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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED
MARCH 31, 2000
ORBITAL IMAGING CORPORATION
(COMMISSION FILE NO. 333-49583)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 54-1660268
(STATE OF INCORPORATION) (IRS IDENTIFICATION NUMBER)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166 (703) 406-5000
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (TELEPHONE NUMBER)
</TABLE>
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 25,214,000 shares of common
stock outstanding as of May 12, 2000.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBITAL IMAGING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, MARCH 31,
1999 2000
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................. $ 4,855 $ 10,551
Available-for-sale securities, at fair value............................... 32,407 20,755
Restricted held-to-maturity securities, at amortized cost.................. 12,932 -
Receivables and other current assets, net of allowances of $80 and $53,
respectively............................................................... 5,525 6,153
---------- ----------
Total current assets.................................................. 55,719 37,459
Property, plant and equipment, at cost, less accumulated
depreciation of $10,841 and $11,724, respectively.......................... 31,937 33,129
Satellites and related rights, at cost, less accumulated
depreciation and amortization of $30,973 and
$33,124, respectively...................................................... 261,622 267,176
Other assets..................................................................... 10,560 9,983
---------- ----------
Total assets............................................................... $ 359,838 $ 347,747
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses...................................... $ 14,341 $ 6,635
Current portion of deferred revenue........................................ 9,277 8,923
---------- ----------
Total current liabilities............................................. 23,618 15,558
Senior notes..................................................................... 214,575 214,937
Deferred revenue, net of current portion......................................... 15,334 13,243
Deferred tax liabilities......................................................... 77 -
---------- ----------
Total liabilities.......................................................... 253,604 243,738
Preferred stock subject to repurchase, par value $0.01; 10,000,000
shares authorized; Series A 12% cumulative convertible, 2,000,000
shares authorized, 772,561 shares issued and outstanding,
respectively (liquidation value of
$78,801 and $81,119, respectively)........................................... 91,563 95,592
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................................................. 87,285 87,334
Accumulated deficit........................................................ (72,866) (79,169)
---------- ----------
Total stockholders' equity................................................. 14,671 8,417
---------- ----------
Total...................................................................... $ 359,838 $ 347,747
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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ORBITAL IMAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 2000
---- ----
<S> <C> <C>
Revenues.................................................. $ 3,316 $ 6,344
Direct expenses........................................... 4,025 6,981
------------- -------------
Gross loss................................................ (709) (637)
Selling, general and administrative expenses.............. 1,953 2,457
------------- -------------
Loss from operations...................................... (2,662) (3,094)
Interest income........................................... 949 743
------------- -------------
Loss before benefit for income taxes...................... (1,713) (2,351)
Benefit for income taxes.................................. (620) (77)
------------- -------------
Net loss.................................................. $ (1,093) $ (2,274)
============= =============
Loss per common share - basic and diluted (1)............. $ (0.16) $ (0.25)
Loss available to common stockholders..................... $ (4,061) $ (6,303)
Weighted average shares outstanding - basis and diluted (1) 25,214,000 25,214,000
</TABLE>
- ----------
(1) All potentially dilutive securities, such as preferred stock subject to
repurchase, warrants and stock options, are antidilutive for each period
presented.
See accompanying notes to condensed consolidated financial statements.
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ORBITAL IMAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCKK ADDITIONAL
------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1998........... 25,214,000 $ 252 $ 86,782 $ (53,070) $ 33,964
Issuance of compensatory stock options - - 100 - 100
Preferred stock dividends............ - - - (2,968) (2,968)
Net loss............................. - - - (1,093) (1,093)
----------- ----- --------- --------- ---------
BALANCE AS OF MARCH 31, 1999.............. 25,214,000 $ 252 $ 86,882 $ (57,131) $ 30,003
=========== ===== ========= ========= =========
BALANCE AS OF DECEMBER 31, 1999........... 25,214,000 $ 252 $ 87,285 $ (72,866) $ 14,671
Issuance of compensatory stock options - - 49 - 49
Preferred stock dividends............ - - - (4,029) (4,029)
Net loss............................. - - - (2,274) (2,274)
----------- ----- --------- --------- ---------
BALANCE AS OF MARCH 31, 2000.............. 25,214,000 $ 252 $ 87,334 $ (79,169) $ 8,417
=========== ===== ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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ORBITAL IMAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 2000
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................................. $ (1,093) $ (2,274)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, amortization and other....................... 3,172 3,681
Deferred tax benefit....................................... (620) (77)
Changes in assets and liabilities:
Increase in receivables and other current assets........... (578) (712)
Decrease in other assets................................... 256 254
Decrease in accounts payable and accrued expenses.......... (7,715) (7,707)
Decrease in deferred revenue............................... (2,220) (2,445)
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES................................. (8,798) (9,280)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................. (22,850) (9,737)
Purchases of available-for-sale securities............................ (7,350) (12,495)
Maturities of restricted held-to-maturity securities................. 8,471 12,984
Maturities of available-for-sale securities........................... 21,458 24,224
Sales of available-for-sale securities................................ 4,386 -
---------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES............................. 4,115 14,976
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (costs) from issuance of long-term obligations........... (73) -
Repayment of capitalized lease obligation............................. (28) -
----------- ----------
NET CASH USED IN FINANCING ACTIVITIES................................. (101) -
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....................... (4,784) 5,696
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 25,082 4,855
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ 20,298 $ 10,551
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................................ $ 8,719 $ 13,081
========== ==========
NON-CASH ITEMS:
Preferred stock dividends................................................ 2,968 4,029
Capitalized compensatory stock options................................... 50 43
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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ORBITAL IMAGING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 2000
(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, 1999, which are included in Orbital Imaging Corporation's
Form 10-K filed with the SEC. Operating results for the three months ended March
31, 2000 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.
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. Due to ORBIMAGE's history
of tax losses, net deferred tax assets are accounted for on the basis that it is
more likely than not that ORBIMAGE will not realize the tax benefits from the
deferred tax assets.
(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, 1999 and 2000, capitalized interest totaled $4.7
million and $7.1 million, respectively.
(4) RELATED PARTY TRANSACTIONS
In March 2000, the system procurement agreement between ORBIMAGE and Orbital
Sciences Corporation ("Orbital"), ORBIMAGE's majority stockholder, was amended
to increase the cost of the OrbView-3 and OrbView-4 satellites by $14.0
million. This amount may be reduced by up to $5 million in the event
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of certain launch delays. In exchange for permitting ORBIMAGE to pay this cost
increase in the form of post-launch, on-orbit incentives, the stock purchase
agreement between ORBIMAGE and Orbital was amended to reduce Orbital's common
stock purchase commitment to $12.5 million from $25.0 million. Under the
amended stock purchase agreement, Orbital is required to purchase up to $12.5
million worth of common stock for a price of $10 per share in minimum $2.5
million increments whenever ORBIMAGE's aggregate balance of cash, cash
equivalents and available-for-sale securities falls below $10.0 million,
although Orbital's total investment commitment may increase up to an aggregate
of $25 million in the event of certain launch delays.
ORBIMAGE incurred and capitalized costs of approximately $16.4 million and
$1.6 million for the three months ended March 31, 1999 and 2000, respectively,
under the system procurement agreement with Orbital for the purchase of various
satellites and ground systems. ORBIMAGE incurred and expensed costs of
approximately $0.4 million and $0.8 million for the three months ended March 31,
1999 and 2000, respectively, under an administrative services agreement with
Orbital.
(5) COMPREHENSIVE INCOME (LOSS)
For the three months ended March 31, 1999 and 2000, 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, 1999 and 2000 were as follows (in thousands, except share
data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 2000
---- ----
<S> <C> <C>
Numerator for basic and diluted loss per common share:
Net loss............................................... $ (1,093) $ (2,274)
Preferred stock dividends.............................. (2,968) (4,029)
------------------- -------------------
Loss available to common stockholders..................... $ (4,061) $ (6,303)
=================== ===================
Denominator for basic and diluted loss per common share --
weighted average shares (1)............................. 25,214,000 25,214,000
Loss per common share -- basic and diluted (1)............ $ (0.16) $ (0.25)
=================== ===================
</TABLE>
- ----------
(1) All potentially dilutive securities, such as preferred stock subject
to repurchase, warrants and stock options, are antidilutive for each
period presented.
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(8) INCOME TAXES
The income tax benefit for the three months ended March 31, 1999 and 2000
were different from those computed using the statutory U.S. Federal income tax
rate as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 2000
---- ----
<S> <C> <C>
U.S. Federal statutory rate............................ (34.0)% (34.0)%
State income taxes..................................... (1.7) (1.7)
Valuation allowance.................................... - 32.4
Other.................................................. (0.5) -
----------- ----------
Effective rate......................................... (36.2)% (3.3)%
========== ==========
</TABLE>
The net deferred tax asset of $0.8 million as of March 31, 2000 is fully
reserved by a valuation allowance.
(9) SENIOR NOTES
Interest on ORBIMAGE's senior notes due 2005 accrues at a rate of 11 5/8%
per annum and is payable semi-annually in arrears on March 1 and September 1. On
March 1, 2000, restricted held-to-maturity securities and the related accrued
interest were used to pay the semi-annual interest due on the senior notes of
$13.1 million.
(10)PREFERRED STOCK SUBJECT TO REPURCHASE
The activity in the preferred stock subject to repurchase was as follows for
the three months ended March 31, 1999 and 2000 (dollars in thousands):
<TABLE>
<CAPTION>
SHARES AMOUNT
------ -------
<S> <C> <C>
BALANCE AS OF DECEMBER 31, 1998....................... 687,576 $ 78,489
Accrual of preferred stock dividends............... - 2,968
------------ ------------
BALANCE AS OF MARCH 31, 1999.......................... 687,576 $ 81,457
============ ============
BALANCE AS OF DECEMBER 31, 1999....................... 772,561 $ 91,563
Accrual of preferred stock dividends............... - 4,029
------------ ------------
BALANCE AS OF MARCH 31, 2000.......................... 772,561 $ 95,592
============ ============
</TABLE>
(11)STOCK OPTION PLAN
On February 14, 2000, ORBIMAGE granted 412,347 options to purchase shares of
common stock to employees, directors and consultants. The stock options were
granted with an exercise price of $7.25 and generally vest in one-third
increments over a three-year period. ORBIMAGE will expense the value of the
2,000 compensatory options that were issued to consultants over the three-year
vesting period of the options.
(12)SEGMENT INFORMATION
For the three months ended March 31, 1999 and 2000, ORBIMAGE operated as a
single segment. ORBIMAGE recognized revenues related to contracts with the
National Aeronautics and Space Administration of approximately $2.4 million and
$2.3 million for the three months ended March 31, 1999 and 2000, respectively,
representing approximately 72% and 37%, respectively, of total revenues
recognized during those periods.
(13)SUBSEQUENT EVENTS
On May 1, 2000, ORBIMAGE declared a preferred stock dividend of 46,355
shares payable in kind.
On May 3, 2000, ORBIMAGE granted 10,000 options to purchase shares of
common stock to employees. The stock options were granted with an exercise
price of $7.25 and vest in one-third increments over a three-year period.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Orbital Imaging Corporation ("ORBIMAGE") operates and is further
developing a fleet of satellites that collect, process and distribute digital
imagery of the Earth's surface, atmosphere and weather conditions. ORBIMAGE has
entered into a procurement agreement with Orbital Sciences Corporation
("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 from the satellites.
Under the procurement agreement, ORBIMAGE also acquired a license to operate and
control the OrbView-2 satellite (the "OrbView-2 License"). Under a license
agreement with Orbital and its Canadian subsidiary, MacDonald, Dettwiler and
Associates Ltd. ("MDA"), ORBIMAGE has acquired the exclusive worldwide rights to
market and sell imagery from the RadarSat-2 satellite (the "RadarSat-2 License")
and, in turn, has sublicensed those rights to MDA. MDA will own and operate
RadarSat-2 and provide operations, data reception, processing, archiving,
marketing and distribution services to ORBIMAGE. Radarsat International Inc.
("RSI"), a wholly-owned subsidiary of MDA, has also appointed ORBIMAGE as a
non-exclusive distributor of Radarsat-1 satellite imagery in the United States.
Orbital also provides certain administrative services to ORBIMAGE such as
accounting, tax, human resources and benefit-related services pursuant to an
administrative services agreement.
ORBIMAGE expects to launch OrbView-4 in the first quarter of 2001 and
OrbView-3 in the second quarter of 2001. ORBIMAGE expects that RadarSat-2 will
be launched in the fourth quarter of 2002.
Revenues. ORBIMAGE's principal source of revenue is the sale of satellite
imagery to customers, value-added resellers and distributors, and the sale of
ground stations to distributors. ORBIMAGE has entered into several long-term
sales contracts to provide imagery products and, in certain circumstances,
receives contractual payments in advance of product delivery. ORBIMAGE initially
records deferred revenue for the total amount of the advance payments under
these contracts and recognizes revenue over the contractual delivery period. As
of March 31, 2000, ORBIMAGE had approximately $22.2 million of deferred revenue
related primarily to advance payments for OrbView-2 imagery. In 1999, ORBIMAGE
commenced construction of two OrbView-3 and OrbView-4 distributor ground
stations. Revenue on these contracts is recognized using the
percentage-of-completion method of accounting.
Direct Expenses. Direct expenses include the costs of operating and
depreciating (i) the OrbView-1 satellite, (ii) the OrbView-2 License, (iii) the
related ground systems, and (iv) construction costs related to the OrbView-3 and
OrbView-4 distributor-owned ground stations. Satellite operating costs primarily
consist of labor expenses.
System Depreciation. ORBIMAGE is amortizing the cost of the OrbView-2
License over the seven and one-half year 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 from the
satellites over the estimated lives of the assets, generally eight years.
Depreciation begins when the satellites and ground systems are placed in
service.
Interest Expense. In 1999, ORBIMAGE issued $75 million in principal amount
of 11 5/8% senior notes due 2005 (the "1999 Offering"). In 1998, ORBIMAGE issued
$150 million of units, each unit consisting of $1,000 principal amount of 11
5/8% senior notes due 2005 and one warrant to purchase 8.75164 shares of
ORBIMAGE common stock (the "1998 Offering"). Interest on the senior notes,
together with amortization of debt discount, is capitalized as the historical
costs of assets under construction and will be amortized over the assets' useful
lives when placed in service. 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 MONTHS ENDED MARCH 31, 1999 AND 2000
Revenues. Revenues for the three months ended March 31, 1999 and 2000 were
approximately $3.3 million and
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$6.3 million, respectively. The increase in 2000 revenues was primarily due to
the construction of OrbView-3 and OrbView-4 distributor ground stations, which
generated $2.7 million in revenue in 2000. For the three months ended March 31,
1999, there were no such construction revenues.
Direct Expenses. Direct expenses for the three months ended March 31, 1999
and 2000 were approximately $4.0 million and $7.0 million, respectively. The
increase in 2000 direct expenses was primarily due to the construction costs of
OrbView-3 and OrbView-4 distributor ground stations, which were $2.5 million in
2000. For the three months ended March 31, 1999, there were no such construction
costs. 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 $2.0 million and $2.5 million for the three months ended March 31,
1999 and 2000, respectively. The increase in SG&A expenses in 2000 was primarily
attributable to increases in salaries and related benefits as ORBIMAGE expanded
its operations.
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 senior notes
issued pursuant to the 1998 Offering and the 1999 Offering, net of applicable
capitalized interest. Interest income was $0.9 million and $0.7 million for the
three months ended March 31, 1999 and 2000, respectively. Capitalized interest
in connection with the construction of the OrbView-3 and OrbView-4 satellites
and related ground system and the RadarSat-2 License totaled $4.7 million and
$7.1 million for the three months ended March 31, 1999 and 2000, respectively.
Benefit for Income Taxes. ORBIMAGE recorded income tax benefits of
approximately $0.6 million and $77,000 for the three months ended March 31, 1999
and 2000, respectively. The tax benefits result from net operating losses
generated during the periods. As of March 31, 2000, ORBIMAGE recorded a
valuation allowance related to the net deferred tax asset of $0.8 million due to
the potential inability to utilize net operating losses. No such valuation
allowance was recorded as of March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, ORBIMAGE had approximately $31.3 million of cash,
cash equivalents and available-for-sale securities.
On April 22, 1999, ORBIMAGE completed the 1999 Offering, raising net
proceeds of approximately $68.1 million. On February 25, 1998, ORBIMAGE
completed the 1998 Offering, raising net proceeds of approximately $144.6
million. The total effective interest rate on the senior notes, including the
debt discount, is approximately 13.4%.
Operating activities used cash of approximately $8.8 million and $9.3
million during the three months ended March 31, 1999 and 2000, respectively. The
increase in cash flow used in operations is primarily attributable to an
increase in the net loss of $1.1 million and $2.3 million for the three months
ended March 31, 1999 and 2000, respectively, partially offset by higher
depreciation and amortization of $0.5 million in 2000.
Investing activities provided cash of approximately $4.1 million and $15.0
million for the three months ended March 31, 1999 and 2000, respectively. The
increase in the cash provided by investing activities from 1999 to 2000 is
attributable primarily to decreased capital expenditures. Capital expenditures
related primarily to the construction of OrbView-3 and OrbView-4 for the three
months ended March 31, 1999 and 2000 were approximately $22.9 million and $9.7
million, respectively. The total cost of the OrbView-1, OrbView-3 and OrbView-4
satellites, the OrbView-2 License and the related U.S. ground system, is
estimated to be approximately $311.3 million, net of approximately $31 million
which will be funded by the U.S. Air Force through a contract with Orbital. Of
this amount, as of March 31, 2000, ORBIMAGE had spent approximately $267.6
million. ORBIMAGE expects to spend approximately $19.7 million on capital
expenditures through the third quarter of 2001, when both OrbView-3 and
OrbView-4 are currently expected to be operational, and an additional $24
million in on-orbit incentives once
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OrbView-4 and OrbView-3 become operational.
ORBIMAGE's acquisition of the RadarSat-2 License will cost $60 million,
of, which $30 million was paid in 1999. Approximately $140 million of
RadarSat-2's $200 million estimated total cost will be funded by the Canadian
Space Agency ("CSA") through a contract with MDA. ORBIMAGE's remaining payments
for the RadarSat-2 License will not exceed $15 million in 2001; $10 million in
2002; and $5 million upon the successful on-orbit checkout of RadarSat-2.
ORBIMAGE expects to use cash on hand, cash from operations and also may
consider raising additional capital to fund RadarSat-2 License payments.
ORBIMAGE expects to fund its other future capital expenditures and
negative cash flows from operating activities using cash on hand. In addition,
Orbital has committed to invest an additional $12.5 million of equity in
ORBIMAGE, pursuant to a stock purchase agreement with ORBIMAGE, as amended in
March 2000, as described above. ORBIMAGE believes that, with Orbital's
additional investment, it currently has sufficient resources to meet its
requirements through the fourth quarter of 2000. ORBIMAGE does not expect to
generate net positive cash flow from operations sufficient to fund both
operations and capital expenditures until the third quarter of 2001, when both
OrbView-3 and OrbView-4 are currently expected to be operational. We are
currently pursuing other financing sources. Further, additional financing may be
necessary in the event of additional OrbView-3 or OrbView-4 launch delays, cost
increases or unanticipated expenses. ORBIMAGE cannot assure you that such
additional financing will be available on favorable terms or on a timely basis,
if at all. ORBIMAGE has incurred losses since its inception, and management
believes that it will continue to do so for the foreseeable future. ORBIMAGE's
ability to become profitable and generate positive cash flow is dependent on a
timely launch of one of the OrbView high-resolution satellites and the continued
expansion of commercial services, adequate customer acceptance of ORBIMAGE's
products and services and numerous other factors.
OUTLOOK: ISSUES AND UNCERTAINTIES
The Private Securities Litigation Reform Act of 1995 (the "Act") provides
a safe harbor, in certain circumstances, for forward-looking statements made by
or on behalf of ORBIMAGE. ORBIMAGE and its representatives may from time-to-time
make written or verbal forward-looking statements, including statements
contained in ORBIMAGE's filings with the Securities and Exchange Commission. All
statements that address operating performance, events, or developments that
ORBIMAGE expects or anticipates will occur in the future, including launch
dates, sufficiency of and ability to raise capital and statements relating to
ORBIMAGE's sales and earnings growth or statements expressing general optimism
about future operating results, are forward-looking statements within the
meaning of the Act. The forward-looking statements are and will be based on
management's then-current views and assumptions regarding future events and
operating performance. The following are some of the factors that could cause
actual results to differ materially from information contained in ORBIMAGE's
forward-looking statements.
LIMITED HISTORY OF OPERATIONS AND NET LOSSES -- GIVEN OUR LIMITED OPERATING
HISTORY AND NET LOSSES, OUR FUTURE PROSPECTS ARE UNCERTAIN.
Limited operating and financial data. We did not begin preliminary 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.
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, distribution channels and value-
added enhancements 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
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RadarSat-2 will be constructed and deployed in accordance with our schedule 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 cause negative cash flow until we establish an
adequate revenue-generating customer base. We had an accumulated deficit of
approximately $79.2 million through March 31, 2000. We expect losses to continue
through the third quarter of 2001, and 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 third quarter of 2001. We cannot assure you that the
OrbView satellites will become operational on this timetable, or at all, or that
we will achieve or sustain any positive cash flow or profitability thereafter.
POTENTIAL ADDITIONAL CAPITAL REQUIREMENTS -- OUR INABILITY TO FUND POTENTIAL
ADDITIONAL CAPITAL REQUIREMENTS COULD DELAY SATELLITE CONSTRUCTION AND
DEPLOYMENT.
ORBIMAGE expects to fund its future capital expenditures and negative cash
flows from operating activities using cash on hand and the proceeds from
Orbital's additional $12.5 million equity commitment. ORBIMAGE believes that,
with Orbital's additional investment, it currently has sufficient resources to
meet its requirements through the fourth quarter of 2000. ORBIMAGE does not
expect to generate net positive cash flow from operations sufficient to fund
both operations and capital expenditures until the third quarter of 2001, when
both OrbView-3 and OrbView-4 are currently expected to be operational. We are
currently pursuing other financing sources. Further, additional financing may be
necessary in the event of additional OrbView-3 or OrbView-4 launch delays, cost
increases or unanticipated expenses. ORBIMAGE cannot assure you that such
additional financing will be available on favorable terms or on a timely basis,
if at all.
Pursuant to a stock purchase agreement with Orbital described above,
Orbital has committed to invest an additional $12.5 million of equity in
ORBIMAGE, although Orbital's total investment commitment may increase up to an
aggregate amount of $25 million in the event of certain delays in the launch of
OrbView-4 and/or OrbView-3. There can be no assurance that Orbital will be able
to fulfill its investment commitment. Orbital's inability to fulfill its
investment commitment could have a material effect on ORBIMAGE's financial
condition and results of operations. In such an event, we cannot assure you
that additional capital will be available on favorable terms or on a timely
basis, if at all.
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 and
MDA, we cannot assure you that these costs will not increase over time. For
example, in March 2000, we agreed to a cost increase of $14 million under our
procurement agreement with Orbital, which amount could be reduced by up to $5
million in the event of certain launch delays. In exchange for allowing us to
pay this cost increase in the form of post-launch, on-orbit incentives, we also
amended our stock purchase agreement with Orbital to reduce Orbital's stock
purchase commitment to $12.5 million from $25 million, as described above. We
will pay for launch and on-orbit insurance and technological assistance for
OrbView-3, OrbView-4 and RadarSat-2 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;
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- - 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;
- - we decide to increase our value-added product development costs; 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 or on a timely basis or at all. A
substantial shortfall in funding would delay or prevent deployment of OrbView-3,
OrbView-4 or RadarSat-2.
SCHEDULE DELAYS - ADDITIONAL DELAYS IN THE COMMERCIAL OPERATION OF OUR
SATELLITES COULD ADVERSELY AFFECT OUR BUSINESS.
We have previously experienced delays in the launch schedules of OrbView-3
and OrbView-4. We have recently experienced additional delays in the production
schedules of OrbView-3 and RadarSat-2, which have resulted in the delay in the
launch dates of OrbView-3 and RadarSat-2 to the second quarter of 2001 and
fourth quarter of 2002, respectively.
We could experience additional 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, or restrictions on, the licenses necessary to
construct and operate the satellite systems;
- - delays under our procurement agreement with Orbital, or delays under the
CSA contract with MDA, 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. Additional 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 OrbView-3 and OrbView-4 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.
In addition, under our existing agreements with certain OrbView-3 and
OrbView-4 regional distributors, the distributors have the right to terminate
their agreements because of the OrbView-3 launch delay to the second quarter of
2001. We are currently renegotiating these termination rights, but we cannot
assure you that our efforts will be successful. In the event these distributors
terminate these agreements, we cannot assure you that we will be able to find
replacement distributors on terms acceptable to us or in a timely manner, if at
all. Our ability to replace such distributors could have an adverse effect on
our business.
LAUNCH FAILURES -- A LAUNCH VEHICLE FAILURE WOULD ADVERSELY AFFECT OUR ABILITY
TO DELIVER IMAGERY PRODUCTS AND SERVICES.
Satellite launches are subject to significant risks, including partial or
complete launch vehicle failure. Launch vehicle failure may cause disabling
damage to, or loss of, a satellite or may result in a failure to deliver the
satellite
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to its proper orbit. We have contracted with Orbital to launch OrbView-3 on a
Pegasus launch vehicle, which has flown 28 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, if
at all. We have contracted with Orbital to launch OrbView-4 on its Taurus launch
vehicle, which has flown five 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 and
our ability to deliver our products and services and service our debt.
MARKET ACCEPTANCE -- 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 has only
very recently become 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
certain markets for our satellite imagery relies on a number of assumptions,
some or all of which may be incorrect. Actual markets could vary materially from
the potential markets that we have identified.
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 certain markets to develop would
negatively affect our business, financial condition and results of operations.
TECHNOLOGICAL AND IMPLEMENTATION RISKS -- 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. The satellite 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 be subject to 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 impact 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 procured a spare high-resolution OrbView satellite, nor do we
maintain an inventory of long lead-time parts for the high-resolution OrbView
satellites. If there is a failure in an OrbView-4 satellite subsystem that is
common to the OrbView-3 satellite (e.g., the sensor), such failure may result in
a delay of the OrbView-3 launch.
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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 in the event of a premature
failure. Permanent loss of OrbView-2 or RadarSat-2 could adversely affect our
operations and financial condition.
LIMITED LIFE OF SATELLITES -- 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 (launched in April 1995), although it
continues to operate
OrbView-2 7 1/2 years (launched in 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.
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.
INSURANCE -- 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 senior note 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 certain risks, such as partial
degradation of functionality of a satellite. Insurance market conditions or
factors outside our control at the time we buy the required insurance, such as
failure of a satellite using similar components or a similar launch vehicle,
could cause premiums to be significantly higher than current estimates. These
factors could cause other terms to be significantly less favorable than those
currently available, may result in limits on amounts of coverage that we can
obtain or may prevent us from obtaining
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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.
COMPETITION -- WE MAY BE UNABLE TO REPAY THE SENIOR 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. Certain of these entities may have greater financial,
personnel and other resources than we have. Our major existing and potential
competitors for high-resolution satellite imagery include:
- - Space Imaging EOSAT, which launched its high-resolution satellite in
September 1999;
- - EarthWatch, which is expected to launch its first high-resolution satellite
in the second half of 2000; and
- - West Indian Space, Ltd., which has announced plans to launch and operate
the Earth Remote Observation System constellation of high-resolution
commercial imaging satellites.
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 certain 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 competitors
develop and launch satellites with more advanced capabilities and technologies
than ours, this competition could harm our business.
DEPENDENCE ON SUPPLIER -- DEPENDENCE ON ONE PRIMARY SUPPLIER COULD RESULT IN
DELAYS IF THE SUPPLIER FAILS TO PERFORM, AND OUR RECOURSE AGAINST THE SUPPLIER
IS LIMITED.
We depend on one primary supplier, Orbital:
- - to design, develop and launch OrbView-3 and OrbView-4 and to construct the
U.S. ground system for these satellites;
- - through its subsidiary, MDA, to construct the OrbView-3 and 4 distributor
ground system;
- - through its subsidiary, MDA, to design, develop and construct RadarSat-2
and the related Canadian ground system, integrate and operate RadarSat-2,
and receive, process and archive RadarSat-2 imagery.
We also rely on the OrbView-2 License from Orbital to market the OrbView-2
imagery, and will rely on MDA to market the RadarSat-2 imagery pursuant to a
sublicense of our exclusive marketing rights under the RadarSat-2 License. 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 Orbital and ORBIMAGE. If Orbital fails to
perform its obligations adequately under the procurement agreement, we would be
forced to delay deployment of OrbView-4 and/or OrbView-3 until we located an
alternative provider. Orbital's liability to us for claims under the procurement
agreement is limited to $10 million. In addition, if MDA fails to perform its
obligations under the OrbView-3 and 4 distributor ground system agreement, it
could have a material adverse effect on ORBIMAGE's business. We also rely on MDA
to design and
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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
OrbView-3, OrbView-4 or RadarSat-2.
Under an administrative 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, if at all. In addition, a material
adverse change in Orbital or its financial condition or the condition of one of
its subcontractors could adversely affect Orbital's ability to perform under
the procurement agreement or the services agreement. 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 DISTRIBUTOR -- DEPENDENCE ON A SINGLE DISTRIBUTOR FOR RADARSAT-2
IMAGERY COULD RESULT IN MARKETING AND DISTRIBUTION DELAYS IF THE DISTRIBUTOR
FAILS TO PERFORM.
We acquired the RadarSat-2 License from MDA and granted MDA an exclusive
unrestricted worldwide sublicense to market and sell RadarSat-2 imagery. MDA
will perform all RadarSat-2 marketing operations, subject to our supervision and
approval. MDA's failure to successfully market RadarSat-2 imagery would have a
material adverse effect on our ability to distribute and sell radar imagery,
which would materially adversely affect our business.
POTENTIAL CONFLICTS OF INTEREST WITH ORBITAL -- WE RELY ON ORBITAL FOR CERTAIN
OPERATIONS AND SERVICES THAT ARE CRITICAL TO OUR BUSINESS. ORBITAL'S INTERESTS
MAY CONFLICT WITH OURS.
Orbital owns 51.7% of our outstanding voting stock on a fully diluted
basis, and has agreed to acquire up to an additional 1,250,000 shares of common
stock. Two of our directors are also directors of Orbital, and one of our
officers is also an employee of Orbital. These relationships may produce
conflicts on matters involving both ORBIMAGE and Orbital.
Although we have adopted policies we believe will prevent a conflict from
arising, these policies cannot ensure that a conflict will not arise.
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, a non-compete
agreement and a stock purchase agreement, each of which is material to our
business. We also have an agreement with Orbital's subsidiary, MDA, pursuant to
which MDA will provide the OrbView-3 and 4 distributor ground system. Orbital's
interests as an equity holder in our business may at times conflict with our
interests under these agreements, and may conflict with the interests of the
senior noteholders. Our recourse against Orbital is limited in the event of
breaches by Orbital under the procurement agreement and the RadarSat-2 License.
Orbital provides certain 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 certain other events, Orbital cannot sell turn-key
satellite optical imaging systems (i.e., satellite, sensors, launch vehicles and
ground system) to anyone other than to 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 certain
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. MDA also
owns 100% of the capital stock of RSI, a company that markets imagery from the
RadarSat-1 satellite. RSI has appointed ORBIMAGE as a non-exclusive distributor
of RadarSat-1 imagery in the United States. Although RadarSat-2 uses more
advanced imaging technology than the technology employed by RadarSat-1, these
two satellites have certain overlapping capabilities, making RSI a potential
competitor.
GOVERNMENT REGULATION -- FAILURE TO OBTAIN REGULATORY APPROVALS COULD RESULT IN
SERVICE INTERRUPTIONS.
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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 these licenses when they expire. 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 of the OrbView-4 hyperspectral imagery sold commercially and
restricts our ability to process and distribute imagery outside of 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 the terms of the OrbView-4 hyperspectral license. We cannot assure
you that we will prevail in our appeal.
The DoC has informed ORBIMAGE that Orbital must obtain a DoC license for
the RadarSat-2 satellite by virtue of its controlling ownership of MDA.
Additionally, the DoC has informed ORBIMAGE that it is not required to obtain a
DoC license to function as a RadarSat-2 distributor. If Orbital cannot obtain
the DoC 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 currently have licensing
requirements similar to the DoC's requirements, but has proposed legislation,
which would regulate the ownership and operation of remote sensing satellites.
Currently, the Canadian government can interrupt RadarSat-2 service during
certain periods of national emergency.
Our renewal application for an experimental FCC license for OrbView-2 was
granted effective January 1999. This license expires in January 2003 and may be
revoked for failure to comply with its terms.
Our application with the FCC for a license to launch and operate OrbView-3
and OrbView-4 was granted in February 1999 and our applications to operate the
associated ground systems were granted in May 1999. These licenses will expire
in 10 years, but may be revoked for failure to comply with their terms or
failure to meet certain 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 Telecommunication
Union to secure the necessary authorizations to operate RadarSat-2 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 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
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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. In connection with certain distributor agreements, we
expect to supply our international customers with ground stations that enable
these customers to downlink data directly from OrbView-3 and OrbView-4.
Exporting these ground stations may require us to obtain export licenses from
the DoC or the U.S. Department of State. If the DoC or the Department of State
do not issue these export licenses, or if these licenses are significantly
delayed, or if restrictions are imposed on these licenses, our financial
condition and results of operations could be materially adversely affected.
RISKS ASSOCIATED WITH DISTRIBUTORS AND RESELLERS -- 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 certain target markets. If our value-added
resellers fail to develop, market and sell OrbView products and services
successfully, this failure would negatively affect our business, financial
condition and results of operations, and our ability to service our debt.
RISK ASSOCIATED WITH INTERNATIONAL OPERATIONS -- 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 are subject to certain risks,
such as:
- - changes in domestic and foreign governmental regulations and licensing
requirements;
- - deterioration of once-friendly relations between the United States and a
particular foreign country;
- - 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.
GOVERNMENT CONTRACTS -- 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 86% and 52%
of our revenues for the three months ended March 31, 1999 and 2000,
respectively. As of March 31, 2000, contracts with U.S. government agencies
constituted approximately 24% 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 Orbital or ORBIMAGE, 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 hyperspectral data
purchase contract with Orbital and we wish to proceed with our hyperspectral
program, we would incur the remaining cost of upgrading OrbView-4 with
hyperspectral
19
<PAGE> 20
capability. ORBIMAGE and Orbital are currently in a dispute with the Air Force
regarding certain directed charges to the Air Force hyperspectral contract
imposed by the Air Force, which if not resolved, could result in the
termination of the contract. Similarly, if the CSA terminates the CSA
contract for RadarSat-2 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.
CHANGE OF CONTROL -- THE HOLDERS OF SERIES A PREFERRED STOCK COULD TAKE CONTROL
OF OUR BOARD OF DIRECTORS UPON THE OCCURRENCE OF 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 in
some 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 certain corporate actions enumerated in the stockholders'
agreement, because these actions require the approval of at least one of the
Series A directors. These actions include the merger, consolidation, liquidation
or sale of all or substantially all of our assets, the issuance of equity
securities in certain circumstances, and the incurrence of certain indebtedness
of more than $500,000.
FINANCING CHANGE OF CONTROL OFFER -- WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE SENIOR
NOTE INDENTURES.
Upon the occurrence of certain change of control events, we will be
required to offer to repurchase all outstanding senior notes at a price equal to
101% of the principal amount and to offer to repurchase all of the outstanding
Series A preferred stock, subject to the senior rights of the senior note
holders. 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 senior note
indentures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2000, ORBIMAGE had senior notes outstanding of $214.9
million with a fair value of $141.8 million as estimated by quoted market
prices. The senior notes mature on March 1, 2005. Interest on the senior notes
accrues at a rate of 11.625% per annum and is payable semi-annually in arrears
on March 1 and September 1.
ORBIMAGE does not have any derivative financial instruments as of March 31,
2000, and believes that the interest rate risk associated with its senior notes
and the market risk associated with its available-for-sale 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.
20
<PAGE> 21
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ORBIMAGE is a party to an administrative appeal regarding the terms of
its OrbView-4 hyperspectral license. For a full description of this proceeding,
please see "Government Regulation - Failure to obtain regulatory approval could
result in service interruptions," under "Outlook: Issues and Uncertainties."
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - A complete listing of exhibits required is given in the
Exhibit Index that precedes the exhibits filed with this report.
(b) Reports on Form 8-K - Not applicable.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORBITAL IMAGING CORPORATION
<TABLE>
<S> <C>
DATED: May 12, 2000 By: /s/ Gilbert D. Rye
------------------
Gilbert D. Rye, President
and Chief Executive Officer
DATED: May 12, 2000 By: /s/ Armand D. Mancini
---------------------
Armand D. Mancini, Vice President
and Chief Financial Officer
</TABLE>
22
<PAGE> 23
EXHIBIT INDEX
The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
------------------------------------------------------------------------------------------------
<S> <C>
3.1+ Second Amended and Restated Certificate of Incorporation of ORBIMAGE.
3.2+ Bylaws of ORBIMAGE.
4.2+++ Specimen certificate of 11 5/8% Series D Senior Notes due 2005.
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 preferred stock named ORBIMAGE, Orbital and the holders
of Series A therein.
4.5+++ 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+++ 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+++ Pledge Agreement dated as of April 22, 1999 by and between HSBC Bank USA,
f/k/a Marine Midland Bank, as collateral agent.
4.8(b) Amended and Restated Orbital Imaging Corporation 1996 Stock Option Plan as
amended and restated through August 18, 1999.
4.9(b) Stock Purchase Agreement dated as of October 26, 1999 by and between
ORBIMAGE and Orbital.
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 License 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.
10.10* RadarSat-2 Master Agreement dated as of December 31, 1998 by
</TABLE>
<PAGE> 24
<TABLE>
<S> <C>
and among Orbital, MDA 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.
10.14+++ 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, MDA and
ORBIMAGE.
10.15(a)** ORBIMAGE Distribution Agreement dated March 18, 1999 by and between
ORBIMAGE and NTT Data Corporation.
10.16(a)** ORBIMAGE Distribution Agreement dated February 8, 1999 by and between
ORBIMAGE and Geographic Information Services and Technology Transfer
NetCorp, Inc.
10.17(a)** Amendment No. 1 dated as of March 17, 1999 to the Distribution Agreement
dated February 8, 1999 by and among ORBIMAGE and Geographic Information
Services and Technology Transfer NetCorp, Inc.
10.18(a)** ORBIMAGE Ground Station Contract No. OGS-99-02-01 dated as of May 26, 1999
by and between ORBIMAGE and MDA.
10.19(b)*** OGS Order and Amendment No. 1 to ORBIMAGE Ground Stations Contract No.
OGS-99-02-01 dated August 10, 1999 by and between ORBIMAGE and MDA.
10.20(b)*** OGS Order and Amendment No. 2 to ORBIMAGE Ground Stations Contract No.
OGS-99-02-01 dated September 30, 1999 by and between ORBIMAGE and MDA.
10.21(b)*** Amendment No. 3 to ORBIMAGE Ground Stations Contract No. OGS-99-02-01
dated October 6, 1999 by and between ORBIMAGE and MDA.
10.22(b)*** ORBIMAGE Ground Station Contract Contract Number: OGS-IMI-C-01-301 dated
July 26, 1999 by and between ORBIMAGE and Image Measurements, Inc.
10.23(b)*** ORBIMAGE Distribution Agreement dated as of August 4, 1999 by and between
ORBIMAGE and Spot Image.
10.24(b)*** ORBIMAGE Ground Station Contract (Contract Number: OGS-Spot-C-01-300)
dated as of August 4, 1999 by and between ORBIMAGE and Spot Image.
10.25(b)*** VAR Agreement dated as of August 4, 1999 between ORBIMAGE and Spot Image
Corporation.
10.26(b) Amendment No. 2 to RadarSat-2 Master Agreement dated as of October 26,
1999 among ORBIMAGE, Orbital and MDA.
10.27(b)*** Amendment No. 2 to Amended and Restated ORBIMAGE System Procurement
Agreement dated as of September 15, 1999 between Orbital and ORBIMAGE.
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
10.28(b)*** Data License and Distribution Agreement dated November 3, 1999 between
RadarSat International, Inc. and ORBIMAGE.
10.29(c) Amendment No. 1 to Stock Purchase Agreement dated as of March 30, 2000
between ORBIMAGE and Orbital.
10.30(c) Amendment No. 3 to ORBIMAGE System Procurement Agreement dated as of March
30, 2000 between ORBIMAGE and Orbital.
11 Statement re computation of loss per common share (included in the notes
to condensed consolidated financial statements).
27(c) Financial Data Schedule.
</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 quarterly report on Form 10-Q for the three months ended
March 31, 1999 (Commission file 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.
*** Confidential treatment was granted pursuant to Rule 406 under the
Securities Act of 1933, in connection with ORBIMAGE's Quarterly Report
on Form 10-Q for the three months ended September 30, 1999 (Commission
file No. 333-49583). Certain portions of the exhibit have been omitted.
The omitted portions of the exhibit have been separately filed with the
Commission.
(a) Incorporated by reference to the identically numbered exhibit to
ORBIMAGE's registration statement on Form S-4, as amended (Registration
No. 333-80035).
(b) Incorporated by reference to the identically numbered exhibit to
ORBIMAGE's quarterly report on Form 10-Q for the three months ended
September 30, 1999 (Commission File No. 333-49583).
(c) Filed herewith.
<PAGE> 1
AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT
This Amendment No. 1 to Stock Purchase Agreement (the
"Amendment") between Orbital Sciences Corporation ("Orbital") and
Orbital Imaging Corporation (the "Company") is entered into as of the
30th day of March, 2000.
RECITALS
WHEREAS, the parties have entered into that certain Stock
Purchase Agreement as of October 26, 1999 (the "Agreement") pursuant
to which Orbital agreed to purchase Common Shares (as defined
therein) to be issued by the Company.
WHEREAS, the parties desire to amend the Agreement as set forth
below.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the parties
hereby agree as follows:
1. Definitions. Unless otherwise defined herein, all
capitalized terms herein shall have the meaning assigned to them in
the Agreement.
2. Amendment to Article 2.
(a) The parties hereby amend the Agreement by deleting
Section 2.2(a) in its entirety and substituting the following in
its place:
"(a) Purchase. Upon the terms and subject to the
conditions herein contained, at the Closing (as defined
herein) on the Closing Date (as defined herein), the
Company agrees that it will issue and sell to the
Purchaser, and the Purchaser agrees that it will acquire
and purchase from the Company, at least 250,000 Common
Shares. The purchase price of the Common Shares shall be
$10.00 per share (the "Per Share Purchase Price"). Except
as provided below, the Company shall not be obligated to
sell and the Purchaser shall not be obligated to purchase
more than an aggregate of 1,250,000 Common Shares.
(i) Notwithstanding the foregoing, in the event
that the OrbView-4 satellite has not been launched by
January 31, 2001, then Orbital's obligation to
purchase Common Shares hereunder shall increase by
200,000 Common Shares per month thereafter until
either the OrbView-3 or OrbView-4 satellite has been
launched; provided however, that under no
circumstances shall the Company be obligated to sell
nor shall the Purchaser be obligated to purchase more
than an aggregate of 2,500,000 Common Shares under
this Agreement.
<PAGE> 2
(ii) For purposes of this Section 2.2(a),
Orbital shall not be deemed to have failed to launch
either the OrbView-3 or OrbView-4 Satellites, as the
case may be, if such failure is the result of an act
of God, the public enemy, embargo, governmental act,
fire, accident, war, riot, strikes, inclement weather
or other cause of a similar nature that is beyond the
control of Orbital, including a decision by ORBIMAGE
not to proceed with launch (other than an ORBIMAGE
decision not to proceed with launch that can be shown
to be attributable to Orbital's performance or to have
been within its control or due to its fault or
negligence as described in Section 14.3 of the Amended
and Restated OrbView System Procurement Agreement
between the parties). In such event, Orbital and
ORBIMAGE shall agree in good faith to a new launch
date to occur as soon as possible after the end of
such event. If the applicable satellite has not been
successfully launched by such rescheduled date, then
Orbital's obligation to purchase additional Common
Shares shall commence to increase as described in
Section 2.2(a)(i) above."
(b) The parties hereby amend Section 2.2(c) of the
Agreement by deleting the third sentence thereof in its entirety and
inserting the following in its place:
"Upon receipt of the Purchase Event Notice, the
Purchaser shall elect to purchase Common Shares in an
amount not less than 250,000 shares and not more than an
aggregate of 1,250,000 shares (as such number may be
adjusted pursuant to Section 2.2(a) of this Agreement)
(including Common Shares previously purchased pursuant to
this Agreement, if any) (the "Election Amount Notice")."
(c) The parties hereby amend the Agreement by deleting
Section 2.2(e) in its entirety and substituting the following in its
place:
"(e) Additional Financings and Series A
Preemptive Rights. The Company shall use reasonable
commercial efforts to consummate one or more financings
through the issuance of equity or debt securities of the
Company. The Purchaser's obligation to purchase Common
Shares pursuant to Section 2.2(b) shall be reduced on a
dollar for dollar basis by the net proceeds raised by the
Company in any such financing. Furthermore, to the extent
that any holders of the Company's Series A Preferred Stock
exercise their preemptive rights pursuant to Section 4.1 of
the Stockholders Agreement with respect to any Purchase
Event, the Purchaser's obligations to purchase Common
Shares pursuant to Section 2.2(a) shall be reduced
proportionately."
3. No Further Changes.
Except as modified by this Amendment, the Stock Purchase
Agreement remains unmodified and in full force and effect.
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to
the Stock Purchase Agreement to be executed as of the date first
written above.
ORBITAL SCIENCES CORPORATION
By: /s/ James R. Thompson
-------------------------------------
James R. Thompson
President and Chief Operating Officer
ORBITAL IMAGING CORPORATION
By: /s/ Armand D. Mancini
-------------------------------------
Armand D. Mancini
Vice President and Chief Financial Officer
<PAGE> 1
AMENDMENT NO. 3 TO
AMENDED AND RESTATED ORBIMAGE SYSTEM PROCUREMENT AGREEMENT
This Amendment No. 3 (the "Amendment") to the Amended and
Restated ORBIMAGE System Procurement Agreement between Orbital
Sciences Corporation ("Orbital") and Orbital Imaging Corporation
("OIC"), as amended by Amendment No. 1 dated December 31, 1998 and by
Amendment No. 2 dated September 15, 1999 (the "Agreement") is made
and entered into as of the 30th day of March, 2000.
RECITALS
WHEREAS, the parties desire to amend the Agreement as set forth
below.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and other valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows.
SECTION 1. Clarification with Respect To Satellites
This Amendment reflects the parties' current understanding that
the OrbView-4 satellite will be launched prior to the OrbView-3
Satellite.
SECTION 2. Amendment to Article 2.
The Agreement is hereby amended by inserting a new Section 2.7
as follows:
"2.7 OrbView-3 Gyro Modification. Orbital agrees to make the
necessary modifications to the OrbView-3 Satellite, including
replacement of the satellite's gyroscope in order to meet the
geo-positional performance specifications and Product Accuracy
Requirements set forth in the OrbView High-Resolution Imagery System
Mission Requirements Document (Exhibit C, Part 1A) and Statement of
Work (Exhibit C, Part 1B) (the "OrbView-3 Gyro Modification"). The
price payable by OIC for the OrbView-3 Gyro Modification is set forth
in Section 3.1, CLIN 0011 of the Agreement."
SECTION 3. Amendment to Article 3 and Schedule F.
(a) The parties hereby amend Section 3.1, CLIN 009 (On-Orbit
Performance Incentives) of the Agreement by deleting the fixed price
amount of $10,000,000 stated therein and substituting therefor
"$22,500,000."
<PAGE> 2
(b) The parties hereby amend the Agreement to add a new CLIN
011 (OrbView-3 Gyro Modification) to Section 3.1 of the Agreement,
with the price therefor to be 50% of Orbital's cost of the OrbView-3
Gyro Modification, which CLIN amount shall not exceed $1,500,000.
CLIN 011 shall be payable pursuant to Section 5.6 of the Agreement as
amended by this Amendment.
(c) The parties hereby agree to amend Exhibit F of the
Agreement to reflect the amendments made hereby promptly after
execution of the Amendment.
SECTION 4. Amendment to Article 5.6.
The parties hereby amend the Agreement by deleting Section 5.6
in its entirety and substituting therefor the following new Section
5.6:
"Section 5.6. On-Orbit System Performance Incentive.
(a) For the OrbView-3 Satellite, OrbView-4 Satellite and
OrbView-3/4 ground system elements, OIC agrees to pay Orbital an on-orbit
system performance incentive not to exceed a fixed price of up to
$2,250,000 per operational year for each satellite (the "On-Orbit
Performance Incentive"). Notwithstanding the foregoing, the per-year
On-Orbit Performance Incentive price for the OrbView-3 Satellite also
shall be increased by one-fifth of the amount of CLIN 0011. The On-Orbit
Performance Incentive shall be paid during each satellite's 5 year
operational life. The Milestone Payment Schedule for the On Orbit
Performance Incentive is set forth on Exhibit F. The first payment shall
be made 12 months following completion, and OIC acceptance, of on-orbit
system verification of the respective OrbView satellite and ground segment
elements. The actual On-Orbit Performance Incentive payable for each
satellite for each 12 month period shall be the applicable On-Orbit
Performance Incentive amount multiplied by the value of the Global
Efficiency Metric ("GEM"), which can range from one to zero. The GEM
formula is represented as the product of the performance parameters
defined in the Statement of Work (Exhibit C). The GEM parameters shall be
measured initially by Orbital as part of the OrbView-3 and OrbView-4
on-orbit system checkout to establish performance compliance using a
benchmark test. OIC will repeat this benchmark test, on an annual basis,
to obtain the GEM value and actual incentive payable to Orbital. Orbital
may participate in such testing at its own expense. Payment shall be made
by OIC within 15 days of completion of the GEM evaluation report.
(b) In the event that the OrbView-4 Satellite has not been
launched by January 31, 2001, then the On-Orbit Performance
Incentive for each of the OrbView-3 and OrbView-4 Satellites
shall be reduced by $250,000 per year. In the event that
neither the OrbView 3 nor the OrbView-4 Satellite has been
launched by March 31, 2001, then the On-Orbit Performance
Incentive for each of the OrbView-3 and OrbView-4 Satellites
shall be reduced by an additional $250,000 per year. For
purposes of this Section 5.6(b), Orbital shall not be deemed to
have failed to launch either the OrbView-3 Satellite or the
OrbView-4 Satellite, as the case may be, if such failure is the
result of an act of God, the public enemy, embargo, governmental
act, fire, accident, war, riot, strikes, inclement
2
<PAGE> 3
weather or other cause of a similar nature that is beyond the control of
Orbital, including a decision by OIC not to proceed with launch (other
than an OIC decision not to proceed with launch that can be shown to be
attributable to Orbital's performance or to have been within its control
or due to its fault or negligence as described in Section 14.3 of the
Agreement). In the event of an occurrence described in the preceding
sentence, Orbital and OIC shall agree in good faith to a new launch date
to occur as soon as possible after the end of such event. If the
applicable satellite has not been successfully launched by such
rescheduled date, then the On-Orbit Performance Incentive shall be reduced
as described in this Section 5.6(b)."
SECTION 5. No Further Changes.
Except as modified by this Amendment, the Agreement remains
unmodified and in full force and effect.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Amendment No. 3
to the Amended and Restated ORBIMAGE System Procurement Agreement to
be executed as of the date first written above.
ORBITAL SCIENCES CORPORATION
By: /s/ James R. Thompson
-------------------------------------
James R. Thompson
President and Chief Operating Officer
ORBITAL IMAGING CORPORATION
By: /s/ Armand D. Mancini
-------------------------------------
Armand D. Mancini
Vice President and Chief Executive Officer
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 10,551
<SECURITIES> 20,755
<RECEIVABLES> 6,153
<ALLOWANCES> 71
<INVENTORY> 0
<CURRENT-ASSETS> 37,459
<PP&E> 345,153
<DEPRECIATION> (44,848)
<TOTAL-ASSETS> 347,747
<CURRENT-LIABILITIES> 15,558
<BONDS> 214,937
95,592
0
<COMMON> 252
<OTHER-SE> 8,165
<TOTAL-LIABILITY-AND-EQUITY> 347,747
<SALES> 6,344
<TOTAL-REVENUES> 6,344
<CGS> 6,981
<TOTAL-COSTS> 6,981
<OTHER-EXPENSES> 2,457
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (743)
<INCOME-PRETAX> (2,351)
<INCOME-TAX> (77)
<INCOME-CONTINUING> (2,274)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,274)
<EPS-BASIC> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
