> 120
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Orbital Imaging Corporation:
We have audited the accompanying balance sheets of Orbital Imaging
Corporation ("ORBIMAGE") as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1998. These financial
statements are the responsibility of ORBIMAGE'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 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
January 22, 1999
Washington, D.C.
F-2
<PAGE> 121
ORBITAL IMAGING CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
------- ---------- ----------
<S> <C> <C> <C>
Revenues.................................................... $ 1,055 $ 2,062 $ 11,663
Direct expenses............................................. 4,320 6,312 15,215
------- ---------- ----------
Gross loss.................................................. (3,265) (4,250) (3,552)
Selling, general and administrative expenses................ 1,630 2,845 7,124
------- ---------- ----------
Loss from operations........................................ (4,895) (7,095) (10,676)
Interest income, net of interest expense of $4,860 in
1998...................................................... -- 1,261 1,845
------- ---------- ----------
Loss before benefit for income taxes........................ (4,895) (5,834) (8,831)
Benefit for income taxes.................................... -- (1,752) (3,312)
------- ---------- ----------
Net loss.................................................... $(4,895) $ (4,082) $ (5,519)
======= ========== ==========
Loss per common share -- basic and assuming dilution (1).... $ -- $ (0.42) $ (0.51)
Loss available to common stockholders (1)................... $ -- $ (6,890) $ (12,843)
Weighted average shares outstanding (1):
Basic..................................................... -- 16,431,854 25,214,000
Assuming dilution......................................... -- 22,262,975 41,764,949
</TABLE>
- ---------------
(1) All potentially dilutive securities, such as preferred stock subject to
repurchase, warrants and stock options are antidilutive for each year
presented. Prior to May 8, 1997, ORBIMAGE was an operating division of
Orbital, and loss per common share for the year ended December 31, 1996 was
not considered meaningful.
See accompanying notes to financial statements.
F-3
<PAGE> 122
ORBITAL IMAGING CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 10,883 $ 25,082
Available-for-sale securities, at fair value.............. 11,337 34,401
Restricted held-to-maturity securities, at amortized
cost................................................... -- 16,724
Receivables and other current assets, net................. 134 3,199
-------- --------
Total current assets................................. 22,354 79,406
Restricted held-to-maturity securities, at amortized cost... -- 7,813
Property, plant and equipment, at cost, less accumulated
depreciation of $5,144 and $7,630, respectively........... 11,054 15,956
Satellites and related rights, at cost, less accumulated
depreciation and amortization of $12,947 and $22,367,
respectively.............................................. 104,226 196,598
Other assets................................................ 115 8,196
-------- --------
Total assets......................................... $137,749 $307,969
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 4,335 $ 16,879
Current portion of deferred revenue....................... 7,725 8,522
Deferred tax liabilities.................................. 468 580
-------- --------
Total current liabilities............................ 12,528 25,981
Senior notes................................................ -- 141,620
Deferred revenue, net of current portion.................... 29,667 23,698
Deferred tax liabilities.................................... 10,194 3,190
Capitalized lease obligation, net of current portion........ -- 108
-------- --------
Total liabilities.................................... 52,389 194,597
Preferred stock subject to repurchase, par value $0.01;
10,000,000 shares authorized; Series A 12% cumulative
convertible, 2,000,000 shares authorized, 392,887 and
687,576 shares issued and outstanding, respectively
(liquidation value of $40,074 and $70,133,
respectively)............................................. 36,355 64,954
STOCKHOLDERS' EQUITY:
Common stock, par value $0.01; 75,000,000 shares
authorized; 25,214,000 shares issued and outstanding... 252 252
Additional paid-in-capital................................ 75,285 87,541
Accumulated deficit....................................... (26,532) (39,375)
-------- --------
Total stockholders' equity........................... 49,005 48,418
-------- --------
Total............................................. $137,749 $307,969
======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 123
ORBITAL IMAGING CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
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 to Orbital........................... 25,200,000 252 31,066 -- 31,318
Shares issued to director.......................... 14,000 -- 50 -- 50
Preferred stock dividends paid in shares........... -- -- -- (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.................... 25,214,000 252 75,285 (26,532) 49,005
Common stock warrants issued, net.................. -- -- 8,676 -- 8,676
Preferred stock dividends paid in shares........... -- -- -- (5,949) (5,949)
Accrual of preferred stock dividends............... -- -- -- (1,375) (1,375)
Capital contributed................................ -- -- 3,580 -- 3,580
Net loss........................................... -- -- -- (5,519) (5,519)
---------- ---- -------- -------- --------
BALANCE AS OF DECEMBER 31, 1998.................... 25,214,000 $252 $ 87,541 $(39,375) $ 48,418
========== ==== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 124
ORBITAL IMAGING CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (4,895) $ (4,082) $ (5,519)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation, amortization and other................... 3,981 5,541 13,124
Deferred tax benefit................................... -- (1,752) (3,312)
Changes in assets and liabilities:
Increase in receivables and other current assets....... 150 (84) (1,608)
(Increase) decrease in other assets.................... (419) 371 (17)
Increase in accounts payable and accrued expenses...... -- 4,335 12,370
Increase (decrease) in deferred revenue................ 175 2,005 (5,172)
-------- --------- ---------
Net cash (used in) provided by operating
activities........................................ (1,008) 6,334 9,866
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (12,617) (49,029) (108,541)
Purchases of restricted held-to-maturity securities....... -- -- (32,185)
Purchases of available-for-sale securities................ -- (115,751) (119,783)
Maturities of restricted held-to-maturity securities...... -- -- 7,568
Maturities of available-for-sale securities............... -- 102,442 60,905
Sales of available-for-sale securities.................... -- 1,972 35,818
Payment for business acquisition.......................... -- -- (5,000)
-------- --------- ---------
Net cash used in investing activities................ (12,617) (60,366) (161,218)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of senior notes................ -- -- 135,600
Net proceeds from issuance of common stock warrants....... -- -- 8,676
Net proceeds from issuance of preferred stock subject to
repurchase............................................. -- 33,547 21,275
Net proceeds from issuance of common stock................ -- 31,368 --
Capital contributed....................................... 13,625 -- --
-------- --------- ---------
Net cash provided by financing activities............ 13,625 64,915 165,551
-------- --------- ---------
Net increase in cash and cash equivalents................... -- 10,883 14,199
Cash and cash equivalents, beginning of year................ -- -- 10,883
-------- --------- ---------
Cash and cash equivalents, end of year...................... $ -- $ 10,883 $ 25,082
======== ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ -- $ -- $ 9,009
======== ========= =========
NON-CASH ITEMS:
Capital contributed -- tax basis adjustment............... $ -- $ -- $ 3,580
Capitalized lease obligation.............................. -- -- 223
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 125
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) RELATIONSHIP WITH ORBITAL
In 1991, the ORBIMAGE operating division of Orbital Sciences Corporation
("Orbital") was established to manage the development of remote imaging
satellites which would collect, process and distribute digital imagery of land
areas, oceans and the atmosphere. In 1992, Orbital Imaging Corporation
("ORBIMAGE") 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 $91.5 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 ORBIMAGE 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 purchased (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 system 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 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 management, accounting, legal, financial services,
office space and other administrative services, as well as certain direct
operating services provided by Orbital.
ORBIMAGE has also entered into an agreement with Orbital and MacDonald,
Dettwiler and Associates, Ltd. ("MDA"), a wholly-owned Canadian subsidiary of
Orbital, under which ORBIMAGE has acquired the exclusive worldwide distribution
rights for the RadarSat-2 satellite imagery (the "RadarSat-2 License"). Under
the RadarSat-2 License, MDA will own and operate the RadarSat-2 satellite, and
MDA will provide operations, data reception, processing, archiving and
distribution services to ORBIMAGE. ORBIMAGE's acquisition of the RadarSat-2
License will cost $60.0 million, net of approximately $140.0 million which will
be funded by the Canadian Space Agency through a contract with Orbital. ORBIMAGE
will pay the $60.0 million purchase price in installments based on progress
payments during the satellite construction phase. Such payments will not exceed
$15.0 million per year in 1999-2001; $10.0 million in 2002; and $5.0 million
upon the successful checkout of RadarSat-2.
Pursuant to the System Procurement Agreement as amended, ORBIMAGE has
committed to purchase various satellites, rights and ground systems for
approximately $279.9 million, net of $31.0 million which will be funded by the
U.S. Air Force through a contract with Orbital. ORBIMAGE incurred costs of
approximately $12.6 million, $47.6 million and $94.3 million for the years ended
December 31, 1996, 1997 and 1998, respectively, under the System Procurement
Agreement. As of December 31, 1998, ORBIMAGE has remaining commitments under the
System Procurement Agreement of $55.4 million, net of $31.0 million which will
be funded by the U.S. Air Force through a contract with Orbital.
ORBIMAGE incurred costs of approximately $2.0 million, $3.2 million and
$2.7 million for the years ended December 31, 1996, 1997 and 1998, respectively,
under the Administrative Services Agreement. The term of the Administrative
Services Agreement is expected to terminate on or before December 31, 2001.
F-7
<PAGE> 126
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) RELATIONSHIP WITH ORBITAL -- (CONTINUED)
Amounts due to Orbital of $3.7 million and $9.2 million as of December 31,
1997 and 1998, respectively were included in accounts payable and accrued
expenses.
Certain officers and directors of ORBIMAGE are also officers and directors
of Orbital.
(2) NATURE OF OPERATIONS
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. ORBIMAGE recognized revenues related to the OrbView-2 satellite of $1.3
million and $9.1 million for the years ended December 31, 1997 and 1998,
respectively. The OrbView-3 satellite is currently scheduled to begin operations
in the [THIRD] quarter of 2000 and will provide one-meter panchromatic and
four-meter multispectral imagery of the Earth. The OrbView-4 satellite will
provide one-meter and two-meter panchromatic, four-meter multispectral, and
eight-meter hyperspectral imagery of the Earth and is expected to be operational
in the [LAST] quarter of 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.
(3) 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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Certain
amounts in prior years' financial statements have been reclassified to conform
to the current year 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 receipts in advance of the delivery of imagery.
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, approximates the cost of similar services if obtained
directly by ORBIMAGE.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123") requires companies to 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
F-8
<PAGE> 127
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
been applied. ORBIMAGE has elected to continue to apply the provision of APB 25
and provide the pro forma disclosure provisions of SFAS 123 (see Note 16). No
compensation expense has been recognized in connection with stock option grants
to employees in the accompanying statements of operations. To the extent that
ORBIMAGE grants stock options to non-employee consultants or advisors, ORBIMAGE
records costs equal to the fair value of the options granted as of the
measurement date as determined using a Black-Scholes model.
Cash and Cash Equivalents
ORBIMAGE considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Securities
Management determines the appropriate classification of securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when ORBIMAGE has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost, adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization and accretion are
included in interest income. The held-to-maturity securities are restricted by
provisions of the senior notes. (See Note 12.)
Securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of stockholders' equity. The amortized cost of available-for-sale
securities is adjusted for amortization of premiums and accretion of discounts
to maturity. Amortization, accretion, and realized gains and losses are included
in interest income. The cost of securities sold is based on the specific
identification method.
Securities with original maturities of more than three months, but not more
than one year, are classified as current assets. Securities with original
maturities of more than one year are classified as long-term assets.
Financial Instruments
The carrying amounts for ORBIMAGE's cash and cash equivalents, receivables,
accounts payable and accrued expenses approximate fair value. The fair values
for securities (see Note 8) and senior notes (see Note 12) were based on quoted
market prices.
ORBIMAGE does not have any derivative financial instruments as of December
31, 1998, and believes that the interest rate risk associated with its senior
notes and the market risk associated with its securities are not material to the
results of operations of ORBIMAGE. The available-for-sale securities subject
ORBIMAGE's financial position to interest rate risk.
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 system assets pursuant to the System
Procurement Agreement. ORBIMAGE is constructing the ORBIMAGE digital catalogue,
a digital imagery catalogue and processing system, to support OrbView-2,
OrbView-3 and OrbView-4 imagery processing and distribution. ORBIMAGE
capitalizes certain direct and indirect costs incurred in the construction of
the ORBIMAGE digital catalogue. Amortization of the capitalized costs will begin
when the ORBIMAGE digital catalogue is placed in service.
ORBIMAGE capitalizes interest costs in connection with the construction of
satellites, related ground system assets, and the ORBIMAGE digital catalogue.
The capitalized interest is recorded as part of the
F-9
<PAGE> 128
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
historical cost of the asset to which it relates and will be amortized over the
asset's useful life when placed in service. For the year ended December 31,
1998, capitalized interest totaled $10.9 million. No interest was capitalized
for the years ended December 31, 1996 or 1997.
Depreciation and amortization are provided using the straight-line method
as follows:
<TABLE>
<S> <C>
Ground system assets..................... 8 years
Furniture and equipment.................. 3 to 5 years
OrbView-1................................ 3 years
OrbView-2................................ 7 1/2 years
Leasehold improvements................... Shorter of estimated useful life of lease
or lease term
</TABLE>
Income Taxes
ORBIMAGE recognizes income taxes using the asset and liability method.
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.
(4) BUSINESS ACQUISITION
In 1998, ORBIMAGE acquired substantially all of the assets of TRIFID
Corporation ("TRIFID") for $5.0 million. 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 financial results of TRIFID have been
included in ORBIMAGE's results since April 30, 1998.
The following unaudited supplemental financial information presents
ORBIMAGE's results of operations for the years ended December 31, 1997 and 1998,
on a pro forma basis, as though the TRIFID acquisition were consummated on
January 1, 1997 (in thousands, except share data):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Revenues.................................................... $ 5,531 $12,486
Net loss.................................................... (4,213) (5,521)
Loss per common share -- basic and assuming dilution(1)..... $ (0.43) $ (0.51)
</TABLE>
- ---------------
(1) All potentially dilutive securities, such as preferred stock subject to
repurchase, warrants and stock options are antidilutive for each year
presented.
(5) EMPLOYEE BENEFIT PLAN
In February 1998, the FASB issued Statement No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits, that supersedes the disclosure
requirements of Statement No. 87, Employers' Accounting for Pensions, and
Statement No. 106, Employers' Accounting for Postretirement Benefits Other
F-10
<PAGE> 129
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) EMPLOYEE BENEFIT PLAN -- (CONTINUED)
Than Pensions. ORBIMAGE adopted Statement No. 132 effective January 1, 1998.
Adoption of the new benefits disclosure rules did not impact ORBIMAGE's
financial position, results of operations or cash flows.
ORBIMAGE's employees participate in the Orbital Imaging Corporation
Retirement Savings Plan, a defined contribution plan (the "Plan") in accordance
with Section 401(k) of the Internal Revenue Code of 1986, as amended. ORBIMAGE's
contributions to the Plan are made based on certain plan provisions and at the
discretion of the Board of Directors. For the years ended December 31, 1997 and
1998, ORBIMAGE's contribution expense was $44,000 and $257,000, respectively.
ORBIMAGE's contribution to the Plan for the year ended December 31, 1998
includes contributions to accounts of employees who joined ORBIMAGE as part of
the TRIFID acquisition. (See Note 4.)
(6) COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, ORBIMAGE 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 had no impact on
ORBIMAGE's net loss or stockholders' equity. For the years ended December 31,
1996, 1997 and 1998, there were no material differences between net loss as
reported and comprehensive income (loss).
(7) LOSS PER COMMON SHARE
The computations of basic and diluted loss per common share for the years
ended December 31, 1997 and 1998 were as follows (in thousands, except share
data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Numerator for basic and diluted loss per common share:
Net loss................................................. $ (4,082) $ (5,519)
Preferred stock dividends................................ (2,808) (7,324)
----------- -----------
Loss available to common stockholders...................... $ (6,890) $ (12,843)
=========== ===========
Denominator for basic loss per common share -- weighted
average shares........................................... 16,431,854 25,214,000
Effect of dilutive securities:
Preferred stock subject to repurchase.................... 5,641,668 14,665,412
Warrants................................................. -- 1,312,746
Stock options............................................ 189,453 572,791
----------- -----------
Denominator for diluted loss per common share -- adjusted
weighted average shares assuming dilution................ 22,262,975 41,764,949
=========== ===========
Loss per common share -- basic and diluted (1)............. $ (0.42) $ (0.51)
=========== ===========
</TABLE>
- ---------------
(1) All potentially dilutive securities, such as preferred stock subject to
repurchase, warrants and stock options are antidilutive for each year
presented. Prior to May 8, 1997, ORBIMAGE was an operating division of
Orbital, and loss per common share for the year ended December 31, 1996 was
not considered meaningful.
F-11
<PAGE> 130
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) SECURITIES
As of December 31, 1997 and 1998, ORBIMAGE had available-for-sale
securities invested primarily in commercial paper with an amortized cost basis
of $11.3 million and $34.4 million, respectively. There were no differences
between the amortized cost basis of the available-for-sale securities and their
fair values.
As of December 31, 1998, ORBIMAGE had held-to-maturity securities invested
in U.S. Treasury securities with a fair value of $24.6 million and an amortized
cost basis of $24.5 million, resulting in an unrealized gain of $0.1 million.
These securities have maturities ranging from six months to two years and are
pledged as security for repayment of interest on the senior notes. There were no
held-to-maturity securities as of December 31, 1997.
Included in cash and cash equivalents was $8.9 million and $24.0 million of
commercial paper as of December 31, 1997 and 1998, respectively.
(9) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1997 and 1998 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Land........................................................ $ 213 $ 213
Ground system assets........................................ 15,985 21,450
Furniture and equipment..................................... -- 1,293
Leasehold improvements...................................... -- 630
Accumulated depreciation and amortization................... (5,144) (7,630)
------- -------
Total............................................. $11,054 $15,956
======= =======
</TABLE>
Depreciation and amortization totaled $1.6 million, $1.7 million and $2.5
million for the years ended December 31, 1996, 1997 and 1998, respectively.
(10) SATELLITES AND RELATED RIGHTS
Satellites and related rights as of December 31, 1997 and 1998 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
In service:
OrbView-1................................................. $ 12,327 $ 12,327
Accumulated depreciation.................................. (11,513) (12,327)
-------- --------
814 --
OrbView-2 License......................................... 64,543 64,543
Accumulated amortization.................................. (1,434) (10,040)
-------- --------
63,109 54,503
Satellites in process....................................... 40,303 142,095
-------- --------
Total............................................. $104,226 $196,598
======== ========
</TABLE>
Satellite depreciation and amortization totaled $2.4 million, $3.9 million
and $9.4 million for the years ended December 31, 1996, 1997 and 1998,
respectively.
F-12
<PAGE> 131
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(11) INCOME TAXES
ORBIMAGE's losses for income tax purposes for the year ended December 31,
1996 and the period from January 1, 1997 through May 7, 1997 (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 expense associated with satellites and related rights
deducted currently for income tax purposes. Prior to May 8, 1997, ORBIMAGE 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, ORBIMAGE recorded tax-sharing charges of
$2.4 million and $1.8 million for the years ended December 31, 1996 and 1997,
respectively, as a direct charge to additional paid-in capital.
The benefit for income taxes for the years ended December 31, 1996, 1997
and 1998 consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1997 1998
----- ------- -------
<S> <C> <C> <C>
Current benefit:
U.S. Federal.............................................. $-- $ -- $ --
State..................................................... -- -- --
-- ------ ------
Total current benefit............................. -- -- --
Deferred benefit:
U.S. Federal.............................................. -- 1,533 3,021
State..................................................... -- 219 291
-- ------ ------
Total deferred benefit............................ -- 1,752 3,312
-- ------ ------
Total benefit for income taxes.................... $-- $1,752 $3,312
== ====== ======
</TABLE>
The income tax benefit for the years ended December 31, 1996, 1997 and 1998
were different from those computed using the statutory U.S. Federal income tax
rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
U.S. Federal statutory rate................................. (34.0)% (34.0)% (34.0)%
Tax sharing agreement with Orbital.......................... 34.0 -- --
State income taxes.......................................... -- -- (3.2)
Other....................................................... -- 4.0 (0.3)
----- ----- -----
Effective rate.............................................. 0.0% (30.0)% (37.5)%
===== ===== =====
</TABLE>
F-13
<PAGE> 132
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(11) INCOME TAXES -- (CONTINUED)
The tax effects of significant temporary differences as of December 31,
1997 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Differences in revenue recognition........................ $14,949 $12,162
Net operating loss carryforward........................... 585 5,904
Other....................................................... 62 172
------- -------
Deferred tax assets......................................... $15,596 $18,238
======= =======
Deferred tax liabilities:
Differences in the tax treatment of satellites and related
rights................................................. $26,258 $22,008
======= =======
</TABLE>
As of December 31, 1998, ORBIMAGE had U.S. Federal net operating loss
carryforwards totaling $16.4 million, which expire beginning the year ending
December 31, 2012.
(12) SENIOR NOTES
General
On February 25, 1998, ORBIMAGE issued 150,000 units consisting of senior
notes and 1,312,746 warrants for common stock, raising net proceeds of
approximately $144.6 million. The gross proceeds of the units offering of $150.0
million were allocated: $141.0 million to the senior notes and $9.0 million to
the value of the warrants recorded as a debt discount. The debt discount is
amortized as an adjustment to interest expense over the term of the senior notes
resulting in an effective yield of approximately 13.6%. As of December 31, 1998,
the senior notes had a fair value of $150.0 million as estimated by quoted
market prices.
Interest
Interest on the senior notes accrues at a rate of 11 5/8% per annum and is
payable semi-annually in arrears on March 1 and September 1. ORBIMAGE purchased
U.S. Treasury securities in an amount sufficient to pay the interest on the
senior notes for the first four periods. As of December 31, 1998,
held-to-maturity securities restricted for the payment of interest on the senior
notes totaled $24.5 million.
Mandatory Redemption
The senior notes mature on March 1, 2005. ORBIMAGE will not be required to
make mandatory redemption or sinking fund payments with respect to the senior
notes. However, ORBIMAGE may be obligated, under certain circumstances, to make
an offer to purchase: (i) all outstanding senior 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 senior notes with a portion of the net proceeds of certain
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 the
purchase.
Covenants
The indenture for the senior notes restricts, among other things,
ORBIMAGE's ability to pay dividends.
F-14
<PAGE> 133
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(13) LEASE COMMITMENTS
Aggregate minimum rental commitments under non-cancelable operating and
capital leases (primarily for office space and equipment) as of December 31,
1998 were as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
<S> <C> <C>
1999........................................................ $132 $135
2000........................................................ 11 115
---- ----
$143 250
==== ====
Less: Interest at 12%....................................... (26)
Less: Current portion....................................... (116)
----
Total............................................. $108
====
</TABLE>
(14) PREFERRED STOCK SUBJECT TO REPURCHASE
ORBIMAGE has authorized 10,000,000 shares of $0.01 par value preferred
stock, of which: (a) 2,000,000 shares of the Series A preferred stock have been
authorized, of which 687,576 shares were issued and outstanding as of December
31, 1998; (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.
Dividends
The Series A preferred stock is assigned a stated value of $100 per share
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 120 shares of
Series A preferred stock for each 1,000 shares of Series A preferred stock
outstanding. To date, all dividends have been paid in-kind. As of December 31,
1998, cumulative preferred stock dividends in arrears totaled 13,752 shares.
Upon mandatory conversion prior to the fourth anniversary of the issuance of any
Series A preferred stock, 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 stock (if and when
issued), Series C preferred stock (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.
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
F-15
<PAGE> 134
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(14) PREFERRED STOCK -- (CONTINUED)
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.
CHANGE OF CONTROL
Although not redeemable at the option of the holders, we have certain
obligations to our Series A holders upon a "change of control" as deemed in the
stock purchase agreement. If a change of control occurs before the latest of:
- the successful in-orbit checkout of OrbView-3,
- the closing of an initial public offering that meets certain criteria, or
- the end of a 180-day period in which the average price of the common
stock exceeds a certain level relative to the conversion price of the
Series A preferred stock,
then we must offer to purchase, subject to the rights of the holders of the
senior notes, all outstanding shares of Series A preferred stock for a purchase
price of 101% of the liquidation amount of the stock. If the change of control
occurs before the fourth anniversary of the initial 1997 sale of the Series A
preferred stock, then we must also pay each Series A holder an amount equal to
the dividends that would have accrued on such holder's shares of Series A
preferred stock from the date of the change of control through the fourth
anniversary of the initial 1997 sale of the Series A preferred stock.
The activity in the preferred stock subject to repurchase was as follows for the
years ended December 31, 1997 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
SHARES AMOUNT
-------- -------
<S> <C> <C>
BALANCE AS OF DECEMBER 31, 1996............................. -- $ --
Shares issued in private offering, net............ 372,705 33,547
Preferred stock dividends paid in shares.......... 20,182 2,018
Accrual of preferred stock dividends.............. -- 790
-------- -------
BALANCE AS OF DECEMBER 31, 1997............................. 392,887 36,355
Shares issued in private offerings, net........... 227,295 21,275
Preferred stock dividends paid in shares.......... 67,394 5,949
Accrual of preferred stock dividends.............. -- 1,375
-------- -------
BALANCE AS OF DECEMBER 31, 1998............................. 687,576 64,954
======== =======
</TABLE>
There was no preferred stock subject to repurchase prior to December 31, 1996.
(15) COMMON STOCK WARRANTS
In connection with the units offering on February 25, 1998, ORBIMAGE issued
150,000 warrants, which entitle the holders to acquire 1,312,746 shares of
ORBIMAGE's common stock. The exercise price is
F-16
<PAGE> 135
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(15) COMMON STOCK WARRANTS -- (CONTINUED)
$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 in control, which ever happens
first. The warrants expire on March 1, 2005.
(16) STOCK OPTION PLAN
Through ORBIMAGE's stock option plan (the "Plan"), ORBIMAGE may issue to
its employees, Orbital's employees, consultants or advisors incentive or
non-qualified options to purchase up to 4,800,000 shares of ORBIMAGE's common
stock. Under the 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 the grant as
determined by the Board of Directors. ORBIMAGE's options generally vest in
one-third increments over a three-year period. The following table summarizes
the activity relating to the Plan for the years ended December 31, 1996, 1997
and 1998:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF OPTION PRICE AVERAGE OUTSTANDING AND
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
Exercised............................. -- -- --
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
Exercised............................. (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
Granted............................... 761,500 4.17-5.10 4.55
Exercised............................. -- -- --
Canceled or expired................... (9,000) 4.17-5.10 4.69
--------- ---------- ----- ---------
OUTSTANDING AS OF DECEMBER 31, 1998....... 2,636,500 $3.60-5.10 $3.98 1,181,451
========= ========== ===== =========
</TABLE>
As of December 31, 1998, the weighted average remaining contractual life of
the options outstanding was 8.4 years.
ORBIMAGE uses the minimum value method for options issued to employees and
directors to determine the pro forma impact to its net loss. 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. The assumptions used to determine the
pro forma impact for the years ended December 31, 1996, 1997 and 1998 were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Volatility............................................. 0.0% 0.0% 0.0%
Dividend yield......................................... 0.0% 0.0% 0.0%
Risk-free interest rate................................ 5.8% 6.0% 5.5%
Expected average life.................................. 4.5 years 4.5 years 6.0 years
Weighted average exercise price per share.............. $3.60 $3.75 $3.98
</TABLE>
F-17
<PAGE> 136
ORBITAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(16) STOCK OPTION PLAN -- (CONTINUED)
ORBIMAGE previously estimated the impact of employee and director stock
options based upon an assumed volatility of 30%. Prior year amounts have been
adjusted to reflect the use of the minimum value method. The fair value of the
options granted to employees and directors during the years ended December 31,
1996, 1997 and 1998 were estimated at $0.82 per share, $0.97 per share and $1.26
per share, respectively.
Had ORBIMAGE determined compensation expense 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 pro forma net loss and pro forma basic loss
per common share would have been approximately $4.4 million and $0.44,
respectively, for the year ended December 31, 1997 and $6.1 million and $0.53,
respectively, for the year ended December 31, 1998. Pro forma diluted loss per
common share for the years ended December 31, 1997 and 1998 would be the same as
the pro forma basic loss per share shown above since all potentially dilutive
securities are antidilutive. Had ORBIMAGE determined compensation expense 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 for the year ended December 31, 1996. Prior to May 8,
1997, ORBIMAGE was an operating division of Orbital, and pro forma loss per
common share for the year ended December 31, 1996 was not considered meaningful.
Pro forma net loss as stated above is not necessarily representative of the
effects of reported net income (loss) for future years due to, among other
things, the vesting period of the stock options and the fair value of the
additional stock options in future years.
(17) SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which
establishes reporting standards for a company's operating segments and related
disclosures about its products, services, geographic areas and major customers.
ORBIMAGE adopted SFAS No. 131 effective January 1, 1998. SFAS No. 131 requires
comparative segment information; however, ORBIMAGE operated as a single segment
for the years ended December 31, 1996, 1997 and 1998.
ORBIMAGE recognized revenues related to contracts with the National
Aeronautics and Space Administration of approximately $0.8 million, $2.0 million
and $9.6 million for the years ended December 31, 1996, 1997 and 1998,
respectively, representing approximately 76%, 95% and 82%, respectively, of
total revenues recognized during those years.
(18) RECLASSIFICATION
Preferred stock and additional paid-in capital totaling $4,000 and $36.5
million, respectively, as of December 31, 1997, and $7,000 and $65.0 million,
respectively, as of December 31, 1998, were reclassified from stockholders'
equity to preferred stock subject to repurchase.
F-18
<PAGE> 137
ORBITAL IMAGING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 25,082 $ 20,298
Available-for-sale securities, at fair value.............. 34,401 16,274
Restricted held-to-maturity securities, at amortized
cost................................................... 16,724 16,798
Receivables and other current assets, net................. 3,199 2,260
-------- --------
Total current assets................................. 79,406 55,630
Restricted held-to-maturity securities, at amortized cost... 7,813 --
Property, plant and equipment, at cost, less accumulated
depreciation of $7,360 and $8,336, respectively........... 15,956 17,277
Satellites and related rights, at cost, less accumulated
depreciation and amortization of $22,367 and $24,518,
respectively.............................................. 196,598 215,453
Other assets................................................ 8,196 8,346
-------- --------
Total assets......................................... $307,969 $296,706
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 16,879 $ 9,165
Current portion of deferred revenue....................... 8,522 8,393
Deferred tax liabilities.................................. 580 --
-------- --------
Total current liabilities............................ 25,981 17,558
Senior notes................................................ 141,620 141,814
Deferred revenue, net of current portion.................... 23,698 21,607
Deferred tax liabilities.................................... 3,190 3,150
Capitalized lease obligation, net of current portion........ 108 80
-------- --------
Total liabilities.................................... 194,597 184,209
Preferred stock subject to repurchase, par value $0.01;
10,000,000 shares authorized; Series A 12% cumulative
convertible, 2,000,000 shares authorized, 687,576 shares
issued and outstanding, respectively (liquidation value of
$70,133 and $72,196, respectively)........................ 64,954 67,017
STOCKHOLDERS' EQUITY:
Common stock, par value $0.01; 75,000,000 shares
authorized; 25,214,000 shares issued and outstanding... 252 252
Additional paid-in-capital................................ 87,541 87,699
Accumulated deficit....................................... (39,375) (42,471)
-------- --------
Total stockholders' equity........................... 48,418 45,480
-------- --------
Total............................................. $307,969 $296,706
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-19
<PAGE> 138
ORBITAL IMAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Revenues.................................................... $ 2,417 $ 3,316
Direct expenses............................................. 4,189 4,025
----------- -----------
Gross loss.................................................. (1,772) (709)
Selling, general and administrative expenses................ 987 1,893
----------- -----------
Loss from operations........................................ (2,759) (2,602)
Interest income, net of interest expense of $2,156 in
1998...................................................... 1,043 949
----------- -----------
Loss before benefit for income taxes........................ (1,716) (1,653)
Benefit for income taxes.................................... (1,716) (620)
----------- -----------
Net loss.................................................... $ -- $ (1,033)
=========== ===========
Loss per common share -- basic and assuming dilution........ $ (0.06) $ (0.12)
Loss available to common stockholders....................... $ (1,438) $ (3,096)
Weighted average shares outstanding:
Basic..................................................... 25,214,000 25,214,000
Assuming dilution......................................... 37,818,206 43,595,532
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-20
<PAGE> 139
ORBITAL IMAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ -- $ (1,033)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation, amortization and other................... 3,463 3,136
Deferred tax benefit................................... (1,716) (620)
Changes in assets and liabilities:
Increase in receivables and other current assets....... (526) (578)
(Increase) decrease in other assets.................... (264) 256
Increase (decrease) in accounts payable and accrued
expenses.............................................. 2,981 (7,715)
Increase (decrease) in deferred revenue................ 942 (2,220)
-------- --------
Net cash provided by (used in) operating
activities.......................................... 4,880 (8,774)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (17,436) (22,875)
Purchases of held-to-maturity securities.................. (32,896) --
Purchases of available-for-sale securities................ (9,801) (7,350)
Maturities of held-to-maturity securities................. -- 8,471
Maturities of available-for-sale securities............... 5,400 21,458
Sales of available-for-sale securities.................... 999 4,386
-------- --------
Net cash (used in) provided by investing
activities.......................................... (53,734) 4,090
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (costs) from issuance of long-term
obligations............................................ 136,576 (73)
Repayment of capitalized lease obligation................. -- (28)
Net proceeds from issuance of common stock warrants....... 8,690 --
Net proceeds from issuance of preferred stock subject to
repurchase............................................. 21,318 --
-------- --------
Net cash provided by (used in) financing
activities.......................................... 166,584 (101)
-------- --------
Increase (decrease) in cash and cash equivalents............ 117,730 (4,785)
Cash and cash equivalents, beginning of period.............. 10,883 25,083
-------- --------
Cash and cash equivalents, end of period.................... $128,613 $ 20,298
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ -- $ 8,719
======== ========
NON-CASH ITEM:
Capitalized compensatory stock options.................... $ -- $ 158
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-21
<PAGE> 140
ORBITAL IMAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1997.................. 25,214,000 $252 $75,285 $(26,532) $49,005
Issuance of common stock warrants................ -- -- 9,000 -- 9,000
Accrual of preferred stock dividends............. -- -- 1,438 (1,438) --
---------- ---- ------- -------- -------
BALANCE AS OF MARCH 31, 1998..................... 25,214,000 $252 $85,723 $(27,970) $58,005
========== ==== ======= ======== =======
BALANCE AS OF DECEMBER 31, 1998.................. 25,214,000 $252 $87,541 $(39,375) $48,418
Issuance of stock options........................ -- -- 158 -- 158
Accrual of preferred stock dividends............. -- -- -- (2,063) (2,063)
Net loss......................................... -- -- -- (1,033) (1,033)
---------- ---- ------- -------- -------
BALANCE AS OF MARCH 31, 1999..................... 25,214,000 $252 $87,699 $(42,471) $45,480
========== ==== ======= ======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-22
<PAGE> 141
ORBITAL IMAGING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED)
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim condensed
consolidated financial information reflects all adjustments, consisting of
normal recurring adjustments, considered necessary for a fair presentation of
the information. Certain information and footnote disclosure normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted following the instructions,
rules and regulations prescribed by the Securities and Exchange Commission
("SEC"). Although management believes that the disclosures provided are adequate
to make the information presented not misleading, you should read these
unaudited interim condensed consolidated financial statements in conjunction
with the audited financial statements and associated footnotes for the year
ended December 31, 1998, which are included in Orbital Imaging Corporation's
Form 10-K filed with the SEC. Operating results for the three months ended March
31, 1999 are not necessarily indicative of the results that may be expected for
the full year.
We will refer to Orbital Imaging Corporation as "ORBIMAGE."
(2) SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statements include the accounts of
ORBIMAGE and its wholly owned subsidiary. All material intercompany transactions
and accounts have been eliminated in consolidation.
Cash and Cash Equivalents
ORBIMAGE considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Stock-Based Compensation
To the extent that ORBIMAGE grants stock options to non-employee
consultants or advisors, ORBIMAGE records costs equal to the fair value of the
options granted as of the measurement date as determined using a Black-Scholes
model. ORBIMAGE capitalizes the cost of stock options granted to non-employee
consultants or advisors working on the construction of satellites. The
capitalized costs are recorded as part of the historical cost of the satellites
and will be amortized over the asset's useful life when placed in service. No
compensation expense has been recognized in connection with stock option grants
to employees in the accompanying statements of operations.
Income Taxes
ORBIMAGE has recorded its interim income tax benefit 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.
Reclassifications
Certain reclassifications have been made to the 1998 financial statements
to conform to the 1999 financial statement presentation. Preferred stock and
additional paid-in capital totaling $7,000 and $65 million, respectively, as of
December 31, 1998 were reclassified from stockholders' equity to preferred stock
subject to repurchase.
F-23
<PAGE> 142
ORBITAL IMAGING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INTEREST CAPITALIZATION
ORBIMAGE capitalizes interest costs in connection with the construction of
satellites and related ground segments and systems. The capitalized interest is
recorded as part of the historical cost of the asset to which it relates and
will be amortized over the asset's useful life when placed in service. For the
three months ended March 31, 1998 and 1999, capitalized interest totaled $1.7
million and $4.7 million, respectively.
(4) RELATED PARTY TRANSACTIONS
ORBIMAGE incurred and capitalized costs of approximately $15.4 million and
$16.4 million for the three months ended March 31, 1998 and 1999, respectively
under a procurement contract with Orbital Sciences Corporation ("Orbital"),
ORBIMAGE's majority stockholder, for the purchase of various satellites and
ground systems. ORBIMAGE incurred and expensed costs of approximately $0.5
million and $0.4 million for the three months ended March 31, 1998 and 1999,
respectively, under an administrative services agreement with Orbital.
(5) COMPREHENSIVE INCOME (LOSS)
For the three months ended March 31, 1998 and 1999, there were no material
differences between net loss as reported and comprehensive income (loss).
(6) LOSS PER COMMON SHARE
The computations of basic and diluted loss per common share for the three
months ended March 31, 1998 and 1999 were as follows (in thousands, except share
data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1998 1999
------------- -------------
<S> <C> <C>
Numerator for basic and diluted loss per common share:
Net loss.................................................. $ -- $ (1,033)
Preferred stock dividends................................. (1,438) (2,063)
----------- -----------
Loss available to common stockholders....................... $ (1,438) $ (3,096)
=========== ===========
Denominator for basic loss per common share -- weighted
average shares............................................ 25,214,000 25,214,000
Effect of dilutive securities:
Preferred stock subject to repurchase..................... 11,541,475 16,488,633
Warrants.................................................. 510,512 1,312,746
Stock options............................................. 552,218 580,153
----------- -----------
Denominator for diluted loss per common share -- adjusted
weighted average shares assuming dilution................. 37,818,205 43,595,532
=========== ===========
Loss per common share -- basic and diluted.................. $ (0.06) $ (0.12)
=========== ===========
</TABLE>
F-24
<PAGE> 143
ORBITAL IMAGING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) PREFERRED STOCK SUBJECT TO REPURCHASE
The activity in the preferred stock subject to repurchase was as follows
for the three months ended March 31, 1998 and 1999 (dollars in thousands):
<TABLE>
<CAPTION>
SHARES AMOUNT
-------- --------
<S> <C> <C>
BALANCE AS OF DECEMBER 31, 1997............................. 392,887 $36,355
Shares issued in private offering, net.................... 227,295 21,275
Accrual of preferred stock dividends...................... -- 1,438
------- -------
BALANCE AS OF MARCH 31, 1998................................ 620,182 $59,068
======= =======
BALANCE OF DECEMBER 31, 1998................................ 687,576 $64,954
Accrual of preferred stock dividends...................... -- 2,063
------- -------
BALANCE AS OF MARCH 31, 1999................................ 687,576 $67,017
======= =======
</TABLE>
(8) SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which
establishes reporting standards for a company's operating segments and related
disclosures about its products, services, geographic areas and major customers.
ORBIMAGE adopted SFAS No. 131 effective January 1, 1998. SFAS No. 131 requires
comparative segment information; however, ORBIMAGE operated as a single segment
for the three months ended March 31, 1998 and 1999.
ORBIMAGE recognized revenues related to contracts with the National
Aeronautics and Space Administration of approximately $2.3 million and $2.4
million for the three months ended March 31, 1998 and 1999, respectively,
representing approximately 97% and 72%, respectively, of total revenues
recognized during those periods.
(9) SUBSEQUENT EVENTS
On April 22, 1999, ORBIMAGE completed a debt offering raising net proceeds
of approximately $68.1 million. Out of the net proceeds of the offering,
ORBIMAGE purchased approximately $7.4 million of U.S. Treasury securities to
fund the interest payments on the senior notes through March 1, 2000.
On April 26, 1999, ORBIMAGE granted 774,323 options to purchase shares of
common stock to employees, directors and consultants. The stock options were
granted with an exercise price of $6.25 and generally vest in one-third
increments over a three-year period. ORBIMAGE will expense the value of the
70,250 compensatory options that were issued to consultants totaling $0.2
million over the three-year vesting period of the options.
On May 1, 1999, ORBIMAGE declared a preferred stock dividend of 41,256
shares payable in kind.
F-25
<PAGE> 144
ORBITAL IMAGING CORPORATION
All tendered original notes, executed letters of transmittal, and other
related documents should be directed to the exchange agent. Requests for
assistance and for additional copies of the prospectus, the letter of
transmittal and other related documents should be directed to the exchange
agent.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS
HSBC BANK USA
by Facsimile:
(212) 658-2292
Attention: Paulette Shaw
Confirm by telephone
(212) 658-5931
By Registered or Certified Mail:
HSBC Bank USA
Corporate Trust Operations
140 Broadway, Level A
New York, New York 10005
Attention: Paulette Shaw
By Hand:
HSBC Bank USA
Corporate Trust Operations
140 Broadway, Level A
New York, New York 10005
Attention: Paulette Shaw
By Overnight Courier:
HSBC Bank USA
Corporate Trust Operations
140 Broadway, Level A
New York, New York 10005-1180
Attention: Paulette Shaw
<PAGE> 145
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ORBIMAGE 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, which is called 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 ORBIMAGE's Amended and Restated Certificate of
Incorporation and Bylaws is not intended to be exhaustive and is qualified in
its entirety by those documents.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1+ Second Amended and Restated Certificate of Incorporation of
ORBIMAGE.
3.2+ Bylaws of ORBIMAGE.
4.1 Specimen certificate of 11 5/8% Series C Senior Note due
2005 (included in Exhibit 4.5 hereto).
4.2 Specimen certificate of 11 5/8% Series D Senior Note due
2005 (substantially in the same form as the certificate
included in Exhibit 4.5 hereto).
4.3+ Indenture dated as of February 25, 1998, by and between
ORBIMAGE and Marine Midland Bank, n/k/a HSBC Bank USA, as
trustee for the 11 5/8% Senior Notes due 2005 of ORBIMAGE.
4.4++ Amended and Restated Stockholders' Agreement dated as of
February 25, 1998, by and among ORBIMAGE, Orbital and the
holders of Series A preferred stock named therein.
4.5(a) Indenture dated as of April 22, 1999 by and between ORBIMAGE
and HSBC Bank USA, f/k/a Marine Midland Bank, as trustee,
for the 11 5/8% Senior Notes due 2005 of ORBIMAGE.
4.6(a) Registration Rights Agreement dated as of April 22, 1999 by
and among ORBIMAGE, Bear Stearns & Co. and Merrill Lynch &
Co. as the initial purchasers.
4.7(a) Pledge Agreement dated as of April 22, 1999 by and between
HSBC Bank USA, f/k/a Marine Midland Bank as collateral
agent.
</TABLE>
II-1
<PAGE> 146
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
5.1 Opinion of Latham & Watkins regarding the validity of the
exchange notes, including consent.
8.1(b) Opinion of Latham & Watkins regarding certain federal income
tax matters, including consent.
10.2+** Amended and Restated Procurement Agreement dated February
26, 1998 by and between ORBIMAGE and Orbital.
10.3+ Amended and Restated Administrative Services Agreement dated
December 31, 1997 by and between ORBIMAGE and Orbital.
10.4+ Non-Competition and Teaming Agreement dated as of May 8,
1997 by and between ORBIMAGE and Orbital.
10.5+ OrbView-2 License Agreement dated as of May 8, 1997 by and
between ORBIMAGE and Orbital.
10.6+** Distributor Licensee Agreement dated as of January 31, 1997,
as amended from time to time, by and between ORBIMAGE and
Samsung Aerospace Industries, Ltd.
10.7+ Form of Indemnification Agreement between ORBIMAGE and its
directors and officers.
10.8+ ORBIMAGE 1996 Stock Option Plan.
10.10* RadarSat-2 Master Agreement dated as of December 31, 1998 by
and among Orbital Sciences Corporation, MacDonald, Dettwiler
and Associates Ltd. and ORBIMAGE.
10.11* Hyperspectral Imaging Data Agreement dated December 31, 1998
by and between Orbital and ORBIMAGE.
10.12* Amendment No. 1 to Amended and Restated ORBIMAGE System
Procurement Agreement dated as of December 31, 1998 by and
between Orbital and ORBIMAGE.
10.13(a) Purchase Agreement dated April 19, 1999 by and among
ORBIMAGE, Bear Stearns & Co. and Merrill Lynch & Co. as the
initial purchasers.
10.14(a) Amendment No. 1 dated as of April 1, 1999 to the RadarSat-2
Master Agreement dated as of December 31, 1998 by and among
Orbital, MacDonald Dettwiler and Associates Ltd. and
ORBIMAGE.
10.15(c) ORBIMAGE Distribution Agreement dated March 18, 1999 by and
between ORBIMAGE and NTT Data Corporation.
10.16(c) ORBIMAGE Distribution Agreement dated February 8, 1999 by
and between ORBIMAGE and Geographic Information Services and
Technology Transfer NetCorp, Inc.
10.17(c) Amendment No. 1 dated as of March 17, 1999 to the
Distribution Agreement dated February 8, 1999, by and among
ORBIMAGE, GIS Technology Transfer NetCorp, Inc. and GTT
NetCorp., Inc.
10.18(c) ORBIMAGE Ground Stations Contract No. OGS-99-02-01 dated as
of May 26, 1999 by and between ORBIMAGE and MacDonald,
Dettwiler and Associates Ltd.
11 Statement re computation of loss per common share (included
in notes to financial statements).
12(b) Statements re computations of ratios.
16(d) Letter re change in certifying accountant.
21(b) Subsidiaries of ORBIMAGE.
23.1 Consent of KPMG LLP, independent auditors.
23.2 Consent of Latham & Watkins (included in Exhibits 5.1 and
8.1).
24(b) Powers of Attorney of directors and officers of ORBIMAGE.
25(b) Statement of eligibility of trustee on Form T-1.
27 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
+ Incorporated by reference to the identically numbered exhibit to ORBIMAGE's
registration statement on Form S-4, as amended (Reg. No. 333-49583).
++ Incorporated by reference to Exhibit 4.9 to ORBIMAGE's registration
statement on Form S-4, as amended (Reg. No. 333-49583).
II-2
<PAGE> 147
* Incorporated by reference to the identically numbered exhibit to ORBIMAGE's
registration statement on Form S-1, as amended (Reg. No. 333-67697).
** Confidential treatment was granted pursuant to Rule 406 under the Securities
Act of 1933, in connection with ORBIMAGE'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 Commission.
(a) Incorporated by reference to the identically numbered exhibit to ORBIMAGE's
Quarterly Report on Form 10-Q for the three months ended March 31, 1999
(Commission File No. 333-49583).
(b) Previously filed.
(c) Confidential treatment was granted pursuant to Rule 406 under the Securities
Act of 1933 in connection with this registration statement. Certain portions
of the exhibit have been omitted. The omitted portions of such exhibit have
been separately filed with the Commission.
(d) Incorporated by reference to the identically numbered exhibit to ORBIMAGE's
Current Report on Form 8-K/A filed on May 14, 1999.
(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 22. 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:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement or the most recent
post-effective amendment thereof which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered, if the total
dollar value of securities offered would not exceed that which was
registered, and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(c) 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 that remain unsold at the
termination of the exchange offer.
The undersigned registrant hereby undertakes as follows: that before any
public reoffering of the securities registered hereunder through use of the
prospectus that is a part of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the
registrant undertakes that such reoffering prospectus will contain the
information called for by the applicable registration
II-3
<PAGE> 148
form with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
The registrant undertakes that every prospectus: (1) that is filed pursuant
to the immediately preceding paragraph, or (2) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933, and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes 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 the time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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. If 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> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ORBIMAGE
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 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 June 25,
1999.
ORBITAL IMAGING CORPORATION
By: /s/ GILBERT D. RYE
------------------------------------------
Gilbert D. Rye
President and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below on June 25, 1999 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President and Chief Operating June 25, 1999
- ------------------------------------------------ Officer (Principal Executive
Gilbert D. Rye Officer)
/s/ ARMAND D. MANCINI Vice President, Chief Financial June 25, 1999
- ------------------------------------------------ Officer (Principal Financial and
Armand D. Mancini Accounting Officer)
* Chairman of the Board, Director June 25, 1999
- ------------------------------------------------
David W. Thompson
* Director June 25, 1999
- ------------------------------------------------
James A. Abrahamson
* Director June 25, 1999
- ------------------------------------------------
Bruce W. Ferguson
* Director June 25, 1999
- ------------------------------------------------
Richard Reiss, Jr.
* Director June 25, 1999
- ------------------------------------------------
William W. Sprague
*By: /s/ ARMAND D. MANCINI
---------------------------------------------
Armand D. Mancini
Power of Attorney
</TABLE>
II-5
<PAGE> 150
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1+ Second Amended and Restated Certificate of Incorporation of
ORBIMAGE.
3.2+ Bylaws of ORBIMAGE.
4.1 Specimen certificate of 11 5/8% Series C Senior Note due
2005 (included in Exhibit 4.5 hereto).
4.2 Specimen certificate of 11 5/8% Series D Senior Note due
2005 (substantially in the same form as the certificate
included in Exhibit 4.5 hereto).
4.3+ Indenture dated as of February 25, 1998, by and between
ORBIMAGE and Marine Midland Bank, n/k/a HSBC Bank USA, as
trustee for the 11 5/8% Senior Notes due 2005 of ORBIMAGE.
4.4+ Amended and Restated Stockholders' Agreement dated as of
February 25, 1998, by and among ORBIMAGE, Orbital and the
holders of Series A preferred stock named therein.
4.5(a) Indenture dated as of April 22, 1999 by and between ORBIMAGE
and HSBC Bank USA, f/k/a Marine Midland Bank, as trustee,
for the 11 5/8% Senior Notes due 2005 of ORBIMAGE.
4.6(a) Registration Rights Agreement dated as of April 22, 1999 by
and among ORBIMAGE, Bear Stearns & Co. and Merrill Lynch &
Co. as the initial purchasers.
4.7(a) Pledge Agreement dated as of April 22, 1999 by and between
HSBC Bank USA, f/k/a Marine Midland Bank as collateral
agent.
5.1 Opinion of Latham & Watkins regarding the validity of the
exchange notes, including consent.
8.1(b) Opinion of Latham & Watkins regarding certain federal income
tax matters, including consent.
10.2+** Amended and Restated Procurement Agreement dated February
26, 1998 by and between ORBIMAGE and Orbital.
10.3+ Amended and Restated Administrative Services Agreement dated
December 31, 1997 by and between ORBIMAGE and Orbital.
10.4+ Non-Competition and Teaming Agreement dated as of May 8,
1997 by and between ORBIMAGE and Orbital.
10.5+ OrbView-2 License Agreement dated as of May 8, 1997 by and
between ORBIMAGE and Orbital.
10.6+** Distributor Licensee Agreement dated as of January 31, 1997,
as amended from time to time, by and between ORBIMAGE and
Samsung Aerospace Industries, Ltd.
10.7+ Form of Indemnification Agreement between ORBIMAGE and its
directors and officers.
10.8+ ORBIMAGE 1996 Stock Option Plan.
10.10* RadarSat-2 Master Agreement dated as of December 31, 1998 by
and among Orbital, MacDonald, Dettwiler and Associates Ltd.
and ORBIMAGE.
10.11* Hyperspectral Imaging Data Agreement dated December 31, 1998
by and between Orbital and ORBIMAGE.
10.12* Amendment No. 1 to Amended and Restated ORBIMAGE System
Procurement Agreement dated as of December 31, 1998 by and
between Orbital and ORBIMAGE.
10.13(a) Purchase Agreement dated April 19, 1999 by and among
ORBIMAGE, Bear Stearns & Co. and Merrill Lynch & Co. as the
initial purchasers.
10.14(a) Amendment No. 1 dated as of April 1, 1999 to the RadarSat-2
Master Agreement dated as of December 31, 1998 by and among
Orbital, MacDonald Dettwiler and Associates Ltd. and
ORBIMAGE.
10.15(c) ORBIMAGE Distribution Agreement dated March 18, 1999 by and
between ORBIMAGE and NTT Data Corporation.
10.16(c) ORBIMAGE Distribution Agreement dated February 8, 1999 by
and between ORBIMAGE and Geographic Information Services and
Technology Transfer NetCorp, Inc.
</TABLE>
<PAGE> 151
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.17(c) Amendment No. 1 dated as of March 17, 1999 to the
Distribution Agreement dated February 8, 1999 by and among
ORBIMAGE, GIS Technology Transfer NetCorp, Inc. and GTT
NetCorp., Inc.
10.18(c) ORBIMAGE Ground Stations Contract No. OGS-99-02-01 dated as
of May 26, 1999 by and between ORBIMAGE and MacDonald,
Dettwiler and Associates Ltd.
11 Statement re computation of loss per common share (included
in notes to financial statements).
12(b) Statements re computations of ratios.
16(d) Letter re change in certifying accountant.
21(b) Subsidiaries of ORBIMAGE.
23.1 Consent of KPMG LLP, independent auditors.
23.2(b) Consent of Latham & Watkins (included in Exhibits 5.1 and
8.1).
24(b) Powers of Attorney of directors and officers of ORBIMAGE.
25(b) Statement of eligibility of trustee on Form T-1.
27 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
+ Incorporated by reference to the identically numbered exhibit to ORBIMAGE's
registration statement on Form S-4, as amended (Reg. No. 333-49583).
++ Incorporated by reference to Exhibit 4.9 to ORBIMAGE's Registration
Statement on Form S-4, as amended (Reg. No. 333-49583).
* Incorporated by reference to the identically numbered exhibit to ORBIMAGE's
registration statement on Form S-1, as amended (Reg. No. 333-67697).
** Confidential treatment was granted pursuant to Rule 406 under the Securities
Act of 1933, in connection with ORBIMAGE'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 Commission.
(a) Incorporated by reference to the identically numbered exhibit to ORBIMAGE's
Quarterly Report on Form 10-Q for the three months ended March 31, 1999
(Commission File No. 333-49583).
(b) Previously filed.
(c) Confidential treatment was granted pursuant to Rule 406 under the Securities
Act of 1933 in connection with this registration statement. Certain portions
of the exhibit have been omitted. The omitted portions of such exhibit have
been separately filed with the Commission.
(d) Incorporated by reference to the identically numbered exhibit to ORBIMAGE's
Current Report on Form 8-K/A filed on May 14, 1999.
<PAGE> 1
Exhibit 5.1
[LATHAM & WATKINS LETTERHEAD]
June 25, 1999
Orbital Imaging Corporation
21700 Atlantic Boulevard
Dulles, VA 20166
Re: Offer to Exchange 11-5/8% Senior Notes due 2005, Series D,
for All Outstanding 11-5/8% Senior Notes due 2005, Series C.
Ladies and Gentlemen:
In connection with the registration of $75 million in aggregate
principal amount of 11-5/8% Senior Notes due 2005, Series D (the "Exchange
Notes"), of Orbital Imaging Corporation, a Delaware corporation ("ORBIMAGE"),
on Form S-4 (Registration No. 333-80035) filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), on June 4, 1999 (the "Registration Statement"), you have
requested our opinion with respect to the matters set forth below. Capitalized
terms used herein but not otherwise defined herein have the meanings ascribed to
them in the Registration Statement.
In our capacity as your counsel in connection with such
registration, we are familiar with the proceedings taken by ORBIMAGE in
connection with the authorization of the Exchange Notes and the proceedings
proposed to be taken by ORBIMAGE in connection with the issuance of the Exchange
Notes and, for the purposes of this opinion, have assumed such proceedings will
be timely completed in the manner presently proposed. In addition, as such
<PAGE> 2
LATHAM & WATKINS
June 25, 1999
Page 2
counsel, we have made such legal and factual examinations and inquiries,
including an examination of originals or copies certified or otherwise
identified to our satisfaction of such documents, corporate records and
instruments, 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.
We are opining herein as to the effect on the subject transaction
only of the internal laws of the State of New York and the General Corporation
Law of the State of Delaware, including statutory and reported decisional law
thereunder, and we express no opinion with respect to the applicability thereto,
or the effect thereon, of the laws of any other jurisdiction or as to the
matters of municipal law or the laws of any other 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, the Exchange Notes have been duly
authorized by all necessary corporate action of ORBIMAGE, and when executed,
authenticated and delivered by or on behalf of ORBIMAGE in exchange for the
11-5/8% Senior Notes due 2005, Series C of ORBIMAGE in the manner described in
the Registration Statement, the Exchange Notes will constitute legally valid and
binding obligations of ORBIMAGE.
The opinion rendered above is subject to the following exceptions,
limitations and qualifications: (a) the effect of bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws now or
hereafter in effect relating to or affecting the rights and remedies of
creditors; (b) the effect of general principles of equity (including whether the
acceleration of the Exchange Notes may affect the collectibility of that portion
of the stated principal amount thereof which might be determined to constitute
unearned interest thereon), whether enforcement is considered in a proceeding in
equity or law, and the discretion of the court before which any proceeding
therefor may be brought; and (c) the unenforceability under certain
circumstances under law or court decisions of provisions providing for the
indemnification of or contribution to a party with respect to a liability where
such indemnification or contribution is contrary to public policy.
To the extent that the obligations of ORBIMAGE under the Indenture
may be dependent upon such matters, we assume for purposes of this opinion that
the Trustee under the Indenture is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization; that the Trustee is
duly qualified to engage in the activities contemplated by the Indenture; that
the Indenture has been duly authorized, executed and delivered by the Trustee
and constitutes a legally valid, binding and enforceable obligation of the
Trustee enforceable against the Trustee in accordance with its terms; and the
Trustee is in compliance, generally and with respect to acting as trustee under
the Indenture, with all
<PAGE> 3
LATHAM & WATKINS
June 25, 1999
Page 3
applicable laws and regulations; and that the Trustee has the requisite
organizational and legal power and authority to perform its obligations under
the Indenture.
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 Securities Act or the rules and regulations of
the Commission promulgated thereunder.
Very truly yours,
/s/ LATHAM & WATKINS
LATHAM & WATKINS
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
Orbital Imaging Corporation
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG LLP
Washington, DC
June 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS AS OF AND FOR THE THREE MONTHS ENDED MARCH
31, 1999 AND IS QUALIFIED IN ITS ENTIREITY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 20,298
<SECURITIES> 33,072
<RECEIVABLES> 2,260
<ALLOWANCES> 53
<INVENTORY> 0
<CURRENT-ASSETS> 55,630
<PP&E> 232,730
<DEPRECIATION> (32,854)
<TOTAL-ASSETS> 296,706
<CURRENT-LIABILITIES> 17,558
<BONDS> 141,814
67,017
0
<COMMON> 252
<OTHER-SE> 45,228
<TOTAL-LIABILITY-AND-EQUITY> 296,706
<SALES> 3,316
<TOTAL-REVENUES> 3,316
<CGS> 4,025
<TOTAL-COSTS> 4,025
<OTHER-EXPENSES> 1,893
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (949)
<INCOME-PRETAX> (1,653)
<INCOME-TAX> (620)
<INCOME-CONTINUING> (1,033)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,033)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER
UNREGISTERED 11 5/8% SENIOR NOTES DUE 2005, SERIES C
IN EXCHANGE FOR
REGISTERED 11 5/8% SENIOR NOTES DUE 2005, SERIES D
OF
ORBITAL IMAGING CORPORATION
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED JUNE 25, 1999
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON JULY 27, 1999, UNLESS EXTENDED.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS HSBC BANK USA. DELIVER MATERIALS TO
HSBC BANK USA USING THE FOLLOWING INFORMATION:
<TABLE>
<S> <C> <C>
By Hand/Overnight Courier: Facsimile Transmission By Registered or Certified Mail:
(Eligible Institutions Only):
HSBC BANK USA (212) 658-2292 HSBC BANK USA
CORPORATE TRUST OPERATIONS CORPORATE TRUST OPERATIONS
140 BROADWAY, LEVEL A Confirm by Telephone: 140 BROADWAY, LEVEL A
NEW YORK, NEW YORK 10005-1180 (212) 658-5931 NEW YORK, NEW YORK 10005-1180
</TABLE>
ORIGINALS OF ALL DOCUMENTS SENT BY FACSIMILE SHOULD BE SHOULD BE SENT
PROMPTLY BY REGISTERED OR CERTIFIED MAIL, BY HAND OR BY OVERNIGHT DELIVERY
SERVICE.
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU SHOULD READ CAREFULLY THE
INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL BEFORE YOU COMPLETE THIS
LETTER OF TRANSMITTAL.
If you wish to exchange unregistered 11 5/8% Senior Notes due 2005, Series
C (the Original Notes), for an equal aggregate amount of registered 11 5/8%
Senior Notes due 2005, Series D (the "Exchange Notes"), pursuant to the Exchange
Offer, you must validly tender (and not withdraw) your Original Notes to the
Exchange Agent before the expiration date.
The undersigned acknowledges receipt of the Prospectus dated June 25, 1999
of Orbital Imaging Corporation, a Delaware corporation (ORBIMAGE), and this
Letter of Transmittal, which together constitute ORBIMAGE'S offer (the "Exchange
Offer") to exchange $1,000 principal amount of its Exchange Notes, which have
been registered under the Securities Act of 1933, as amended, pursuant to a
Registration Statement of which the Prospectus is a part, for each $1,000
principal amount of its outstanding Original Notes, of which $75,000,000
aggregate principal amount is outstanding. Capitalized terms used but not
defined herein have the meaning given to them in the Prospectus.
All holders of Original Notes who wish to tender their Original Notes must
before the expiration date: (a) complete, sign, date and mail or otherwise
deliver this Letter of Transmittal to the Exchange Agent, in person or to the
address set forth above, or in lieu thereof, comply with the procedures of the
Automated Tender Offer Program ("ATOP") of The Depository Trust Company ("DTC");
and (b) tender his or her Original Notes or, if a tender of Original Notes is to
be made by book-entry transfer to the account maintained by the Exchange Agent
at the DTC (the "Book-Entry Transfer Facility"), confirm the book-entry transfer
(a "Book-Entry Confirmation"), in each case in accordance with the procedures
for tendering described in the Instructions to this Letter of Transmittal.
Holders of Original Notes whose certificates are not immediately
<PAGE> 2
available, or who are unable to deliver their certificates or Book-Entry
Confirmation and all other documents required by this Letter of Transmittal to
be delivered to the Exchange Agent on or before the expiration date, must tender
their Original Notes according to the guaranteed delivery procedures set forth
under the caption "The Exchange Offer -- Procedures for Tendering" in the
Prospectus (see Instruction 1).
The term "holder" with respect to the Exchange Offer means any person in
whose name the Original Notes are registered on the books of ORBIMAGE or any
other person who has obtained a properly completed bond power from the
registered holder. The undersigned has completed, executed and delivered this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer. The Instructions included with this Letter
of Transmittal must be followed in their entirety. Questions and requests for
assistance or for additional copies of the Prospectus or this Letter may be
directed to the Exchange Agent, at the address listed above, or to the General
Counsel, Orbital Imaging Corporation, 21700 Atlantic Boulevard, Dulles, VA 20166
(telephone (703) 406-5800).
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING
THE INSTRUCTIONS TO THIS LETTER OF TRANSMITTAL, CAREFULLY
BEFORE COMPLETING ANY BOX BELOW
List in Box 1 below the Original Notes of which you are the holder. If the
space provided in Box 1 is inadequate, list the certificate numbers and
principal amount of Original Notes on a separate SIGNED schedule and affix that
schedule to this Letter of Transmittal.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
DESCRIPTION OF 11 5/8% SENIOR NOTES DUE 2005, SERIES C
- ----------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK)
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
AGGREGATE TENDERED(2)
PRINCIPAL (MUST BE IN
AMOUNT INTEGRAL
CERTIFICATE REPRESENTED BY MULTIPLES
NUMBER(S)(1) CERTIFICATE(S)(1) OF $1,000)
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
Total
- ----------------------------------------------------------------------------------------------------------------
(1) Need not be completed by holders tendering by book-entry transfer (see below).
(2) Unless otherwise indicated in the column labeled "Principal Amount Tendered," any tendering holder of
11 5/8% Senior Notes due 2005, Series C will be deemed to have tendered the entire aggregate principal
amount represented by the column labeled "Aggregate Principal Amount Represented by Certificate(s)." If the
space provided above is inadequate, list the certificate numbers and principal amounts on a separate SIGNED
schedule and affix the list to this Letter of Transmittal. The minimum permitted tender is $1,000 in
principal amount of 11 5/8% Senior Notes due 2005, Series C. All other tenders must be in integral
multiples of $1,000.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 3
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to ORBIMAGE the principal amount of Original Notes indicated
above. Subject to, and effective upon, the acceptance for exchange of the
principal amount of Original Notes tendered in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the order
of, ORBIMAGE all right, title and interest in and to the Original Notes tendered
hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent its agent and attorney-in-fact (with full knowledge that the Exchange
Agent also acts as the agent of ORBIMAGE) with respect to the tendered Original
Notes, with full power of substitution, to: (a) deliver certificates for the
Original Notes; (b) deliver Original Notes and all accompanying evidence of
transfer and authenticity to or upon the order of ORBIMAGE upon receipt by the
Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the
undersigned is entitled upon the acceptance by ORBIMAGE of the Original Notes
tendered under the Exchange Offer; and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Original Notes, all in
accordance with the terms of the Exchange Offer. The power of attorney granted
in this paragraph shall be deemed to be irrevocable and coupled with an
interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Original Notes
tendered hereby and that ORBIMAGE will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, when the same are acquired by ORBIMAGE. The
undersigned will, upon request, execute and deliver any additional documents
deemed by ORBIMAGE to be necessary or desirable to complete the assignment and
transfer of the Original Notes tendered.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance upon interpretations contained in letters issued to third parties by
the Staff of the Securities and Exchange Commission that the Exchange Notes
issued in exchange for the Original Notes pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by holders thereof (other
than (a) any holder that is an "affiliate" of ORBIMAGE within the meaning of
Rule 405 under the Securities Act, (b) a broker-dealer who acquired the Original
Notes directly from ORBIMAGE or (c) a broker-dealer who acquired the Original
Notes as a result of market-making or other trading activities), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the Exchange Notes are acquired in the ordinary
course of the holders' business and the holders have no arrangement with any
person to participate in distribution of the Exchange Notes. If the undersigned
is not a broker-dealer, the undersigned represents and warrants that (a) the
Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the undersigned, whether or not the undersigned
is the holder; (b) the undersigned is not engaged in, and does not intend to
engage in, a distribution of Exchange Notes; and (c) neither the undersigned nor
any other person has an arrangement or understanding with any person to
participate in the distribution of Exchange Notes. If the undersigned is a
broker-dealer that will receive Exchange Notes for its own account in exchange
for Original Notes, it acknowledges that it will ensure that the resale is
covered by an effective registration statement containing the selling security
holder information required by Item 507 or Item 508 of Regulation S-K and comply
with the prospectus delivery requirements of the Securities Act; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For purposes of the Exchange Offer, ORBIMAGE shall be deemed to have
accepted validly tendered Original Notes when, as and if ORBIMAGE has given oral
or written notice thereof to the Exchange Agent, at which time the undersigned's
right to withdraw the tender will terminate.
If any tendered Original Notes are not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any unaccepted Original
Notes will be returned, without expense, to the undersigned at the address shown
below or at a different address as may be indicated herein under "Special
Issuance Instructions" as promptly as practicable after the expiration date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns. Tenders may be withdrawn only in
accordance with the procedures set forth in the Instructions contained in this
Letter of Transmittal.
<PAGE> 4
The undersigned understands that tenders of Original Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and ORBIMAGE upon the terms and
subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions," the
Exchange Agent will issue the certificates representing the Exchange Notes
issued in exchange for the Original Notes accepted for exchange and will return
any Original Notes not tendered or not exchanged, in the name(s) of the
undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," the Exchange Agent will send the certificates representing the
Exchange Notes issued in exchange for the Original Notes accepted for exchange
and any certificates for Original Notes not tendered or not exchanged (and
accompanying documents, as appropriate) will be returned to the undersigned at
the address shown below the undersigned's signature(s). In the event that both
"Special Issuance Instructions" and "Special Delivery Instructions" are
completed, the Exchange Agent will issue the certificates representing the
Exchange Notes issued in exchange for the Original Notes accepted for exchange
in the name(s) of, and will return any Original Notes not tendered or not
exchanged and will send said certificates to, the person(s) so indicated. The
undersigned recognizes that ORBIMAGE has no obligation pursuant to the "Special
Issuance Instructions" and "Special Delivery Instructions" to transfer any
Original Notes from the name of the registered holder(s) thereof if ORBIMAGE
does not accept for exchange any of the Original Notes so tendered.
Holders of Original Notes who wish to tender their Original Notes and (a)
whose Original Notes are not immediately available, or (b) who cannot deliver
their Original Notes, this Letter of Transmittal or any other documents required
hereby to the Exchange Agent before the expiration date (or who cannot comply
with the book-entry transfer procedure on a timely basis) may tender their
Original Notes according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures." See Instruction 1 regarding the completion of this Letter of
Transmittal, printed below.
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER
DEFINED) ONLY):
Name of Tendering Institution:
Account Number:
Transaction Code Number:
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Original Noteholder(s):
Date of Execution of Notice of Guaranteed Delivery:
Window Ticket Number (if available):
Name of Institution which Guaranteed Delivery:
Account Number (if delivered by Book-Entry Transfer):
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER AND NON-EXCHANGED ORIGINAL NOTES ARE TO BE RETURNED BY CREDITING
THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE ORIGINAL NOTES FOR
YOUR OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE TEN ADDITIONAL COPIES OF
THE PROSPECTUS AND TEN COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
Address:
<PAGE> 5
PLEASE SIGN HERE
WHETHER OR NOT ORIGINAL NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X
- ------------------------------------------------------- -----------------------
DATE
X
- ------------------------------------------------------- -----------------------
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED DATE
SIGNATORY
Area Code and Telephone Number:
------------------------------------------------
The above lines must be signed by the registered holder(s) of Original Notes as
their name(s) appear(s) on the Original Notes or by person(s) authorized to
become registered holder(s) by a properly completed bond power from the
registered holder(s), a copy of which must be transmitted with this Letter of
Transmittal. If Original Notes to which this Letter of Transmittal relate are
held of record by two or more joint holders, then all holders must sign this
Letter of Transmittal. If the signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, then that person must
(1) set forth his or her full title below and (2) unless waived by ORBIMAGE,
submit evidence satisfactory to ORBIMAGE of his or her authority so to act. See
Instruction 4 regarding the completion of this Letter of Transmittal, printed
below.
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity:
-----------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
SIGNATURE(S) GUARANTEED BY AN ELIGIBLE INSTITUTION
(AS HEREINAFTER DEFINED)
(IF REQUIRED BY INSTRUCTION 4):
Authorized Signature:
----------------------------------------------------------
Title:
-------------------------------------------------------------------------
Name of Firm:
------------------------------------------------------------------
Dated: ______________________
<PAGE> 6
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY (a) if certificates for Original Notes in a principal
amount not exchanged, or Exchange Notes issued in exchange for Original Notes
accepted for exchange, are to be issued in the name of someone other than the
undersigned, or (b) if Original Notes tendered by book-entry transfer that are
not exchanged are to be returned by credit to an account maintained at DTC.
Issue certificate(s) to:
Name:
--------------------------------------------------------------------------
(PLEASE PRINT)
Address:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(INCLUDE ZIP CODE)
- -------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
Credit Original Notes not exchanged and delivered by book-entry transfer to
the DTC account set forth below:
DTC Account Number:
------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS 6
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Original Notes in a principal amount
not exchanged, or Exchange Notes issued in exchange for Original Notes accepted
for exchange, are to be sent to someone other than the undersigned, or to the
undersigned at an address other than that shown above.
Mail to:
Name:
--------------------------------------------------------------------------
(PLEASE PRINT)
Address:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(INCLUDE ZIP CODE)
- -------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Original Notes. The tendered
Original Notes or any confirmation of a book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof, and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein before 5:00 p.m., New York City time, on the expiration
date. The method of delivery of the tendered Original Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the holder and, except as otherwise provided below, the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. Instead of delivery by mail, it is recommended that the holder
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure timely delivery. No Letter of Transmittal or Original Notes
should be sent to ORBIMAGE.
The Exchange Agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's ATOP to tender. Accordingly,
participants in DTC's ATOP may, in lieu of physically completing and signing the
Letter of Transmittal and delivering it to the Exchange Agent, electronically
transmit their acceptance of the Exchange Offer by causing the Depositary to
transfer the Original Notes to the Exchange Agent in accordance with the DTC's
ATOP procedures for transfer. The Depositary will then send an Agent's Message
to the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC received by
the Exchange Agent and forming part of the Book-Entry Confirmation, which states
that the Depositary has received an express acknowledgment from a participant in
DTC's ATOP that is tendering Original Notes that are the subject of the book
entry confirmation, that the participant has received and agrees to be bound by
the terms of the Letter of Transmittal (or, in the case of an Agent's Message
relating to guaranteed delivery, that the participant has received and agrees to
be bound by the applicable Notice of Guaranteed Delivery), and that the
agreement may be enforced against the participant.
Holders who wish to tender their Original Notes and (a) whose Original
Notes are not immediately available, (b) who cannot deliver their Original Notes
or any other documents required hereby to the Exchange Agent before the
expiration date or (c) who are unable to complete the procedure for book-entry
transfer on a timely basis, must tender their Original Notes according to the
guaranteed delivery procedures set forth in the Prospectus. Pursuant to that
procedure: (a) the tender must be made by or through an Eligible Institution (as
hereinafter defined); (b) before the expiration date, the Exchange Agent must
have received from the Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the holder of the Original Note, and the principal amount of
Original Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three business days after the date of execution of the
Notice of Guaranteed Delivery, the certificate(s) for all physically tendered
Original Notes, or a Book-Entry Confirmation, and any other required documents
by the Letter of Transmittal will be deposited by the Eligible Institution (as
hereinafter defined) with the Exchange Agent, or, alternatively, the holder
shall have complied with DTC's ATOP procedures; and (c) the certificate(s) for
all physically tendered Original Notes, in proper form for transfer, or a
Book-Entry Confirmation, and, as the case may be, all other documents required
by the Letter of Transmittal, are received by the Exchange Agent within three
business days after the date of execution of the Notice of Guaranteed Delivery,
all as provided in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." Any holder of Original Notes who
wishes to tender his Original Notes pursuant to the guaranteed delivery
procedures described above must ensure that the Exchange Agent receives the
Notice of Guaranteed Delivery before 5:00 p.m., New York City time, on the
expiration date. Upon request of the Exchange Agent, a Notice of Guaranteed
Delivery will be sent to holders who wish to tender their Original Notes
according to the guaranteed delivery procedures set forth above.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of the Original Notes tendered for exchange will be
determined by ORBIMAGE in its sole discretion, which determination
<PAGE> 8
shall be final and binding. ORBIMAGE reserves the absolute right to reject any
and all tenders of any particular Original Notes not properly tendered or to not
accept any particular Original Notes which acceptance might, in the judgment of
ORBIMAGE or its counsel, be unlawful. ORBIMAGE also reserves the absolute right
in its sole discretion to waive any defects or irregularities or conditions of
the Exchange Offer as to any particular Original Note either before or after the
expiration date (including the right to waive the ineligibility of any holder
who seeks to tender the Original Notes in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer as to any
particular Original Note either before or after the expiration date (including
the Letter of Transmittal and instructions thereto) by ORBIMAGE shall be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Original Notes for exchange must be cured within a
reasonable period of time that ORBIMAGE shall determine. Neither ORBIMAGE, the
Exchange Agent nor any other person shall be under any duty to give notification
of any defect or irregularity with respect to any tender of the Original Notes
for exchange, nor shall any of them incur any liability for failure to give
notification.
2. Tender by Holder. Only a registered holder of Original Notes may tender
the Original Notes in the Exchange Offer. Any beneficial owner whose Original
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Original Notes should contact
the registered holder promptly and instruct the registered holder to tender
Original Notes on the beneficial owner's behalf. If the beneficial owner wishes
to tender the Original Notes himself, the beneficial owner must, before
completing and executing this Letter of Transmittal and delivering the Original
Notes in the beneficial owner's name, either make appropriate arrangements to
register ownership of the Original Notes in the beneficial owner's name or
obtain a properly completed bond power from the registered holder of the
Original Notes. The transfer of registered ownership may take considerable time
and may not be able to be completed before the expiration date.
3. Partial Tenders; Withdrawals. Tenders of Original Notes will be
accepted only in integral multiples of $1,000. If less than the entire principal
amount of any Original Notes is tendered, the tendering holder should fill in
the principal amount tendered in the third column of the box entitled
"Description of 11 5/8% Senior Notes due 2005, Series C" above. The entire
principal amount of Original Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated. If the entire principal
amount of all Original Notes is not tendered, then Original Notes for the
principal amount of Original Notes not tendered and a certificate or
certificates representing Exchange Notes issued in exchange for any Original
Notes accepted will be sent to the holder at his or her registered address,
unless a different address is provided in the appropriate box on this Letter of
Transmittal, promptly after the Original Notes are accepted for exchange.
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn before the expiration date. For a withdrawal to be effective, (a) a
written or facsimile notice of withdrawal must be received by the Exchange Agent
at its address set forth herein or (b) holders must comply with the appropriate
procedures of DTC's ATOP system. Any notice of withdrawal must (a) specify the
name of the person having tendered the Original Notes to be withdrawn, (b)
identify the Original Notes to be withdrawn (including the serial number or
numbers and the principal amount of Original Notes to be withdrawn), (c) be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal by which the Original Notes were tendered and (d) specify the
name in which the Original Notes are to be registered, if different from that of
the withdrawing holder. If Original Notes have been tendered pursuant to the
procedure for book-entry described above, any notice of withdrawal must specify,
in lieu of certificate numbers, the name and number of the account at DTC to be
credited with the withdrawn Original Notes and otherwise comply with the
procedures of the facility. Any questions as to the validity, form and
eligibility (including time of receipt) of the notices will be determined by
ORBIMAGE, whose determination shall be final and binding on all parties. Any
Original Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Original Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to the holder (or, in the case of
Original Notes tendered by book-entry transfer into the Exchange Agent's account
at DTC pursuant to the book-entry transfer procedures described above, the
Original Notes will be credited to an account maintained with DTC
<PAGE> 9
for the Original Notes) as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn Original Notes
may be retendered by following one of the procedures described in "Exchange
Offer -- Procedures for Tendering" set forth in the Prospectus.
4. Signatures on the Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal (or facsimile hereof) is
signed by the registered holder(s) of the Original Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the
Original Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of Original Notes tendered and the certificate or
certificates for Exchange Notes issued in exchange therefor is to be issued (or
any untendered principal amount of Original Notes is to be reissued) to the
registered holder, the said holder need not and should not endorse any tendered
Original Notes, nor provide a separate bond power. In any other case, the holder
must either properly endorse the Original Notes tendered or transmit a properly
completed separate bond power with this Letter of Transmittal, with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution (as hereinafter defined).
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Original Notes, the Original Notes must be
endorsed or accompanied by a properly completed bond power, in either case
signed exactly as the names of the registered holder or holders that appear on
the Original Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, the person should so indicate when signing and, unless waived by
ORBIMAGE, proper evidence satisfactory to ORBIMAGE of their authority to so act
must be submitted with the Letter of Transmittal.
Endorsements on Original Notes or signatures on bond powers required by
this Instruction 4 must be guaranteed by an Eligible Institution (as hereinafter
defined).
Except as otherwise provided below, signatures on this Letter of
Transmittal must be guaranteed unless the Original Notes surrendered for
exchange pursuant thereto are tendered (a) by a registered holder of the
Original Notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(b) for the account of an Eligible Institution (as defined below). In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, the guarantees must be by a firm (an
"Eligible Institution") that is a member of a recognized signature guarantee
medallion program (an "Eligible Program") within the meaning of Rule 17Ad-15
under the Exchange Act. If the Exchange Notes and/or Original Notes not
exchanged are to be delivered to an address other than that of the registered
holder appearing on the note register for the Original Notes, the signature on
the Letter of Transmittal must be guaranteed by an Eligible Institution. If the
Original Notes are registered in the name of a person other than the person
signing the Letter of Transmittal, the Original Notes surrendered for exchange
must be endorsed by, or accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by ORBIMAGE in its sole
discretion, duly executed by the registered holder with the signature thereon
guaranteed by an Eligible Institution.
5. Special Issuance and Delivery Instructions. Tendering holders should
indicate, in the applicable box or boxes, the name and address to which Exchange
Notes or substitute Original Notes for principal amounts not tendered or not
accepted for exchange are to be issued or sent, if different from the name and
address of the person signing this Letter of Transmittal. In the case of
issuance in a different owner, the taxpayer identification or social security
number of the person named must also be indicated.
6. Tax Identification Number. Federal income tax law requires that a
holder whose tendered Original Notes are accepted for exchange must provide the
Exchange Agent (as payer) with his or her correct taxpayer identification number
("TIN"), which, in the case of a holder who is an individual, is his or her
social security number. If the Exchange Agent is not provided with the correct
TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, delivery to the holder of the Exchange
<PAGE> 10
Notes pursuant to the Exchange Offer may be subject to back-up withholding (If
withholding results in overpayment of taxes, a refund may be obtained.). Exempt
holders (including, among others, all corporations and certain foreign
individuals) are not subject to these back-up withholding and reporting
requirements. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
Under Federal income tax laws, payments that may be made by ORBIMAGE on
account of Exchange Notes issued pursuant to the Exchange Offer may be subject
to back-up withholding at a rate of 31%. In order to prevent back-up
withholding, each tendering holder must provide his or her correct TIN by
completing the "Substitute Form W-9" referred to above, certifying that the TIN
provided is correct (or that the holder is awaiting a TIN) and that: (a) the
holder has not been notified by the Internal Revenue Service that he or she is
subject to back-up withholding as a result of failure to report all interest or
dividends; or (b) the Internal Revenue Service has notified the holder that he
or she is no longer subject to back-up withholding; or (c) certify in accordance
with the Guidelines that the holder is exempt from back-up withholding. If the
Original Notes are in more than one name or are not in the name of the actual
owner, consult the enclosed Guidelines for information on which TIN to report.
7. Transfer Taxes. ORBIMAGE will pay all transfer taxes, if any,
applicable to the exchange of Original Notes pursuant to the Exchange Offer. If,
however, certificates representing Exchange Notes or Original Notes for
principal amounts not tendered or accepted for exchange are to be delivered to,
or are to be registered or issued in the name of, any person other than the
registered holder of the Original Notes tendered, or if tendered Original Notes
are registered in the name of any person other than the person signing this
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Original Notes pursuant to the Exchange Offer, then the amount
of any transfer taxes (whether imposed on the registered holder or on any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of the taxes or exemption therefrom is not submitted with this Letter of
Transmittal, or in the Agent's Message in lieu thereof, the amount of the
transfer taxes will be billed directly to the tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Original Notes listed in this Letter of
Transmittal.
8. Waiver of Conditions. ORBIMAGE reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Original Notes tendered.
9. Mutilated, Lost, Stolen or Destroyed Original Notes. Any tendering
holder whose Original Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated herein for further
instructions.
10. Requests for Assistance or Additional Copies. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
specified in the Prospectus. Holders may also contact their broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Exchange Offer.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF
APPLICABLE) TOGETHER WITH CERTIFICATES FOR ALL PHYSICALLY TENDERED ORIGINAL
NOTES, OR A BOOK ENTRY CONFIRMATION, OR THE NOTICE OF GUARANTEED DELIVERY AND
ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR BEFORE
THE EXPIRATION DATE.
<PAGE> 11
IMPORTANT TAX INFORMATION
Under current federal income tax law, a holder whose tendered Original
Notes are accepted for exchange is required to provide ORBIMAGE (as payer),
through the Exchange Agent, with the holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 or otherwise establish a basis for
exemption from backup withholding. If the holder is an individual, the TIN is
the holder's social security number. If the Exchange Agent is not provided with
the correct taxpayer identification number, the holder may be subject to a
monetary penalty imposed by the Internal Revenue Service. In addition, delivery
to the holder of the Exchange Notes may be subject to backup withholding.
Certain holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. Exempt holders should indicate their exempt status on Substitute
Form W-9. A foreign individual may qualify as an exempt recipient by submitting
to the Exchange Agent a properly completed Internal Revenue Service Form W-8
(which the Exchange Agent will provide upon request) signed under penalty of
perjury, attesting to the holder's exempt status. See the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, ORBIMAGE is required to withhold 31% of any
payment made to the holder or other payee. Backup withholding is not an
additional Federal income tax. Rather, the Federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a holder with
respect to Original Notes exchanged in the Exchange Offer, the holder is
required to provide the Exchange Agent with either: (a) the holder's correct TIN
by completing the form below, certifying that the TIN provided on Substitute
Form W-9 is correct (or that the holder is awaiting a TIN) and that (A) the
holder has not been notified by the Internal Revenue Service that he or she is
subject to backup withholding as a result of failure to report all interest or
dividends or (B) the Internal Revenue Service has notified the holder that he or
she is no longer subject to backup withholding; or (b) an adequate basis for
exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the record owner of the
Original Notes. If the Original Notes are held in more than one name or are not
held in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidance on which number to report.
<PAGE> 12
<TABLE>
<C> <S> <C>
- -----------------------------
PAYOR'S NAME:
- -------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT Social Security Number OR
RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. Employer Identification Number
FORM W-9
----------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S> <C>
DEPARTMENT OF THE TREASURY PART 2 --CERTIFICATION-- PART 3 --
INTERNAL REVENUE SERVICE Under penalties of perjury, I certify that:
(1) the number shown on this form is my correct Taxpayer Awaiting TIN [ ]
Identification Number (or I am waiting for a number to
be issued to me); and
(2) I am not subject to backup withholding either because
I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report all
interest or dividends, or the IRS has notified me that
I am no longer subject to backup withholding.
------------------------------------------------------------------------------------------
PAYOR'S REQUEST FOR TAXPAYER CERTIFICATION INSTRUCTION -- You must cross out item (2) in Part 2 above if you have been
IDENTIFICATION NUMBER (TIN) notified by the IRS that you are subject to backup withholding because of underreporting
interest or dividends on your tax return. However, if after being notified by the IRS that
you were subject to backup withholding you received another notification from the IRS
stating that you are no longer subject to backup withholding, do not cross out item (2).
Signature: ------------------------------------- Date:-------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within sixty (60) days, 31%
of all reportable payments made to me thereafter will be withheld until I
provide a number.
<TABLE>
<S> <C>
Signature: Date:
--------------------------------- -------------------------
</TABLE>
<PAGE> 1
EXHIBIT 99.2
ORBITAL IMAGING CORPORATION
NOTICE OF GUARANTEED DELIVERY
TO TENDER
UNREGISTERED 11 5/8% SENIOR NOTES DUE 2005, SERIES C
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED JUNE 25, 1999
AS STATED IN THE PROSPECTUS, THIS FORM, OR ONE SUBSTANTIALLY EQUIVALENT HERETO,
MUST BE USED BY A HOLDER OF 11 5/8% SENIOR NOTES DUE 2005, SERIES C (THE
"ORIGINAL NOTES") OF ORBITAL IMAGING CORPORATION, A DELAWARE CORPORATION
("ORBIMAGE"), WHO WISHES TO EXCHANGE HIS OR HER ORIGINAL NOTES PURSUANT TO
ORBIMAGE'S EXCHANGE OFFER, AS DEFINED IN THE PROSPECTUS DATED JUNE 25, 1999 AND
(a) WHOSE ORIGINAL NOTES ARE NOT IMMEDIATELY AVAILABLE, (b) WHO CANNOT DELIVER
HIS OR HER ORIGINAL NOTES OR ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF
TRANSMITTAL ON OR BEFORE THE EXCHANGE OFFER EXPIRATION DATE (AS DEFINED IN THE
PROSPECTUS) OR (c) WHO CANNOT COMPLETE THE PROCEDURE FOR BOOK ENTRY TRANSFER ON
A TIMELY BASIS. THIS FORM MAY BE DELIVERED BY FACSIMILE TRANSMISSION, IF
APPLICABLE, MAIL OR HAND DELIVERY TO THE EXCHANGE AGENT. SEE "THE EXCHANGE
OFFER--GUARANTEED DELIVERY PROCEDURES" IN THE PROSPECTUS.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON JULY 27,
1999, UNLESS EXTENDED. ORIGINAL NOTES TENDERED IN THE EXCHANGE OFFER MAY BE
WITHDRAWN AT ANY TIME BEFORE THE EXPIRATION DATE.
Deliver To: HSBC Bank USA, THE EXCHANGE AGENT
<TABLE>
<S> <C> <C>
By Hand/Overnight Courier Facsimile By Registered or Certified Mail
Transmission:
HSBC Bank USA (212) 658-2292 HSBC Bank USA
Corporate Trust Operations Corporate Trust Operations
140 Broadway Confirm by 140 Broadway
Level A Telephone: Level A
New York, New York 10005-1180 (212) 658-5931 New York, New York 10005-1180
</TABLE>
ORIGINALS OF ALL DOCUMENTS SENT VIA FACSIMILE SHOULD BE SENT PROMPTLY BY
REGISTERED OR CERTIFIED MAIL, BY HAND OR BY OVERNIGHT DELIVERY SERVICE.
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN TO THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF
A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN
"ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, THE SIGNATURE GUARANTEE
MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE LETTER OF TRANSMITTAL FOR
GUARANTEE OF SIGNATURES.
<PAGE> 2
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to ORBIMAGE, upon the terms and subject to
the conditions set forth in the Prospectus dated June 25, 1999, and the related
Letter of Transmittal, receipt of which are hereby acknowledged, the aggregate
principal amount of Original Notes set forth below pursuant to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures."
Name(s) of Registered Holder(s):
*Aggregate Principal Amount Tendered: $
Certificate No.(s) (if available):
Total Principal Amount Represented by
Original Notes Certificate(s):
$
If Original Notes will be tendered by book-entry transfer, provide the following
information:
DTC Account Number:
Date:
* Must be in denominations of $1,000 or any integral multiple thereof.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
<PAGE> 3
PLEASE SIGN HERE
X
---------------------------------------- -------------------------------
X
---------------------------------------- -------------------------------
SIGNATURE(S) OF OWNER(S) DATE
OR AUTHORIZED SIGNATORY
Area Code and Telephone Number:
------------------------------------------------
Must be signed by the holder(s) of the Original Notes as their name(s) appear(s)
on certificates for Original Notes or on a security position listing, or by
person(s) authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capacity:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address(es):
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE GUARANTEE ON THE NEXT PAGE MUST BE COMPLETED.
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of or participant in a recognized signature
guarantee medallion program within the meaning of Rule 17A(d)-15 under the
Securities Exchange Act of 1934, as amended, hereby guarantees (a) that the
above-named person(s) own(s) the above-described securities tendered hereby and
(b) that delivery to the Exchange Agent of certificates tendered hereby, in
proper form for transfer, or delivery of such certificates pursuant to the
procedure for book-entry transfer, in either case with delivery of a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and any
other required documents, is being made within three business days after the
date of execution of a Notice of Guaranteed Delivery of the above-named person.
The undersigned acknowledges that it must deliver the Original Notes
tendered hereby to the Exchange Agent within the time period set forth above and
that failure to do so could result in a financial loss to the undersigned.
SIGN HERE
Name of Firm:
-------------------------------------------------------------------
Authorized Signature:
-----------------------------------------------------------
Name:
---------------------------------------------------------------------------
(PLEASE PRINT)
Title:
--------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
ZIP CODE
Area Code and Telephone No.:
----------------------------------------------------
Date:
----------------------
DO NOT SEND CERTIFICATES FOR ORIGINAL NOTES WITH THIS FORM. ACTUAL
SURRENDER OF ORIGINAL NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A
COPY OF THE PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL.
<PAGE> 5
INSTRUCTIONS
1. Delivery of this Notice of Guaranteed Delivery. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at its address set forth on the cover hereof before the Exchange
Offer expiration date. The method of delivery of this Notice of Guaranteed
Delivery and all other required documents to the Exchange Agent is at the
election and risk of the holder but, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange Agent.
If the delivery is by mail, it is recommended that the holder use properly
insured, registered mail with return receipt requested. For a full description
of the guaranteed delivery procedures, see the Prospectus under the caption "The
Exchange Offer--Guaranteed Delivery Procedures." In all cases, sufficient time
should be allowed to assure timely delivery. No Notice of Guaranteed Delivery
should be sent to ORBIMAGE.
2. Signature on this Notice of Guaranteed Delivery; Guarantee of
Signatures. If this Notice of Guaranteed Delivery is signed by the registered
holder(s) of the Original Notes referred to herein, the signature must
correspond with the name(s) as written on the face of the Original Notes without
alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, that person should so
indicate when signing, and, unless waived by ORBIMAGE, evidence satisfactory to
ORBIMAGE, of their authority so to act must be submitted with this Notice of
Guaranteed Delivery.
If this Notice of Guaranteed Delivery is signed by a participant of the
Book-Entry Transfer Facility whose name appears on a security position listing
as the owner of the Original Notes, the signature must correspond with the name
shown on the security position listing as the owner of the Original Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Original Notes listed or a participant of the
Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the registered
holder(s) appears on the Original Notes or signed as the name of the participant
shown on the Book-Entry Transfer Facility's security position listing.
3. Requests for Assistance or Additional Copies. Questions relating to the
Exchange Offer or the procedure for tendering as well as requests for assistance
or for additional copies of the Prospectus and the Letter of Transmittal, may be
directed to the Exchange Agent. Holders may also contact their broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Exchange Offer.
