<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 13, 1998
REGISTRATION NO. 333-48679
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
ORBITAL SCIENCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 06-1209561
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
------------------------
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166
(703) 406-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID W. THOMPSON
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ORBITAL SCIENCES CORPORATION
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166
(703) 406-5000
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
EVE N. HOWARD, ESQ. CRAIG B. BROD, ESQ.
HOGAN & HARTSON L.L.P. CLEARY, GOTTLIEB, STEEN & HAMILTON
555 THIRTEENTH STREET, N.W. ONE LIBERTY PLAZA
WASHINGTON, D.C. 20004 NEW YORK, N.Y. 10006
(202) 637-5600 (212) 225-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 13, 1998
PROSPECTUS
2,750,000 SHARES
[ORBITAL LOGO]
COMMON STOCK
---------------------------
All the shares of Common Stock offered hereby are being sold by Orbital
Sciences Corporation (the "Company" or "Orbital").
The Common Stock is quoted on the Nasdaq National Market under the symbol
"ORBI". On March 31, 1998, the last sale price of the Common Stock as reported
on the Nasdaq National Market was $44.875 per share. See "Price Range of Common
Stock and Dividend Policy."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................... $ $ $
- --------------------------------------------------------------------------------------------------------------
Total(3)........................ $ $ $
==============================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters an option to purchase up to an
additional 412,500 shares of Common Stock, exercisable within 30 days after
the date hereof, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."
---------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York, on or
about , 1998.
---------------------------
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
MORGAN STANLEY DEAN WITTER
---------------------------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements included or incorporated by reference in this Prospectus
constitute "forward-looking statements" within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, launch success, product performance, risks
associated with government contracts, the introduction of products and services
by competitors, risks associated with acquired businesses, the successful and
timely implementation of ORBCOMM (as defined) and ORBIMAGE (as defined) services
and customer acceptance of such services, general economic and business
conditions and the other factors set forth herein under the heading "Risk
Factors." See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Outlook: Issues and Uncertainties" included herein and
also incorporated in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 (which is incorporated herein by reference).
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Room 1024, Washington, D.C. 20549, and at the Commission's
following Regional Offices: Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. Reports, proxy statements and
other information filed electronically by the Company with the Commission are
available at the Commission's worldwide web site at http://www.sec.gov. The
Company's Common Stock is traded on the Nasdaq National Market and reports,
proxy statements and other information concerning the Company also may be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
A registration statement on Form S-3 with respect to the Common Stock
offered hereby (together with all amendments, exhibits and schedules thereto,
the "Registration Statement") has been filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does
not contain all the information contained in such Registration Statement,
certain portions of which have been omitted pursuant to the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus regarding the
contents of any contract or any other documents are not necessarily complete
and, in each instance, reference is hereby made to the copy of such contract or
document filed as an exhibit to the Registration Statement. The Registration
Statement may be inspected without charge at the Commission's principal office
in Washington, D.C., and copies of all or any part thereof may be obtained from
the Public Reference Section, Securities and Exchange Commission, Washington,
D.C. 20549, upon payment of the prescribed fees.
2
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been previously filed by the Company
(File No. 0-18287) with the Commission pursuant to the Exchange Act, are
incorporated by reference in this Prospectus and shall be deemed to be a part
hereof:
(i) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (the "Annual Report");
(ii) The Company's Current Report on Form 8-K filed on March 27, 1998;
and
(iii) The Company's Current Report on Form 8-K filed on April 13,
1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Common Stock to which this
Prospectus relates, shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents
(such documents, and the documents enumerated above, being hereinafter referred
to as the "Incorporated Documents"). Any statement contained in an Incorporated
Document shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed Incorporated Document modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
OF ANY OR ALL THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO SUCH DOCUMENTS). SUCH REQUESTS SHOULD BE DIRECTED TO ORBITAL
SCIENCES CORPORATION, 21700 ATLANTIC BOULEVARD, DULLES, VIRGINIA 20166,
TELEPHONE NUMBER: (703) 406-5000, ATTENTION: GENERAL COUNSEL.
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus or incorporated herein by reference. Except as
otherwise noted, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. See "Underwriting." Unless otherwise
indicated, references herein to "Orbital" or the "Company" include Orbital
Sciences Corporation and its consolidated subsidiaries.
THE COMPANY
Orbital is a leading space and information systems company that designs,
manufactures, operates and markets a broad range of space-related products and
services. The Company's products and services are grouped into three general
business sectors: Space and Ground Infrastructure Systems, Satellite Access
Products and Satellite Services, consisting of the following major products and
services:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SECTOR PRODUCT LINE PRODUCT/SERVICE
- ------------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C>
Space and Ground Infrastructure
Systems Launch Vehicles Pegasus and Taurus Space Launch
Vehicles
Suborbital Vehicles
X-34 Reusable Launch Vehicles
Satellites Small and Medium LEO and Small GEO
Satellites
Satellite Subsystems and Space-
Related Technical Services
Electronics and Sensors Defense Electronics Products
Space Sensors and Instruments
Ground Systems and Software Satellite Ground Stations
Image Processing Software
Transportation Management Software
- -------------------------------------------------------------------------------------------------------------
Satellite Access Products Recreational Navigation Systems Consumer GPS Navigators
Professional Navigation Systems High-Precision GPS Navigators
Automotive Navigation Systems Automotive GPS Navigator
Voice and Data Communications Satellite Telephones and ORBCOMM
Systems Communicators
Transportation Management Systems ORBTRAC System
- -------------------------------------------------------------------------------------------------------------
Satellite Services Two-way Mobile Data Communications ORBCOMM Services
Earth Imaging ORBIMAGE Products and Services
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Since its inception, Orbital's strategy has been to develop and grow a core
integrated business of space systems product development and manufacturing,
while also leveraging that expertise to establish innovative space-based
communications and information services. Today, Orbital is a leading provider of
launch services, satellites, electronics and sensors, satellite ground stations,
satellite-based navigation and positioning products and data and voice
communications products to commercial and government customers around the world.
In addition, through its ORBCOMM Global, L.P. ("ORBCOMM") and Orbital Imaging
Corporation ("ORBIMAGE") affiliates, the Company is a pioneering operator of
global satellites and ground networks for the provision of data communications
and remote imaging services.
Orbital's Space and Ground Infrastructure Systems sector generated
approximately $534 million in revenues in 1997. At December 31, 1997, the sector
had firm contract backlog of approximately $1.0 billion. Firm backlog excludes
unexercised contract options and undefinitized new contracts, having an
aggregate potential contract value of approximately $1.9 billion at December 31,
1997.
Orbital's air-launched Pegasus and ground-launched Taurus rockets have
achieved market leadership in launching small satellites into low-Earth orbit.
Orbital is also involved in developing a next-generation
4
<PAGE> 6
reusable launch vehicle through its X-34 rocket program for the National
Aeronautics and Space Administration ("NASA"). In addition, the Company is a
major supplier of suborbital launch vehicles. Since 1982, Orbital (including a
predecessor company) has built and launched over 120 space and suborbital launch
vehicles. In 1997, launch vehicles accounted for approximately 20% of Orbital's
revenues.
During the past five years, Orbital has expanded its Space and Ground
Infrastructure Systems product lines through internal growth and through a
series of strategic acquisitions. With the acquisition of Fairchild Space and
Defense Corporation ("Fairchild") in 1994 and the satellite business of CTA
INCORPORATED ("CTA") in 1997, Orbital has expanded its satellite development and
manufacturing capability and is now a leading provider of small and medium class
low-Earth orbit satellites and an emerging supplier of small geosynchronous
satellites. Since 1982, Orbital (including two predecessor companies) has built
and delivered more than 50 satellites to commercial and government customers.
The Fairchild acquisition also expanded Orbital's existing space sensor and
instruments product lines by adding various sophisticated electronics products.
In 1997, satellites accounted for approximately 39% of Orbital's revenues, while
electronics and sensor systems accounted for approximately 17% of revenues.
Through the 1995 acquisition of MacDonald, Dettwiler and Associates, Ltd
("MDA"), the Company expanded its product lines to include satellite imaging
ground stations and image processing software. Ground systems and software
accounted for approximately 13% of Orbital's revenues in 1997.
Orbital's Satellite Access Products sector was established through the 1994
acquisition of Magellan Corporation ("Magellan"), and has expanded through
internal growth and the 1997 acquisition of the Global Positioning System
("GPS") automotive navigation product line of Rockwell International Corporation
("Rockwell") and the 1997 merger with Ashtech Inc. ("Ashtech"). Orbital is now a
leader in developing and selling recreational, professional and automotive
navigation and positioning products that use GPS and GLONASS (the comparable
Russian GPS system) satellite technology, and is developing and producing
satellite communications products and transportation management systems as well.
Satellite Access Products generated revenues of approximately $71 million (or
12% of Orbital's revenues in 1997) and on a pro forma basis, taking into account
its merger with Ashtech in December 1997, generated revenues of approximately
$117 million in 1997. Orbital owns a 66% controlling interest in Magellan.
Orbital has leveraged its technological expertise and its integrated space
manufacturing businesses into satellite services businesses through ORBCOMM and
ORBIMAGE. Orbital accounts for ORBCOMM and ORBIMAGE using the equity method of
accounting. ORBCOMM and ORBIMAGE are both in early stages of operations and have
generated substantial start-up losses to date.
Orbital developed the "ORBCOMM" concept in 1990 and formed the ORBCOMM
partnership in 1993 to provide low-cost, two-way fixed and mobile data
communications services using a constellation of up to 36 small communications
satellites which were designed, and are being built and launched, by Orbital.
The first two ORBCOMM satellites were launched on the Company's Pegasus rocket
in 1995 and are operational today. An additional group of eight satellites was
launched on the Pegasus launch vehicle in December 1997, and two additional
satellites were launched on Orbital's Taurus rocket in February 1998. These ten
recently launched satellites are expected to be placed into commercial service
in the second quarter of 1998. The remaining 24 satellites are scheduled to be
launched in 1998 (16 satellites) and 1999 (eight satellites) on three Pegasus
missions, each launching eight satellites. As a result of the strategic equity
capital raised by ORBCOMM in 1993 and 1995, the Company currently owns a 50%
noncontrolling interest in ORBCOMM.
ORBIMAGE, conceived by Orbital in 1992, operates, and is further
developing, a fleet of satellites that collect, process and distribute digital
imagery of the Earth's surface (land and oceans), the atmosphere and weather
conditions. Small Earth-viewing satellites and related sensors and instruments
placed in low-Earth orbits are planned to offer cost-efficient image collection
and processing, together with daily global coverage and high-resolution imaging
quality. Two of ORBIMAGE's four planned satellites were built and launched by
Orbital and are operational today. The remaining two satellites are being built
by Orbital and are scheduled to be launched in 1999 and 2000. As a result of
ORBIMAGE's capital raising efforts in 1997 and 1998, the Company currently owns
a 60% noncontrolling interest in ORBIMAGE.
5
<PAGE> 7
THE OFFERING
Common Stock Offered by the
Company.................. 2,750,000 shares
Common Stock to be
Outstanding After the
Offering(1).............. 35,231,719 shares
Use of Proceeds............ The net proceeds to the Company from the issuance
and sale of the Common Stock will be principally
used to support further business expansion in the
Company's Space and Ground Infrastructure Systems
sector as a result of higher than expected new
orders in 1997 and 1998 for satellites and launch
vehicles, including for working capital and capital
expenditures for facilities and production and test
equipment. A portion of the net proceeds may also
be used for investments in new projects or
space-related businesses, expanded research and
development for new products, or acquisitions of
businesses and/or product lines complementary to
the Company's existing businesses, and for other
general corporate purposes. Pending the foregoing
uses, the Company will pay down existing borrowings
under its credit facilities and invest the
remainder in short-term interest-bearing
securities. Any such amounts paid down may be
reborrowed subject to the terms of such facilities.
See "Use of Proceeds."
Nasdaq National Market
Symbol................... ORBI
- ---------------
(1) As of December 31, 1997. Excludes 4,226,159 shares reserved as of December
31, 1997 pursuant to the Company's stock option plans. The Board of
Directors has approved an increase in the number of shares of Common Stock
authorized for issuance under the Orbital 1997 Stock Option and Incentive
Plan from 1,600,000 shares to 3,200,000 shares, subject to stockholder
approval. Excludes 3,571,429 shares of Common Stock issuable upon conversion
of the Company's 5% Convertible Subordinated Notes due 2002 (the "Notes").
See "Capitalization."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers of the Common Stock offered hereby.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated financial data should be read in
conjunction with the consolidated financial statements and notes thereto
included or incorporated by reference in this Prospectus. The consolidated
operating data and other data for the three-year period ended December 31, 1997
and the consolidated balance sheet data at December 31, 1997 and 1996 is derived
from and should be read in conjunction with the audited consolidated financial
statements and notes thereto included and incorporated by reference in this
Prospectus. The consolidated operating data and other data for the years ended
December 31, 1994 and 1993 and the consolidated balance sheet data at December
31, 1995, 1994 and 1993 are derived from audited consolidated financial
statements not included or incorporated by reference herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1997(1) 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA(2):
Revenues......................................... $ 605,975 $ 461,435 $ 364,320 $ 301,576 $ 300,184
Gross profit..................................... 149,203 125,174 96,304 85,159 71,895
Income from operations........................... 29,494 23,842 1,144 12,375 12,288
Net investment income (expense).................. 1,475 (1,123) 639 (244) (44)
Income (loss) before provision (benefit) for
income taxes and cumulative effect of
accounting change.............................. 25,040 17,738 (1,990) 10,364 9,808
Net income (loss)................................ 23,005 15,907 (4,848) 7,620 7,605
Net income (loss) per common share, assuming
dilution(3).................................... $ 0.69 $ 0.55 $ (0.19) $ 0.32 $ 0.37
Common shares used in the calculation of net
income (loss) per common share, assuming
dilution(3).................................... 33,980,747 31,616,119 30,103,858 27,309,336 22,343,402
OTHER DATA:
Depreciation and amortization.................... $ 23,854 $ 25,096 $ 22,229 $ 17,198 $ 10,467
Capital expenditures............................. 45,012 43,544 17,239 29,939 38,350
Research and development expenses................ 26,355 22,179 28,512 17,259 19,703
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments.................................... $ 15,126 $ 32,686 $ 35,030 $ 40,345 $ 85,347
Net working capital.............................. 52,499 83,673 87,553 57,449 92,036
Total assets..................................... 771,639 500,770 466,908 441,042 367,979
Short-term borrowings............................ 29,317 38,519 11,907 28,977 15,793
Long-term obligations, net of current portion.... 198,394 33,076 96,990 86,068 73,165
Stockholders' equity............................. 355,101 330,502 238,908 206,943 169,389
</TABLE>
- ---------------
(1) Includes results attributable to the satellite and communications services
businesses acquired from CTA from August 15, 1997.
(2) Consolidates ORBIMAGE's results until May 8, 1997.
(3) Net income (loss) per common share, assuming dilution, is calculated using
the weighted average number of shares and dilutive equivalent shares
outstanding during the periods, plus the effect of an assumed conversion of
the Company's Notes.
7
<PAGE> 9
RISK FACTORS
An investment in the Common Stock involves a significant degree of risk. In
determining whether to make an investment in the Common Stock, potential
investors should consider carefully all the information set forth in this
Prospectus and, in particular, the risk factors described below. This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth below and elsewhere in this Prospectus. See "Special
Note Regarding Forward-Looking Information."
TECHNOLOGICALLY ADVANCED PRODUCTS AND SERVICES
Most of the products developed and manufactured by Orbital are
technologically advanced and sometimes novel systems that must function under
demanding operating conditions. Even though Orbital believes it employs
sophisticated design, manufacturing and testing processes and practices, there
can be no assurance that Orbital's products will be successfully launched or
operated or that they will be developed or will perform as intended. Certain of
Orbital's contracts require it to forfeit part of its expected profit, to
receive reduced payments, to provide a replacement launch or other product or
service, or to reduce the price of subsequent sales to the same customer, if
any, if its products fail to perform adequately. Performance penalties also may
be imposed should Orbital fail to meet delivery schedules or other measures of
contract performance.
Orbital, like most organizations that have launch and satellite programs,
has experienced occasional product failures and other problems, including with
respect to certain of its launch vehicles and satellites. For example, certain
satellites which were placed into orbit for ORBCOMM have experienced certain
anomalies. See "--Investments in Satellite Services Businesses." Orbital will
likely experience some product and service failures, schedule delays and other
problems in connection with its launch vehicles, satellites and other products
in the future. In addition to any costs resulting from product warranties,
contract performance or required remedial action, such failures may result in
increased costs or loss of revenues due to postponement of subsequently
scheduled launches or satellite operations or other product and service
deliveries. While the Company usually insures certain potential costs related to
product warranties and contract performance, the Company generally does not
insure potential costs resulting from any required remedial actions or costs or
loss of revenues due to postponement of subsequently scheduled operations or
product deliveries.
Orbital's products and services are and will continue to be subject to
significant technological change and innovation. Orbital's success will
generally depend on its ability to penetrate and retain markets for its existing
products and to continue to conceive, design, manufacture and market new
products and services on a cost-effective and timely basis. Orbital anticipates
that it will incur significant expenses in the design and initial manufacturing
and marketing of new products and services. There can be no assurance that
Orbital will be able to achieve the technological advances necessary to remain
competitive and profitable, that new products and services will be developed and
manufactured on schedule or on a cost-effective basis, that anticipated markets
will exist or develop for new products or services, or that its existing
products and services will not become technologically obsolete.
U.S. GOVERNMENT CONTRACTS
During 1997, approximately 38% of the Company's total annual revenues, and
at December 31, 1997 approximately 50% of the Company's firm contract backlog,
were derived from contracts with the United States ("U.S.") government and its
agencies or were derived from subcontracts with the U.S. government's prime
contractors. Most of Orbital's U.S. government contracts are funded
incrementally on a year-to-year basis. Changes in government policies,
priorities or funding levels through agency or program budget reductions by the
U.S. Congress or executive agencies or the imposition of budgetary constraints
could materially adversely affect Orbital's financial condition or results of
operations. Furthermore, contracts with the U.S. government may be terminated or
suspended by the U.S. government at any time, with or without cause. There can
be no assurance that these contracts will not be terminated or suspended in the
future, or that
8
<PAGE> 10
contract suspensions or terminations will not result in unreimbursable expenses
or charges or other adverse effects on the Company. See "Business -- U.S.
Government Contracts."
The accuracy and appropriateness of Orbital's direct and indirect costs and
expenses under its contracts with the U.S. government are subject to extensive
regulation and audit by the Defense Contract Audit Agency or by other
appropriate agencies of the U.S. government. These agencies have the right to
challenge Orbital's cost estimates or allocations with respect to any such
contract. Additionally, a substantial portion of payments to the Company under
U.S. government contracts are provisional payments that are subject to potential
adjustment upon audit by such agencies. Orbital believes that any adjustments
likely to result from inquiries or audits of its contracts will not have a
material adverse impact on its financial condition or results of operations.
Since Orbital's inception, it has not experienced any material adjustments as a
result of any such inquiries or audits, but there can be no assurance that its
contracts will not be subject to material adjustments in the future.
REGULATION
The ability of Orbital to pursue its business activities is regulated by
various agencies and departments of the U.S. Government and, in certain
circumstances, the governments of other countries. Commercial space launches
require licenses from the U.S. Department of Transportation ("DoT"), and the
Company's operation of its L-1011 aircraft requires licenses from certain
agencies of the DoT, including the Federal Aviation Administration.
Construction, launch and operation of commercial communications satellites,
including the satellite-based two-way data communications network to be provided
by ORBCOMM, require licenses from the U.S. Federal Communications Commission
("FCC") and frequently require the approval of international and individual
country regulatory authorities. In addition, commercial satellite imagery
providers such as ORBIMAGE require licenses from the U.S. Department of Commerce
("DoC") and the FCC for the operation of remote imaging satellites, such as the
OrbView-3 satellite that Orbital is currently constructing for ORBIMAGE. Exports
of Orbital's products, services and technical information frequently require
licenses from the U.S. Department of State or the DoC. There can be no assurance
that the Company will continue to be successful in its efforts to obtain
necessary licenses or regulatory approvals. The inability of the Company to
secure any necessary licenses or approvals could have a material adverse effect
on its financial condition or results of operations.
COMPONENTS, RAW MATERIALS AND CARRIER AIRCRAFT
Orbital purchases a significant percentage of its product components,
including rocket propulsion motors, structural assemblies, electronic equipment
and computer chips, from third parties. Orbital also occasionally obtains from
the U.S. government parts and equipment that are used in the production of the
Company's products or in the provision of the Company's services. Orbital has
not experienced material difficulty in obtaining product components or necessary
parts and equipment and believes that alternative sources of supply would be
available, although increased costs and possible delays could be incurred in
securing alternative sources of supply. The Company's ability to launch its
Pegasus vehicle depends on the availability of an aircraft with the capability
of carrying and launching such space launch vehicle. In June 1997, Orbital
purchased the modified Lockheed L-1011 used for its Pegasus vehicle. Prior to
that date, Orbital had leased the L-1011 since 1991 from a commercial lending
institution. This L-1011 is also planned to be used for the launch of the X-34
reusable launch vehicle currently under development by Orbital for NASA. In the
event that the L-1011 were to be unavailable, Orbital would experience
significant delays, expenses and loss of revenues as a result of having to
acquire and modify a new carrier aircraft.
INVESTMENTS IN SATELLITE SERVICES BUSINESSES
As of December 31, 1997, the Company had invested, through its majority
owned subsidiary, Orbital Communications Corporation ("OCC"), approximately $75
million in ORBCOMM for the development, construction and operation of a
satellite-based, two-way mobile data communications network (the "ORBCOMM
System"). Because the Company does not control ORBCOMM's operational and
financial affairs, the Company is accounting for its investment in, and earnings
and losses attributable to, ORBCOMM
9
<PAGE> 11
using the equity method of accounting. In addition, as of December 31, 1997, the
Company had invested approximately $89 million in ORBIMAGE for the development,
construction and operation of a fleet of digital imaging satellites and related
ground systems. As a result of certain rights granted to the preferred
stockholders of ORBIMAGE, the Company does not control ORBIMAGE's operational
and financial affairs. Consequently, the Company is accounting for its
investment in, and earnings and losses attributable to, ORBIMAGE using the
equity method of accounting. See "Business -- Satellite Services." Start-up of
the ORBCOMM and ORBIMAGE businesses has produced significant operating losses
for several years, and most likely will continue to produce operating losses for
several more years.
The recoverability of the Company's investments in ORBCOMM and ORBIMAGE is
dependent on several factors, including, among other things, the successful
implementation of innovative and novel technologies, including, with respect to
ORBCOMM, the launch of up to 36 satellites (twelve of which have been launched),
the establishment of commercial markets for new services and the ability to
maintain and expand these markets, and the ability to raise sufficient capital
to fund system implementation and start-up operating losses. Certain satellites
which were placed into orbit for ORBCOMM in December 1997 and February 1998 are
generating lower than expected solar power levels, although the Company and
ORBCOMM anticipate that such power levels will be sufficient to meet planned
service requirements, and certain of these satellites have experienced anomalies
in certain radio transmitters. The Company and ORBCOMM believe they have
determined the causes of the lower power levels and radio transmitter anomalies,
which they believe will be corrected in future ORBCOMM satellites, and are
developing procedures to minimize the effects of and/or bypass these anomalies
on the existing in-orbit ORBCOMM satellites. There can be no assurance that the
Company and ORBCOMM will be successful in their efforts or, if unsuccessful,
that ORBCOMM's commercial operations would not be adversely affected. In
addition, to the extent ORBCOMM cannot raise required capital to fund its
implementation and start-up operating losses, at December 31, 1997, Orbital was
committed to provide up to an additional $15 million to ORBCOMM. ORBCOMM has
requested and Orbital has funded $10 million of the commitment so far in 1998.
In addition, Orbital has provided approximately $24 million in vendor financing
to ORBCOMM (one-half of which has been advanced to Orbital by an affiliate of
Teleglobe Inc., the other strategic partner and major investor in ORBCOMM), and
expects this amount to increase. There can be no assurance that the ORBCOMM or
ORBIMAGE businesses will be fully constructed, become fully operational or
obtain all necessary licenses or additional capital. Further, even if such
businesses are fully constructed and become operational, there can be no
assurance that an adequate market will develop for their products and services,
that they will achieve profitable operations or that Orbital will recover any of
its investment in such ventures. If such investments are at any time deemed
unrecoverable, then the Company may have to expense all or part of such
investments.
LONG-TERM CONTRACTS
The majority of the Company's contracts, particularly for its Space and
Ground Infrastructure Systems, are long-term contracts. Orbital recognizes
revenues on long-term contracts using the percentage of completion method of
accounting, whereby revenue, and therefore profit, is recognized based on actual
costs incurred in relation to total estimated costs to complete the contract or
based on specific delivery terms and conditions. Revenue recognition and
profitability, if any, from a particular contract may be adversely affected to
the extent that original cost estimates, estimated costs to complete or
incentive or award fee estimates are revised, delivery schedules are delayed, or
progress under a contract is otherwise impeded.
COMPETITION
Virtually all Orbital's products and services face significant competition
from existing and potential competitors, many of whom are larger and have
substantially greater resources than the Company. The primary domestic
competition for the Company's Pegasus and Taurus launch vehicles comes from the
Athena launch vehicles developed by Lockheed Martin Corporation ("Lockheed"). In
addition, Pegasus may face competition from launch systems derived from U.S.
government surplus ballistic missiles. The Israeli Shavit vehicle and other
potential foreign launch vehicles could also pose competitive challenges to
Pegasus, although
10
<PAGE> 12
U.S. government policy currently prohibits the launch of foreign vehicles from
U.S. territory. Competition for Taurus could come from surplus Titan II launch
vehicles, although a very limited inventory remains, and from the Russian Cosmos
SL-8 launch vehicle. Competition to Pegasus and Taurus launch vehicles also
exists in the form of partial or secondary payload capacity on larger boosters
including the Ariane, Atlas and Delta launch vehicles. Orbital's primary
competitors in the suborbital launch vehicle product line are Coleman Research
Corporation, Lockheed and Space Vector Corporation.
The Company's satellites and related products compete with products and
services produced or provided by government entities and numerous private
entities, including TRW Inc., Ball Aerospace and Technology Corporation ("Ball
Aerospace"), Lockheed, GM Hughes Electronics Corporation ("Hughes"), Spar
Aerospace Limited and Spectrum Astro, Inc. The Company's airborne and
ground-based electronics systems, including defense-oriented data management
systems, defense-oriented avionics products and imagery processing systems,
aviation systems and space sensors and instruments face competition from several
established manufacturers, including Smiths Industries, Lockheed Sanders and
Honeywell Inc. The Company's main competitors in the area of satellite ground
stations include Datron Systems Inc., Matra Marconi Space N.V. and Raytheon
Corp. The Company's satellite access products primarily face competition from
Trimble Navigation Ltd., Garmin International, Lowrance Electronics, Philips
Automotive Electronics, Alpine Electronics and several other producers. The main
competitors with Orbital's transportation management systems are Rockwell,
Harris Corporation and TMS (Raytheon).
ORBCOMM, which provides satellite-based data communications services, may
face competition from numerous existing and proposed satellite-based and
terrestrial systems providing data communications services. ORBIMAGE may face
competition from U.S. and foreign governmental entities, and private entities
including Space Imaging EOSAT, EarthWatch Incorporated ("Earthwatch") and SPOT
Image, that provide or are seeking to provide satellite-based or aerial imagery
products. For additional information relating to competition, see
"Business -- Competition."
ANTI-TAKEOVER EFFECTS OF RESTATED CERTIFICATE OF INCORPORATION, BYLAWS AND
DELAWARE LAW
The Company's Board of Directors has the authority to issue up to
10,000,000 shares of Preferred Stock and to determine the price, rights,
preferences, and privileges of those shares without any further vote or action
by the stockholders. The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue shares of Preferred Stock. In
addition, the Company is subject to the provisions of Section 203 of the
Delaware General Corporation Law, an anti-takeover law. Furthermore, certain
provisions of the Company's Restated Certificate of Incorporation and Bylaws may
have the effect of delaying or preventing changes in control or management of
the Company, which could adversely affect the market price of the Common Stock.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company has historically made strategic acquisitions of businesses and
routinely evaluates potential acquisition candidates that it believes would
enhance its business. The Company has also historically pursued strategic
alliances through joint ventures, and routinely evaluates similar opportunities.
Such transactions commonly involve certain risks including, among others,
assimilating the acquired operations, technologies and personnel and maintaining
appropriate standards, controls, procedures and policies, entering markets in
which the Company has little or no direct prior experience, potentially losing
key employees of acquired organizations and resolving potential disputes with
joint venture partners. There can be no assurance that the Company will be
successful in overcoming these risks in connection with its recent acquisitions
or any future transactions.
11
<PAGE> 13
YEAR 2000 ISSUES
The Company has made a preliminary assessment of potential "Year 2000"
issues on various computer-related systems. The Company has developed an initial
corrective action plan that includes reprogramming impacted software where
appropriate and feasible, obtaining vendor-provided software upgrades where
available and completely replacing the impacted system when necessary. The
Company currently expects that identified "Year 2000" impacted systems will be
corrected by the end of 1998, although there can be no assurance that the
Company has identified all "Year 2000" impacted systems or that its corrective
action plan will be timely and successful. The Company believes that the costs
to correct its systems will not materially affect its results of operations or
its financial condition. In addition, the Company has not received any
indication to date that the impact of "Year 2000" issues on its customers and
suppliers will have a material adverse effect on the Company.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock could be subject to significant
fluctuations in response to various factors and events, including technical
performance of the Company's products, market acceptance of the Company's new
products and services, variations in the Company's operating results, changes in
reports of securities analysts, and publicity regarding the industry or the
Company. In addition, the stock market in recent years has experienced broad
price and volume fluctuations that often have been unrelated to the operating
performance of particular companies, which may adversely affect the market price
of the shares of Common Stock.
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to be received by the Company from the issuance and sale
of the 2,750,000 shares of Common Stock offered hereby (based on an assumed
offering price of $44.875 per share, the last reported sale price for the Common
Stock on the Nasdaq National Market on March 31, 1998) will be approximately
$116,980,000 ($134,565,000 if the Underwriters' over-allotment option is
exercised in full), after deducting underwriting discounts and commissions and
estimated offering expenses. The Company expects to use the net proceeds
principally to support further business expansion in its Space and Ground
Infrastructure Systems sector as a result of higher than expected new orders in
1997 and 1998 for satellites and launch vehicles, including for working capital
and for capital expenditures for facilities and production and test equipment.
Additionally, a portion of the net proceeds may be used for investments in new
projects or space-related businesses, expanded research and development for new
products, or acquisitions of businesses and/or product lines complementary to
the Company's existing businesses, and for other general corporate purposes. As
of the date hereof, the Company has no agreements or understandings with respect
to any such investments or acquisitions. Pending the foregoing uses, the Company
will (i) pay down existing borrowings under the Company's credit facility with a
syndicate of banks led by Morgan Guaranty Trust Company of New York (the "Credit
Facility") and a line of credit, which aggregated $51.3 million at December 31,
1997 with a weighted average interest rate of 7.35%, and (ii) invest the
remainder in short-term interest-bearing securities. Any such amounts paid down
may be reborrowed subject to the terms of such facilities. Amounts borrowed
under the facilities were used for general corporate purposes. The Credit
Facility has a scheduled maturity date of August 2001, and the line of credit is
payable on demand.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the Nasdaq National Market under the symbol
"ORBI." The following table sets forth for the periods indicated the high and
low sales prices of the Common Stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter.......................................... $16 1/8 $11 3/4
Second Quarter......................................... 19 7/8 13
Third Quarter.......................................... 20 16 3/8
Fourth Quarter......................................... 21 7/8 16 1/4
1997
First Quarter.......................................... 19 1/4 13 3/4
Second Quarter......................................... 18 12 3/4
Third Quarter.......................................... 25 15 7/8
Fourth Quarter......................................... 30 3/4 21
1998
First Quarter.......................................... 46 1/2 29
</TABLE>
The last reported sale price for the Common Stock on the Nasdaq National
Market on March 31, 1998 was $44.875. As of March 24, 1998, there were
approximately 1,351 holders of record of Common Stock.
The Company has never paid any cash dividends on its Common Stock. The
Company presently intends to retain future earnings for working capital and
product development and therefore does not anticipate paying cash dividends on
the Common Stock at any time in the foreseeable future. In addition, the Credit
Facility prohibits the payment of cash dividends.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the cash and cash equivalents and short-term
investments, short-term debt and capitalization of the Company as of December
31, 1997 on a historical basis and as adjusted assuming completion of this
offering and application of the estimated net proceeds therefrom, as described
in "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Cash and cash equivalents and short-term investments........ $ 15,126 $ 80,856
======== ========
Short-term debt:
Short-term debt........................................ 10,067 6,567
Current portion of long-term debt...................... 19,250 19,250
-------- --------
$ 29,317 $ 25,817
======== ========
Long-term obligations, net of current portion............... $198,394 $150,644
Stockholders' equity:
Preferred Stock; par value $.01; 10,000,000 shares
authorized, one share of Series A Voting Preferred
Stock issued and outstanding.......................... -- --
Common Stock; par value $.01; 80,000,000 shares
authorized, 32,481,719 and 35,231,719 (as adjusted)
shares outstanding, after deducting 20,877 shares held
in treasury(1)........................................ 325 352
Additional paid-in capital.................................. 326,187 443,140
Unrealized gains on short-term investments.................. 272 272
Cumulative translation adjustment........................... (4,943) (4,943)
Retained earnings........................................... 33,260 33,260
-------- --------
Total stockholders' equity............................. 355,101 472,081
-------- --------
Total capitalization.............................. $553,495 $622,725
======== ========
</TABLE>
- ---------------
(1) Excludes 4,007,291 shares of Common Stock subject to issuance under options
outstanding as of December 31, 1997, which options are exercisable at prices
ranging from $1.84 to $24.00. As of December 31, 1997, a total of 4,226,159
shares of the Company's Common Stock were reserved for issuance under the
Company's stock option plans. The Board of Directors has approved an
increase in the number of shares of Common Stock authorized for issuance
under the Orbital 1997 Stock Option and Incentive Plan from 1,600,000 shares
to 3,200,000 shares, subject to stockholder approval. Excludes 3,571,429
shares of Common Stock issuable upon conversion of the Notes.
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and notes thereto
included or incorporated by reference in this Prospectus. The consolidated
operating data and other data for the three-year period ended December 31, 1997
and the consolidated balance sheet data at December 31, 1997 and 1996 are
derived from and should be read in conjunction with the audited consolidated
financial statements and notes thereto included and incorporated by reference in
this Prospectus. The consolidated operating data and other data for the years
ended December 31, 1994 and 1993 and the consolidated balance sheet data at
December 31, 1995, 1994 and 1993 are derived from audited consolidated financial
statements not included or incorporated by reference herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1997(1) 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA(2):
Revenues................................................ $ 605,975 $ 461,435 $ 364,320 $ 301,576 $ 300,184
Costs of goods sold..................................... 456,772 336,261 268,016 216,417 228,289
----------- ----------- ----------- ----------- -----------
Gross profit............................................ 149,203 125,174 96,304 85,159 71,895
Research and development expenses....................... 26,355 22,179 28,512 17,259 19,703
Selling, general and administrative expenses............ 89,502 76,019 63,427 53,165 38,270
Amortization of excess of purchase price over net assets
acquired.............................................. 3,852 3,134 3,221 2,360 1,634
----------- ----------- ----------- ----------- -----------
Income from operations.................................. 29,494 23,842 1,144 12,375 12,288
Net investment income (expense)......................... 1,475 (1,123) 639 (244) (44)
Equity in losses of affiliates.......................... (26,034) (6,454) (759) (1,264) (2,436)
Non-controlling interests in losses of consolidated
subsidiaries.......................................... 2,638 1,473 427 -- --
Gain on sale of subsidiary stock........................ 21,180 -- -- -- --
Acquisition expenses.................................... (4,343) -- (3,441) (503) --
----------- ----------- ----------- ----------- -----------
Income (loss) before provision (benefit) for income
taxes and cumulative effect of accounting change...... 25,040 17,738 (1,990) 10,364 9,808
Provision (benefit) for income taxes.................... 2,035 1,831 (1,302) 2,744 2,403
----------- ----------- ----------- ----------- -----------
Income (loss) before cumulative effect of accounting
change................................................ 23,005 15,907 (688) 7,620 7,405
Cumulative effect of accounting change, net of taxes.... -- -- (4,160) -- 200
----------- ----------- ----------- ----------- -----------
Net income (loss)....................................... $ 23,005 $ 15,907 $ (4,848) $ 7,620 $ 7,605
=========== =========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE(3):
Income (loss) before cumulative effect of accounting
change................................................ $ 0.71 $ 0.55 $ (0.03) $ 0.33 $ 0.40
Cumulative effect of accounting change.................. -- -- (0.16) -- 0.01
----------- ----------- ----------- ----------- -----------
$ 0.71 $ 0.55 $ (0.19) $ 0.33 $ 0.41
=========== =========== =========== =========== ===========
SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON
SHARE................................................. 32,283,138 29,137,361 26,207,746 23,191,553 18,728,980
=========== =========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING DILUTION(4):
Income (loss) before cumulative effect of accounting
change................................................ $ 0.69 $ 0.55 $ (0.03) $ 0.32 $ 0.36
Cumulative effect of accounting change.................. -- -- (0.16) -- 0.01
----------- ----------- ----------- ----------- -----------
$ 0.69 $ 0.55 $ (0.19) $ 0.32 $ 0.37
=========== =========== =========== =========== ===========
SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON
SHARE, ASSUMING DILUTION.............................. 33,980,747 31,616,119 30,103,858 27,309,336 22,343,402
=========== =========== =========== =========== ===========
OTHER DATA:
Depreciation and amortization.......................... $ 23,854 $ 25,096 $ 22,229 $ 17,198 $ 10,467
Capital expenditures................................... 45,012 43,544 17,239 29,939 38,350
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments.... $ 15,126 $ 32,686 $ 35,030 $ 40,345 $ 85,347
Net working capital..................................... 52,499 83,673 87,553 57,449 92,036
Total assets............................................ 771,639 500,770 466,908 441,042 367,979
Short-term borrowings................................... 29,317 38,519 11,907 28,977 15,793
Long-term obligations, net of current portion........... 198,394 33,076 96,990 86,068 73,165
Stockholders' equity.................................... 355,101 330,502 238,908 206,943 169,389
</TABLE>
- ---------------
(1) Includes results attributable to the satellite and communications services
businesses acquired from CTA from August 15, 1997.
(2) Consolidates ORBIMAGE's results until May 8, 1997.
(3) Net income (loss) per common share is calculated using the weighted average
number of shares outstanding during the periods.
(4) Net income (loss) per common share, assuming dilution, is calculated using
the weighted average number of shares and dilutive equivalent shares
outstanding during the periods, plus the effect of an assumed conversion of
the Company's Notes.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
With the exception of historical information, the matters discussed below
under the headings "-- Recent Developments," "-- Results of Operations" and
"-- Liquidity and Capital Resources" include forward-looking statements that
involve risks and uncertainties, many of which are beyond the Company's control.
A number of important factors, including those identified in the section
"-- Outlook: Issues and Uncertainties," may affect the Company's actual results
and cause actual results to differ materially from those in any forward-looking
statement.
The Company's products and services are grouped into three business
sectors: Space and Ground Infrastructure Systems, Satellite Access Products and
Satellite Services. Space and Ground Infrastructure Systems include launch
vehicles, satellites, electronics and sensor systems, and satellite ground
systems and software. The Company's Satellite Access Products sector consists of
recreational, professional and automotive satellite-based navigation products,
satellite communications products and certain transportation management systems.
The Company's Satellite Services sector includes satellite-based two-way mobile
data communications services and satellite-based remote imagery services.
A significant portion of the Company's Space and Ground Infrastructure
Systems revenues are generated under long-term contracts with various agencies
of the U.S. government, various foreign governments and commercial customers.
Orbital recognizes revenues on long-term contracts using the
percentage-of-completion method of accounting, under which revenues and profits
are recognized based on actual costs incurred in relation to total estimated
costs to complete the contract or specific delivery terms and conditions. To the
extent that estimated costs of completion are adjusted, revenue recognized from
a particular contract will be affected in the period of the adjustment.
The Company is accounting for its investments in ORBCOMM and in ORBIMAGE
using the equity method of accounting. In accordance with the equity method of
accounting, Orbital recognizes 100% of the revenues earned and costs incurred on
sales of products and services to these entities. The Company also recognizes as
equity in earnings (losses) of affiliates its proportionate share of ORBCOMM's
and ORBIMAGE's profits and losses. ORBCOMM and ORBIMAGE are currently
capitalizing substantially all system construction costs, including amounts paid
to Orbital. To the extent ORBCOMM and ORBIMAGE capitalize their purchases from
Orbital, the Company eliminates as equity in earnings (losses) of affiliates
approximately 50% and 75% (the Company's equity ownership in ORBCOMM and
ORBIMAGE in 1997, respectively) of its profits and losses from sales to ORBCOMM
and ORBIMAGE, respectively. Orbital controls, and therefore consolidates the
accounts of, ORBCOMM USA, L.P. ("ORBCOMM USA") a partnership that markets
ORBCOMM System services in the U.S.
RECENT DEVELOPMENTS
Orbital's majority owned subsidiary, Magellan, merged with Ashtech in
December 1997. To effect the merger, Orbital paid former Ashtech security
holders approximately $52.8 million, consisting of $25.0 million in cash and
approximately 23,954,000 shares of Magellan common stock. Orbital now owns a
controlling interest of approximately 66% of Magellan. Orbital recognized a gain
of approximately $21.8 million on the issuance of Magellan common stock.
The Company acquired substantially all the assets, including all the stock
of certain subsidiaries, and certain liabilities relating to the satellite
manufacturing and communications services businesses of CTA in August 1997. The
financial results of the acquired businesses have been included in the Company's
consolidated results from August 15, 1997 through December 31, 1997. As
consideration, Orbital repaid $27.0 million of outstanding CTA debt and paid
approximately $13.0 million in cash, which may be reduced subject to certain
post-closing adjustments.
In July 1997, Orbital formed Magellan DIS, Inc. ("DIS") to acquire from
Rockwell the assets and certain liabilities associated with Rockwell's
automotive navigation product line. The financial results of the
16
<PAGE> 18
acquired product line have been included in the Company's consolidated results
from July 31, 1997 through December 31, 1997. Orbital paid approximately $3.5
million in cash and issued Rockwell a $4.4 million unsecured note, which bears
interest at 6% and is repayable semi-annually over three years. The stock of DIS
was subsequently transferred to Magellan.
During September 1997, Orbital sold $100 million of the Notes. The Notes,
which are non-callable for three years, are convertible at the option of the
holders into Orbital Common Stock at a conversion price of $28 per share,
subject to adjustment in certain events.
In May and July 1997, ORBIMAGE completed private placements of 300,100 and
72,605 shares, respectively, of 12% cumulative convertible preferred stock,
raising gross proceeds of approximately $37.3 million. Also in May 1997, Orbital
purchased ORBIMAGE common stock, bringing its total equity invested to
approximately $89.0 million. At December 31, 1997, Orbital owned approximately
75% of ORBIMAGE and as a result of certain rights provided to ORBIMAGE's
preferred shareholders, no longer controls ORBIMAGE's financial and operational
affairs. Additionally, Orbital had agreed to purchase up to approximately $42.0
million in ORBIMAGE preferred stock to the extent that ORBIMAGE could not obtain
additional third-party financing. In connection with certain ORBIMAGE financing
transactions consummated in February 1998, Orbital has been fully relieved of
this obligation (see "-- Liquidity and Capital Resources") and now owns
approximately 60% of ORBIMAGE.
The Company had $158.9 million in total consolidated export sales in 1997,
of which $68.6 million were to Asian customers. Orbital had approximately $18.2
million outstanding in accounts receivable from Asian customers at December 31,
1997, $3.6 million of which was paid in the first quarter of 1998. The Company
has sought to reduce risks related to these accounts receivable and future work
commitments by obtaining letters of credit from certain customers, and at
December 31, 1997 had approximately $13.3 million of letters of credit with
respect to such receivables. Existing backlog attributable to Asian customers is
not material to the Company's operations.
The Company does not have any material exposure to interest rate changes,
commodity price changes, foreign currency fluctuations, or similar market risks,
although it does enter into forward exchange contracts to hedge against specific
foreign currency fluctuations, principally with respect to the Canadian dollar.
Orbital has made a preliminary assessment of potential "Year 2000" issues
with respect to various computer-related systems. The Company has developed an
initial corrective action plan that includes reprogramming impacted software
when appropriate and feasible, obtaining vendor-provided software upgrades when
available and completely replacing impacted systems when necessary. The Company
currently expects that identified "Year 2000" impacted systems will be corrected
by the end of 1998, although there can be no assurance that the Company has
identified all "Year 2000" impacted systems or that its corrective action plan
will be timely and successful. The Company believes that the costs to correct
its systems will not materially affect its results of operations or its
financial condition. In addition, Orbital has not received any indication to
date that the impact of "Year 2000" issues on its customers and suppliers will
have a material adverse effect on the Company.
17
<PAGE> 19
RESULTS OF OPERATIONS
The following table shows Orbital's revenues, gross profits and gross
margins, by major product category within each business sector, for each of the
three years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- ---------------------------- ---------------------------
GROSS GROSS GROSS
REVENUES PROFIT MARGIN REVENUES PROFIT MARGIN REVENUES PROFIT MARGIN
-------- -------- ------ -------- -------- ------ -------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SPACE AND GROUND INFRASTRUCTURE
SYSTEMS......................... $534,419 $131,209 24.5% $388,814 $101,867 26.2% $300,439 $72,820 24.2%
Launch Vehicles............... 121,631 28,631 23.5 108,478 23,356 21.5 71,826 12,469 17.4
Satellites(1)................. 233,989 56,940 24.3 105,148 22,406 21.3 83,156 12,062 14.5
Electronics and Sensor
Systems..................... 100,554 26,236 26.1 92,070 26,608 28.9 71,983 25,419 35.3
Ground Systems................ 78,245 19,402 24.8 83,118 29,497 35.5 73,474 22,870 31.1
SATELLITE ACCESS PRODUCTS......... 71,384 18,205 25.5 71,188 25,134 35.3 52,681 20,235 38.4
SATELLITE SERVICES(2)............. 172 (211) N/A 1,433 (1,827) N/A 11,200 3,249 29.0
-------- -------- --- -------- -------- --- -------- ------- ----
CONSOLIDATED TOTALS............... $605,975 $149,203 24.6% $461,435 $125,174 27.1% $364,320 $96,304 26.4%
======== ======== === ======== ======== === ======== ======= ====
</TABLE>
- ---------------
(1) Includes results attributable to the satellite and communications services
businesses acquired from CTA from August 15, 1997.
(2) Consolidates ORBIMAGE's results until May 8, 1997.
The following table sets forth certain items as a percentage of revenues,
derived from the Company's audited consolidated statements of earnings for the
years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Costs of goods sold......................................... 75.4 72.9 73.6
----- ----- -----
Gross profit................................................ 24.6 27.1 26.4
Research and development expenses........................... 4.3 4.8 7.8
Selling, general and administrative expenses................ 14.8 16.5 17.4
Amortization of excess of purchase price over net assets
acquired.................................................. 0.6 0.6 0.9
----- ----- -----
Income from operations...................................... 4.9 5.2 0.3
===== ===== =====
</TABLE>
Revenues. Orbital's consolidated revenues for the years ended December 31,
1997, 1996 and 1995 were $606.0 million, $461.4 million and 364.3 million,
respectively.
SPACE AND GROUND INFRASTRUCTURE SYSTEMS. Revenues from the Company's Space
and Ground Infrastructure Systems increased to $534.4 million in 1997 from
$388.8 million in 1996 and $300.4 million in 1995.
Revenues from the Company's launch vehicles increased to $121.6 million in
1997, from $108.5 million in 1996 and $71.8 million in 1995. The increase in
launch vehicle revenues in 1997 can be attributed to new orders received since
1995. The Company had five consecutive successful Pegasus launches and six
consecutive successful suborbital launches in 1997. Additionally, more revenues
were generated in 1997 for work performed on the X-34 reusable launch vehicle
and on the Company's Taurus launch vehicle contracts. The significant increase
in revenues in 1996 was attributable to revenues generated from the resumption
of production and launch of the Pegasus launch vehicle after a 1995 launch
failure and from work performed under new and existing contracts for the
Company's Taurus launch vehicle.
Revenues from sales of satellites increased to $234.0 million in 1997, from
$105.1 million in 1996 and $83.2 million in 1995. The significant increase in
1997 satellite revenues was primarily due to new satellite orders received in
the second half of 1996 and in 1997. Revenues in 1997 also included
approximately $54.1 million of sales generated by the satellite business
acquired from CTA. The increase in 1996 revenues was primarily attributable to
additional revenues generated from new satellite orders from commercial and
government customers received in late 1995 and in 1996.
Electronics and sensor systems revenues increased to $100.6 million in
1997, from $92.1 million in 1996 and $72.0 million in 1995. The increase in 1997
and 1996 revenues was primarily attributable to work performed on new avionics
and mission planning systems orders received in 1996 and 1997.
18
<PAGE> 20
Ground systems revenues were $78.2 million, $83.1 million and $73.5 million
in 1997, 1996 and 1995, respectively. The decrease in 1997 revenues from 1996
revenues was primarily due to the 1996 sale of a software-related business that
had generated 1996 revenues of approximately $15.8 million. The increase in
revenues in 1996 was primarily attributable to an increase in the number of
satellite ground system installations and upgrades.
Orbital's Space and Ground Infrastructure Systems sector revenues included
sales to ORBCOMM of approximately $58.0 million, $47.2 million and $49.2 million
in 1997, 1996 and 1995, respectively, and to ORBIMAGE of approximately $88.6
million in 1997. The Company expects total 1998 sales to ORBCOMM and ORBIMAGE to
be less than those recorded in 1997, based on the remaining work to be done
under their respective procurement contracts.
SATELLITE ACCESS PRODUCTS. Revenues from sales of recreational and
automotive satellite-based navigation products, communications products and
transportation management systems were $71.4 million for 1997 as compared to
$71.2 million in 1996 and $52.7 million in 1995. The year-to-year increases were
due to an increase in the number of products sold offset, in part, by lower
average unit sales prices. Magellan's revenues in 1997 were negatively impacted
by increased competition in its recreational and marine navigation markets.
SATELLITE SERVICES. The Company's Satellite Services businesses generated
revenues of $0.2 million, $1.4 million and $11.2 million for 1997, 1996 and
1995, respectively. As a result of ORBIMAGE's private placement of preferred
stock, subsequent to May 8, 1997, Orbital no longer consolidates ORBIMAGE's
operating revenues, resulting in a decrease in 1997 satellite services revenues.
Revenues in 1996 included modest domestic ORBCOMM sales and ORBIMAGE sales of
satellite imagery to government customers. Revenues in 1995 primarily
represented sales of ground stations and network software to ORBCOMM; no such
sales were made in 1997 or 1996.
Costs of Goods Sold. Costs of goods sold include the costs of personnel,
materials, subcontracts and overhead related to commercial products and under
the Company's various development and production contracts. Orbital's costs of
goods sold for 1997, 1996 and 1995 were $456.8 million (75.4% of revenues),
$336.2 million (72.9% of revenues) and $268.0 million (73.6% of revenues),
respectively. The increase in costs of goods sold in 1997 for the Company's
electronics and sensor systems was largely due to the completion of a defense
sensors contract under which the Company had traditionally achieved higher gross
margins. Costs of goods sold in 1997 for the Company's ground systems increased
as a percentage of revenues largely due to the sale of a software-related
business in 1996 that also had traditionally contributed higher gross margins.
Additionally, contingency reserves required on certain launch vehicle and
satellite contracts were increased in 1997, resulting in higher costs of goods
sold in those product lines. The increase in costs of goods sold in 1997 for the
Company's Satellite Access Products was due to lower unit sales prices for
satellite navigation products and certain fourth quarter reorganizational
charges at Magellan, leading to overall operating losses within this sector. The
1996 decrease in costs of goods sold as a percentage of 1996 revenues was
largely due to the resumption of production of the Company's Pegasus launch
vehicle. Costs incurred in 1996 as a result of the November 1996 Pegasus launch
anomaly and certain other unanticipated contract cost increases were offset, in
part, by the use of existing contingency reserves. Other contributing factors in
1996 included increased profit margins on certain satellite and ground systems
contracts offset, in part, by lower average unit sales prices of satellite
navigation products.
Research and Development Expenses. Research and development expenses
represent Orbital's self-funded product development activities and exclude
direct customer-funded development. Research and development expenses during
1997, 1996 and 1995 were $26.4 million (4.3% of revenues), $22.2 million (4.8%
of revenues) and $28.5 million (7.8% of revenues), respectively. Research and
development spending during 1997 and 1996 related primarily to the development
of new or improved satellite navigation and communications products, improved
launch vehicles, including enhancements to the Taurus launch vehicle, and new
satellite initiatives. Research and development spending during 1995 reflected
Orbital's continued development of its Pegasus launch vehicle and costs related
to an advanced reusable launch vehicle development program.
19
<PAGE> 21
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include the costs of marketing, advertising, promotion
and other selling expenses, as well as the costs of the finance, administrative
and general management functions of the Company. Selling, general and
administrative expenses for 1997, 1996 and 1995 were $89.5 million (14.8% of
revenues), $76.0 million (16.5% of revenues) and $63.4 million (17.4% of
revenues), respectively. The continued decrease in selling, general and
administrative expenses as a percentage of revenues in 1997 was primarily
attributable to significant growth in space and ground infrastructure systems
revenues, along with only modest growth in selling, general and administrative
expenses attributable to those product lines. Additionally, subsequent to May
1997 the Company no longer consolidates ORBIMAGE's administrative and marketing
expenses.
Net Investment Income (Expense). Net investment income (expense) was $1.5
million, ($1.1 million) and $0.6 million for 1997, 1996 and 1995, respectively.
Investment income reflected interest earnings on short-term investments and
realized gains and losses on investments, reduced by interest expense on
outstanding debt of $0.4 million, $2.5 million and $3.8 million in 1997, 1996
and 1995, respectively. Interest expense was net of capitalized interest of
approximately $9.7 million, $7.3 million and $5.7 million in 1997, 1996 and
1995, respectively.
Equity in Earnings (Losses) of Affiliates and Non-Controlling Interests in
(Earnings) Losses of Consolidated Subsidiaries. Equity in earnings (losses) of
affiliates included Orbital's proportionate share of ORBCOMM's and ORBIMAGE's
net income or loss for the year, and Orbital's elimination of proportionate
profits or losses on sales to these affiliates. In 1997, Orbital's share of
ORBCOMM's and ORBIMAGE's net loss was $13.0 million and $1.9 million,
respectively. In 1996, Orbital's share of ORBCOMM's net loss was approximately
$8.3 million. In 1995, Orbital's share of ORBCOMM's net income was approximately
$0.5 million. Non-controlling interests in (earnings) losses of consolidated
subsidiaries represent that portion of such subsidiaries' losses allocable to
other stockholders.
Provision (Benefit) for Income Taxes. The Company recorded consolidated
income tax provisions of $2.0 million and $1.8 million for 1997 and 1996,
respectively. The Company's effective tax rate for these periods (8.1% and 10.3%
in 1997 and 1996, respectively) was entirely due to foreign taxes attributable
to its Canadian operations. The Company recorded an income tax benefit of
approximately $1.3 million in 1995, primarily as a result of the carryback and
recapture of previously paid U.S. federal taxes and management's determination
that certain Canadian investment tax credit carryforwards would be realized in
the near future.
At December 31, 1997, Orbital had approximately $150.0 million of U.S.
federal net operating loss carryforwards (portions of which expire beginning in
2005) and $3.0 million of U.S. federal research and experimental tax credit
carryforwards that may be used through the year 2013, subject to certain annual
limitations and other restrictions, to reduce future U.S. federal income tax
obligations. At December 31, 1997 and 1996, Orbital provided a reserve of $37.7
million and $52.2 million, respectively, against certain of its consolidated
deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company's growth has required substantial capital to fund expanding
working capital needs, investments in ORBCOMM and ORBIMAGE, certain business
acquisitions, new business initiatives, research and development and capital
expenditures. The Company has funded these requirements to date, and expects to
fund its requirements in the future, through cash generated by operations,
working capital, loan facilities, asset-based financings, joint venture
arrangements and private and public equity and debt offerings. The Company
expects to continue to pursue potential acquisitions and equity investments that
it believes would enhance its businesses and to fund such transactions through
cash generated by operations, existing loan facilities, the issuance of equity
and/or debt securities and asset-based financings.
Cash, cash equivalents and short-term investments were $15.1 million, and
the Company had total debt obligations outstanding of approximately $227.7
million, at December 31, 1997. The outstanding debt related primarily to the
Notes, advances under the Company's line of credit facilities, secured and
unsecured notes, and asset-based financings. Cash and cash equivalents at
December 31, 1997 included approximately $6.2
20
<PAGE> 22
million of cash reserved against outstanding letters of credit. Orbital's
current ratio was 1.2 at December 31, 1997, compared to 1.7 at December 31,
1996.
In September 1997, Orbital completed the sale of $100 million of the Notes.
The Notes, which are non-callable for three years, are convertible at the option
of the holders into Orbital Common Stock at a conversion price of $28 per share,
subject to adjustment in certain events. The Company used a portion of the
proceeds from the sale to pay down outstanding borrowings under its various
credit facilities and $10 million on a long-term loan. The balance was invested
in short-term investments.
Orbital amended its $20 million unsecured note agreement during the first
quarter of 1997 to facilitate compliance with certain financial covenants as
well as to permit the completion of the ORBIMAGE private equity financing. In
connection with this amendment, the interest rate on the note was increased from
11.5% to 12%, effective March 31, 1997. The unsecured note contains certain
covenants with respect to fixed charge ratio, leverage ratio and tangible net
worth, and includes certain cross-default provisions.
The Company issued $34.0 million in secured notes in 1997. These notes are
collateralized by certain office, computer and test equipment located at the
Company's Maryland, Arizona and Virginia facilities and by the Company's L-1011
aircraft.
As of December 31, 1997, the Company amended the Credit Facility to
eliminate a term loan and to increase the amount available under a revolving
line of credit from $65 million to $100 million. In addition, two financial
covenants under this facility were amended to facilitate compliance by the
Company. At December 31, 1997, $47.8 million was outstanding and $52.3 million
was available on the facility. The interest rate charged under the facility is a
variable rate based on the prime rate or LIBOR. The weighted average interest
rate on borrowings outstanding under this facility at December 31, 1997 was
7.89%. The facility is secured by accounts receivable, prohibits the payment of
cash dividends, contains certain covenants with respect to the Company's working
capital levels, fixed charge ratio, leverage ratio and net worth, and expires in
August 2001. The Company also maintains a $25.0 million unsecured credit
facility, under which approximately $3.5 million was outstanding at an average
interest rate of 6.8% at December 31, 1997.
The Company's operations provided net cash of approximately $24.4 million
during 1997. The Company spent approximately $45.0 million on capital
expenditures for various satellite, launch vehicle and other production, test
and office equipment during 1997.
On February 25, 1998, ORBIMAGE issued units consisting of $150.0 million of
11 5/8% Senior Notes due 2005 (the "ORBIMAGE Notes") and warrants to purchase
ORBIMAGE's common stock, raising net proceeds of approximately $145.5 million.
Net proceeds from the sale of the units will be applied to (i) the procurement
of two high-resolution imagery satellites and related launch services and
associated ground system equipment, (ii) operating expenses and (iii) the first
two years of interest on the ORBIMAGE Notes. The ORBIMAGE Notes are non-recourse
to Orbital. Concurrent with this issuance, ORBIMAGE completed a private
placement of 227,295 shares of 12% cumulative convertible preferred stock,
raising net proceeds of approximately $21.0 million. After these 1998
transactions, the Company is no longer contractually obligated to purchase
additional shares of ORBIMAGE's preferred stock.
The Company expects that ORBCOMM will need additional funding during 1998.
ORBCOMM's management is exploring various debt or equity placements in both the
private and public markets. If this funding cannot be raised from third-party
investors, or cannot be raised in a timely manner, Orbital has a commitment to
fund to ORBCOMM an additional $5 million.
Orbital expects that its capital needs for 1998 will, in part, be provided
by working capital, cash flows from operations, existing credit facilities,
customer financings and operating lease arrangements. In addition, to support
further business expansion, the Company is undertaking the offering made hereby
and may also consider additional debt and equity financings in the future. See
"Use of Proceeds."
OUTLOOK: ISSUES AND UNCERTAINTIES
Certain statements included in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Prospectus
constitute "forward-looking statements" within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results,
21
<PAGE> 23
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements.
The following are some of the factors that could cause actual results to
differ materially from information contained in the Company's forward-looking
statements:
Most of the products developed and manufactured by the Company and its
affiliates are technologically advanced and sometimes novel systems that must
function under demanding operating conditions and are subject to significant
technological change and innovation. Orbital has occasionally experienced
product failures or problems. In addition to any costs resulting from product
warranties or required remedial action, product failures may result in increased
costs or loss of revenues due to postponement or cancellation of subsequently
scheduled operations or other product deliveries.
At December 31, 1997, approximately 50% of Orbital's firm contract backlog
was derived from contracts with the U.S. government and its agencies or from
subcontracts with prime contractors to the U.S. government. Most of the
Company's government contracts are funded incrementally on a year-to-year basis.
Changes in government policies, priorities or funding levels through agency or
program budget reductions by the U.S. Congress or executive agencies could
materially adversely affect Orbital's financial condition or results of
operations. Furthermore, contracts with the U.S. government may be terminated or
suspended by the U.S. government at any time, with or without cause. Such
contract suspensions or terminations could result in unreimbursable expenses or
charges or otherwise adversely affect the Company.
The accuracy and appropriateness of Orbital's direct and indirect costs and
expenses under its contracts with the U.S. government are subject to extensive
regulation and audit by the Defense Contract Audit Agency or by other
appropriate agencies of the U.S. government. These agencies have the right to
challenge Orbital's cost estimates or allocations with respect to any such
contract. A substantial portion of payments to the Company under U.S. government
contracts are provisional payments that are subject to potential adjustment upon
audit by such agencies.
Virtually all the Company's products and services face significant
competition from existing competitors, many of whom are larger and have
substantially greater resources than the Company. Furthermore, the possibility
exists that other domestic or foreign companies or governments will seek to
produce products or services that compete with those of the Company. A foreign
competitor could benefit from subsidies from, or other protective measures by,
its home country.
The Company has historically made strategic acquisitions of businesses and
routinely evaluates potential acquisition candidates that it believes would
enhance its business. The Company also has historically pursued strategic
alliances through joint ventures, and routinely evaluates similar opportunities.
Such transactions commonly involve certain risks including, among others,
assimilating the acquired operations, technologies and personnel and maintaining
appropriate standards, controls, procedures and policies, entering markets in
which the Company has little or no direct prior experience, potentially losing
key employees of acquired organizations and resolving potential disputes with
joint venture partners.
The recoverability of the Company's investments in ORBCOMM and ORBIMAGE
depends on several factors including, among other things, the successful and
timely implementation of innovative and novel technologies involving complex
systems in a cost-effective manner, the establishment and expansion of
commercial markets and customer acceptance, and competition. If the Company
concludes at any time that its investments are not recoverable, the Company may
be required to expense part or all of such investments.
For additional factors that could cause actual results to differ materially
from any future results, performance or achievements expressed or implied in the
Company's forward-looking statements, see "Risk Factors."
22
<PAGE> 24
BUSINESS
GENERAL
Orbital is a leading space and information systems company that designs,
manufactures, operates and markets a broad range of space-related products and
services. The Company's products and services are grouped into three general
business sectors: Space and Ground Infrastructure Systems, Satellite Access
Products and Satellite Services, consisting of the following major products and
services:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SECTOR PRODUCT LINE PRODUCT/SERVICE
- ---------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C>
Space and Ground Infrastructure
Systems Launch Vehicles Pegasus and Taurus Space Launch
Vehicles
Suborbital Vehicles
X-34 Reusable Launch Vehicles
Satellites Small and Medium LEO and
Small GEO Satellites
Satellite Subsystems and
Space-Related Technical
Services
Electronics and Sensors Defense Electronics Products
Space Sensors and Instruments
Ground Systems and Software Satellite Ground Stations
Image Processing Software
Transportation Management Software
- ----------------------------------------------------------------------------------------------------------
Satellite Access Products Recreational Navigation Systems Consumer GPS Navigators
Professional Navigation Systems High-Precision GPS Navigators
Automotive Navigation Systems Automotive GPS Navigator
Voice and Data Communications Satellite Telephones and ORBCOMM
Systems Communicators
Transportation Management Systems ORBTRAC System
- ----------------------------------------------------------------------------------------------------------
Satellite Services Two-way Mobile Data Communications ORBCOMM Services
Earth Imaging ORBIMAGE Products and Services
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Since its inception, Orbital's strategy has been to develop and grow a core
integrated business of space systems product development and manufacturing,
while also leveraging that expertise to establish innovative space-based
communications and information services. Today, Orbital is a leading provider of
launch services, satellites, electronics and sensors, satellite ground stations,
satellite-based navigation and positioning products and data and voice
communications products to commercial and government customers around the world.
In addition, through its ORBCOMM and ORBIMAGE affiliates, the Company is a
pioneering operator of global satellites and ground networks for the provision
of data communications and remote imaging services.
Orbital's Space and Ground Infrastructure Systems sector generated
approximately $534 million in revenues in 1997. At December 31, 1997, the sector
had firm contract backlog of approximately $1.0 billion. Firm backlog excludes
unexercised contract options and undefinitized new contracts, having an
aggregate potential contract value of approximately $1.9 billion at December 31,
1997.
Orbital's air-launched Pegasus and ground-launched Taurus rockets have
achieved market leadership in launching small satellites into low-Earth orbit.
Orbital is also involved in developing a next-generation reusable launch vehicle
through its X-34 rocket program for NASA. In addition, the Company is a major
supplier of suborbital launch vehicles. Since 1982, Orbital (including a
predecessor company) has built and launched over 120 space and suborbital launch
vehicles. In 1997, launch vehicles accounted for approximately 20% of Orbital's
revenues.
23
<PAGE> 25
During the past five years, Orbital has expanded its Space and Ground
Infrastructure Systems product lines through internal growth and through a
series of strategic acquisitions. With the acquisition of Fairchild in 1994 and
CTA's satellite business in 1997, Orbital has expanded its satellite development
and manufacturing capability and is now a leading provider of small and medium
class low-Earth orbit satellites and an emerging supplier of small
geosynchronous satellites. Since 1982, Orbital (including two predecessor
companies) has built and delivered more than 50 satellites to commercial and
government customers. The Fairchild acquisition also expanded Orbital's existing
space sensor and instruments product lines by adding various sophisticated
electronics products. In 1997, satellites accounted for approximately 39% of
Orbital's revenues, while electronics and sensor systems accounted for
approximately 17% of revenues.
Through the 1995 acquisition of MDA, the Company expanded its product lines
to include satellite imaging ground stations and image processing software.
Ground systems and software accounted for approximately 13% of Orbital's
revenues in 1997.
Orbital's Satellite Access Products sector was established through the 1994
acquisition of Magellan, and has expanded through internal growth and the 1997
acquisition of the GPS automotive navigation product line of Rockwell and the
1997 merger with Ashtech. Orbital is now a leader in developing and selling
recreational, professional and automotive navigation and positioning products
that use GPS and GLONASS (the comparable Russian GPS system) satellite
technology, and is developing and producing satellite communications products
and transportation management systems as well. Satellite Access Products
generated revenues of approximately $71 million (or 12% of Orbital's revenues in
1997) and on a pro forma basis, taking into account its merger with Ashtech in
December 1997, generated revenues of approximately $117 million in 1997. Orbital
owns a 66% controlling interest in Magellan.
Orbital has leveraged its technological expertise and its integrated space
manufacturing businesses into satellite services businesses through ORBCOMM and
ORBIMAGE. Orbital accounts for ORBCOMM and ORBIMAGE using the equity method of
accounting. ORBCOMM and ORBIMAGE are both in early stages of operations and have
generated substantial start-up losses to date.
Orbital developed the "ORBCOMM" concept in 1990 and formed the ORBCOMM
partnership in 1993 to provide low-cost, two-way fixed and mobile data
communications services using a constellation of up to 36 small communications
satellites which were designed, and are being built and launched, by Orbital.
The first two ORBCOMM satellites were launched on the Company's Pegasus rocket
in 1995 and are operational today. An additional group of eight satellites was
launched on the Pegasus launch vehicle in December 1997, and two additional
satellites were launched on Orbital's Taurus rocket in February 1998. These ten
recently launched satellites are expected to be placed into commercial service
in the second quarter of 1998. The remaining 24 satellites are scheduled to be
launched in 1998 (16 satellites) and 1999 (eight satellites) on three Pegasus
missions, each launching eight satellites. As a result of the strategic equity
capital raised by ORBCOMM in 1993 and 1995, the Company currently owns a 50%
noncontrolling interest in ORBCOMM.
ORBIMAGE, conceived by Orbital in 1992, operates, and is further
developing, a fleet of satellites that collect, process and distribute digital
imagery of the Earth's surface (land and oceans), the atmosphere and weather
conditions. Small Earth-viewing satellites and related sensors and instruments
placed in low Earth-orbits are planned to offer cost-efficient image collection
and processing, together with daily global coverage and high-resolution imaging
quality. Two of ORBIMAGE's four planned satellites were built and launched by
Orbital and are operational today. The remaining two satellites are being built
by Orbital and are scheduled to be launched in 1999 and 2000. As a result of
ORBIMAGE's capital raising efforts in 1997 and 1998, the Company currently owns
a 60% noncontrolling interest in ORBIMAGE.
Orbital's principal executive offices are located at 21700 Atlantic
Boulevard, Dulles, Virginia 20166, and the Company's telephone number is (703)
406-5000.
DESCRIPTION OF ORBITAL'S PRODUCTS AND SERVICES
The Company's products and services are grouped into three general business
sectors: Space and Ground Infrastructure Systems, Satellite Access Products and
Satellite Services.
24
<PAGE> 26
SPACE AND GROUND INFRASTRUCTURE SYSTEMS. The Company's Space and Ground
Infrastructure Systems currently include launch vehicles, satellites and related
space systems, electronics and sensor systems, and ground systems and software.
LAUNCH VEHICLES. The Company has developed and produces the Pegasus and
Taurus space launch vehicles that place small satellites into Earth orbit.
Orbital's Pegasus launch vehicle is launched from beneath the Company's Lockheed
L-1011 aircraft to deploy satellites weighing up to 1,000 pounds into low-Earth
orbit. The Taurus launch vehicle is a ground-launched derivative of the Pegasus
vehicle that can carry payloads weighing up to 3,000 pounds into low-Earth orbit
and payloads weighing up to 800 pounds into geosynchronous orbit.
Each of Orbital's five Pegasus missions in 1997 and one Pegasus mission in
1998 was successful, bringing the Company's total number of Pegasus missions to
20, with an approximate 90% success rate. The 1997 Pegasus launches included a
mission for the Spanish national space agency that was the first ever space
launch conducted from Western Europe, a successful launch of ORBIMAGE's
OrbView-2 remote imaging satellite, and the successful launch of ORBCOMM's first
plane of eight communications satellites. In February 1998, the Pegasus
successfully launched a satellite for NASA and a satellite for Teledesic
Corporation ("Teledesic"). Orbital has successfully completed its first two
Taurus missions, most recently launching a U.S. Navy satellite and two ORBCOMM
satellites in February 1998.
Customers for Pegasus launch services have included NASA, the U.S. Air
Force, ORBCOMM, ORBIMAGE, the Defense Advanced Research Projects Agency
("DARPA") and the national space agency of Brazil. Customers for Taurus launch
vehicles have included the U.S. Air Force, the U.S. Navy, South Korea's space
agency and ORBCOMM.
Under a contract with NASA, Orbital is designing and constructing three
X-34 unmanned reusable launch vehicles that are being designed to be launched
from the Company's L-1011 aircraft. The X-34 will test and demonstrate advanced
reusable launch system technologies and materials as part of NASA's program that
is focused on the development of next-generation, lower cost reusable launch
vehicles. The Company has completed the fundamental design of the X-34 and has
begun vehicle fabrication and construction.
The Company also produces suborbital launch vehicles, which place payloads
into a variety of high-altitude trajectories but, unlike space launch vehicles,
do not place payloads into orbit around the Earth. The Company's suborbital
launch products include suborbital vehicles and their principal subsystems,
payloads carried by such vehicles and related launch support installations and
systems used in their assembly and operation. Customers typically use the
Company's suborbital launch vehicles to launch scientific and other payloads
above the atmosphere and for defense-related applications such as target
signature and interceptor experiments. The Company's primary customers for
suborbital launch vehicles are various branches of the U.S. military. Orbital
conducted six successful suborbital launches in 1997 and, since 1982, the
Company has performed almost 100 suborbital missions, with an approximate 97%
success rate. During 1997, Orbital won a major suborbital contract with the U.S.
Air Force to combine surplus government ballistic missile equipment with Pegasus
and Taurus launch vehicle technology to conduct up to 24 space launches and
suborbital missions over the next several years. Additionally, in 1998, the
Company was one of three companies awarded a suborbital launch contract by the
U.S. Army with the potential for up to 300 suborbital missions over the next 10
years, to be allocated by the U.S. Army among the three companies.
SATELLITES AND RELATED SPACE SYSTEMS. The Company designs and produces
small and medium-class satellites to be used in low-Earth orbit ("LEO") and
small geosynchronous orbit ("GEO") satellites. The Company's satellites are used
by various commercial and governmental customers on a wide range of commercial,
scientific and military missions. Since 1982, Orbital (including two predecessor
companies) has built and delivered more than 50 satellites. In addition, the
Company is in the process of designing small and medium-class satellites to be
used in medium-Earth orbit ("MEO"). In many cases, Orbital's small satellites
have been designed to be integrated with and launched by the Pegasus or Taurus
launch vehicles in order to reduce the cost of the overall system.
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Fifteen Orbital satellites were deployed during 1997 and in 1998 through
the date hereof, including ORBIMAGE's OrbView-2 multispectral imaging satellite
and ten ORBCOMM communications satellites. Orbital is in the process of
constructing 24 additional communications satellites for ORBCOMM and two
additional remote imaging satellites for ORBIMAGE. Orbital's medium satellites,
such as NASA's TOPEX/Poseidon and the National Oceanic and Atmospherics
Administration's Landsat 4 and Landsat 5 satellites, have been in space for a
number of years and are used to gather various scientific data, such as ocean
topography and Earth imaging information. As a result of the CTA acquisition,
Orbital's first GEO satellite was successfully deployed in November 1997. This
GEO satellite, owned and operated by MediaCitra Indostar, will provide
direct-to-home television in Indonesia.
Customers for Orbital's satellites have included ORBCOMM, ORBIMAGE, Johns
Hopkins University, NASA, the U.S. Air Force and Teledesic. An Orbital satellite
was also recently selected by the Canadian Space Agency for a remote imaging
satellite project. In 1997, Orbital was selected as the satellite manufacturer
to build 17 communications satellites for the Mobile Communications Holdings,
Inc. ("MCHI") "Ellipso" global voice satellite communications system. The
Company and MCHI are currently in the early stage of negotiations for a
definitive procurement agreement. In connection with such procurement agreement,
the Company and MCHI are also discussing a possible investment by Orbital in
MCHI and/or vendor financing alternatives, which could potentially be
significant in amount.
Orbital also designs and manufactures satellite command and data handling,
attitude control and structural subsystems for a variety of government and
commercial customers, and provides a broad range of spacecraft design and
engineering services as well as specialized analytical engineering services for
NASA, the Jet Propulsion Laboratory, the Department of Defense ("DoD"), the
Department of Energy and other customers.
ELECTRONICS AND SENSOR SYSTEMS. Orbital develops, manufactures and markets
defense electronics products, including advanced avionics and data management
systems for aircraft flight operations and ground support applications. These
systems collect, process and store mission-critical data for, among other
things, mission planning and flight operations, and manage on-board equipment
for strategic and tactical aircraft and similar military platforms. The primary
customers for data management systems are the U.S. Navy, the U.S. Air Force and
various DoD prime contractors and foreign governments. The Company is the
leading supplier of certain avionics systems and products, including mission
data equipment for the U.S. Navy and data transfer equipment and digital terrain
systems for the U.S. Air Force and foreign military customers. In addition, the
Company provides stores management systems, including weapons arming and firing
functions for use on tactical aircraft and helicopters. The avionics systems and
products are deployed on a number of platforms, including the F-4, F-14, F-15,
F-16, F-18 and F-22 aircraft and the LAMPS helicopter.
Orbital also produces satellite-borne scientific sensors and instruments,
such as atmospheric ozone monitoring instruments and environmental sensors. For
example, the Company's instruments have successfully operated in space,
measuring ozone concentrations around the world. Orbital has also developed and
produced an atmospheric monitoring system for use on the proposed International
Space Station, and sensors performing similar functions for U.S. Navy nuclear
submarines. Orbital is developing sensors for the DoD for use in the detection
of the presence of chemical or biological weapons. In addition, Orbital's
commercial base of sensor products includes the manufacturing and marketing of
sensors that analyze fuel properties in the chemical, biotechnology,
pharmaceutical and steel industries.
GROUND SYSTEMS AND SOFTWARE. Orbital is the leading supplier of turn-key
commercial satellite imaging ground stations and is a major provider of advanced
image processing software used in such stations. During 1997, Orbital introduced
the Fast TRACS mobile satellite ground station, which is a fully transportable
satellite ground station that can be rapidly deployed and easily activated. In
recent years, the Company's ground systems have also expanded to include
software-intensive products designed for air and sea transportation systems,
along with a variety of military applications, including naval mine-hunting
operations, artillery command and control, radar deception and logistics
support.
The Company develops, provides and upgrades commercial satellite remote
imaging ground stations and related information-processing software. Of
approximately 30 major non-military imaging satellite ground
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stations around the world, Orbital has been the prime contractor or a major
supplier in the construction of 25 ground stations in 20 countries. These ground
stations are designed to receive and process data from the major civil and
commercial Earth observation satellites currently in operation. Orbital also
develops and markets software that generates and processes imagery from
satellites and airborne sensors. Customers for the Company's ground stations and
Earth information systems include the European and Canadian space agencies as
well as ORBIMAGE, EarthWatch and various other commercial and government
customers in the United States, Japan, Korea, Saudi Arabia, Brazil, China,
Malaysia, Taiwan and the Philippines.
The Company also produces automated aeronautical information and air
traffic control systems. Faster and less expensive to operate than traditional
manual systems, automated aeronautical information systems provide pilots and
other users with aeronautical and meteorological information on a timely basis.
Customers for the Company's aeronautical information systems products include
military and civil aviation authorities in various countries such as Australia,
Belgium, Canada, Norway, Malaysia and Switzerland.
SATELLITE ACCESS PRODUCTS. The Company's Satellite Access Products include
the satellite-based navigation, positioning and communication products of its
Magellan subsidiary, as well as certain of its transportation management
systems.
SATELLITE NAVIGATION, POSITIONING AND COMMUNICATIONS
PRODUCTS. Traditionally, Magellan's product line primarily consisted of
inexpensive satellite-based navigation and positioning products for commercial
and consumer markets, including recreational marine and aviation customers and
outdoor recreational customers such as campers, hunters and hikers. In December
1997, Orbital completed the merger of Ashtech with its Magellan subsidiary. With
the addition of the Ashtech product lines, Magellan now also develops and
manufactures GPS products that are used for professional and other
high-precision industrial applications, such as guiding aircraft under
low-visibility conditions, monitoring movements of the Earth's surface for
researchers, precision surveying for construction projects and urban planning,
and natural resource management. In addition, some of Magellan's
higher-performance products incorporate technology that provides access to both
the U.S. GPS satellites and GLONASS, the comparable Russian satellite navigation
system, which improves performance and accuracy.
In connection with the Ashtech merger, Orbital entered into a stockholders'
agreement with certain substantial holders of Ashtech securities (the "Ashtech
Holders"). The Ashtech Holders were granted certain rights with respect to
Magellan, including, among others, the right to (i) designate two members of
Magellan's seven-member board of directors and (ii) demand registration of their
Magellan common stock after the earlier of 180 days after an initial public
offering of the common stock of Magellan or December 31, 1999.
In July 1997, Magellan entered the emerging market for GPS-based automotive
navigation products with the purchase of the PathMaster product line from
Rockwell. PathMaster uses GPS information to provide electronic map guidance to
individual motorists. The PathMaster system is currently in use in approximately
8,000 Hertz rental cars and the product design is being enhanced with more
functionality and features to address broader private passenger vehicle and
rental car markets.
Magellan also provides satellite telephones used with the INMARSAT
satellite system, and has developed technology and products for the ORBCOMM
satellite data network, including a hand-held messaging communicator combining
data communications and GPS features for ORBCOMM customers.
TRANSPORTATION MANAGEMENT SYSTEMS. In addition, Orbital produces
satellite-related vehicle location and fleet management systems that have been
used primarily for metropolitan mass transit operators. The ORBTRAC
transportation management systems combine GPS vehicle tracking technology with
local-area wireless terrestrial communications to help manage public bus and
light rail systems, provide for voice and data communications and transmit
precise GPS-based location information in emergency situations. Customers for
Orbital's transportation management systems include the metropolitan mass
transit authorities in Chicago, Oakland, New York City and Baltimore, as well as
a number of other state and municipal transit systems and vehicle fleets.
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SATELLITE SERVICES. In Orbital's Satellite Services sector, the Company's
ORBCOMM and ORBIMAGE affiliates are developing satellite-based services to
address markets for global two-way mobile data communications and digital
imagery of the Earth's land surface, oceans, atmosphere and weather conditions.
ORBCOMM COMMUNICATIONS SERVICES. The ORBCOMM System is designed to provide
continuous low-cost monitoring, tracking and messaging communications coverage
over most of the Earth's surface. The system is intended to be a reliable,
cost-effective method of providing fixed asset monitoring, mobile asset tracking
and data messaging services to a broad range of industrial and commercial
customers around the world, enabling customers to collect data from multiple
locations, track assets on a global basis and transmit and receive messages
outside the coverage area of terrestrial services. It is designed to permit
subscribers to use inexpensive communicators to send and receive short messages,
high-priority alerts and other information, such as the location and condition
of automobiles, trucks, railcars, industrial equipment, shipping vessels and
other remote assets. The Company expects that the ability to send and receive
data and messages without the geographic limitations of existing terrestrial
communications systems will stimulate the growth of new markets for
satellite-based monitoring, tracking and messaging communications and will be
used to supplement terrestrial-based communications systems by providing
relatively low-cost wide-area geographic coverage in areas these systems are
unable to reach.
The ORBCOMM System is planned to consist of a constellation of up to 36
small LEO satellites, with a satellite control center that operates and
positions the satellites, fixed and mobile communicators used by subscribers to
transmit messages to and receive messages from the satellites, and the regional
ground gateway systems that transmit and control the flow of data and message
communications and other information for the system. A gateway generally
consists of an Earth-tracking station that sends signals to and receives signals
from the satellites and a message switching system that processes the message
traffic.
Since early 1996, ORBCOMM has been providing limited commercial service in
the United States, primarily in monitoring and tracking applications, through
its first two satellites that were launched in 1995. A plane of eight satellites
was launched on a Pegasus launch vehicle in December 1997, and two additional
satellites were launched on Orbital's Taurus rocket in February 1998. These
satellites are expected to be placed into commercial service in the second
quarter of 1998. To date in the in-orbit check-out process, certain of these
satellites are generating lower than expected solar power levels, although the
Company and ORBCOMM anticipate that such power levels will be sufficient to meet
planned service requirements, and certain of these satellites have experienced
anomalies in certain radio transmitters. The Company and ORBCOMM believe they
have determined the causes of the lower power level and radio transmitter
anomalies, which they believe will be corrected in future ORBCOMM satellites,
and are developing procedures to minimize the effects of and/or bypass these
anomalies on the existing in-orbit ORBCOMM satellites. There can be no assurance
that the Company and ORBCOMM will be successful in their efforts or, if
unsuccessful, that ORBCOMM's commercial operations would not be adversely
affected.
The next 16 ORBCOMM satellites are expected to be launched by mid-1998, at
which time ORBCOMM will begin offering global service to its customers. ORBCOMM
is scheduled to expand its real-time global service with the launch of eight
additional satellites in mid-1999. Under the ORBCOMM System Procurement
Agreement between Orbital and ORBCOMM (the "ORBCOMM Procurement Agreement"),
Orbital is completing construction of, and will launch, the remaining 24
satellites, all on a fixed-price basis. Consistent with industry practices for
similar contracts, the ORBCOMM Procurement Agreement contains certain
performance incentives with respect to the satellites and their launches.
There are currently four operational U.S. gateway Earth stations located in
New York, Washington, Arizona and Georgia. Gateways are also planned to be owned
and operated by ORBCOMM licensees in strategic locations around the world. For
example, a gateway Earth station located in Italy has successfully completed
acceptance testing and is now in pre-commercial service, and gateway Earth
stations are under construction in South Korea and Japan. ORBCOMM has agreements
with several manufacturers, including Magellan, for the development and
manufacture of hand-held communicators and various types of industrial
communicators that monitor fixed and mobile assets. Subscriber communication
manufacturers also include Panasonic and Scientific Atlanta.
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Orbital developed the "ORBCOMM" concept in 1990, and formed the ORBCOMM
partnership in 1993 with Teleglobe Mobile Partners ("Teleglobe Mobile") for the
design, development, construction, integration, testing and operation of the
ORBCOMM System. OCC and Teleglobe Mobile each hold a 50% interest in ORBCOMM and
have invested approximately $75 million and $85 million, respectively, through
December 31, 1997. OCC and Teleglobe Mobile also formed two marketing
partnerships, ORBCOMM USA and ORBCOMM International Partners, L.P. ("ORBCOMM
International"), each with the exclusive right to market the ORBCOMM System in
the U.S. and internationally, respectively.
Pursuant to the terms of the partnership agreements, (i) OCC and Teleglobe
Mobile share equal responsibility for the operational and financial affairs of
ORBCOMM, (ii) OCC indirectly holds a 51% interest in ORBCOMM USA, with the
result that OCC controls the operational and financial affairs of ORBCOMM USA,
and (iii) Teleglobe Mobile indirectly holds a 51% interest in ORBCOMM
International, with the result that Teleglobe Mobile controls the operational
and financial affairs of ORBCOMM International. Since OCC is unable to control,
but is able to exercise significant influence over, ORBCOMM's and ORBCOMM
International's operating and financial policies, the Company accounts for its
investments in ORBCOMM and ORBCOMM International using the equity method of
accounting. Since OCC is able to control the operational and financial affairs
of ORBCOMM USA, the Company consolidates ORBCOMM USA's results of operations.
In accordance with the equity method of accounting, Orbital recognizes 100%
of the revenues earned and costs incurred on sales of products and services to
ORBCOMM. The Company also recognizes as equity in earnings (losses) of
affiliates its proportionate share of ORBCOMM's profits and losses. ORBCOMM is
currently capitalizing substantially all system construction costs, including
amounts paid to Orbital. To the extent ORBCOMM capitalizes its purchases from
Orbital, the Company eliminates as equity in earnings (losses) of affiliates
approximately 50% (the Company's equity ownership in ORBCOMM) of its profits and
losses from sales to ORBCOMM.
The Company believes that ORBCOMM, which has a highly leveraged capital
structure, will require additional funding in 1998, and ORBCOMM is currently in
the process of exploring financing alternatives to complete the construction of
the ORBCOMM System and to fund its initial operations. Such alternatives
include, but are not limited to, additional capital contributions from its
existing partners, vendor financing, equity or debt transactions and other
strategic alternatives. There can be no assurance that any financing will be
completed or be available on terms commercially acceptable to ORBCOMM. Orbital
is committed to provide up to an additional $15 million to ORBCOMM, of which $10
million has been funded so far in 1998. In addition, Orbital has provided
approximately $24 million in vendor financing to ORBCOMM (one-half of which has
been advanced to Orbital by an affiliate of Teleglobe Inc.) and expects this
amount to increase.
Orbital anticipates that start-up of the ORBCOMM System will produce
substantial operating losses for several more years. The ORBCOMM System is
subject to various technological risks and limitations inherent in any
satellite-based communications system. Even if the ORBCOMM System is fully
constructed and operational, there can be no assurance that an adequate market
will develop for ORBCOMM services, that ORBCOMM will achieve profitable
operations or that Orbital will recover its past or anticipated investment in
ORBCOMM.
ORBIMAGE IMAGERY SERVICES. ORBIMAGE operates, and is further developing, a
fleet of satellites that collect, process and distribute digital imagery of the
Earth's surface (land and oceans), the atmosphere and weather conditions. Small
Earth-viewing satellites and related sensors and instruments placed in low-
Earth orbits are planned to offer cost-efficient image collection and
processing, together with daily global coverage and high-resolution imaging
quality.
In April 1995, ORBIMAGE launched its first satellite, OrbView-1, which
provides dedicated weather-related imagery and meteorological products to NASA
and other U.S. government-related users. ORBIMAGE's second satellite, OrbView-2,
was launched in August 1997 on a Pegasus vehicle and is used by ORBIMAGE to
deliver high-quality multi-spectral (color and infra-red) ocean imagery and land
surface imagery to government and commercial customers. ORBIMAGE is in the
process of completing the design of two high-resolution imaging satellites,
OrbView-3 and OrbView-4, which are being developed to provide high-
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spatial resolution and, in the case of OrbView-4, hyper-spectral (enhanced color
and infra-red) imagery. OrbView-3 and OrbView-4 are scheduled to be launched in
1999 and 2000, respectively. The Company believes that OrbView-3 and OrbView-4
will be among the first commercial satellites with high-resolution imagery
capability and that OrbView-4 will be the world's first satellite with
commercially available hyper-spectral capability.
Under the ORBIMAGE System Procurement Agreement between Orbital and
ORBIMAGE (the "ORBIMAGE Procurement Agreement"), Orbital is designing,
manufacturing and providing the launch service for the OrbView-3 and OrbView-4
satellites, and is constructing the related ground segment, generally on a
fixed-price basis. Consistent with industry practices for similar contracts, the
ORBIMAGE Procurement Agreement contains certain performance incentives with
respect to the satellites and their launches. Orbital also provides ORBIMAGE
with general, administrative and technical support pursuant to an Administrative
Services Agreement. These services are provided on a cost-reimbursable basis or,
in some cases, a cost plus fee basis.
In February 1998, ORBIMAGE completed a private financing of $150 million of
units consisting of 11 5/8% Senior Notes due 2005 and warrants to purchase an
aggregate of approximately 3% of ORBIMAGE's outstanding common stock.
Concurrently, the existing preferred stockholders in ORBIMAGE exercised an
option to purchase additional preferred stock of ORBIMAGE, resulting in net
proceeds to ORBIMAGE of approximately $21 million.
Currently, Orbital owns approximately 60% of ORBIMAGE, with the remainder
owned by a group of preferred stockholders. As a result of certain rights
granted to the preferred stockholders, including the right to elect certain
directors and have such directors participate in significant management
decisions, Orbital does not control the operational and financial affairs of
ORBIMAGE. As a consequence, Orbital accounts for its investment in ORBIMAGE
using the equity method, recognizing revenues earned and costs incurred on sales
of products and services, and its proportionate share (approximately 75% at
December 31, 1997 and approximately 60% following the February 1998 transactions
described in the preceding paragraph) of ORBIMAGE profits and losses, in the
manner described above under "-- ORBCOMM Communications Services." In addition,
the preferred stockholders have certain demand registration rights with respect
to their shares after June 30, 2002. As of December 31, 1997, Orbital had
invested approximately $89 million in ORBIMAGE. Orbital anticipates that
ORBIMAGE will incur operating losses at least in the near term. There can be no
assurance that an adequate market will develop for ORBIMAGE's products and
services, that it will achieve profitable operations or that Orbital will
recover its investment in ORBIMAGE.
COMPETITION
Orbital believes that competition for sales of its products and services is
based on performance and other technical features, reliability, scheduling,
customization and price.
The primary domestic competition for the Pegasus and Taurus launch vehicles
comes from the Athena launch vehicles developed by Lockheed. In addition,
Pegasus may face competition from launch systems derived from U.S. government
surplus ballistic missiles. The Israeli Shavit vehicle and other potential
foreign launch vehicles could also pose competitive challenges to Pegasus,
although U.S. government policy currently prohibits the launch of foreign
vehicles from U.S. territory. Competition for Taurus could come from surplus
Titan II launch vehicles, although a very limited inventory remains, and from
the Russian Cosmos SL-8 launch vehicle. Competition to Pegasus and Taurus
vehicles also exists in the form of partial or secondary ("piggyback") payload
capacity on larger boosters such as the Ariane, Atlas and Delta launch vehicles.
Orbital's primary competitors in the suborbital launch vehicle product line are
Coleman Research Corporation, Lockheed and Space Vector Corporation.
The Company's satellites and satellite subsystems products compete with
products and services produced or provided by government entities and numerous
private entities, including TRW Inc., Ball Aerospace, Lockheed, Hughes, Spar
Aerospace Limited and Spectrum Astro, Inc. The Company's airborne and ground-
based electronics systems, including defense-oriented data management systems,
defense-oriented avionics products and imagery processing systems, and space
sensors and instruments face competition from several
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established manufacturers, including Smiths Industries, Lockheed Sanders and
Honeywell Inc. The Company's main competitors in the area of satellite ground
stations include Datron Systems Inc., Matra Marconi Space N.V. and Raytheon
Corp. The Company's Satellite Access Products primarily face competition from
Trimble Navigation Ltd., Garmin International, Lowrance Electronics, Philips
Automotive Electronics, Alpine Electronics and several other producers. The main
competitors with Orbital's transportation management systems are Rockwell,
Harris Corporation and TMS (Raytheon).
ORBCOMM, which provides satellite-based data communications services, may
face competition from numerous existing and proposed satellite-based and
terrestrial systems providing data communications services. ORBIMAGE may face
competition from U.S. and foreign governmental entities, and private entities
including Space Imaging EOSAT, EarthWatch and SPOT Image, that provide or are
seeking to provide satellite-based or aerial imagery products.
Many of the Company's competitors are larger and have substantially greater
resources than the Company. Furthermore, the possibility exists that other
domestic or foreign companies or governments, some with greater experience in
the space industry and greater financial resources than Orbital, will seek to
produce products or services that compete with those of the Company. Any such
foreign competitor could benefit from subsidies from, or other protective
measures by, its home country.
RESEARCH AND DEVELOPMENT
The Company expects to continue to invest in product-related research and
development, to conceive and develop new products and services, to enhance
existing products and services and to seek customer and, where appropriate,
strategic partner investments in these products and services. Orbital's research
and development expenses, excluding direct customer-funded development, were
approximately $26.4 million, $22.2 million and $28.5 million, respectively, for
the fiscal years ended December 31, 1997, 1996 and 1995.
PATENTS AND TRADEMARKS
Orbital relies, in part, on patents, trade secrets and design and
production know-how to develop and maintain its competitive position and
technological advantage. The Company holds U.S. and foreign patents relating to
the Pegasus vehicle, U.S. patents relating to certain components of the ORBCOMM
satellites, U.S. patents relating to certain of its GPS products, as well as
patents for other systems and products produced by the Company. The Company also
has various pending patent applications relating to Pegasus, the ORBCOMM System,
and its GPS products along with other products. Certain of the trademarks and
service marks used in connection with the Company's products and services have
been registered with the U.S. Patent and Trademark Office, the Canadian
Intellectual Property Office and certain other foreign trademark authorities.
COMPONENTS, RAW MATERIALS AND CARRIER AIRCRAFT
Orbital purchases a significant percentage of its product components,
including rocket propulsion motors, structural assemblies, electronic equipment
and computer chips, from third parties. Orbital also occasionally obtains from
the U.S. government parts and equipment that are used in the production of the
Company's products or in the provision of the Company's services. Orbital has
not experienced material difficulty in obtaining product components or necessary
parts and equipment and believes that alternative sources of supply would be
available, although increased costs and possible delays could be incurred in
securing alternative sources of supply. The Company's ability to launch its
Pegasus vehicle, the X-34 vehicle and certain new suborbital vehicles depends on
the availability of an aircraft with the capability of carrying and launching
such launch vehicles. In June 1997, Orbital purchased the modified Lockheed
L-1011 used for its Pegasus vehicle. Prior to that date, Orbital had leased the
L-1011 since 1991 from a commercial lending institution. In the event that the
L-1011 were to be unavailable, Orbital would experience significant delays,
expenses and loss of revenues as a result of having to acquire and modify a new
carrier aircraft.
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U.S. GOVERNMENT CONTRACTS
During 1997, 1996 and 1995, approximately 38%, 45% and 40%, respectively,
of the Company's total annual revenues were derived from contracts with the U.S.
government and its agencies or from subcontracts with the U.S. government's
prime contractors. Most of Orbital's U.S. government contracts are funded
incrementally on a year-to-year basis. Changes in government policies,
priorities or funding levels through agency or program budget reductions by the
U.S. Congress or executive agencies or the imposition of budgetary constraints
could materially adversely affect Orbital's financial condition or results of
operations. Agencies within the U.S. government and commercial customers to
which sales by the Company accounted for ten percent or more of the Company's
consolidated 1997 revenues were NASA, DoD and ORBIMAGE.
The accuracy and appropriateness of Orbital's direct and indirect costs and
expenses under its contracts with the U.S. government are subject to extensive
regulation and audit by the Defense Contract Audit Agency or by other
appropriate agencies of the U.S. government. These agencies have the right to
challenge Orbital's cost estimates or allocations with respect to any such
contract. Additionally, a substantial portion of payments to the Company under
U.S. government contracts are provisional payments that are subject to potential
adjustment upon audit by such agencies. Orbital believes that any adjustments
likely to result from inquiries or audits of its contracts will not have a
material adverse impact on its financial condition or results of operations.
Since Orbital's inception, it has not experienced any material adjustments as a
result of any such inquiries or audits.
Orbital's major contracts with the U.S. government fall into three
categories: firm fixed-price contracts, fixed-price incentive fee contracts and
cost-plus-fee contracts. Under firm fixed-price contracts, work performed and
products shipped are paid for at a fixed price without adjustment for actual
costs incurred in connection with the contract. Risk of loss due to increased
cost, therefore, is borne by the Company, although some of this risk may be
passed on to subcontractors. Under fixed-price government contracts, Orbital may
receive progress payments, generally in an amount equal to between 80% and 95%
of monthly costs and profits, or it may receive milestone payments upon the
occurrence of certain program achievements, with final payments occurring at
project completion. Fixed-price incentive fee contracts provide for sharing by
the customer and the Company of unexpected costs incurred or savings realized
within specified limits, and may provide for adjustments in price depending on
actual contract performance other than costs. Costs in excess of the negotiated
maximum (ceiling) price and the risk of loss by reason of such excess costs are
borne by the Company, although some of this risk may be passed on to
subcontractors. Under a cost-plus-fee contract, Orbital recovers its actual
allowable costs incurred and receives a fee consisting of a base amount that is
fixed at the inception of the contract and/or an award amount that is based on
the U.S. government's subjective evaluation of the Company's performance in
terms of the criteria stated in the contract.
All Orbital's U.S. government contracts and, in general, its subcontracts
with the U.S. government's prime contractors provide that such contracts may be
terminated at will by the U.S. government or the prime contractor (at the
request of the U.S. government), respectively. Furthermore, any of these
contracts may become subject to a government issued stop work order under which
the Company would be required to suspend production. In the event of a
termination at will, Orbital would normally be entitled to recovery of the
purchase price for delivered items, reimbursement for allowable costs for work
in process and an allowance for reasonable profit thereon or adjustment for loss
if completion of performance would have resulted in a loss. The Company from
time to time experiences contract suspensions and terminations.
REGULATION
The ability of Orbital to pursue its business activities is regulated by
various agencies and departments of the U.S. government and, in certain
circumstances, the governments of other countries. Commercial space launches
require licenses from the DoT and operation by Orbital of its L-1011 aircraft
requires licenses from certain agencies of the DoT, including the Federal
Aviation Administration. Construction, launch and operation of commercial
communications satellites, including the satellite-based two-way data
communications network to be provided by ORBCOMM, require licenses from the FCC
and frequently require the approval of international and individual country
regulatory authorities. ORBCOMM has its necessary FCC
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regulatory authority to operate its system but still must obtain certain foreign
regulatory approvals. In addition, commercial remote imagery satellite systems
such as ORBIMAGE require licenses from the DoC and the FCC for the construction,
launch and operation of remote imaging satellites. ORBIMAGE has its DoC remote
sensing licenses and has filed an application with the FCC for a license to
construct, launch and operate the OrbView-3 and OrbView-4 satellites. Exports of
Orbital's products, services and technical information frequently require
licenses from the U.S. Department of State or the DoC. There can be no assurance
that the Company will continue to be successful in its efforts to obtain
necessary licenses or regulatory approvals. The inability of the Company,
ORBCOMM or ORBIMAGE to secure any necessary licenses or approvals could have a
material adverse effect on the financial condition or results of operations of
the Company.
BACKLOG
Orbital's contract backlog is attributable to its Space and Ground
Infrastructure Systems business. The Company's firm backlog at December 31, 1997
and 1996 was approximately $1.0 billion and $710 million, respectively. As of
December 31, 1997, approximately 50% of the Company's backlog was with the U.S.
government and its agencies or from subcontracts with the U.S. government's
prime contractors. Firm backlog consists of aggregate contract values for firm
product orders, excluding the portion previously included in operating revenues
on the basis of percentage of completion accounting, and including government
contract orders not yet funded in the amounts of approximately $435 million and
$265 million as of December 31, 1997 and 1996, respectively. Approximately $550
million of backlog is currently scheduled to be performed beyond 1998. Firm
backlog excludes unexercised contract options and undefinitized contracts having
an aggregate potential contract value at December 31, 1997 of approximately $1.9
billion.
EMPLOYEES
As of December 31, 1997, Orbital had nearly 4,000 full-time permanent
employees. The Company does not have any collective bargaining agreements with
its employees and believes its employee relations are good.
PROPERTIES
Orbital operates launch vehicle, satellite and electronics engineering,
manufacturing and test facilities in Dulles and McLean, Virginia, Germantown and
Greenbelt, Maryland and Chandler, Arizona; a launch vehicle and satellite
integration and test facility at Vandenberg Air Force Base, California; a space
sensors and instruments facility in Pomona, California; a ground systems and
software facility in Vancouver, British Columbia; and facilities for its
navigation and communications products in Sunnyvale and San Dimas, California
and Rochester Hills, Michigan. The Company has other smaller facilities, offices
or manufacturing space around the United States and in Canada, England, Russia
and Indonesia.
LEGAL PROCEEDINGS
On October 10, 1996, Thomas van der Heyden, a former employee of CTA, filed
a lawsuit in the Circuit Court for Montgomery County, Maryland against CTA and
certain of its subsidiaries alleging that such companies breached a profit
sharing agreement with respect to the satellite contract for PT MediaCitra
Indostar, and initially seeking $30 million in compensatory damages and $150
million in punitive damages. The dispute is now in arbitration. As a result of
the CTA acquisition, Orbital acquired the stock of the subsidiaries that are
parties to the proceedings. Under the terms of the CTA acquisition, CTA has
agreed to indemnify Orbital against damages arising from the arbitration
proceeding. The case was heard by a board of arbitrators in February 1998 and a
decision is pending.
---------------
For additional information on the Company's business, see the Annual Report
incorporated by reference herein.
33
<PAGE> 35
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age and position of each of the
Executive Officers and Directors of Orbital as of March 1, 1998. All Executive
Officers are elected annually and serve at the discretion of the Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY AND ITS SUBSIDIARIES OR AFFILIATES
---- --- ------------------------------------------------------------
<S> <C> <C>
David W. Thompson............. 43 Chairman of the Board, President and Chief Executive Officer
Bruce W. Ferguson............. 43 Director, Senior Vice President, Special Projects
Scott L. Webster.............. 45 Director, Chairman of the Board and Chief Executive Officer
of ORBCOMM
Fred Alcorn(1)................ 67 Director
Kelly H. Burke(1)(2).......... 68 Director
Daniel J. Fink(2)(3).......... 71 Director
Lennard A. Fisk(2)............ 54 Director
Jack L. Kerrebrock(2)......... 69 Director
Douglas J. Luke(1)(3)......... 56 Director
John L. McLucas(1)(2)......... 77 Director
Janice I. Obuchowski(2)....... 46 Director
Frank L. Salizzoni(3)......... 59 Director
Harrison H. Schmitt(2)(3)..... 62 Director
James R. Thompson............. 61 Director, Executive Vice President and General Manager/
Launch Systems Group
Robert R. Lovell.............. 60 Executive Vice President and General Manager/Space Systems
Group
Robert D. Strain.............. 41 Executive Vice President and General Manager/Electronics and
Sensor Systems Group
Daniel E. Friedmann........... 41 Executive Vice President and General Manager/Systems
Integration and Software Group
Antonio L. Elias.............. 48 Senior Vice President and General Manager/Advanced Programs
Group
Charles M. Boesenberg......... 49 Executive Vice President and General Manager/Satellite
Access Products Group; President and Chief Executive
Officer of Magellan
Michael D. Griffin............ 48 Executive Vice President and Chief Technical Officer
Jeffrey V. Pirone............. 37 Executive Vice President and Chief Financial Officer
Leslie C. Seeman.............. 45 Senior Vice President, General Counsel and Secretary
</TABLE>
- ---------------
(1) Member of the Human Resources and Nominating Committee.
(2) Member of the Strategy and Technology Committee.
(3) Member of the Audit and Finance Committee.
David W. Thompson is a co-founder of Orbital and has been Chairman of the
Board, President and Chief Executive Officer of the Company since 1982. Prior to
founding Orbital, Mr. Thompson was employed by Hughes Electronics Corporation as
special assistant to the President of its Missile Systems Group and by NASA at
the Marshall Space Flight Center as a project manager and engineer, and also
worked at the Charles Stark Draper Laboratory on the Space Shuttle's autopilot
design. Mr. Thompson serves as Chairman of the Board and Chief Executive Officer
of ORBIMAGE, as Chairman of Magellan, and as a Director of ORBCOMM.
Bruce W. Ferguson is a co-founder of Orbital and has been Senior Vice
President, Special Projects since 1997, and a Director of the Company since
1982. Mr. Ferguson was Executive Vice President and General
34
<PAGE> 36
Manager/Communications and Information Services Group from 1993 until 1997, and
Executive Vice President and Chief Operating Officer of Orbital from 1989 to
1993. From 1985 to 1989, he was Senior Vice President/Finance and Administration
and General Counsel of Orbital. Mr. Ferguson is a fellow at the Center for
International Science and Technology Policy and Center for Space Policy at The
George Washington University. Mr. Ferguson is also a Director of ORBIMAGE.
Scott L. Webster is a co-founder of Orbital and has been a Director of the
Company since 1982. In early 1998, Mr. Webster became Chairman of the Board and
Chief Executive Officer of ORBCOMM. From 1993 to 1997, Mr. Webster served in
various consulting capacities with the Company. He served as President of
Orbital's Space Data Division from 1990 until 1993, and Executive Vice President
of that Division from 1989 to 1990. Mr. Webster served as Orbital's Senior Vice
President/Marketing and Vice President of Marketing from Orbital's inception in
1982 until 1989. Previously, he held technical and management positions at
Advanced Technology Laboratories and Litton Industries, Inc.
Fred C. Alcorn has been a Director of the Company since 1983. Since 1975,
Mr. Alcorn has been President of Alcorn Oil & Gas Company and Alcorn Development
Company.
Kelly H. Burke has been a Director of the Company since 1984. In 1982,
General Burke retired from the U.S. Air Force. Since that time, General Burke
has been Chairman of Stafford, Burke and Hecker, Inc., an aerospace consulting
firm. During 30 years of U.S. Air Force service, General Burke held a wide
variety of command and staff positions, culminating with that of Deputy Chief of
Staff for Research, Development and Acquisition at the Pentagon. Additionally,
he has served as an advisor to the White House Science Office, the National
Academy of Sciences, the Defense Science Board and the U.S. Air Force Scientific
Advisory Board.
Daniel J. Fink has been a Director of the Company since 1983. Since 1982,
Mr. Fink has been President of D.J. Fink Associates, Inc., a management
consulting firm. From 1967 until 1982, Mr. Fink held a variety of positions at
General Electric Company, including the position of Senior Vice President from
1979 to 1982. He is a director of Titan Corporation, a former member of the
Defense Science Board and a former Chairman of the NASA Advisory Council.
Lennard A. Fisk has been a Director of the Company since 1993. Since 1993,
Dr. Fisk has been Professor and Chairman of the Department of Atmospheric,
Oceanic, and Space Sciences at the University of Michigan. From 1987 until 1993,
he was Associate Administrator for Space Science and Applications at NASA. From
1977 until 1987, he held various positions at the University of New Hampshire,
including Vice President for Research and Financial Affairs.
Jack L. Kerrebrock has been a Director of the Company since 1993. From 1984
until 1993, he was a director of Orbital's then wholly owned subsidiary, Orbital
Research Corporation ("ORC"). Since 1965, Dr. Kerrebrock has been a Professor of
Aeronautics and Astronautics at the Massachusetts Institute of Technology
("MIT"). He also served as NASA Associate Administrator for Aeronautics and
Space Technology from 1981 to 1983.
Douglas S. Luke has been a Director of the Company since 1983. Since 1991,
Mr. Luke has been President and Chief Executive Officer of WLD Enterprises,
Inc., a private investment firm. From 1979 until 1990, he held various positions
with Rothschild, Inc., including the position of Managing Director from 1987
until 1990. Mr. Luke is currently a Director of Regency Realty Corporation and
Westvaco Corporation.
John L. McLucas has been a Director of the Company since 1993. From 1987
until 1993, he was a director of ORC. He was formerly Chairman of the
International Space University and currently serves on its Board of Advisors.
From 1988 to 1991, he was Chairman of the NASA Advisory Council and Chairman of
the U.S. Air Force Studies Board. From 1985 to 1988, he was Chairman of
QuesTech, Inc. From 1977 to 1985, Dr. McLucas was Executive Vice President of
COMSAT Corporation. Prior to 1977, Dr. McLucas held a variety of positions,
including Administrator of the Federal Aviation Administration, Secretary of the
U.S. Air Force and President of MITRE Corporation.
Janice I. Obuchowski was appointed by the Board of Directors in 1996 to
fill a vacancy on the Board. Ms. Obuchowski is a founder and Executive Vice
President of NextWave TeleCom, Inc., a wireless
35
<PAGE> 37
personal communications services provider. Since 1992, she has been President of
Freedom Technologies, Incorporated, a telecommunications research and consulting
firm. From 1989 to 1992, she served as the Assistant Secretary for
Communications and Information in the U.S. Department of Commerce and
Administrator of the National Telecommunications and Information Agency. From
1980 to 1987, Ms. Obuchowski served in a variety of positions at the U.S.
Federal Communications Commission, including Chief of the Common Carrier
Bureau's International Policy Division and Senior Advisor to the Chairman.
Frank L. Salizzoni was appointed by the Board of Directors in 1996 to fill
a vacancy on the Board. Mr. Salizzoni has been President and Chief Executive
Officer of H&R Block, Inc. since 1996. From 1994 until 1996, Mr. Salizzoni was
President and Chief Operating Officer of USAir, Inc. and USAir Group, Inc. He
joined USAir as Executive Vice President-Finance and Chief Financial Officer in
1990. From 1987 to 1989, Mr. Salizzoni was Chairman and Chief Executive Officer
of TW Services, one of the largest food services companies in the United States.
Mr. Salizzoni held several senior financial management positions from 1967 to
1987 with Trans World Airlines and its parent company, Transworld Corporation.
Mr. Salizzoni is a director of H&R Block and SKF USA, Inc.
Harrison H. Schmitt has been a Director of the Company since 1983. From
1982 until the present, Dr. Schmitt has served in various capacities as a
consultant. From 1976 to 1982, Dr. Schmitt was a United States Senator from New
Mexico, during which time he chaired the Senate Science, Technology and Space
Subcommittee, which authorizes all non-military space-related research and
development programs of the U.S. government. From 1974 to 1975, he was NASA
Assistant Administrator for Energy Programs. From 1965 to 1973, he was a NASA
astronaut. As Lunar Module Pilot on Apollo 17 in 1972, he explored the Moon's
surface.
James R. Thompson (who is not related to David W. Thompson) has been
Executive Vice President and General Manager/Launch Systems Group since 1993 and
a Director of the Company since 1992. Mr. Thompson was Executive Vice President
and Chief Technical Officer of Orbital from 1991 to October 1993. He was Deputy
Administrator of NASA from 1989 to 1991. From 1986 until 1989, Mr. Thompson was
Director of NASA's Marshall Space Flight Center. He was Deputy Director for
Technical Operations at Princeton University's Plasma Physics Laboratory from
1983 through 1986. Before that, he had a 20-year career with NASA at the
Marshall Space Flight Center. He is a director of SPACEHAB Incorporated and
Nichols Research Corp.
Robert R. Lovell has been Executive Vice President and General
Manager/Space Systems Group since 1997. From 1994 to 1997, he was Senior Vice
President for Special Projects at Orbital. Mr. Lovell previously served as
Executive Vice President and General Manager/Space Systems Group from 1993 to
1994. From 1990 to 1993, he was President/Space Systems Division of Orbital and,
from 1987 to 1989, he served as Vice President/Space Applications. From 1980 to
1987, Mr. Lovell was employed by NASA as Director of the Communications Division
in the Office of Space Science and Applications. Before that, he had an 18-year
career with NASA at the Lewis Research Center.
Robert D. Strain has been Executive Vice President and General
Manager/Electronics and Sensor Systems Group since 1996. From 1994 until 1996,
he was Vice President for Finance and Manufacturing at Orbital. Prior to that he
served in a variety of senior-level financial positions with Fairchild,
including Vice President of Finance, Treasurer and Controller. Before joining
Fairchild, Mr. Strain held several senior financial positions with NWL Control
Systems.
Daniel E. Friedmann has been Executive Vice President and General
Manager/Systems Integration and Software Group since 1996. He also continues to
serve as President and Chief Executive Officer of Orbital's Canadian subsidiary,
MDA, a position he has held since 1995. From 1992 to 1995, he served as
Executive Vice President and Chief Operating Officer of MDA. Between 1979 and
1992, he held a variety of positions at MDA, including serving as Vice President
of various divisions.
Antonio L. Elias has been Senior Vice President and General
Manager/Advanced Programs Group since 1997. From 1996 until 1997, Dr. Elias
served as Senior Vice President and Chief Technical Officer of Orbital. From
1993 through 1995 he was Senior Vice President for Advanced Projects and was
Senior Vice
36
<PAGE> 38
President/Space Systems Division from 1990 to 1993. He was Vice
President/Engineering of Orbital from 1989 to 1990 and was Chief Engineer from
1986 to 1989. From 1980 to 1986, Dr. Elias was an Assistant Professor of
Aeronautics and Astronautics at Massachusetts Institute of Technology.
Charles M. Boesenberg has been President and Chief Executive Officer of
Magellan and Executive Vice President and General Manager, Satellite Access
Products since January 1, 1998, upon the merger of Ashtech with Magellan. From
1992 until 1994, Mr. Boesenberg was President, Chief Executive Officer and a
director of Ashtech. From 1992 to 1994, Mr. Boesenberg was Chairman of the
Board, President and Chief Executive Officer of Central Point Software, Inc.
From 1991 to 1992, Mr. Boesenberg was President of MIPS Computer Systems, Inc.
("MIPS"), a semiconductor and computer systems company, now a subsidiary of
Silicon Graphics, Inc. He joined MIPS in 1989 as Executive Vice President of
Marketing. From 1987 to 1989, Mr. Boesenberg was Senior Vice President, U.S.
Sales and Marketing of Apple Computer, Inc.
Michael D. Griffin has been Executive Vice President and Chief Technical
Officer since 1997. From 1996 to 1997, Dr. Griffin served as Executive Vice
President and General Manager/Space Systems Group. Dr. Griffin joined Orbital in
1995 when he was appointed Senior Vice President and Chief Technical Officer.
From 1994 to 1995, he was Senior Vice President for Program Development at Space
Industries International. From 1991 to 1994, he served as Chief Engineer of NASA
and, from 1989 to 1991, was Deputy Director for Technology at the Strategic
Defense Initiative Organization.
Jeffrey V. Pirone has been Executive Vice President and Chief Financial
Officer since January 1998, and was Senior Vice President and Chief Financial
Officer since 1996. From 1993 until 1996, Mr. Pirone served as Vice President
and Controller of Orbital. Mr. Pirone joined Orbital as Controller in 1991, and
prior to that was a Senior Manager at KPMG Peat Marwick LLP.
Leslie C. Seeman has been Senior Vice President of the Company since 1993
and General Counsel and Secretary of the Company since 1989. From 1989 to 1993,
she was Vice President of the Company, and from 1987 to 1989, she was Assistant
General Counsel of Orbital. From 1984 to 1987, she was General Counsel of Source
Telecomputing Corporation, a telecommunications company. Prior to that, she was
an attorney at the law firm of Wilmer, Cutler & Pickering.
37
<PAGE> 39
DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Restated Certificate of
Incorporation, as amended (the "Certificate"), and by the provisions of
applicable law. A copy of the Certificate is an exhibit to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK
The Company has authorized 80,000,000 shares of Common Stock, par value
$.01 per share, of which 32,481,719 were issued and outstanding as of December
31, 1997. Holders of Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders, including the election of directors.
Subject to the rights of holders of any preferred stock of the Company that may
be issued, holders of Common Stock are entitled to receive such dividends as may
be declared from time to time by the board of directors of the Company from
funds legally available therefor. Upon liquidation, dissolution or winding-up of
the Company, the holders of Common Stock will be entitled to share ratably all
assets available for distribution to shareholders after payment of liabilities,
subject to prior preemptive or conversion rights or other subscription rights.
There are no redemption or sinking fund provisions applicable to the Common
Stock.
PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred stock, $.01 par
value per share, none of which are issued or outstanding. The Company's board of
directors is authorized, without any further action by the shareholders, to
provide for the issuance of the unissued shares of preferred stock and to
determine the rights, preferences, privileges and restrictions of the unissued
preferred stock.
LIMITATION OF LIABILITY
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
authorizes corporations to limit or eliminate the personal liability of
directors to corporations and their stockholders for monetary damages for breach
of directors' fiduciary duty of care. Although Section 102(b)(7) does not change
directors' duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Certificate limits the
liability of directors to the Company or its stockholders to the full extent
permitted by Section 102(b)(7).
CERTAIN STATUTORY PROVISIONS
Section 203 of the DGCL provides, in general, that a stockholder acquiring
more than 15% of the outstanding voting shares of a corporation subject to the
statute (an "Interested Stockholder"), but less than 85% of such shares, may not
engage in certain "Business Combinations" with the corporation for a period of
three years subsequent to the date on which the stockholder became an Interested
Stockholder unless (i) prior to such time the corporation's board of directors
approved either the Business Combination or the transaction in which the
stockholder became an Interested Stockholder or (ii) at or subsequent to such
time the Business Combination is approved by the corporation's board of
directors and authorized by a vote of at least two-thirds of the outstanding
voting stock of the corporation not owned by the Interested Stockholder.
Section 203 defines the term "Business Combination" to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which the
Interested Stockholder receives or could receive a benefit on other than a pro
rata basis with other stockholders, including mergers, certain asset sales,
certain issuances of additional shares to the Interested Stockholder,
transactions with the corporation which increase the proportionate interest of
the Interested Stockholder or a transaction in which the Interested Stockholder
receives certain other benefits.
Section 102(b)(3) of the DGCL provides that no stockholder shall have any
preemptive right to subscribe to an additional issue of stock or to any security
convertible into such stock unless, and except to the extent that, such right is
expressly granted to him in the certificate of incorporation. The Certificate
does not
38
<PAGE> 40
grant stockholders such preemptive rights. Accordingly, the Company's
stockholders do not have preemptive rights to subscribe for additional issuances
of Common Stock or for any security convertible into such stock.
TRANSFER AGENT
Boston Equiserve is the transfer agent and registrar for the Common Stock.
39
<PAGE> 41
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), J.P.
Morgan Securities Inc. ("J.P. Morgan") and Morgan Stanley & Co. Incorporated are
acting as representatives (the "Representatives") of each of the Underwriters
named below (the "Underwriters"). Subject to the terms and conditions set forth
in a purchase agreement (the "Purchase Agreement") among the Company and the
Underwriters, the Company has agreed to sell to the Underwriters, and each of
the Underwriters severally and not jointly has agreed to purchase from the
Company, the number of shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERWRITERS ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
J.P. Morgan Securities Inc. ................................
Morgan Stanley & Co. Incorporated...........................
----------
Total.......................................... 2,750,000
==========
</TABLE>
In the Purchase Agreement, the several Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the shares of
Common Stock being sold pursuant to such agreement if any of the shares of
Common Stock being sold pursuant to such agreement are purchased. Under certain
circumstances, under the Purchase Agreement the commitments of non-defaulting
Underwriters may be increased.
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per share of
Common Stock. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per share of Common Stock on sales to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Company has granted an option to the Underwriters, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
412,500 additional shares of Common Stock at the initial public offering price
set forth on the cover page of this Prospectus, less the underwriting discount.
The Underwriters may exercise this option solely to cover over-allotments, if
any, made on the sale of the shares of Common Stock offered hereby. To the
extent that the Underwriters exercise this option, each Underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
shares of Common Stock proportionate to such Underwriter's initial amount
reflected in the foregoing table.
The Company and the Company's executive officers and directors have agreed,
subject to certain exceptions, not to directly or indirectly (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale of
or otherwise dispose of or transfer any shares of Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock, whether now
owned or thereafter acquired by the person executing the agreement or with
respect to which the person executing the agreement thereafter acquires the
power of disposition, or file a registration statement under the Securities Act
with respect to the foregoing or (ii) enter into any swap or other agreement
that transfers, in whole or in part, the economic consequence of ownership of
the Common Stock, whether any such swap or transaction is to be settled by
delivery of Common Stock or other securities, in cash or otherwise, without the
prior written consent of Merrill Lynch on behalf of the Underwriters for a
period of 90 days after the date of this Prospectus.
40
<PAGE> 42
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives may
reduce that short position by purchasing Common Stock in the open market. The
Representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the offering made hereby.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Common Stock to the extent that it
discourages resales of the Common Stock.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Certain of the Representatives and their affiliates have provided and are
currently providing investment banking and related services to the Company and
its affiliates, for which they have received or are receiving customary
compensation, and may continue to do so in the future. In addition, Morgan
Guaranty Trust Company of New York, an affiliate of J.P. Morgan, acts as
administrative agent and collateral agent for a syndicate of banks under the
Credit Facility and J.P. Morgan acted as an initial purchaser in the placement
of the Notes in September 1997.
41
<PAGE> 43
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Hogan & Hartson L.L.P., Washington, D.C. Certain legal matters
relating to the offering made hereby will be passed upon for the Underwriters by
Cleary, Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The consolidated financial statements and schedule of Orbital Sciences
Corporation as of December 31, 1997 and 1996, and for each of the years in the
three-year period ended December 31, 1997, and the financial statements of
ORBCOMM Global, L.P. (a development stage enterprise) as of December 31, 1997
and 1996, and for each of the years in the three-year period ended December 31,
1997, and for the period June 30, 1993 (date of inception) through December 31,
1997, have been included and/or incorporated by reference herein in reliance on
the reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere and/or incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
42
<PAGE> 44
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Statements of Earnings......................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
------------------------
For the financial statements of ORBCOMM Global, L.P., see the Annual Report
incorporated by reference herein.
F-1
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Orbital Sciences Corporation:
We have audited the accompanying consolidated balance sheets of Orbital
Sciences Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Orbital
Sciences Corporation and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
February 4, 1998
F-2
<PAGE> 46
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Revenues.............................................. $ 605,975 $ 461,435 $ 364,320
Costs of goods sold................................... 456,772 336,261 268,016
----------- ----------- -----------
Gross profit.......................................... 149,203 125,174 96,304
Research and development expenses..................... 26,355 22,179 28,512
Selling, general and administrative expenses.......... 89,502 76,019 63,427
Amortization of excess of purchase price over net
assets acquired..................................... 3,852 3,134 3,221
----------- ----------- -----------
Income from operations................................ 29,494 23,842 1,144
Net investment income (expense), net of interest
expense of $429, $2,486 and $3,815, respectively.... 1,475 (1,123) 639
Equity in earnings (losses) of affiliates............. (26,034) (6,454) (759)
Non-controlling interests in (earnings) losses of
consolidated subsidiaries........................... 2,638 1,473 427
Gain on sale of subsidiary stock...................... 21,810 -- --
Acquisition expenses.................................. (4,343) -- (3,441)
----------- ----------- -----------
Income (loss) before provision (benefit) for income
taxes and cumulative effect of accounting change.... 25,040 17,738 (1,990)
Provision (benefit) for income taxes.................. 2,035 1,831 (1,302)
----------- ----------- -----------
Income (loss) before cumulative effect of accounting
change.............................................. 23,005 15,907 (688)
Cumulative effect of accounting change, net of
taxes............................................... -- -- (4,160)
----------- ----------- -----------
Net income (loss)..................................... $ 23,005 $ 15,907 $ (4,848)
=========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE:
Income (loss) before cumulative effect of
accounting change.............................. $ 0.71 $ 0.55 $ (0.03)
Cumulative effect of accounting change........... -- -- (0.16)
----------- ----------- -----------
$ 0.71 $ 0.55 $ (0.19)
=========== =========== ===========
Shares used in computing net income (loss) per
common share................................... 32,283,138 29,137,361 26,207,746
=========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING DILUTION:
Income (loss) before cumulative effect of
accounting change.............................. $ 0.69 $ 0.55 $ (0.03)
Cumulative effect of accounting change........... -- -- (0.16)
----------- ----------- -----------
$ 0.69 $ 0.55 $ (0.19)
=========== =========== ===========
Shares used in computing net income (loss) per
common share, assuming dilution................ 33,980,747 31,616,119 30,103,858
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 47
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
-------- --------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of
$6,162 and $11,604, respectively..................... $ 12,553 $ 26,859
Short-term investments, at market...................... 2,573 5,827
Receivables, net....................................... 190,204 144,774
Inventories, net....................................... 50,925 27,159
Deferred income taxes and other assets................. 8,190 6,475
-------- --------
TOTAL CURRENT ASSETS.............................. 264,445 211,094
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated
depreciation and amortization of $79,347 and $69,534,
respectively.............................................. 137,498 127,862
INVESTMENTS IN AFFILIATES, net.............................. 159,230 82,582
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, less
accumulated amortization of $19,794 and $15,942,
respectively.............................................. 181,955 69,512
DEFERRED INCOME TAXES AND OTHER ASSETS...................... 28,511 9,720
-------- --------
TOTAL ASSETS................................................ $771,639 $500,770
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term
obligations.......................................... 29,317 38,519
Accounts payable....................................... 36,217 25,789
Accrued expenses....................................... 100,274 32,372
Deferred revenue....................................... 46,138 30,741
-------- --------
TOTAL CURRENT LIABILITIES......................... 211,946 127,421
LONG-TERM OBLIGATIONS, net of current portion............... 198,394 33,076
OTHER LIABILITIES........................................... 2,443 11,581
-------- --------
TOTAL LIABILITIES...................................... 412,783 172,078
NON-CONTROLLING INTERESTS IN NET ASSETS OF CONSOLIDATED
SUBSIDIARIES.............................................. 3,755 (1,810)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01; 10,000,000 shares
authorized:
Series A Special Voting Preferred Stock, one share
authorized and outstanding........................... -- --
Class B Preferred Stock, 10,000 shares authorized, none
and 10,000 shares outstanding........................ -- --
Common Stock, par value $.01; 80,000,000 shares authorized,
32,481,719 and 32,160,598 shares outstanding, after
deducting 20,877 and 15,735 shares held in treasury,
respectively.............................................. 325 322
Additional paid-in capital.................................. 326,187 323,592
Unrealized gains on short-term investments.................. 272 14
Cumulative translation adjustment........................... (4,943) (3,681)
Retained earnings........................................... 33,260 10,255
-------- --------
TOTAL STOCKHOLDERS' EQUITY............................. 355,101 330,502
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $771,639 $500,770
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 48
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK GAINS (LOSSES) ON CUMULATIVE RETAINED
------------------- ADDITIONAL SHORT-TERM TRANSLATION EARNINGS
SHARES AMOUNT PAID-IN CAPITAL INVESTMENTS ADJUSTMENT (DEFICIT) TOTAL
---------- ------ --------------- ----------------- ----------- --------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994.... 24,257,322 $243 $210,030 $(462) $(3,111) $ 243 $206,943
Shares issued to employees
and directors........... 300,011 3 1,857 -- -- -- 1,860
Shares issued in private
offering................ 2,000,000 20 32,366 -- -- -- 32,386
Conversion of convertible
debentures.............. 208,696 2 2,914 -- -- -- 2,916
Adjustment to recast year
end of pooled company... -- -- -- -- -- (1,047) (1,047)
Transactions of pooled
company................. -- -- 413 -- -- -- 413
Translation adjustment.... -- -- -- -- (245) -- (245)
Net loss.................. -- -- -- -- -- (4,848) (4,848)
Unrealized gains on short-
term investments........ -- -- -- 530 -- -- 530
---------- ---- -------- ----- ------- ------- --------
BALANCE, DECEMBER 31, 1995.... 26,766,029 268 247,580 68 (3,356) (5,652) 238,908
Shares issued to employees
and directors........... 298,916 3 2,163 -- -- -- 2,166
Shares issued in private
offering................ 1,200,000 12 20,251 -- -- -- 20,263
Conversion of convertible
debentures.............. 3,895,653 39 53,598 -- -- -- 53,637
Translation adjustment.... -- -- -- -- (325) -- (325)
Net income................ -- -- -- -- -- 15,907 15,907
Unrealized losses on
short-term
investments............. -- -- -- (54) -- -- (54)
---------- ---- -------- ----- ------- ------- --------
BALANCE, DECEMBER 31, 1996.... 32,160,598 322 323,592 14 (3,681) 10,255 330,502
Shares issued to employees
and directors, net...... 321,121 3 2,595 -- -- -- 2,598
Translation adjustment.... -- -- -- -- (1,262) -- (1,262)
Net income................ -- -- -- -- -- 23,005 23,005
Unrealized gains on short-
term investments........ -- -- -- 258 -- -- 258
---------- ---- -------- ----- ------- ------- --------
BALANCE, DECEMBER 31, 1997.... 32,481,719 $325 $326,187 $ 272 $(4,943) $33,260 $355,101
========== ==== ======== ===== ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 49
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS)........................................... $ 23,005 $ 15,907 $ (4,848)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization expense............. 23,854 25,096 22,229
Equity in losses of affiliates.................... 26,034 6,454 759
Non-controlling interests in losses of
consolidated subsidiaries....................... (2,638) (1,473) (427)
Gain on sale of subsidiary stock, fixed assets and
investments, net................................ (21,810) 226 (2,196)
Cumulative effect of accounting change............ -- -- 4,160
Foreign currency translation adjustment........... (1,262) (325) (245)
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in receivables................ 915 (29,916) (2,337)
(Increase) decrease in inventories................ (18,288) 10,261 (12,082)
(Increase) decrease in other assets............... (8,280) 2,221 (3,940)
Decrease in accounts payable and accrued
expenses........................................ (7,194) (11,051) (11,423)
Increase in deferred revenue...................... 3,742 919 7,090
Increase (decrease) in other liabilities.......... 6,363 (2,954) 942
--------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................. 24,441 15,365 (2,318)
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (45,012) (43,544) (17,239)
Proceeds from sales of assets, net................ 34,682 9,518 293
Purchases of available-for-sale investment
securities...................................... (25,328) (5,623) (61,685)
Sales of available-for-sale investment
securities...................................... 22,209 11,041 49,168
Maturities of available-for-sale investment
securities...................................... 6,631 8,220 8,100
Investments in affiliates......................... (107,110) (22,991) (18,888)
Payments for business acquisitions, net of cash
acquired........................................ (66,558) -- --
--------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES........ (180,486) (42,379) (40,251)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments)............ (3,700) 26,200 (17,483)
Principal payments on long-term obligations....... (20,237) (7,502) (5,749)
Net proceeds from issuance of long-term
obligations..................................... 163,078 -- 20,000
Fees associated with conversion of debentures..... -- (2,571) --
Net proceeds from issuances of common stock....... 2,598 22,429 34,246
Adjustment to recast pooled company's year end.... -- -- (1,047)
--------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES.... 141,739 38,556 29,967
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (14,306) 11,542 (12,602)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 26,859 15,317 27,919
--------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 12,553 $ 26,859 $ 15,317
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1/ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Orbital Sciences Corporation (together with its subsidiaries, "Orbital" or
the "company"), a Delaware corporation, is an international space and
information systems company that designs, manufactures, operates and markets a
broad range of affordable products and services that are grouped into three
sectors: Space and Ground Infrastructure Systems, Satellite Access Products and
Satellite Services. Space and Ground Infrastructure Systems include launch
vehicles, satellites, electronics and sensors, and satellite ground systems;
Satellite Access Products include satellite-based navigation and communications
products and transportation management systems; and Satellite Services include
satellite-based two-way mobile data communications services and satellite-based
imagery services. Disaggregated financial information is presented in note 2.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Orbital, all
wholly and partially owned subsidiaries controlled by Orbital, and partnerships
in which Orbital directly or indirectly controls the general partner interests.
All material transactions and accounts among consolidated entities have been
eliminated in consolidation.
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Certain
reclassifications have been made to the 1996 and 1995 financial statements to
conform to the 1997 financial statement presentation. All financial amounts are
stated in U.S. dollars unless otherwise indicated.
REVENUE RECOGNITION
Orbital recognizes revenues on long-term contracts using the
percentage-of-completion method of accounting. Accordingly, (i) revenues on
cost-plus-fee contracts are recognized to the extent of costs incurred plus a
proportionate amount of fee earned, and (ii) revenues on fixed-price contracts
are recognized based on costs incurred in relation to total estimated costs, or
based on specific delivery terms and conditions. To the extent that estimated
costs of completion are adjusted, revenue and profit recognized from a
particular contract will be affected in the period of the adjustment.
Anticipated contract losses are recognized as they become known. Revenues from
sales of access products and satellite services are generally recognized when
the product is shipped or the service is performed.
FOREIGN CURRENCY
Orbital's operating entities are in a number of countries and deal in a
number of foreign currencies. The financial results of foreign operations are
translated to U.S. dollars using year end exchange rates for assets and
liabilities and using weighted average exchange rates for revenues, expenses,
gains and losses.
Translation gains and losses relating to foreign operations that are
self-contained and integrated within a particular country or economic
environment, and therefore are not dependent on the U.S. dollar, are recognized
as a separate component of stockholders' equity until there is a realized
reduction in Orbital's net investment in the foreign operation. Translation
losses in 1997, 1996 and 1995 were approximately $1,262,000, $325,000 and
$245,000, respectively. Translation gains and losses relating to foreign
operations that are a
F-7
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1/ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
direct and integral component or extension of Orbital's domestic operations, and
therefore are dependent on the U.S. dollar, are reported currently as a
component of net income.
Orbital enters into forward exchange contracts to hedge against foreign
currency fluctuations on certain receivables and payables (see note 6). Gains
and losses on contracts to hedge specific foreign currency commitments are
deferred and accounted for as part of the underlying transaction.
RESEARCH AND DEVELOPMENT
Research and development expenses include self-funded product development
activities and exclude direct customer-funded development and are expensed as
incurred. Research and development expenses are allocated, when appropriate, to
U.S. government contracts under government-mandated cost accounting standards.
DEPRECIATION, AMORTIZATION AND RECOVERABILITY OF LONG-LIVED ASSETS
Depreciation and amortization are provided using the straight-line method
as follows:
<TABLE>
<S> <C>
Buildings.................................. 18 to 20 years
Machinery, equipment and software.......... 3 to 10 years
Satellite systems.......................... Estimated useful life of satellite
Leasehold improvements..................... Shorter of estimated useful life or lease term
</TABLE>
In 1995, the company adopted the provisions of Statement of Financial
Accounting Standards 121, "Accounting for the Impairment of Long-Lived Assets to
be Disposed of" ("SFAS 121"). The cumulative effect on 1995 earnings of adopting
SFAS 121 was approximately $4,160,000. Orbital's policy is to review its
long-lived assets, including excess of purchase price over net assets acquired,
investments in affiliates, and specialized equipment used to support specific
space-related products, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The company recognizes an impairment loss when the sum of expected
future cash flows is less than the carrying amount of the asset. Given the
inherent technical and commercial risks within the space industry, it is
possible that the company's current estimate that it will recover the carrying
amount of its long-lived assets from future operations may change.
INCOME TAXES
The company 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 of a tax rate change on deferred tax assets and liabilities is recognized
as income in the period that includes the enactment date.
STOCK-BASED COMPENSATION
Prior to January 1, 1996, the company accounted for its stock option plans
in accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations. Pursuant to APB 25, compensation expense is recorded only to
the extent that the current market price of the underlying stock exceeded the
exercise price on the date of grant. On January 1, 1996, the company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which requires companies to (i) recognize as
F-8
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1/ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
expense the fair value of all stock-based awards on the date of grant, or (ii)
continue to apply the provisions of APB 25 and provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants made
in 1995 and future years as if the fair-value-based method defined in SFAS 123
had been applied. The company has elected to continue to apply the provisions of
APB 25 and provide the pro forma disclosure in accordance with the provisions of
SFAS 123 (see note 13).
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), which requires companies to present basic earnings per share and diluted
earnings per share, instead of the primary and fully diluted earnings per share
that had previously been required. The company adopted SFAS 128 in the fourth
quarter of 1997 and, accordingly, has restated previously reported quarterly
data for 1997 (see note 14). The impact to prior years' amounts was immaterial.
Net income (loss) per common share is calculated using the weighted average
number of common shares outstanding during the periods. Net income (loss) per
common share assuming dilution is calculated using the weighted average number
of common shares and dilutive common equivalent shares outstanding during the
periods, plus the effects of an assumed conversion of the company's convertible
notes, after giving effect to all net income adjustments that would result from
the assumed conversion.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Orbital considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Investments in securities that do
not meet the definition of cash equivalents are classified as short-term
investments. Since Orbital does not intend to hold its investments in debt and
equity securities until maturity and does not actively trade the securities to
maximize trading gains, Orbital classifies these securities as
"available-for-sale" and, accordingly, reports such securities at fair value
plus accrued interest. Any temporary excess (deficiency) of market value over
(under) the underlying cost of the short-term investment is excluded from
current period earnings and is reported as unrealized gains (losses) as a
separate component of stockholders' equity. In addition, at December 31, 1997
and 1996, the company had approximately $6,162,000 and $11,604,000,
respectively, of cash restricted to support outstanding letters of credit.
INVENTORIES
Inventories consist of components and raw materials inventory,
work-in-process inventory and finished goods inventory and are generally stated
at the lower of cost or net realizable value on a first-in, first-out ("FIFO")
or specific identification basis. Inventories, net of allowances for
obsolescence, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Components and raw materials................................ $14,013 $19,090
Work-in-process............................................. 26,932 6,962
Finished goods.............................................. 9,980 1,107
------- -------
Total.................................................. $50,925 $27,159
======= =======
</TABLE>
Components and raw materials are purchased to support future production
efforts. Work-in-process inventory consists primarily of (i) costs incurred
under long-term fixed-price contracts accounted for using the
percentage-of-completion method of accounting applied on a units of delivery
basis, and (ii) partially assembled commercial products, and generally includes
direct production costs and certain allocated indirect costs (including an
allocation of general and administrative costs). Work-in-process inventory has
been
F-9
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1/ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
reduced by contractual progress payments received of $5,899,000 and $26,696,000
at December 31, 1997 and 1996, respectively. Finished goods inventory consists
of fully assembled commercial products awaiting shipment.
SELF-CONSTRUCTED ASSETS AND INTERNALLY DEVELOPED SOFTWARE
The company self-constructs much of its ground and airborne support and
special test equipment used in the manufacture, production and delivery of many
of its space infrastructure products. Orbital also develops and manufactures
product improvements and enhancements to existing products for sale. Orbital
capitalizes certain costs incurred in constructing ground and airborne support
and special test equipment, product improvements and enhancements, and satellite
systems. Capitalized costs generally include direct construction costs and
certain allocated indirect costs, and exclude general and administrative and
research and development costs.
The company also capitalizes certain internal costs incurred in developing
software to be used to support various products. Capitalized costs generally
include direct software coding costs and certain allocated indirect costs, and
exclude general and administrative and research and development costs.
Amortization of capitalized costs begins when the software is placed in service.
No amortization expense is included in the accompanying consolidated statements
of earnings since the software has not yet been placed in service.
INVESTMENTS IN AFFILIATES
The company uses the equity method of accounting for its investments in and
equity in earnings (losses) of affiliates in which the company has the ability
to significantly influence, but not control, the affiliates' operations. In
accordance with the equity method of accounting, the company's carrying amount
of an investment in an affiliate is initially recorded at cost and is increased
to reflect its share of the affiliate's income and is reduced to reflect its
share of the affiliate's losses. Orbital's investment is also increased to
reflect contributions to, and decreased to reflect distributions received from,
the affiliate. Any excess of the amount of Orbital's investment over the amount
of the underlying equity in each affiliate's net assets is amortized over a
period of 20 years. The company capitalizes interest costs on equity method
investments when such affiliate has significant assets under construction. At
December 31, 1997 and 1996, approximately $25,576,000 and $15,947,000,
respectively, of interest costs had been capitalized cumulatively as part of the
historical cost of investments in affiliates. The company uses the cost method
of accounting for investments in affiliates in which it cannot control or
significantly influence operations.
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
The company amortizes the excess of purchase price over net assets acquired
related to prior business combinations on a straight-line basis over its
estimated useful life, generally 10-40 years. Orbital periodically assesses and
evaluates the recoverability of such assets based on current facts and
circumstances and the operational performance of the acquired businesses.
SALES OF SUBSIDIARY STOCK
The company, at times, may divest a portion or all its ownership in its
subsidiaries through the sale of such stock or through the issuance of
additional subsidiary stock. The company recognizes the difference between the
carrying amount of its interest in the subsidiary stock sold and the fair market
value of the stock as a gain or loss when the company believes the realization
of the gain or loss is assured.
F-10
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1/ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
WARRANTIES
The company occasionally accepts warranty clauses in its commercial and
government contracts. In the event the company does not purchase insurance
coverage to protect itself in connection with such warranty clauses, the company
records a liability for warranty claims when it determines that a specific
material liability exists. The company at times provides limited warranties on
certain commercial products and accrues an estimate of expected warranty costs
based on historical experience.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS 130") and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes standards
for reporting and presenting comprehensive income and its components in the
consolidated financial statements. The new disclosure requirements with respect
to comprehensive income will impact the manner of presentation of the company's
annual and interim consolidated financial statements. Upon adoption, the company
will be required to reclassify previously reported annual and interim
consolidated financial statements. SFAS 131 establishes new procedures and
requirements for the (i) determination of business segments, (ii) presentation
and disclosure of segment information and (iii) disclosure of selected segment
information within interim consolidated financial statements. The company has
assessed the impact of adopting SFAS 131 and believes that it will not be
required to change the composition of its segments, although it will be required
to report segment information within its interim consolidated financial
statements. In accordance with the provisions of SFAS 130 and SFAS 131, the
company will adopt these standards in 1998.
2/ DISAGGREGATED FINANCIAL INFORMATION
INDUSTRY SECTOR INFORMATION
Orbital's operations are classified into three industry sectors: Space and
Ground Infrastructure Systems, Satellite Access Products and Satellite Services.
Space and Ground Infrastructure Systems include launch vehicles, including space
and suborbital expendable launch vehicles and reusable launch vehicles,
satellites and other space systems, electronics and sensors, including space
sensors and instruments, avionics and other electronics equipment, and satellite
ground systems. Satellite Access Products include recreational, automotive and
industrial satellite-based navigation products, satellite communications
products and transportation management systems. Satellite Services include
satellite-based global data communications services and satellite-based imagery
services.
The table on the following page presents revenues, operating income (loss),
identifiable assets (including goodwill), capital expenditures, depreciation and
amortization and impairment losses by industry sector. Operating income (loss)
is total revenues less costs of goods sold, research and development expenses,
selling,
F-11
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2/ DISAGGREGATED FINANCIAL INFORMATION -- (CONTINUED)
general and administrative expenses, and amortization of goodwill. Identifiable
assets are those assets used in the operations of each industry sector. There
were no significant inter-sector sales or transfers.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
SPACE AND GROUND INFRASTRUCTURE SYSTEMS
Revenues......................................... $534,419 $388,814 $300,439
Operating income................................. 47,953 26,376 2,433
Identifiable assets.............................. 520,950 362,700 357,662
Capital expenditures............................. 42,823 27,529 15,065
Depreciation and amortization.................... 21,491 21,954 21,150
Impairment losses................................ -- -- 4,160
SATELLITE ACCESS PRODUCTS
Revenues......................................... 71,384 71,188 52,681
Operating income (loss).......................... (11,754) 4,902 3,441
Identifiable assets.............................. 117,511 32,376 27,641
Capital expenditures............................. 1,692 3,402 1,204
Depreciation and amortization.................... 1,962 944 532
SATELLITE SERVICES
Revenues......................................... 172 1,433 11,200
Operating loss................................... (6,705) (7,436) (4,730)
Identifiable assets.............................. 133,178 105,694 81,605
Capital expenditures............................. 497 12,613 970
Depreciation and amortization.................... 401 2,198 547
CONSOLIDATED
Revenues......................................... 605,975 461,435 364,320
Operating income................................. 29,494 23,842 1,144
Identifiable assets.............................. 771,639 500,770 466,908
Capital expenditures............................. 45,012 43,544 17,239
Depreciation and amortization.................... 23,854 25,096 22,229
Impairment losses................................ -- -- 4,160
</TABLE>
F-12
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2/ DISAGGREGATED FINANCIAL INFORMATION -- (CONTINUED)
DOMESTIC AND NON-U.S. OPERATIONS
The following table presents Orbital's revenues, operating income (loss)
and identifiable assets by major location:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
United States.................................... $525,144 $392,130 $290,914
Canada and Mexico................................ 75,584 65,350 68,997
United Kingdom and other......................... 5,247 3,955 4,409
-------- -------- --------
Total............................................ $605,975 $461,435 $364,320
======== ======== ========
OPERATING INCOME (LOSS)
United States.................................... $ 27,959 $ 21,183 $ (2,413)
Canada and Mexico................................ 1,465 2,416 3,964
United Kingdom and other......................... 70 243 (407)
-------- -------- --------
Total............................................ $ 29,494 $ 23,842 $ 1,144
======== ======== ========
IDENTIFIABLE ASSETS
United States.................................... $718,437 $450,394 $420,078
Canada and Mexico................................ 50,690 46,984 44,291
United Kingdom and other......................... 2,512 3,392 2,539
-------- -------- --------
Total............................................ $771,639 $500,770 $466,908
======== ======== ========
</TABLE>
EXPORT SALES AND MAJOR CUSTOMERS
Orbital's sales to geographic areas were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
United States......................................... $447,041 $349,555 $275,707
Canada................................................ 39,274 46,742 45,558
Southeast Asia........................................ 35,688 -- --
Far East.............................................. 32,875 17,517 15,242
Europe................................................ 26,771 33,762 23,594
Middle East and other................................. 24,326 13,859 4,219
-------- -------- --------
Total............................................ $605,975 $461,435 $364,320
======== ======== ========
</TABLE>
Approximately 38%, 45% and 40% of the company's revenues in 1997, 1996 and
1995, respectively, were generated under contracts with the U.S. government and
its agencies or under subcontracts with the U.S. government's prime contractors.
3/ INVESTMENTS IN AFFILIATES
ORBIMAGE
On May 8, 1997, the company's subsidiary, Orbital Imaging Corporation
("ORBIMAGE"), completed a private placement of 300,100 shares of 12% Series A
Cumulative Convertible Preferred Stock (the "Preferred
F-13
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3/ INVESTMENTS IN AFFILIATES -- (CONTINUED)
Stock"), raising gross proceeds of $30,010,000. Also on that date, Orbital
purchased ORBIMAGE common stock, bringing its total equity invested to
approximately $89,187,000. On July 3, 1997, ORBIMAGE sold an additional 72,605
shares of Preferred Stock, raising an additional $7,260,500. Each share of
Preferred Stock entitles its holder to receive annual cumulative dividends of
12% per annum, payable in cash or additional shares of Preferred Stock, at the
discretion of ORBIMAGE's Board of Directors. Pursuant to the terms of this
transaction, at December 31, 1997, Orbital owned approximately 75% of ORBIMAGE
and no longer controls ORBIMAGE's financial and operational affairs as a result
of certain rights provided to ORBIMAGE's preferred stockholders. Consequently,
the company no longer consolidates ORBIMAGE's financial results, but rather uses
the equity method of accounting for its investment in, and earnings or losses
attributable to, ORBIMAGE.
Pursuant to a fixed-price contract, Orbital is the primary supplier to
ORBIMAGE of imaging satellites, launch services and ground systems. During the
year ended December 31, 1997, Orbital recorded sales of approximately
$88,618,000 to ORBIMAGE pursuant to this contract. Additionally, Orbital
provides certain administrative services to ORBIMAGE on a cost-reimbursable
basis; during 1997, Orbital was reimbursed approximately $1,444,000 for such
administrative services. At December 31, 1997, the company had receivables due
from ORBIMAGE of approximately $3,548,000.
At December 31, 1997, ORBIMAGE had total assets, total liabilities and
total stockholders' equity of approximately $137,750,000, $52,389,000 and
$85,361,000, respectively. ORBIMAGE recorded approximately $2,062,000 in
revenues and $4,082,000 in net losses for the year ended December 31, 1997.
ORBCOMM
In 1993, the company's majority owned subsidiary, Orbital Communications
Corporation ("OCC"), and Teleglobe Mobile Partners ("Teleglobe Mobile"), an
affiliate of Teleglobe Inc., formed a partnership, ORBCOMM Global, L.P.
("ORBCOMM"), for the design, development, construction, integration, testing and
operation of a low-Earth orbit satellite communications system (the "ORBCOMM
System"). OCC and Teleglobe Mobile are each 50% general partners in ORBCOMM, and
have contributed to ORBCOMM $75,275,000 and $84,525,000, respectively, through
December 31, 1997. At December 31, 1997, OCC and Teleglobe Mobile each had a
remaining commitment to fund $15,000,000 to ORBCOMM. Additionally, OCC is a 2%
general partner in ORBCOMM USA, L.P. ("ORBCOMM USA") and Teleglobe Mobile is a
2% general partner in ORBCOMM International Partners, L.P. ("ORBCOMM
International"), two partnerships formed to market the ORBCOMM System. ORBCOMM
is a 98% general partner in each of the two marketing partnerships.
Pursuant to the terms of the partnership agreements, (i) OCC and Teleglobe
Mobile share equal responsibility for the operational and financial affairs of
ORBCOMM, (ii) OCC controls the operational and financial affairs of ORBCOMM USA
and (iii) Teleglobe Mobile controls the operational and financial affairs of
ORBCOMM International. Since OCC is unable to control, but is able to exercise
significant influence over ORBCOMM's and ORBCOMM International's operating and
financial policies, the company accounts for its investments in ORBCOMM and
ORBCOMM International using the equity method of accounting. Since OCC is able
to control the operational and financial affairs of ORBCOMM USA, the company
consolidates ORBCOMM USA's results of operations.
Orbital is the primary supplier of the communications satellites, launch
vehicles and certain ground systems to ORBCOMM pursuant to a fixed-price
contract. During 1997, 1996 and 1995, Orbital recorded sales to ORBCOMM pursuant
to this contract of approximately $57,988,000, $47,215,000 and $49,187,000,
respectively. At December 31, 1997 and 1996, Orbital had approximately
$16,646,000 and $3,400,000, respectively, in receivables from ORBCOMM.
Additionally, since 1995 Orbital has provided certain administrative services to
ORBCOMM on a cost-reimbursable basis. During 1997, 1996 and 1995, Orbital was
reimbursed approximately $2,298,000, $1,295,000 and $297,000, respectively, for
such services.
F-14
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3/ INVESTMENTS IN AFFILIATES -- (CONTINUED)
At December 31, 1997, ORBCOMM had total assets, total liabilities and total
partners' capital of approximately $316,969,000, $210,551,000 and $106,418,000,
respectively. ORBCOMM recorded approximately $527,000 in revenues and
$31,436,000 in net losses for the year ended December 31, 1997.
OTHER INVESTMENTS
The company owns equity interests in several emerging space-related
companies. The cost basis of these investments was approximately $7,275,000 and
$2,910,000, respectively, at December 31, 1997 and 1996. The company provides a
valuation allowance against investments in affiliates when it is determined that
recovery of all or part of the investment is not probable. At December 31, 1997
and 1996, approximately $4,886,000 and $1,100,000 of allowance had been recorded
against certain of these investments. Approximately $2,000,000 of gain on the
sale of an investment was realized in 1995 when Orbital sold one such fully
reserved investment. The gain was reported in net investment income in the 1995
consolidated statement of earnings. No such gains from sales of investments were
realized in 1997 or 1996.
4/ BUSINESS COMBINATIONS
PURCHASE TRANSACTIONS
ASHTECH INC. MERGER. On December 31, 1997, Orbital merged its subsidiary,
Magellan Corporation, with Ashtech Inc. ("Ashtech") (the combined company is
hereinafter referred to as "Magellan"). To effect the merger, Orbital paid
former Ashtech security holders approximately $52,800,000, consisting of
$25,000,000 in cash and approximately 23,954,000 shares of Magellan common
stock. Orbital now owns a controlling interest of approximately 66% of Magellan.
Orbital recognized a gain of $21,810,000 on the issuance of Magellan common
stock. The merger was accounted for using the purchase method of accounting.
Accordingly, approximately $46,663,000 in excess of purchase price over the fair
value of net assets acquired was recorded and is being amortized on a
straight-line basis over 20 years.
CTA INCORPORATED ACQUISITION. On August 15, 1997, Orbital acquired
substantially all the assets, including all the stock of certain subsidiaries,
and certain liabilities relating to the satellite manufacturing and
communications services businesses of CTA Incorporated ("CTA"). The financial
results of the acquired businesses have been included in the company's
consolidated results since August 15, 1997. As consideration, Orbital repaid
$27,000,000 of outstanding debt related to the acquired businesses and paid
approximately $13,000,000 in cash, which may be reduced subject to certain
post-closing adjustments. The company accounted for the acquisition using the
purchase method of accounting. The purchase price exceeded the fair value of the
net assets acquired by approximately $65,724,000 which is being amortized on a
straight-line basis over 30 years. During the five years following the closing,
CTA will also be entitled to receive (i) royalties from $500,000 to $3,000,000
for sales by the company of certain geostationary satellites in excess of
certain threshold sales, and (ii) 3% of cumulative revenues in excess of
$50,000,000 earned during such period from the acquired transportation
management business of CTA.
ROCKWELL INTERNATIONAL CORPORATION ACQUISITION. In July 1997, Orbital
formed Magellan DIS Inc. ("DIS") to acquire from Rockwell International
Corporation ("Rockwell") the assets and certain liabilities associated with
Rockwell's automotive navigation product line. Orbital paid approximately
$3,550,000 in cash and issued Rockwell a $4,350,000 unsecured note, which bears
interest at 6% and is repayable semi-annually over three years. The stock of DIS
was subsequently transferred to Magellan. The company accounted for the
acquisition using the purchase method of accounting. The purchase price exceeded
the fair value of the net assets acquired by approximately $2,262,000, which is
being amortized on a straight-line basis over 10 years.
F-15
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4/ BUSINESS COMBINATIONS -- (CONTINUED)
The following unaudited supplemental financial information presents the
consolidated results of operations, on a pro forma basis, as though the Ashtech,
CTA and Rockwell acquisitions were consummated on January 1, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1996
----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Revenues................................................. $700,175 $560,312
Net income............................................... 21,087 16,966
Net income per common share.............................. 0.65 0.58
Net income per common share, assuming dilution........... 0.62 0.54
</TABLE>
The allocation of purchase price to net assets acquired on the 1997
acquisitions may be adjusted in 1998 if additional information becomes known
about certain business assumptions used to estimate the fair value of such net
assets.
On April 6, 1994, the company's subsidiary, MacDonald, Dettwiler and
Associates Ltd. ("MDA"), acquired all the outstanding common shares of The PSC
Communications Group Inc. ("PSC") from PSC's former shareholders. In October
1996, Orbital sold substantially all the assets of PSC for approximately
$13,000,000, resulting in a gain of approximately $3,600,000. The gain is
included in revenues in the 1996 consolidated statement of earnings.
POOLING OF INTERESTS TRANSACTION
MACDONALD, DETTWILER AND ASSOCIATES LTD. On November 17, 1995, the company
acquired all the outstanding common shares of MDA from its former shareholders
in a merger designed to be tax free to MDA's Canadian shareholders (the "MDA
Acquisition").
Pursuant to the terms of the MDA Acquisition, a newly established, wholly
owned Canadian subsidiary of Orbital ("Acquisition Subsidiary") issued 4,087,126
exchangeable shares (the "Exchangeable Shares") in exchange for all the issued
and outstanding MDA common shares. The company also granted 328,399 options to
acquire Orbital common stock to MDA employees who, at the date of the
acquisition, held options to acquire MDA common shares. The Exchangeable Shares
were exchangeable into Orbital common stock at the option of the holders. As
part of the MDA Acquisition, Acquisition Subsidiary also issued 10,000 shares of
Class B Preferred Stock to a financial advisor in satisfaction of a portion of
the fees owed to that advisor; these shares were fully redeemed during 1997.
Additionally, Orbital issued one share of Series A Special Voting Preferred
Stock to a voting trust to act as a voting trustee on behalf of the holders of
the Exchangeable Shares. Orbital accelerated the redemption of all outstanding
Exchangeable Shares in December 1997.
The MDA Acquisition was accounted for using the pooling of interests method
of accounting and, accordingly, Orbital's historical consolidated financial
statements were restated to include MDA's financial position, results of
operations and cash flows. Merger expenses relating to the MDA Acquisition of
approximately $3,400,000 were charged to earnings and were included in
acquisition expenses during 1995.
Prior to the acquisition, MDA's financial results were prepared on a March
31 fiscal year basis. Orbital's restated financial statements for 1994 include
MDA's historical financial results for its fiscal year ended March 31, 1995.
Orbital's consolidated financial statements for the year ended December 31, 1995
included MDA's financial results for the twelve-month period ended December 31,
1995. The effect of recasting MDA's year end for 1995 was charged to Orbital's
retained earnings as of January 1, 1995. The charge to retained earnings
eliminated the effect of including MDA's results of operations for the
three-month period ended March 31, 1995 of $1,047,000 in Orbital's 1995 and 1994
consolidated results of operations. MDA's revenues for the same three-month
period were approximately $20,634,000.
F-16
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5/ SHORT-TERM INVESTMENTS
The following table sets forth the aggregate amortized cost, aggregate fair
value and gross unrealized gains and losses for Orbital's short-term investments
in debt securities:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Amortized cost.............................................. $2,301 $5,813
Fair value.................................................. 2,573 5,827
------ ------
Unrealized gains............................................ $ 272 $ 14
====== ======
</TABLE>
Orbital recognized net losses of approximately $261,000 on sales of
short-term investments in 1995 and had no such losses in 1997 or 1996. All debt
securities held at December 31, 1997 are scheduled to mature in 1998.
6/ RECEIVABLES AND ACCRUED EXPENSES
The components of receivables were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Billed and billable......................................... $118,613 $ 73,747
Recoverable costs and accrued profit not billed............. 73,536 62,628
Retainages due upon contract completion..................... 6,132 9,767
Allowance for doubtful accounts............................. (8,077) (1,368)
-------- --------
Total.................................................. $190,204 $144,774
======== ========
</TABLE>
Approximately 75% of recoverable costs and accrued profit not billed and
retainages due upon contract completion at December 31, 1997 is due within one
year and will be billed on the basis of contract terms and delivery schedules.
The accuracy and appropriateness of Orbital's direct and indirect costs and
expenses under its government contracts, and therefore its receivables recorded
pursuant to such contracts, are subject to extensive regulation and audit by the
U.S. Defense Contract Audit Agency or by other appropriate agencies of the U.S.
government, which have the right to challenge Orbital's cost estimates or
allocations with respect to any such contracts. Additionally, a substantial
portion of the payments to the company under government contracts are
provisional payments that are subject to potential adjustment upon audit by such
agencies. In the opinion of management, any adjustments likely to result from
inquiries or audits of its contracts will not have a material adverse impact on
the company's financial condition or results of operations.
At December 31, 1997 and 1996, $43,294,000 and $33,690,000, respectively,
were receivable from non-U.S. customers. The company enters into forward
exchange contracts in an effort to hedge against foreign currency fluctuations
on certain receivables and payables denominated in foreign currencies.
Accordingly, Orbital is subject to off-balance sheet market risk for the
possibility that future changes in market prices may make the forward exchange
contracts less valuable. The following table summarizes, at December 31, 1997,
F-17
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6/ RECEIVABLES AND ACCRUED EXPENSES -- (CONTINUED)
outstanding foreign exchange contracts to sell (purchase) foreign currencies,
along with current market values:
<TABLE>
<CAPTION>
FOREIGN CURRENCY CURRENT UNREALIZED
CURRENCY HEDGED HEDGED AGAINST CONTRACT AMOUNT MARKET VALUE GAIN (LOSS)
--------------- -------------- --------------- ------------ -----------
(U.S. DOLLARS, IN THOUSANDS)
<S> <C> <C> <C> <C>
Belgian Francs................... CD $ 569 $ 556 $ 13
ECU.............................. CD 1,477 1,492 (15)
ECU.............................. PS 1,392 1,271 121
French Francs.................... CD (31) (28) (3)
Pounds Sterling.................. CD 3,914 3,996 (82)
Malaysian Riggits................ CD 3,781 2,663 1,118
Norwegian Kroner................. CD 1,274 1,253 21
U.S. Dollars..................... CD 36,090 37,377 (1,287)
U.S. Dollars..................... PS 529 528 1
</TABLE>
- ---------------
CD = Canadian Dollars
PS = Pounds Sterling
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Payroll, payroll taxes and fringe benefits.................. $ 28,291 $20,375
Payable to subcontractors................................... 15,534 8,660
Accrued contract costs...................................... 40,552 2,027
Other accrued expenses...................................... 15,897 1,310
-------- -------
Total.................................................. $100,274 $32,372
======== =======
</TABLE>
Approximately $26,332,000 of accrued contract costs at December 31, 1997
related to certain contingent liabilities associated with contracts acquired
from CTA.
7/ PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 852 $ 1,422
Buildings and leasehold improvements........................ 22,112 21,239
Machinery and equipment..................................... 136,310 116,270
Equipment and satellite systems under construction.......... 41,821 48,134
Software and technical drawings............................. 15,750 10,331
Accumulated depreciation and amortization................... (79,347) (69,534)
-------- --------
Total.................................................. $137,498 $127,862
======== ========
</TABLE>
Interest expense of approximately $9,700,000, $7,300,000 and $5,700,000 was
capitalized during 1997, 1996 and 1995, respectively, as part of the historical
cost of equipment under construction and investments in affiliates.
F-18
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8/ SHORT-TERM BORROWINGS
The company has a $25,000,000 unsecured demand line of credit with an
international bank. The line is repayable upon demand and bears interest at the
prime rate or LIBOR. At December 31, 1997, the interest rate on outstanding
borrowings under this line of credit was approximately 6.8%. At December 31,
1997 and 1996, approximately $3,500,000 and $17,500,000, respectively, of
borrowings were outstanding against this line of credit.
The company or its subsidiaries maintain other unsecured general short-term
credit facilities. At December 31, 1997, approximately $6,567,000 was
outstanding on these facilities at an average borrowing rate of 8%. There were
no outstanding borrowings on these facilities at December 31, 1996.
The company's primary $100,000,000 credit facility was amended and restated
during 1997. At December 31, 1997, the amended facility included a line of
credit and a term loan, both maturing in 2001. All of the outstanding borrowings
under this facility have been classified as long-term obligations (see note 9)
due to the three-year term of the underlying debt instruments. The company
terminated a $10,000,000 line of credit with a domestic bank during 1997. At
December 31, 1996, $5,700,000 was outstanding under this facility.
9/ LONG-TERM OBLIGATIONS
The following sets forth the company's long-term obligations, excluding
capital lease obligations (see note 10):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
7% note, principal and interest due monthly through 1998.... $ 631 $ 1,275
7.74 - 9.35% notes, principal and interest due monthly
1998 - 1999............................................... 7,421 12,554
8.95% bank note, principal and interest due monthly through
1999...................................................... -- 2,284
7.19% - 8.64% notes, principal and interest due monthly
through 2002.............................................. 24,562 --
8.41% note, principal and interest due monthly through
2005...................................................... 9,407 --
6% note, principal and interest due semi-annually through
2000...................................................... 4,350 --
5% bank notes, principal and interest due monthly through
2003...................................................... 1,964 1,631
7.89% bank notes, interest and principal due quarterly
through 2001.............................................. 47,750 8,000
12% note, interest due semi-annually, principal due
1999 - 2001............................................... 20,000 20,000
5% convertible subordinated notes, interest due
semi-annually, principal due 2002......................... 100,000 --
-------- --------
216,085 45,744
Less current portion................................... (18,189) (14,115)
-------- --------
Total.................................................. $197,896 $ 31,629
======== ========
</TABLE>
The 7% note is secured by certain equipment located at the company's
Pomona, California facility. The 7.74 - 9.35% notes are secured by certain
equipment located at the company's Germantown, Maryland facility. The 8.95% bank
note was secured by the company's satellite integration and test facility
located in Dulles, Virginia; the company repaid this note in full in February
1997. The 7.19% - 8.64% notes are secured by certain office, computer and test
equipment located at the company's Germantown, Maryland, Chandler, Arizona and
Dulles, Virginia facilities. The 8.41% note is secured by the company's L-1011
aircraft. In conjunction with its acquisition of Rockwell's automotive
navigation product line, on July 31, 1997 Orbital issued Rockwell a $4,350,000
unsecured note, which bears interest at 6% and is repayable semi-annually over
three years.
F-19
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9/ LONG-TERM OBLIGATIONS -- (CONTINUED)
The company has two secured bank borrowing agreements, totaling
approximately $71,000,000, of which $54,000,000 was available and $1,964,000 was
outstanding at December 31, 1997. The secured bank notes, pursuant to an
intercreditor agreement between two international banks, provide for borrowings
at a variable rate, 5% at December 31, 1997, and are collateralized by MDA's
accounts receivable, inventory and certain other assets. The agreements contain
certain covenants with respect to MDA's leverage ratio and tangible net worth.
During 1997, Orbital amended and restated its existing revolving credit
facility to provide for total borrowings from an international syndicate of six
banks of up to $100,000,000. The facility included a $35,000,000 term loan, and
a $65,000,000 revolving line of credit; $10,000,000 of the term loan was repaid
in 1997. The interest rate charged under the facility is a variable rate based
on the prime rate or LIBOR. The weighted average interest rate on borrowings
outstanding under this facility at December 31, 1997 was 7.89%. Outstanding
borrowings are collateralized by the company's accounts receivable. The facility
prohibits the payment of cash dividends and contains certain covenants with
respect to the company's working capital levels, fixed charge ratio, leverage
ratio and net worth, and expires in August 2001.
Orbital amended its 12% unsecured note during the first quarter of 1997 to
facilitate compliance with certain financial covenants as well as to permit the
completion of the ORBIMAGE equity financing (see note 3). In connection with
this amendment, the interest rate on the note increased from 11.5% to 12%
effective March 31, 1997. The unsecured note contains certain covenants with
respect to fixed charge ratio, leverage ratio and tangible net worth, and
includes certain cross-default provisions.
On September 16, 1997, Orbital sold $100,000,000 of 5% convertible
subordinated notes due October 2002. The notes, which are non-callable for three
years, are convertible at the option of the holders into Orbital common stock at
a conversion price of $28.00 per share, subject to adjustment in certain events.
In 1996, ORBCOMM issued $170,000,000 senior unsecured notes due 2004 (the
"ORBCOMM Notes") to institutional investors. The ORBCOMM Notes bear interest at
a fixed rate of 14% and provide for noteholder participation in future ORBCOMM
service revenues. The ORBCOMM Notes are fully and unconditionally guaranteed on
a joint and several basis by OCC and Teleglobe Mobile. The guarantee is non-
recourse to Orbital.
The fair value of Orbital's long-term obligations at December 31, 1997 and
1996 is estimated at approximately $178,455,000 and $38,521,000, respectively.
Fair value estimates are based on quoted market prices or on current rates
offered for debt of similar remaining maturities. The 1997 fair value amount is
less than the carrying value primarily as a result of the current market premium
on the convertible notes. Scheduled maturities of long-term debt for each of the
years in the five-year period ending December 31, 2002 and thereafter are
$18,189,000, $26,137,000, $24,550,000, $38,153,000, $105,138,000 and $3,918,000,
respectively.
F-20
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10/ LEASE COMMITMENTS
Aggregate minimum rental commitments under non-cancelable operating and
capital leases (primarily for office space and equipment) at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
(IN THOUSANDS)
<S> <C> <C>
1998........................................................ $13,479 $1,154
1999........................................................ 12,033 537
2000........................................................ 10,931 27
2001........................................................ 8,706 --
2002........................................................ 7,145 --
2003 and thereafter......................................... 22,634 --
------- ------
$74,928 1,718
=======
Less: Interest at 10%....................................... (159)
Less: Current portion....................................... (1,061)
------
Total.................................................. $ 498
======
</TABLE>
Rent expense for 1997, 1996 and 1995 was approximately $10,870,000,
$12,300,000 and $11,215,000, respectively.
11/ INCOME TAXES
The provisions (benefits) for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT PROVISION:
U.S. Federal.......................................... $ -- $ -- $ 33
Foreign............................................... 1,283 1,831 1,180
State................................................. -- -- --
DEFERRED PROVISION:
U.S. Federal.......................................... -- -- (356)
Foreign............................................... 752 -- (2,159)
State................................................. -- -- --
------ ------ -------
Total............................................ $2,035 $1,831 $(1,302)
====== ====== =======
</TABLE>
F-21
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11/ INCOME TAXES -- (CONTINUED)
The income tax provisions (benefits) were different from those computed
using the statutory U.S. Federal income tax rate as set forth below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
U.S. Federal statutory rate................................. 35.0% 35.0% (34.0)%
Tax-exempt interest......................................... -- (0.6) (13.7)
Intangible amortization..................................... 5.0 13.2 50.3
Foreign income taxes, net................................... 3.3 (12.9) (53.1)
Disqualifying stock sales................................... -- (3.2) (16.0)
Changes in valuation allowance.............................. (36.1) (15.0) --
Other, net.................................................. 0.9 (6.2) 1.1
----- ----- -----
Effective rate......................................... 8.1% 10.3% (65.4)%
===== ===== =====
</TABLE>
The tax effects of significant temporary differences were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
TAX ASSETS:
Non-deductible financial statement accruals............ $ 32,568 $ 37,603
U.S. Federal net operating loss carryforward........... 60,874 47,823
Intangible assets...................................... 5,422 6,865
U.S. Federal and foreign tax credit carryforward....... 11,924 13,707
-------- --------
110,788 105,998
Valuation allowance.................................... (37,698) (52,233)
-------- --------
Tax assets, net................................... $ 73,090 $ 53,765
======== ========
TAX LIABILITIES:
Percentage-of-completion accounting.................... $ 1,796 $ 3,349
Excess tax depreciation................................ 6,699 5,280
Excess deductions for tax reporting purposes........... 49,690 29,479
-------- --------
Tax liabilities........................................ $ 58,185 $ 38,108
======== ========
</TABLE>
In 1997 and 1996, approximately 20.6% and 27.9%, respectively, of the
company's income before provision for income taxes and cumulative effect of an
accounting change was generated from foreign sources. In 1995, approximately
$2,100,000 of income before benefit for income taxes and cumulative effect of an
accounting change was generated from foreign sources. At December 31, 1997, the
company had U.S. Federal net operating loss carryforwards (portions of which
expire beginning in 2005) and research and environmental tax credit
carryforwards of approximately $150,000,000 and $3,000,000, respectively, that
may be used through the year 2013, subject to certain annual limitations and
other restrictions. Management believes that its net deferred tax assets,
largely attributable to Canadian investment tax credit carryforwards, will be
realized in the near future.
12/ COMMON STOCK AND STOCK OPTION PLANS
In 1996, the company issued 1,200,000 shares of common stock in a private
placement to various offshore investors, receiving net proceeds of approximately
$20,300,000. In addition, during 1996, the company completed the redemption of
$55,880,000 outstanding principal of its 6 3/4% convertible subordinated
F-22
<PAGE> 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12/ COMMON STOCK AND STOCK OPTION PLANS -- (CONTINUED)
debentures that had been due 2003. As a result of this conversion, the
outstanding principal was converted into 3,887,304 shares of the company's
common stock.
The company's 1997 Stock Option and Incentive Plan (the "1997 Plan")
provides for awards of incentive or non-qualified stock options and restricted
stock to employees, directors, consultants and advisors of the company and its
subsidiaries. Under the terms of the 1997 Plan, options may not be issued at
less than 100% of the fair market value of the company's common stock on the
date of grant. Options under the 1997 Plan vest at a rate set forth by the Board
of Directors in each individual 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. The 1997 Plan provides for
automatic grants of non-qualified stock options to non-employee directors of the
company. Restricted stock grants under the 1997 plan vest at a rate determined
by the Board, generally vesting two years following the date of award.
The 1997 Plan has 1,600,000 shares authorized for option grants or
restricted stock awards. In January 1998, Orbital's Board of Directors
authorized an increase in the number of shares available for grant to 3,200,000,
subject to stockholder approval. Options are also outstanding under two
predecessor option plans and pursuant to replacement options that have been
granted in connection with certain acquisitions.
The following two tables summarize information regarding options under the
company's stock option plans for the last three years:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF OPTION PRICE AVERAGE OUTSTANDING
ORBITAL OPTIONS SHARES PER SHARE EXERCISE PRICE AND EXERCISABLE
--------------- --------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
OUTSTANDING AT DECEMBER 31, 1994...... 2,116,895 $ 1.82 - $22.00 $13.02 997,981
Granted.......................... 553,966 $ 7.47 - $18.81 $16.97
Exercised........................ (300,011) $ 3.51 - $15.30 $ 6.29
Canceled or expired.............. (130,325) $ 3.51 - $22.00 $20.39
---------
OUTSTANDING AT DECEMBER 31, 1995...... 2,240,525 $ 1.82 - $22.00 $14.16 1,133,713
Granted.......................... 1,372,000 $12.25 - $17.63 $13.26
Exercised........................ (298,916) $ 1.82 - $17.75 $ 7.20
Canceled or expired.............. (588,399) $ 3.51 - $22.00 $20.23
---------
OUTSTANDING AT DECEMBER 31, 1996...... 2,725,210 $ 1.82 - $22.00 $13.10 1,324,316
Granted.......................... 1,908,650 $13.50 - $24.00 $17.29
Exercised........................ (326,263) $ 1.82 - $18.81 $10.43
Canceled or expired.............. (300,306) $ 1.82 - $22.00 $15.12
---------
OUTSTANDING AT DECEMBER 31, 1997...... 4,007,291 $ 1.84 - $24.00 $15.16 1,549,185
=========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ -----------------------------------
NUMBER WEIGHTED AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE
EXERCISE PRICES AT DEC. 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE AT DEC. 31, 1997 EXERCISE PRICE
- --------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 1.84 - $13.50 1,488,479 6.25 $11.89 912,472 $11.35
$13.62 - $16.50 1,377,136 7.95 $15.77 307,966 $14.33
$16.63 - $24.00 1,141,676 8.53 $18.68 328,747 $17.85
- --------------- --------- ---- ------ --------- ------
$ 1.84 - $24.00 4,007,291 7.48 $15.16 1,549,185 $13.32
========= =========
</TABLE>
OCC adopted a stock option plan in 1992 (the "ORBCOMM Plan"). The ORBCOMM
Plan provides for grants of incentive and non-qualified stock options to
purchase OCC common stock to officers and employees of ORBCOMM and the company.
Under the terms of the ORBCOMM Plan, incentive stock
F-23
<PAGE> 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12/ COMMON STOCK AND STOCK OPTION PLANS -- (CONTINUED)
options may not be granted at less than 100% of the fair market value, and
non-qualified options may not be granted at less than 85% of the fair market
value, of OCC common stock at the date of grant as determined by OCC's Board of
Directors. The options vest at a rate set forth by the Board of Directors in
each individual option agreement, generally in one-fourth increments over a
four-year period. Certain provisions of the ORBCOMM Plan require OCC to
repurchase, with cash or promissory notes, the common stock acquired pursuant to
the options. The cash repurchase amount is restricted by the terms of the
ORBCOMM Notes to an amount not to exceed $1,000,000 in any one year. During 1997
and 1996, OCC repurchased 43,800 and 47,760 shares, respectively, of OCC common
stock under this provision.
The following two tables summarize the option activity relating to the
ORBCOMM Plan:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF OPTION PRICE AVERAGE OUTSTANDING
OCC OPTIONS SHARES PER SHARE EXERCISE PRICE AND EXERCISABLE
----------- --------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
OUTSTANDING AT DECEMBER 31, 1994....... 599,074 $ 1.50 - $14.00 $ 5.64 298,657
Granted........................... -- N/A N/A
Exercised......................... (8,936) $ 1.50 - $13.00 $ 3.87
Canceled or expired............... (44,238) $ 1.50 - $13.00 $ 6.74
--------
OUTSTANDING AT DECEMBER 31, 1995....... 545,900 $ 1.50 - $14.00 $ 5.56 411,086
Granted........................... 154,500 $17.00 - $25.00 $20.50
Exercised......................... (67,270) $ 1.50 - $13.00 $ 2.43
Canceled or expired............... (34,300) $ 1.50 - $17.00 $13.81
--------
OUTSTANDING AT DECEMBER 31, 1996....... 598,830 $ 1.50 - $25.00 $ 9.40 393,903
Granted........................... 284,500 $26.50 $26.50
Exercised......................... (20,900) $ 1.50 - $25.00 $ 6.68
Canceled or expired............... (112,600) $ 1.50 - $25.00 $14.86
--------
OUTSTANDING AT DECEMBER 31, 1997....... 749,830 $ 1.50 - $26.50 $15.22 415,804
========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ -----------------------------------
NUMBER WEIGHTED AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE
EXERCISE PRICES AT DEC. 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE AT DEC. 31, 1997 EXERCISE PRICE
- --------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 1.50 - $ 4.00 261,540 4.82 $ 2.38 261,540 $ 2.38
$ 5.25 - $25.00 163,790 6.52 $13.39 116,389 $11.79
$26.50 - $26.50 324,500 9.36 $26.50 37,875 $26.50
- --------------- ------- ---- ------ ------- ------
$ 1.50 - $26.50 749,830 7.16 $15.22 415,804 $ 7.21
======= =======
</TABLE>
During 1996, Magellan adopted the 1996 Stock Option Plan (the "Magellan
Plan"), pursuant to which incentive or non-qualified options to purchase up to
7,000,000 shares of Magellan common stock may be granted to Magellan and Orbital
employees, consultants or advisors. The Magellan Plan stipulates that stock
options may not be granted with an exercise price less than 85% of the stock's
fair market value at the date of grant, as determined by Magellan's Board of
Directors. The Magellan options generally vest incrementally over a three-year
period. Certain provisions of the Magellan Plan require Magellan to repurchase
the common stock acquired pursuant to options granted prior to May 1, 1997.
F-24
<PAGE> 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12/ COMMON STOCK AND STOCK OPTION PLANS -- (CONTINUED)
The following table summarizes the option activity relating to the Magellan
Plan:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF OPTION PRICE AVERAGE OUTSTANDING
MAGELLAN OPTIONS SHARES PER SHARE EXERCISE PRICE AND EXERCISABLE
---------------- ---------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
OUTSTANDING AT DECEMBER 31, 1995............ -- -- -- --
Granted................................ 6,915,900 $1.10 $1.10
Exercised.............................. -- N/A N/A
Canceled or expired.................... (322,300) $1.10 $1.10
----------
OUTSTANDING AT DECEMBER 31, 1996............ 6,593,600 $1.10 $1.10 667,539
Granted................................ 1,717,500 $1.10 $1.10
Exercised.............................. (103,909) $1.10 $1.10
Canceled or expired.................... (1,427,531) $1.10 $1.10
----------
OUTSTANDING AT DECEMBER 31, 1997............ 6,779,660 $1.10 $1.10 2,528,097
==========
</TABLE>
The weighted average remaining contractual life on outstanding options was
8.84 years.
In conjunction with the Ashtech merger (see note 4), Magellan assumed the
Ashtech option plan and issued replacement options that are exercisable into
Magellan common stock. At December 31, 1997, there were 5,316,561 non-qualified
Magellan replacement options outstanding, 3,606,540 of which were exercisable.
The option price per share ranges from $0.81 to $1.72 with an average exercise
price of $1.09. The weighted average remaining contractual life on the
outstanding Magellan replacement options was 7.74 years.
13/ STOCK-BASED COMPENSATION
The company uses the Black-Scholes option pricing model to determine the
pro forma impact to the company's net income and earnings per share. The model
utilizes certain information, such as the interest rate on a risk-free security
maturing generally at the same time as the option being valued, and requires
certain assumptions, such as the expected amount of time an option will be
outstanding until it is exercised or it expires, to calculate the weighted
average fair value per share of stock options granted. This information and the
assumptions used for 1997, 1996 and 1995 for all option plans is summarized as
follows:
<TABLE>
<CAPTION>
ADDITIONAL SHARES WEIGHTED AVERAGE
AVAILABLE AT RISK-FREE FAIR VALUE
DECEMBER 31, VOLATILITY INTEREST RATE PER SHARE AT GRANT DATE
----------------- -------------------- -------------------- ------------------------
1997 1996 1997 1996 1995 1997 1996 1995 1997 1996 1995
------- ------- ---- ---- ---- ---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Orbital Plan......... 218,868 231,955 54% 56% 58% 6.1% 5.3% 7.0% $17.29 $13.26 $16.97
ORBCOMM Plan......... 48,878 20,778 30% 30% N/A 6.1% 5.6% N/A $26.50 $20.50 N/A
Magellan Plan........ 116,431 406,400 30% 30% N/A 5.9% 6.4% N/A $ 1.10 $ 1.10 N/A
</TABLE>
The assumed expected dividend yield was zero for all years for all option
plans. The assumed average expected life for all options for all years was 4.5
years (except that no such assumption was applicable for the ORBCOMM and
Magellan Plans for 1995).
The company recorded compensation expense of approximately $600,000,
$300,000 and $55,000 related to the various option plans for the years ended
December 31, 1997, 1996 and 1995, respectively. Had the company determined
compensation expense based on the fair value at the grant date for stock
options, the company's net income (loss), net income (loss) per common share and
net income (loss) per common share, assuming dilution would have been
$11,804,000, $0.37 and $0.35, respectively, for the year ended December 31,
1997; $7,202,000, $0.25 and $0.25, respectively, for the year ended December 31,
1996; and ($6,773,000), ($0.26) and ($0.26), respectively, for the year ended
December 31, 1995. Pro forma net
F-25
<PAGE> 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13/ STOCK-BASED COMPENSATION -- (CONTINUED)
income (loss) reflects only options granted in 1997, 1996 and 1995 and,
therefore, may not be representative of the effects for future periods.
During 1996, the company issued 150,000 stock appreciation rights that vest
over a three-year period. Payment is dependent on appreciation of the company's
common stock over the vesting period. The company recorded approximately
$1,470,000 and $175,000, respectively, in compensation expense during 1997 and
1996 with respect to these rights.
14/ SUPPLEMENTAL DISCLOSURES
DEFINED CONTRIBUTION PLANS
At December 31, 1997, the company had several defined contribution plans
(the "Plans") generally covering all full-time employees in the U.S. and Canada.
Company contributions to the Plans are made based on certain plan provisions and
at the discretion of the Board of Directors, and were approximately $9,108,000,
$7,097,000 and $6,533,000 during 1997, 1996 and 1995, respectively.
CASH FLOWS
Cash payments for interest and income taxes were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest paid............................................. $10,059 $10,860 $9,906
Income taxes paid, net of refunds......................... 544 1,327 1,339
</TABLE>
F-26
<PAGE> 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14/ SUPPLEMENTAL DISCLOSURES -- (CONTINUED)
NET INCOME PER COMMON SHARE
Net income and outstanding shares of common stock used in calculating
earnings per share differed from those amounts reported in the consolidated
financial statements as follows:
<TABLE>
<CAPTION>
NET INCOME PER
COMMON SHARE,
NET INCOME PER ASSUMING
COMMON SHARE DILUTION
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
1997
Net income.................................................. $23,005 $23,005
Assuming conversion of convertible notes.................... -- 429
------- -------
Net income, as adjusted................................ $23,005 $23,434
======= =======
Outstanding common shares................................... 32,482 32,482
Effect of weighting for outstanding shares.................. (199) (199)
Outstanding stock options................................... -- 656
Assuming conversion of convertible notes.................... -- 1,042
------- -------
Adjusted shares........................................ 32,283 33,981
======= =======
1996
Net income.................................................. $15,907 $15,907
Assuming conversion of convertible notes.................... -- 2,357
------- -------
Net income, as adjusted................................ $15,907 $18,264
======= =======
Outstanding common shares................................... 32,161 32,161
Effect of weighting for outstanding shares.................. (3,389) (3,389)
Outstanding stock options................................... -- 664
Assuming conversion of convertible notes.................... -- 2,396
------- -------
Adjusted shares........................................ 28,772 31,832
======= =======
1995
Net loss.................................................... $(4,848) $(4,848)
Assuming conversion of convertible notes.................... -- 3,780
------- -------
Net income, as adjusted................................ $(4,848) $(1,068)
======= =======
Outstanding common shares................................... 26,766 26,766
Effect of weighting for outstanding shares.................. (1,072) (1,072)
Outstanding stock options................................... -- 513
Assuming conversion of convertible notes.................... -- 3,896
------- -------
Adjusted shares........................................ 25,694 30,103
======= =======
</TABLE>
F-27
<PAGE> 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14/ SUPPLEMENTAL DISCLOSURES -- (CONTINUED)
SUMMARY SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data for the
previous three years:
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
1997
Revenues....................................... $122,112 $142,226 $164,670 $176,967
Income from operations......................... 6,047 11,005 12,249 193
Net income..................................... 5,094 5,603 6,130 6,178
Net income per common share.................... 0.16 0.17 0.19 0.20
Net income per common share, assuming
dilution..................................... 0.16 0.17 0.18 0.18
1996
Revenues....................................... 104,894 116,512 119,571 120,458
Income from operations......................... 5,872 7,324 7,124 3,522
Net income..................................... 3,128 3,839 4,456 4,484
Net income per common share.................... 0.12 0.14 0.15 0.14
Net income per common share, assuming
dilution..................................... 0.12 0.14 0.15 0.14
1995
Revenues....................................... 88,975 81,766 95,817 97,762
Income (loss) from operations.................. 4,613 (972) 3,682 (6,179)
Net income (loss) before cumulative effect of
accounting change............................ 3,017 (1,626) 1,758 (3,837)
Net income (loss) per common share............. (0.05) (0.07) 0.06 (0.14)
Net income (loss) per common share, assuming
dilution..................................... (0.05) (0.07) 0.06 (0.14)
</TABLE>
F-28
<PAGE> 72
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Special Note Regarding
Forward-Looking Information........ 2
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 3
Prospectus Summary................... 4
Risk Factors......................... 8
Use of Proceeds...................... 13
Price Range of Common Stock
and Dividend Policy................ 13
Capitalization....................... 14
Selected Consolidated Financial
Data............................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 16
Business............................. 23
Management........................... 34
Description of Capital Stock......... 38
Underwriting......................... 40
Legal Matters........................ 42
Experts.............................. 42
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
2,750,000 SHARES
[ORBITAL LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
MORGAN STANLEY DEAN WITTER
, 1998
================================================================================
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
registration of the Common Stock offered hereby. All amounts are estimated
except for the Securities and Exchange Commission registration fee, National
Association of Securities Dealers, Inc. filing fee and Nasdaq quotation fee.
<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT
----------
<S> <C>
SEC registration fee........................................ $ 40,292
National Association of Securities Dealers, Inc. filing
fee....................................................... 14,158
Nasdaq quotation fee........................................ 17,500
Accounting fees and expenses................................ 25,000
Legal fees and expenses..................................... 100,000
Blue Sky fees and expenses.................................. 2,000
Miscellaneous fees and expenses............................. 56,987
--------
Total.................................................. $255,937
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law sets forth provisions
that define the extent to which a corporation organized under the laws of
Delaware may indemnify directors, officers, employees or agents. Section 145
provides as follows:
(a) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the
person in connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe
the person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the person's conduct was
unlawful.
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that the person is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
a manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the
II-1
<PAGE> 74
Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the present or former director, officer, employee or agent is proper in
the circumstances because the person has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors even though less than a
quorum, or (3) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (4) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative, or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon
such terms and conditions, if any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to
action in such person's official capacity and as to action in another
capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against such person and incurred by such person in
any such capacity, or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify such person
against such liability under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to an employee benefit
plan; and references to "serving at the request of the corporation" shall
include any
II-2
<PAGE> 75
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in
a manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees).
Paragraph Ten of the Company's Restated Certificate of Incorporation
provides that the Company shall, to the maximum extent permitted by Delaware
law, indemnify and, upon request, advance expenses to any person:
. . . who is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit, proceeding or claim, whether
civil, criminal, administrative or investigative, by reason of the fact
that such person is or was or has agreed to be a director or officer of
this Corporation or while a director or officer is or was serving at the
request of this Corporation as a director, officer, partner, trustee,
employee or agent of any corporation, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
against expenses (including attorney's fees and expenses), judgments,
fines, penalties and amounts paid in settlement incurred in connection with
the investigation, preparation to defend or defense of such action, suit,
proceeding or claim, provided, however, that the foregoing shall not
require this Corporation to indemnify or advance expenses to any person in
connection with any action, suit, proceeding, claim or counterclaim
initiated by or on behalf of such person. Such indemnification shall inure
to the benefit of the heirs and legal representatives of such person. Any
person seeking indemnification under this Paragraph 10 shall be deemed to
have met the standard of conduct required for such indemnification unless
the contrary shall be established.
Section 102(b)(7) of the Delaware General Corporation Law permits
corporations to eliminate or limit the personal liability of their directors by
adding to the Certificate of Incorporation a provision eliminating or limiting
the personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director for (a) any
breach of the director's duty of loyalty to the corporation or its stockholders,
(b) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (c) payment of dividends or repurchases or
redemptions of stock other than from lawfully available funds, or (d) any
transaction from which the director derived an improper personal benefit.
Paragraph Nine of the Company's Restated Certificate of Incorporation provides
that no director of the Company shall be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that exculpation from liability is not permitted under the
Delaware General Corporation Law as in effect at the time such liability is
determined.
In addition, the Company has entered into substantially identical
indemnification agreements with each of its directors and executive officers and
certain other officers. The Company has agreed, to the full extent permitted by
the Delaware General Corporation Law, as amended from time to time, to indemnify
each indemnitee against all loss and expense incurred by the indemnitee because
he was, is or is threatened to be made a party to any completed, pending or
threatened action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he was a director, officer,
employee or agent of the Company or any of its affiliates, or because the
Company has a right to judgment in its favor because of his position with the
Company or any of its affiliates. The indemnitee will be indemnified so long as
he acted in
II-3
<PAGE> 76
good faith and in a manner reasonably believed by him to be in or not opposed to
the Company's best interests. The agreement further provides that the
indemnification thereunder is not exclusive of any other rights the indemnitee
may have under the Company's Restated Certificate of-Incorporation, By-Laws or
any agreement or vote of stockholders, nor may the Restated Certificate of
Incorporation or By-Laws be amended to affect adversely the rights of any
indemnitee.
Reference is made to the form of Underwriting Agreement filed as Exhibit
1.1 for certain provisions relating to the indemnification by the Underwriters
of the directors and certain officers of the Company in certain circumstances.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement*
4.1 Form of Certificate of Common Stock**
5 Opinion of Hogan & Hartson L.L.P. regarding legality of
shares being registered*
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5)*
24 Power of attorney (included on Signature Page)***
</TABLE>
- ---------------
* Filed herewith.
** Incorporated herein by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (File Number 33-33453) filed on February
9, 1990 and effective on April 24, 1990.
*** Filed previously.
(b) Financial Statement Schedules
Financial statement schedules have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Company hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the Company's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is
incorporated by reference in the Registration Statement 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company 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> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the County of Loudoun, Commonwealth of Virginia,
on the 13th day of April, 1998.
ORBITAL SCIENCES CORPORATION
By: /s/ DAVID W. THOMPSON
------------------------------------
DAVID W. THOMPSON,
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below on April 13, 1998 by
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
/s/ DAVID W. THOMPSON Chairman of the Board, Chief Executive
- ----------------------------------------------------- Officer and Director (Principal Executive
DAVID W. THOMPSON Officer)
/s/ JEFFREY V. PIRONE Executive Vice President and Chief Financial
- ----------------------------------------------------- Officer (Principal Financial Officer)
JEFFREY V. PIRONE
/s/ MICHAEL P. KEEGAN Vice President and Controller
- -----------------------------------------------------
MICHAEL P. KEEGAN
* Director
- -----------------------------------------------------
FRED C. ALCORN
* Director
- -----------------------------------------------------
KELLY H. BURKE
</TABLE>
II-5
<PAGE> 78
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
* Director
- -----------------------------------------------------
BRUCE W. FERGUSON
* Director
- -----------------------------------------------------
DANIEL J. FINK
* Director
- -----------------------------------------------------
LENNARD A. FISK
* Director
- -----------------------------------------------------
JACK L. KERREBROCK
* Director
- -----------------------------------------------------
DOUGLAS S. LUKE
* Director
- -----------------------------------------------------
JOHN L. MCLUCAS
* Director
- -----------------------------------------------------
JANICE I. OBUCHOWSKI
* Director
- -----------------------------------------------------
FRANK L. SALIZZONI
* Director
- -----------------------------------------------------
HARRISON H. SCHMITT
* Director
- -----------------------------------------------------
JAMES R. THOMPSON
* Director
- -----------------------------------------------------
SCOTT L. WEBSTER
*By: /s/ DAVID W. THOMPSON
------------------------------------------------
DAVID W. THOMPSON
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE> 79
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ----------------------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement*.............................
4.1 Form of Certificate of Common Stock**.......................
5 Opinion of Hogan & Hartson L.L.P. regarding legality of
shares being registered*....................................
23.1 Consent of KPMG Peat Marwick LLP*...........................
23.2 Consent of Hogan & Hartson L.L.P. (included in Exhibit
5)*.........................................................
24 Power of attorney (included on Signature Page)***...........
</TABLE>
- ---------------
* Filed herewith.
** Incorporated herein by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (File Number 33-33453) filed on February
9, 1990 and effective on April 24, 1990.
*** Filed previously.
<PAGE> 1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ORBITAL SCIENCES CORPORATION
(a Delaware corporation)
2,750,000 Shares of Common Stock
PURCHASE AGREEMENT
------------------
Dated: April [14], 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
PURCHASE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Representations and Warranties by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(i) Compliance with Registration Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(ii) Incorporated Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(iii) Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(iv) Financial Statements and Internal Accounting Controls . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(v) No Material Adverse Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(vi) Good Standing of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(vii) Good Standing of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(viii) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(ix) Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(x) Authorization and Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(xi) Absence of Defaults and Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(xii) Absence of Labor Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(xiii) Absence of Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(xiv) Accuracy of Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(xv) Possession of Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(xvi) Absence of Further Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(xvii) Possession of Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(xviii) Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(xix) Compliance with Cuba Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(xx) Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(xxi) Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(xxii) Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(xxiii) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(xxiv) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(xxv) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(b) Officer's Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2. Sale and Delivery to Underwriters; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(a) Initial Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(b) Option Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(c) Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(d) Denominations; Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3. Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Compliance with Securities Regulations and Commission Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Filing of Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Delivery of Registration Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Delivery of Prospectuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(e) Continued Compliance with Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
(f) Blue Sky Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(g) Rule 158 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(h) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(i) Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(j) Restriction on Sale of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(k) Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 5. Conditions of Underwriters' Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(a) Effectiveness of Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(b) Opinion of Counsel for Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(c) Opinion of Counsel for Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(d) Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(e) Accountant's Comfort Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(f) Bring-down Comfort Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(g) Approval of Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(h) No Objection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(i) Lock-up Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(j) Conditions to Purchase of Option Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(k) Additional Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(l) Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Indemnification of Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Indemnification of Company, Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(c) Actions against Parties; Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(d) Settlement without Consent if Failure to Reimburse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 7. Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 8. Representations, Warranties and Agreements to Survive Delivery . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 9. Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Termination; General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(b) Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 10. Default by One or More of the Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 11. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 12. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 13 GOVERNING LAW AND TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 14. Effect of Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SCHEDULES
Schedule A - List of Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Sch A-1
Schedule B - Pricing Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Sch B-1
Schedule C - List of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Sch C-1
Schedule D - List of Persons subject to Lock-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Sch D-1
EXHIBITS
Exhibit A-1 - Form of Opinion of Company's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
Exhibit A-2 - Form of Opinion of Company's Canadian Counsel . . . . . . . . . . . . . . . . . . . . . . . . .A-2
Exhibit A-3 - Form of Opinion of Company's FCC counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-3
Exhibit A-4 - Form of Opinion of ORBCOMM's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-4
Exhibit A-5 - Form of Opinion of ORBIMAGE's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-5
Exhibit A-6 - Form of Opinion of Company's Internal Counsel . . . . . . . . . . . . . . . . . . . . . . . . .A-6
Exhibit B - Form of Lock-up Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-1
ANNEX
Annex A - Form of Accountants' Comfort Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex A-1
</TABLE>
iii
<PAGE> 5
ORBITAL SCIENCES CORPORATION
(a Delaware corporation)
2,750,000 Shares of Common Stock
(Par Value $0.01 Per Share)
PURCHASE AGREEMENT
April [14], 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
J.P. MORGAN & CO.
J.P. Morgan Securities Inc.
MORGAN STANLEY DEAN WITTER
Morgan Stanley & Co. Incorporated
as Representative(s) of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Orbital Sciences Corporation, a Delaware corporation (the "Company"),
confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named
in Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, J. P. Morgan & Co., J.P. Morgan Securities
Inc., and Morgan Stanley Dean Witter, Morgan Stanley & Co. are acting as
representative(s) (in such capacity, the "Representative(s)"), with respect to
the issue and sale by the Company and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of shares of Common Stock,
par value $0.01 per share, of the Company ("Common Stock") set forth in said
Schedule A, and with respect to the grant by the Company to the Underwriters,
acting severally and not jointly, of the option described in Section 2(b)
hereof to purchase all or any part of 412,500 additional shares of Common Stock
to cover over-allotments, if any. The aforesaid 2,750,000 shares of Common
Stock (the "Initial Securities") to be purchased by the Underwriters and all or
<PAGE> 6
any part of the 412,500 shares of Common Stock subject to the option described
in Section 2(b) hereof (the "Option Securities") are hereinafter called,
collectively, the "Securities".
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representative(s) deem(s) advisable
after this Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-48679) covering the
registration of the Securities under the Securities Act of 1933, as amended
(the "1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will
either (i) prepare and file a prospectus in accordance with the provisions of
Rule 430A ("Rule 430A") of the rules and regulations of the Commission under
the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule
424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely
upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term
sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule
424(b). The information included in such prospectus or in such Term Sheet, as
the case may be, that was omitted from such registration statement at the time
it became effective but that is deemed to be part of such registration
statement at the time it became effective (a) pursuant to paragraph (b) of Rule
430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d)
of Rule 434 is referred to as "Rule 434 Information." Each prospectus used
before such registration statement became effective, and any prospectus that
omitted, as applicable, the Rule 430A Information or the Rule 434 Information,
that was used after such effectiveness and prior to the execution and delivery
of this Agreement, is herein called a "preliminary prospectus." Such
registration statement, including the exhibits thereto, schedules thereto, if
any, and the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the 1933 Act, at the time it became effective and including the
Rule 430A Information and the Rule 434 Information, as applicable, is herein
called the "Registration Statement." Any registration statement filed pursuant
to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule
462(b) Registration Statement," and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final
prospectus, including the documents incorporated by reference therein pursuant
to Item 12 of Form S-3 under the 1933 Act, in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is
herein called the "Prospectus." If Rule 434 is relied on, the term
"Prospectus" shall refer to the preliminary prospectus dated March 26, 1998
together with the Term Sheet and all references in this Agreement to the date
of the Prospectus shall mean the date of the Term Sheet. For purposes of this
Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any Term Sheet or any amendment or supplement to
any of the foregoing shall be deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is
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<PAGE> 7
incorporated by reference in the Registration Statement, any preliminary
prospectus or the Prospectus, as the case may be; and all references in this
Agreement to amendments or supplements to the Registration Statement, any
preliminary prospectus or the Prospectus shall be deemed to mean and include
the filing of any document under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), which is incorporated by reference in the
Registration Statement, such preliminary prospectus or the Prospectus, as the
case may be.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each
Underwriter, as follows:
(i) Compliance with Registration Requirements. The
Company meets the requirements for use of Form S-3 under the 1933 Act.
Each of the Registration Statement and any Rule 462(b) Registration
Statement has become effective under the 1933 Act and no stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement has been issued under the 1933 Act and
no proceedings for that purpose have been instituted or are pending
or, to the knowledge of the Company, are contemplated by the
Commission, and any request on the part of the Commission for
additional information has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments
thereto became effective and at the Closing Time (and, if any Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments
and supplements thereto complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither the Prospectus nor any amendments or supplements thereto, at
the time the Prospectus or any such amendment or supplement was issued
and at the Closing Time (and, if any Option Securities are purchased,
at the Date of Delivery), included or will include an untrue statement
of a material fact or omitted or will omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If Rule 434
is used, the Company will comply with the requirements of Rule 434.
The representations and warranties in this subsection shall not apply
to statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through Merrill
Lynch expressly for use in the Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
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<PAGE> 8
Regulations and each preliminary prospectus and the Prospectus delivered to the
Underwriters for use in connection with this offering was substantially
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) Incorporated Documents. The documents incorporated
or deemed to be incorporated by reference in the Registration
Statement and the Prospectus, at the time they were or hereafter are
filed with the Commission, complied and will comply in all material
respects with the requirements of the 1934 Act and the rules and
regulations of the Commission thereunder (the "1934 Act Regulations"),
and, when read together with the other information in the Prospectus,
at the time the Registration Statement became effective, at the time
the Prospectus was issued and at the Closing Time (and if any Option
Securities are purchased, at the Date of Delivery), did not and will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(iii) Independent Accountants. The accountants who
certified the financial statements and supporting schedules included
in the Registration Statement are independent public accountants as
required by the 1933 Act and the 1933 Act Regulations.
(iv) Financial Statements and Internal Accounting
Controls. The financial statements included in the Registration
Statement and the Prospectus, together with the related schedules and
notes, present fairly the financial condition of the Company and its
consolidated subsidiaries and ORBCOMM Global, L.P. ("ORBCOMM"), as the
case may be, at the dates indicated and the statement of operations,
stockholders' equity and cash flows of the Company and its
consolidated subsidiaries and ORBCOMM, as the case may be, for the
periods specified; said financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved (except
as otherwise noted therein). The supporting schedules, if any,
included in the Registration Statement present fairly in accordance
with GAAP the information required to be stated therein. The selected
financial data and the summary financial information included in the
Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited financial
statements included in the Registration Statement.
The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurance that (w) transactions are executed in accordance with
management's general or specific authorizations; (x) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP, as applicable, and to maintain asset
accountability; (y) access to assets is permitted only in accordance
with management's general or specific authorization; and (z) the
recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as
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otherwise stated therein, (A) there has been no material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company, its subsidiaries, ORBCOMM and Orbital
Imaging Corporation ("ORBIMAGE"), considered as one enterprise, whether or not
arising in the ordinary course of business (a "Material Adverse Effect"), (B)
there have been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which are
material with respect to the Company and its subsidiaries, considered as one
enterprise, and (C) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing under the
laws of the State of Delaware and has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in
the Prospectus and to enter into and perform its obligations under this
Agreement; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in which
such qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to qualify
or to be in good standing would not result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each subsidiary of the Company
and, to the Company's actual knowledge, each of ORBCOMM and ORBIMAGE has been
duly organized and is validly existing as a corporation or partnership, as the
case may be, in good standing under the laws of the jurisdiction of its
incorporation or organization, as the case may be, has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus and is duly qualified as a foreign corporation
or partnership to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a Material
Adverse Effect; except as otherwise disclosed in the Prospectus, all of the
issued and outstanding capital stock or partnership interests, as the case may
be, of each of the Company's subsidiaries has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company to the
extent set forth on Schedule C, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity, except that ten percent (10%) of the capital stock of Magellan
Corporation is currently in escrow, having been pledged in connection with the
merger by such subsidiary with Ashtech Inc.; all of the issued and outstanding
capital stock or partnership interests of ORBIMAGE and ORBCOMM, respectively,
which is identified on Schedule C as being owned by the Company, has been duly
authorized and validly issued, is fully paid and non-assessable and is owned by
the Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock or partnership interests, as the case may
be, of any of the Company's subsidiaries or, to the actual knowledge of the
Company, ORBCOMM or ORBIMAGE was issued in violation of the preemptive or
similar rights of any securityholder of such subsidiary, ORBCOMM or
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<PAGE> 10
ORBIMAGE, as the case may be. The only subsidiaries of the Company are (a) the
subsidiaries listed on Schedule C hereto and (b) certain other subsidiaries
which, considered in the aggregate as a single subsidiary, do not constitute a
"significant subsidiary" as defined in Rule 1.02 of Regulation S-X.
(viii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the column
entitled "Historical" under the caption "Capitalization" (except for subsequent
issuances, if any, pursuant to this Agreement, pursuant to reservations,
agreements or employee benefit plans referred to in the Prospectus or the
Registration Statement or pursuant to the exercise of convertible securities or
options referred to in the Prospectus or the Registration Statement). The
shares of issued and outstanding capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company was issued in violation of or
subject to the preemptive or other similar rights of any securityholder of the
Company.
(ix) Authorization of Agreement. The execution and delivery of
this Agreement has been duly authorized by the Company.
(x) Authorization and Description of Securities. The Securities
have been duly authorized for issuance and sale to the Underwriters pursuant to
this Agreement and, when issued and delivered by the Company pursuant to this
Agreement against payment of the consideration set forth herein, will be
validly issued, fully paid and non-assessable; the Common Stock conforms to all
statements relating thereto contained in the Prospectus and such description
conforms to the rights set forth in the instruments defining the same; no
holder of the Securities will be subject to personal liability by reason of
being such a holder; and the issuance of the Securities is not subject to the
preemptive or other similar rights of any securityholder of the Company.
(xi) Absence of Defaults and Conflicts. Neither the Company nor
any of its subsidiaries nor, to the Company's actual knowledge, ORBIMAGE is in
violation of its charter or by laws or other organizational documents or in
default in the performance or observance of any obligation, agreement, covenant
or condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to which
the Company or any of its subsidiaries or , to the Company's actual knowledge,
ORBIMAGE is a party or by which it or any of them may be bound, or to which any
of the property or assets of the Company or any subsidiary or, to the Company's
actual knowledge, ORBIMAGE is subject (collectively, "Agreements and
Instruments"), except for such defaults that would not result in a Material
Adverse Effect; and the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein and in the
Registration Statement (including the issuance and sale of the Securities and
the use of the proceeds from the sale of the Securities as described in the
Prospectus under the caption "Use of Proceeds") and compliance by the Company
with its obligations hereunder have been duly authorized by all necessary
corporate action and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of, or
default or Repayment
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<PAGE> 11
Event (as defined below) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any
subsidiary or, to the Company's actual knowledge, ORBIMAGE pursuant to, the
Agreements and Instruments (except for such conflicts, breaches or defaults or
liens, charges or encumbrances that would not result in a Material Adverse
Effect), nor will such action result in any violation of the provisions of the
charter or other organizational documents or by-laws of the Company or any
subsidiary or ORBIMAGE or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government instrumentality,
court or arbitrator, domestic or foreign, having jurisdiction over the Company
or any subsidiary or, to the Company's actual knowledge, ORBIMAGE or any of
their assets, properties or operations. As used herein, a "Repayment Event"
means any event or condition which gives the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company, any subsidiary or, to the
Company's actual knowledge, ORBIMAGE.
(xii) Absence of Labor Dispute. No labor dispute with the employees
of the Company or any subsidiary or, to the Company's actual knowledge, ORBCOMM
or ORBIMAGE exists or, to the knowledge of the Company, is threatened or
imminent that could have a Material Adverse Effect.
(xiii) Absence of Proceedings. There is no action, suit, proceeding,
inquiry or investigation before or brought by any court or governmental agency
or body, domestic or foreign, now pending, or, to the knowledge of the Company,
threatened, against the Company, any subsidiary or, to the Company's actual
knowledge, ORBCOMM or ORBIMAGE, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the consummation of the transactions contemplated in this
Agreement or the performance by the Company of its obligations hereunder.
(xiv) Accuracy of Exhibits. There are no contracts or documents
which are required to be described in the Registration Statement, the
Prospectus or the documents incorporated by reference therein or to be filed as
exhibits thereto which have not been so described and filed as required.
(xv) Possession of Intellectual Property. The Company and its
subsidiaries and, to the Company's actual knowledge, ORBIMAGE own or possess,
or can acquire on reasonable terms, adequate patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other intellectual
property (collectively, "Intellectual Property") necessary to carry on the
business now operated by them, and neither the Company nor any of its
subsidiaries nor, to the Company's actual knowledge, ORBIMAGE has received any
notice or is otherwise aware of any infringement of or conflict with asserted
rights of others with respect to any
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<PAGE> 12
Intellectual Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company, any of its subsidiaries or ORBIMAGE therein, and which infringement or
conflict (if the subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect.
(xvi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration, qualification
or decree of, any court or governmental authority or agency is necessary or
required for the performance by the Company of its obligations hereunder, in
connection with the offering, issuance or sale of the Securities hereunder or
the consummation of the transactions contemplated by this Agreement, except
such as have been already obtained or as may be required under the 1933 Act or
the 1933 Act Regulations or state securities laws.
(xvii) Possession of Licenses and Permits. Except as disclosed in
the Registration Statement and Prospectus, the Company, its subsidiaries and,
to the Company's actual knowledge, ORBCOMM and ORBIMAGE possess such permits,
licenses, approvals, consents and other authorizations (collectively,
"Governmental Licenses") issued by the appropriate federal, state, local or
foreign regulatory agencies or bodies necessary to conduct the business now
operated by them; the Company, its subsidiaries and, to the Company's actual
knowledge, ORBCOMM and ORBIMAGE are in compliance with the terms and conditions
of all such Governmental Licenses, except where the failure so to comply would
not, singly or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such Governmental
Licenses to be in full force and effect would not have a Material Adverse
Effect; and neither the Company nor any of its subsidiaries nor, to the
Company's actual knowledge, ORBCOMM or ORBIMAGE has received any notice of
proceedings relating to the revocation or modification of any such Governmental
Licenses which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a Material Adverse Effect.
(xviii) Title to Property. The Company and its subsidiaries and, to
the Company's actual knowledge, each of ORBCOMM and ORBIMAGE have good and
marketable title to all real property owned by the Company, its subsidiaries,
ORBCOMM and ORBIMAGE, and, with respect to the Company, its subsidiaries and
ORBIMAGE, marketable title to all other properties owned by them, in each case,
free and clear of all mortgages, pledges, liens, security interests, claims,
restrictions or encumbrances of any kind except such as (a) are described in
the Prospectus or (b) do not, singly or in the aggregate, materially affect the
value of such property and do not interfere with the use made and proposed to
be made of such property by the Company or such subsidiary or ORBCOMM or
ORBIMAGE, as the case may be; and all of the leases and subleases material to
the business of the Company, any such subsidiary or, to the Company's actual
knowledge, ORBCOMM or ORBIMAGE, and under which the Company, any of its
subsidiaries or ORBCOMM or ORBIMAGE, as the case may be, holds properties
described in the Prospectus, are in full force and effect,
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and neither the Company nor any subsidiary nor, to the Company's actual
knowledge, ORBCOMM or ORBIMAGE has any notice of any material claim of any sort
that has been asserted by anyone adverse to the rights of the Company or any
subsidiary or ORBCOMM or ORBIMAGE under any of the leases or subleases
mentioned above, or affecting or questioning the rights of the Company, such
subsidiary, ORBCOMM or ORBIMAGE to the continued possession of the leased or
subleased premises under any such lease or sublease.
(xix) Compliance with Cuba Act. The Company has complied with, and
is and will be in compliance with, the provisions of that certain Florida act
relating to disclosure of doing business with Cuba, codified as Section 517.075
of the Florida statutes, and the rules and regulations thereunder
(collectively, the "Cuba Act") or is exempt therefrom.
(xx) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the application
of the net proceeds therefrom as described in the Prospectus will not be, an
"investment company" as such term is defined in the Investment Company Act of
1940, as amended (the "1940 Act").
(xxi) Environmental Laws. Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) neither the Company nor any of its subsidiaries
nor, to the Company's actual knowledge, ORBCOMM or ORBIMAGE is in violation of
any federal, state, local or foreign statute, law, rule, regulation, ordinance,
code or policy, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened release
of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products ("collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries and, to the
Company's actual knowledge, ORBIMAGE have all permits, authorizations and
approvals required under any applicable Environmental Laws and are each in
compliance with their requirements, except for any failure to receive required
permits, authorizations or approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals which would not, singly or in
the aggregate, have a Material Adverse Effect, (C) there are no pending or
threatened administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company, any of its subsidiaries or, to the Company's actual knowledge,
ORBIMAGE and (D) there are no events or circumstances that might reasonably be
expected to form the basis of an order for clean-up or remediation, or an
action, suit or proceeding by any private party or governmental body or agency,
against or affecting the Company, any of its subsidiaries or, to the Company's
actual knowledge, ORBIMAGE relating to Hazardous Materials or any Environmental
Laws.
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(xxii) Dividends and Distributions. No subsidiary of the Company is
currently prohibited, directly or indirectly, from paying any dividends to the
Company, making any other distribution on such subsidiary's capital stock,
repaying to the Company any loans or advances to such subsidiary from the
Company or transferring any of such subsidiary's property or assets to the
Company or any other subsidiary of the Company, except that Orbital
Communications Corporation, ORBCOMM USA, L.P., MacDonald, Dettwiler and
Associates Ltd., MacDonald Dettwiler Technologies Ltd. and Magellan Corporation
are subject to restrictions under their respective credit or loan agreements
with respect to the foregoing, and the Company is currently prohibited,
directly or indirectly, from paying any dividends or making any other
distribution on its capital stock under the Credit Facility (as defined in the
Prospectus).
(xxiii) Taxes. The Company has filed all foreign, federal, state and
local tax returns that are required to be filed or has requested extensions
thereof (except in any case in which the failure so to file would not result in
a Material Adverse Effect) and has paid all taxes required to be paid by it and
any other assessment, fine or penalty levied against it, to the extent that any
of the foregoing is due and payable, except for any such assessment, fine or
penalty that is currently being contested in good faith or as described in or
contemplated by the Prospectus.
(xxiv) Insurance. The Company, each of its subsidiaries and, to the
Company's actual knowledge, each of ORBCOMM and ORBIMAGE, are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which
they are engaged; neither the Company nor any such subsidiary nor, to the
Company's actual knowledge, ORBCOMM or ORBIMAGE has been refused any insurance
coverage sought or applied for; and neither the Company nor any such subsidiary
nor, to the Company's actual knowledge, ORBCOMM or ORBIMAGE has any reason to
believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not
have a Material Adverse Effect, except as described in or contemplated by the
Prospectus.
(xxv) ERISA. The Company, each of its subsidiaries and, to the
Company's actual knowledge, ORBCOMM and ORBIMAGE are each in compliance in all
material respects with all presently applicable provisions of ERISA; no
"reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company would have any
liability; the Company has not incurred and does not expect to incur liability
under (x) Title IV of ERISA with respect to termination of, or withdrawal from,
any "pension plan" or (y) Sections 412 or 4971 of the Code; and each "pension
plan" for which the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification.
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(b) Officer's Certificates. Any certificate signed by any officer
of the Company or any of its subsidiaries delivered to the Representative(s) or
to counsel for the Underwriters shall be deemed a representation and warranty
by the Company to each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to an additional
412,500 shares of Common Stock at the price per share set forth in Schedule B,
less an amount per share equal to any dividends or distributions declared by
the Company and payable on the Initial Securities but not payable on the Option
Securities. The option hereby granted will expire 30 days after the date
hereof and may be exercised in whole or in part from time to time only for the
purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Initial Securities upon notice by the
Representative(s) to the Company setting forth the number of Option Securities
as to which the several Underwriters are then exercising the option and the
time and date of payment and delivery for such Option Securities. Any such
time and date of delivery (a "Date of Delivery") shall be determined by the
Representative(s), but shall not be later than seven full business days after
the exercise of said option, nor in any event prior to the Closing Time, as
hereinafter defined. If the option is exercised as to all or any portion of
the Option Securities, each of the Underwriters, acting severally and not
jointly, will purchase that proportion of the total number of Option Securities
then being purchased which the number of Initial Securities set forth in
Schedule A opposite the name of such Underwriter bears to the total number of
Initial Securities, subject in each case to such adjustments as the
Representative(s) in their discretion shall make to eliminate any sales or
purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Cleary, Gottlieb, Steen & Hamilton, 2000 Pennsylvania Avenue, N.W., Washington,
D.C. 20006, or at such other place as shall be agreed upon by the
Representative(s) and the Company, at 9:00 A.M. (Eastern time) on the third
(fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day)
business day after the date hereof (unless postponed in accordance with the
provisions of Section 10), or such other time not later than ten business days
after such date as shall be agreed upon by the Representative(s) and the
Company (such time and date of payment and delivery being herein called
"Closing Time").
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In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Representative(s) and the Company, on each Date of Delivery as specified in the
notice from the Representative(s) to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery
to the Representative(s) for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representative(s), for its account, to
accept delivery of, receipt for, and make payment of the purchase price for,
the Initial Securities and the Option Securities, if any, which it has agreed
to purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations
and registered in such names as the Representative(s) may request in writing at
least one full business day before the Closing Time or the relevant Date of
Delivery, as the case may be. The certificates for the Initial Securities and
the Option Securities, if any, will be made available for examination and
packaging by the Representative(s) in The City of New York not later than 10:00
A.M. (Eastern time) on the business day prior to the Closing Time or the
relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with
each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Representative(s) immediately, and confirm the notice in writing,
(i) when any post-effective amendment to the Registration Statement
shall become effective, or any supplement to the Prospectus or any
amended Prospectus shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission
for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information, and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly
effect the filings necessary pursuant to Rule 424(b) and will take
such steps as it deems necessary to ascertain promptly whether the
form of prospectus transmitted for filing under Rule 424(b) was
received for filing by the Commission and, in the event that it was
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<PAGE> 17
not, it will promptly file such prospectus. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the
Representative(s) notice of its intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectus
included in the Registration Statement at the time it became effective or to
the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise,
will furnish the Representative(s) with copies of any such documents a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file or use any such document to which the Representative(s)
or counsel for the Underwriters shall object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the Representative(s) and counsel for the
Underwriters, without charge, signed copies of the Registration Statement as
originally filed and of each amendment thereto (including exhibits filed
therewith or incorporated by reference therein and documents incorporated or
deemed to be incorporated by reference therein) and signed copies of all
consents and certificates of experts, and will also deliver to the
Representative(s), without charge, a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without exhibits)
for each of the Underwriters. The copies of the Registration Statement and
each amendment thereto furnished to the Underwriters will be substantially
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such
number of copies of the Prospectus (as amended or supplemented) as such
Underwriter may reasonably request. The Prospectus and any amendments or
supplements thereto furnished to the Underwriters will be substantially
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the
1934 Act Regulations so as to permit the completion of the distribution of the
Securities as contemplated in this Agreement and in the Prospectus. If at any
time when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Securities, any event shall occur or condition
shall exist as a result of which it is necessary, in the opinion of counsel for
the Underwriters or for the Company, to amend the Registration Statement or
amend or supplement the Prospectus in order that the Prospectus will not
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include any untrue statements of a material fact or omit to state a material
fact necessary in order to make the statements therein not misleading in the
light of the circumstances existing at the time it is delivered to a purchaser,
or if it shall be necessary, in the opinion of such counsel, at any such time
to amend the Registration Statement or amend or supplement the Prospectus in
order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or the
Prospectus comply with such requirements, and the Company will furnish to the
Underwriters such number of copies of such amendment or supplement as the
Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use reasonable
efforts, in cooperation with the Underwriters, to qualify the Securities for
offering and sale under the applicable securities laws of such states and other
jurisdictions as the Representative(s) may designate and to maintain such
qualifications in effect for a period of not less than one year from the later
of the effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which
it is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any
Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant
to the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified in the
Prospectus under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to effect and
maintain the quotation of the Securities on the Nasdaq National Market or any
other national securities exchange and will file with the Nasdaq National
Market or such other national securities exchange, as the case may be, all
documents and notices required by the Nasdaq National Market or such other
national securities exchange, as the case may be.
(j) Restriction on Sale of Securities. During a period of 90 days
from the date of the Prospectus, the Company will not, without the prior
written consent of Merrill Lynch, (i) directly or indirectly, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or
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<PAGE> 19
warrant to purchase or otherwise transfer or dispose of any share of
Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or file any registration statement under
the 1933 Act with respect to any of the foregoing or (ii) enter into
any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of
ownership of the Common Stock, whether any such swap or transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Securities to be sold
hereunder, (B) any shares of Common Stock issued by the Company upon
the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof and referred to in the Prospectus, (C)
any shares of Common Stock issued or options to purchase Common Stock
granted pursuant to existing employee benefit plans (as such are
intended to be amended as described in the Registration Statement and
the incorporated documents thereto) of the Company referred to in the
Prospectus or (D) any shares of Common Stock issued pursuant to any
non-employee director stock plan or dividend reinvestment plan.
(k) Reporting Requirements. The Company, during the period
when the Prospectus is required to be delivered under the 1933 Act or
the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required
by the 1934 Act and the 1934 Act Regulations.
SECTION 4. Payment of Expenses. (a) Expenses. The Company
will pay all expenses incident to the performance of its obligations under this
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation, printing
and delivery to the Underwriters of this Agreement, any Agreement among
Underwriters and such other documents as may be required in connection with the
offering, purchase, sale, issuance or delivery of the Securities, (iii) the
preparation, issuance and delivery of the certificates for the Securities to
the Underwriters, including any stock or other transfer taxes and any stamp or
other duties payable upon the sale, issuance or delivery of the Securities to
the Underwriters, (iv) the fees and disbursements of the Company's counsel,
accountants and other advisors, (v) the qualification of the Securities under
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any Term
Sheets and of the Prospectus and any amendments or supplements thereto, (vii)
the preparation, printing and delivery to the Underwriters of copies of the
Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Securities, (ix) the filing fees incident
to, and the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities Dealers,
Inc. (the "NASD") of the terms of the sale of the Securities and (x) the fees
and expenses incurred in connection with the inclusion of the Securities in the
Nasdaq National Market.
(b) Termination of Agreement. If this Agreement is terminated by
the Representative(s) in accordance with the provisions of Section 5(l) or
Section 9(a)(i) hereof, the
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<PAGE> 20
Company shall reimburse the Underwriters for all of their out-of-pocket
expenses, including the reasonable fees and disbursements of counsel for the
Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The
obligations of the several Underwriters hereunder are subject to the accuracy
of the representations and warranties of the Company contained in Section 1
hereof or in certificates of any officer of the Company or any subsidiary of
the Company delivered pursuant to the provisions hereof, to the performance by
the Company of its covenants and other obligations hereunder, and to the
following further conditions:
(a) Effectiveness of Registration Statement. The
Registration Statement, including any Rule 462(b) Registration
Statement, has become effective and at Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act or proceedings therefor initiated or
threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriters. A
prospectus containing the Rule 430A Information shall have been filed
with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been
filed and declared effective in accordance with the requirements of
Rule 430A) or, if the Company has elected to rely upon Rule 434, a
Term Sheet shall have been filed with the Commission in accordance
with Rule 424(b).
(b) Opinions of Counsel for Company. At Closing Time, the
Representative(s) shall have received the favorable opinions, dated as
of Closing Time, of Hogan & Hartson L.L.P., counsel for the Company;
Farris, Vaughn, Wills & Murphy, Canadian counsel for the Company;
Halprin, Temple, Goodman & Surgrue, special Federal Communications
Commission counsel for the Company; internal counsel to ORBCOMM;
internal counsel to ORBIMAGE; and internal counsel to the Company, each
in form and substance satisfactory to counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of
the other Underwriters to the effect set forth in or in the form of
Exhibit A-1, Exhibit A-2, Exhibit A-3, Exhibit A-4, Exhibit A-5 and
Exhibit A-6 hereto, respectively, and to such further effect as counsel
to the Underwriters may reasonably request. In giving such opinion,
Hogan & Hartson L.L.P. may rely, as to all matters governed by the laws
of jurisdictions other than the law of the State of New York, the
federal law of the United States, the General Corporation Law of the
State of Delaware, the Delaware Revised Uniform Limited Partnership
Act, as amended, and the Virginia Stock Corporation Act, as amended,
upon the opinions of counsel satisfactory to the Representative(s).
All such counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(c) Opinion of Counsel for Underwriters. At Closing
Time, the Representative(s) shall have received the favorable opinion,
dated as of Closing Time, of
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Cleary, Gottlieb, Steen & Hamilton, counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other Underwriters
with respect to the matters set forth in the first (except with respect to the
incorporation of the Company and the corporate power and authority of the
Company to own, lease and operate its current properties and to conduct its
business as described in the Prospectus), [tenth] (solely as to the due
authorization, execution and delivery of the Purchase Agreement by the
Company), [eleventh] (except with respect to the personal liability of any
holder of the Securities and compliance of the form of certificate used to
evidence the Securities with requirements of Delaware corporate law and the
Company's certificate of incorporation and by-laws), [fourteenth] (solely as to
the information in the Prospectus under "Description of Capital Stock") and
clause (i) of the [penultimate] paragraph of Exhibit A-1 hereto. In giving
such opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York, the federal law of
the United States and the General Corporation Law of the State of Delaware,
upon the opinions of counsel satisfactory to the Representative(s). Such
counsel may also state that, insofar as such opinion involves factual matters,
they have relied, to the extent they deem proper, upon certificates of officers
of the Company and its subsidiaries and certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company, its subsidiaries, ORBCOMM and ORBIMAGE
considered as one enterprise, whether or not arising in the ordinary course of
business, and the Representative(s) shall have received a certificate of the
President or a Vice President of the Company and of the chief financial or
chief accounting officer of the Company, dated as of Closing Time, to the
effect that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true and correct with
the same force and effect as though expressly made at and as of Closing Time,
(iii) the Company has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied at or prior to Closing Time, and (iv)
no stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
pending or are contemplated by the Commission.
(e) Accountant's Comfort Letter. At the time of the execution of
this Agreement, the Representative(s) shall have received from KPMG Peat
Marwick LLP a letter dated such date, in form and substance satisfactory to the
Representative(s), together with signed or reproduced copies of such letter for
each of the other Underwriters containing statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information
(including with respect to ORBCOMM) contained in the Registration Statement and
the Prospectus.
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(f) Bring-down Comfort Letter. At Closing Time, the
Representative(s) shall have received from KPMG Peat Marwick LLP a letter,
dated as of Closing Time, to the effect that they reaffirm the statements made
in the letter furnished pursuant to subsection (e) of this Section, except that
the specified date referred to shall be a date not more than three business
days prior to Closing Time.
(g) Approval of Listing. At Closing Time, the Securities shall
have been approved for inclusion in the Nasdaq National Market, subject only to
official notice of issuance.
(h) No Objection. The NASD shall have confirmed that it has not
raised any objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(i) Lock-up Agreements. At Closing Time, the Representative(s)
shall have received an agreement substantially in the form of Exhibit B hereto
signed by the persons listed on Schedule D hereto.
(j) Conditions to Purchase of Option Securities. In the event
that the Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the Option Securities, the representations and
warranties of the Company contained herein and the statements in any
certificates furnished by the Company or any subsidiary of the Company
hereunder shall be true and correct as of each Date of Delivery and, at the
relevant Date of Delivery, the Representative(s) shall have received:
(i) Officers' Certificate. A certificate, dated such
Date of Delivery, of the President or a Vice President of the Company
and of the chief financial or chief accounting officer of the Company
confirming that the certificate delivered at the Closing Time pursuant
to Section 5(d) hereof remains true and correct as of such Date of
Delivery.
(ii) Opinions of Counsel for Company. The favorable
opinions of Hogan & Hartson L.L.P., counsel for the Company; Farris,
Vaughn, Wills & Murphy, Canadian counsel for the Company; Halprin,
Temple, Goodman & Surgrue, special Federal Communications Commission
counsel for the Company; internal counsel for ORBCOMM; and internal
counsel to ORBIMAGE, each in form and substance satisfactory to
counsel for the Underwriters, dated such Date of Delivery, relating to
the Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinions required by Section 5(b)
hereof.
(iii) Opinion of Counsel for Underwriters. The favorable
opinion of Cleary, Gottlieb, Steen & Hamilton, counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to
the same effect as the opinion required by Section 5(c) hereof.
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(iv) Bring-down Comfort Letter. A letter from
KPMG Peat Marwick LLP, in form and substance satisfactory
to the Representative(s) and dated such Date of Delivery,
substantially in the same form and substance as the letter
furnished to the Representative(s) pursuant to Section 5(f)
hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not
more than five days prior to such Date of Delivery.
(k) Additional Documents. At Closing Time and at each
Date of Delivery, counsel for the Underwriters shall have been
furnished with such documents and opinions as they may require for the
purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings taken by the
Company in connection with the issuance and sale of the Securities as
herein contemplated shall be satisfactory in form and substance to the
Representative(s) and counsel for the Underwriters.
(l) Termination of Agreement. If any condition
specified in this Section shall not have been fulfilled when and as
required to be fulfilled, this Agreement, or, in the case of any
condition to the purchase of Option Securities, on a Date of Delivery
which is after the Closing Time, the obligations of the several
Underwriters to purchase the relevant Option Securities, may be
terminated by the Representative(s) by notice to the Company at any
time at or prior to Closing Time or such Date of Delivery, as the case
may be, and such termination shall be without liability of any party to
any other party except as provided in Section 4 and except that
Sections 1, 6, 7 and 8 shall survive any such termination and remain in
full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), including the
Rule 430A Information and the Rule 434 Information, if applicable, or
the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or
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threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, provided that (subject to Section 6(d) below) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel chosen by
Merrill Lynch), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided, further, that
the Company will not be liable to an Underwriter with respect to any preliminary
prospectus to the extent that the Company shall sustain the burden of proving
that any such loss, liability, claim, damage or expense resulted from the fact
that such Underwriter, in contravention of a requirement of this Agreement or
applicable law, sold Securities to a person to whom such Underwriter failed to
send or give, at or prior to the Closing Time, a copy of the Prospectus as then
amended or supplemented if the Company has previously furnished copies thereof
in accordance with Section 3(d) hereof (sufficiently in advance of the Closing
Time to allow for distribution by the Closing Time) to the Underwriters and the
loss, liability, claim, damage or expense of such Underwriter resulted from an
untrue statement or omission of a material fact contained in or omitted from the
preliminary prospectus which was corrected in the Prospectus as, if applicable,
amended or supplemented prior to the Closing Time and such Prospectus was
required by law to be delivered at or prior to the written confirmation of sale
to such person.
(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection
(a) of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto) or such preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
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(c) Actions against Parties; Notification. Each indemnified
party shall give notice as promptly as reasonably practicable to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified
pursuant to Section 6(a) above, counsel to the indemnified parties shall be
selected by Merrill Lynch, and, in the case of parties indemnified pursuant to
Section 6(b) above, counsel to the indemnified parties shall be selected by the
Company. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying parties
be liable for fees and expenses of more than one counsel (in addition to any
local counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent
of the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified
parties are actual or potential parties thereto), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such litigation, investigation,
proceeding or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.
(d) Settlement without Consent if Failure to Reimburse. If at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
SECTION 7. Contribution. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein; then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the
21
<PAGE> 26
Company on the one hand and of the Underwriters on the other hand in connection
with the statements or omissions, which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Underwriters,
in each case as set forth on the cover of the Prospectus, or, if Rule 434 is
used, the corresponding location on the Term Sheet, bear to the aggregate
initial public offering price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 7 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as the Company. The Underwriters'
respective obligations
22
<PAGE> 27
to contribute pursuant to this Section 7 are several in proportion to the
number of Initial Securities set forth opposite their respective names in
Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto, shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representative(s) may
terminate this Agreement, by notice to the Company, at any time at or
prior to Closing Time (i) if there has been, since the time of
execution of this Agreement or since the respective dates as of which
information is given in the Prospectus, any material adverse change in
the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company, its subsidiaries, ORBCOMM
and ORBIMAGE, considered as one enterprise, whether or not arising in
the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States
or the international financial markets, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of
which is such as to make it, in the judgment of the Representative(s),
impracticable to market the Securities or to enforce contracts for the
sale of the Securities, or (iii) if trading in any securities of the
Company has been suspended or materially limited by the Commission or
the Nasdaq National Market, or if trading generally on the American
Stock Exchange or the New York Stock Exchange or in the Nasdaq National
Market has been suspended or materially limited, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order
of the Commission, the National Association of Securities Dealers, Inc.
or any other governmental authority, or (iv) if a banking moratorium
has been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated
pursuant to this Section, such termination shall be without liability of
any party to any other party except as provided in Section 4 hereof, and
provided further that Sections 1, 6, 7 and 8 shall survive such
termination and remain in full force and effect.
SECTION 10. Default by One or More of the Underwriters. If one
or more of the Underwriters shall fail at Closing Time or a Date of Delivery to
purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the Representative(s) shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but
not less than all, of the Defaulted Securities in such amounts as may be agreed
upon and upon the
23
<PAGE> 28
terms herein set forth; if, however, the Representative(s) shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed
10% of the number of Securities to be purchased on such date, each of
the non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of
the number of Securities to be purchased on such date, this Agreement
or, with respect to any Date of Delivery which occurs after the
Closing Time, the obligation of the Underwriters to purchase and of
the Company to sell the Option Securities to be purchased and sold on
such Date of Delivery shall terminate without liability on the part of
any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the
obligation of the Underwriters to purchase and the Company to sell the relevant
Option Securities, as the case may be, either the Representative(s) or the
Company shall have the right to postpone the Closing Time or the relevant Date
of Delivery, as the case may be, for a period not exceeding seven days in order
to effect any required changes in the Registration Statement or Prospectus or
in any other documents or arrangements. As used herein, the term "Underwriter"
includes any person substituted for an Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to
the Underwriters shall be directed to the Representative(s) at North Tower,
World Financial Center, New York, New York 10281-1201, attention of Robert
Kramer; and notices to the Company shall be directed to it at 21700 Atlantic
Boulevard, Dulles, Virginia 20166, attention of Legal Department.
SECTION 12. Parties. This Agreement shall each inure to the
benefit of and be binding upon the Underwriters and the Company and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Underwriters and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the Underwriters and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No
24
<PAGE> 29
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
SECTION 13 GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section
headings herein and the Table of Contents are for convenience only and shall
not affect the construction hereof.
25
<PAGE> 30
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Company in accordance with its
terms.
Very truly yours,
ORBITAL SCIENCES CORPORATION
By
--------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
J.P. MORGAN & CO.
J.P. MORGAN SECURITIES INC.
MORGAN STANLEY DEAN WITTER
MORGAN STANLEY & CO. INCORPORATED
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
----------------------------------------------
Authorized Signatory
For themselves and as Representative(s) of the other Underwriters named in
Schedule A hereto.
26
<PAGE> 31
SCHEDULE A
<TABLE>
<CAPTION>
Name of Underwriter Number of
------------------- Initial
Securities
----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
J.P. Morgan Securities Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Morgan Stanley & Co. Incorporated . . . . . . . . . . . . . . . . . . . . . . . . .
-----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,750,000
=========
</TABLE>
Schedule A-1
<PAGE> 32
SCHEDULE B
ORBITAL SCIENCES CORPORATION
2,750,000 Shares of Common Stock
(Par Value $0.01 Per Share)
The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $ .
The purchase price per share for the Securities to be paid by the
several Underwriters shall be $ , being an amount equal to the initial
public offering price set forth above less $ per share; provided that the
purchase price per share for any Option Securities purchased upon the exercise
of the over-allotment option described in Section 2(b) shall be reduced by an
amount per share equal to any dividends or distributions declared by the
Company and payable on the Initial Securities but not payable on the Option
Securities.
Schedule B-1
<PAGE> 33
SCHEDULE C
<TABLE>
<CAPTION>
Percentage Direct
or Indirect Orbital
Ownership Interest*
-------------------
<S> <C>
Orbital Communications Corporation, a Delaware corporation 98.9/83.8%**
ORBCOMM USA, L.P., a Delaware limited partnership 51.0/42.7
Orbital Services Corporation, a Delaware corporation 100.0
Magellan DIS, Inc., a Delaware corporation 67.5/57.9**
Magellan Corporation, a Delaware corporation, doing business as
Magellan Systems Corporation 67.5/57.9**
Magellan Sistemas de Mexico, a Mexican corporation 67.5/57.9**
Magellan Foreign Sales Corp., a Barbados corporation 67.5/57.9**
Ashtech A/O, a Russian company 67.5/57.9**
Ashtech Europe Limited, a United Kingdom company 67.5/57.9**
MacDonald, Dettwiler Holdings Inc., a Canadian corporation 100.0
MacDonald, Dettwiler and Associates Ltd., a Canadian corporation 100.0
MacDonald, Dettwiler Technologies Ltd., a British Columbia corporation 100.0
MacDonald, Dettwiler Pty Ltd., an Australian corporation 100.0
Macdonald, Dettwiler Technologies Inc., a Delaware corporation 100.0
MacDonald, Dettwiler Limited, a United Kingdom corporation 100.0
MDA Services Ltd., a Canadian corporation 100.0
Triathlon Mapping Corporation, a British Columbia corporation 100.0
Earth Observation Sciences Ltd., a United Kingdom corporation 100.0
Iotek, Inc., a Nova Scotia corporation 100.0
Nies Mapping Group Inc., a Washington corporation 100.0
Orbital Commercial Systems, Inc., a Virginia corporation 100.0
Orbital International, Inc., a Virginia corporation 100.0
Orbital International Services, Inc., a Virginia corporation 100.0
Orbital International Asia, Ltd., a British West Indies corporation 100.0
Engineering Technologies, Inc., a Virginia corporation 100.0
Orbital Space Systems, Inc., a Virginia corporation 100.0
</TABLE>
- --------------------
* Percentage ownership as it applies to ORBCOMM (as defined in this
Agreement): 49.5/41.9; ORBIMAGE (as defined in this Agreement): 63/58;
(which entities are not deemed subsidiaries for purposes of this
Agreement).
** Fully diluted basis
Schedule C-1
<PAGE> 34
SCHEDULE D(1)
David W. Thompson
Jeffrey V. Pirone
Scott L. Webster
James R. Thompson
Robert R. Lovell
Robert D. Strain
Daniel E. Friedmann
Charles M. Boesenberg
Antonio L. Elias
Leslie C. Seeman
- ----------------------------------
(1) List is subject to review by Representatives.
Schedule D-1
<PAGE> 35
Exhibit A-1
FORM OF OPINION OF HOGAN & HARTSON L.L.P.
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
Exhibit A-1-1
<PAGE> 36
April ___, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
JP MORGAN & CO.
J.P. Morgan Securities Inc.
MORGAN STANLEY DEAN WITTER
Morgan Stanley & Co. Incorporated,
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith, Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
This firm has acted as counsel to Orbital Sciences
Corporation, a Delaware corporation (the "Company"), in connection with the
issuance and sale by the Company of certain shares of Common Stock, par value of
$0.01 per share (the "Shares"), pursuant to the terms of the Purchase Agreement
dated April __, 1998 (the "Purchase Agreement") among each of you and the
Company. This opinion letter is furnished to you pursuant to the requirements
set forth in Section 5(b) of the Purchase Agreement in connection with the
Closing thereunder on the date hereof. All capitalized terms used herein shall
have the meanings set forth in the Purchase Agreement, unless otherwise defined
herein.
For purposes of the opinions expressed in this letter, which
are set forth in Paragraphs (a) through (p) below (the "Opinions"), we have
examined copies of the following documents:
1. Executed copy of the Purchase Agreement.
2. The Registration Statement on Form S-3 (No.
333-48679), as amended by Amendment Nos. 1 and 2
thereto (the "Registration Statement").
<PAGE> 37
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 2
3. The final Prospectus dated April __, 1998, as filed
pursuant to Rule 424(b)(_) under the Securities Act
(the "Prospectus").
4. Memorandum to file regarding telephonic confirmation
from the staff of the Securities and Exchange
Commission (the "Commission") of the effectiveness of
the Registration Statement.
5. A copy of the specimen certificate for the Shares to
be issued pursuant to the Purchase Agreement.
6. The Restated Certificate of Incorporation of the
Company, as amended, as certified by the Secretary of
State of the State of Delaware on April 7, 1998 and
as certified by an Assistant Secretary of the Company
on the date hereof as being complete, accurate and in
effect (the "Company's Certificate of
Incorporation").
7. The Bylaws of the Company, as amended, as certified
by an Assistant Secretary of the Company on the date
hereof as being complete, accurate and in effect.
8. A certificate of good standing of the Company issued
by the Secretary of State of the State of Delaware on
the date hereof.
9. Foreign qualification certificates of the Company
issued by the Virginia State Corporation Commission,
the Maryland State Department of Assessments and
Taxation and the Secretaries of State of the States
of Alabama, Arizona, California, Florida, New Mexico
and West Virginia, dated April 7, 1998, April 8, 1998
or April 9, 1998, as applicable.
10. Certain resolutions of the Board of Directors of the
Company adopted at a meeting held on March 24, 1998
and resolutions of
<PAGE> 38
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 3
the Pricing Committee of the Board of Directors
adopted at a meeting held on April___, 1998, in each
case as certified by an Assistant Secretary of the
Company on the date hereof as being complete,
accurate and in effect, relating to authorization of
the Purchase Agreement and arrangements in connection
therewith.
11. Certain resolutions of the Board of Directors of the
Company relating to prior stock issuances, as
certified by an Assistant Secretary of the Company on
the date hereof as being complete, accurate and in
effect.
12. The Amended and Restated Certificate of Incorporation
of Magellan Corporation ("Magellan"), as amended, as
certified by the Secretary of State of the State of
Delaware on April 7, 1998 and as certified by an
Assistant Secretary of Magellan on the date hereof as
being complete, accurate and in effect.
13. The Bylaws of Magellan, as certified by an Assistant
Secretary of Magellan on the date hereof as being
complete, accurate and in effect.
14. A certificate of good standing of Magellan issued by
the Secretary of State of the State of Delaware on
the date hereof.
15. A foreign qualification certificate of Magellan
(doing business as Magellan Systems Corporation)
issued by the Secretary of State of the State of
California dated April 7, 1998.
16. Certain resolutions of the Board of Directors of
Magellan relating to prior stock issuances and the
stock record books of Magellan, as certified by an
Assistant Secretary of Magellan on the date hereof as
being complete, accurate and in effect.
<PAGE> 39
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 4
17. The Corrected Certificate of Incorporation of
Magellan DIS, Inc. ("Magellan DIS"), as certified by
the Secretary of State of the State of Delaware on
April 7, 1998 and as certified by the Secretary of
Magellan DIS on the date hereof as being complete,
accurate and in effect.
18. The Bylaws of Magellan DIS, as certified by an
Assistant Secretary of Magellan DIS on the date
hereof as being complete, accurate and in effect.
19. A certificate of good standing of Magellan DIS issued
by the Secretary of State of the State of Delaware on
the date hereof.
20. Foreign qualification certificates of Magellan DIS
issued by the Secretaries of State of the States of
Michigan and Texas, each dated April 7, 1998.
21. Certain resolutions of the Board of Directors of
Magellan DIS relating to prior stock issuances and
the stock record books of Magellan DIS, as certified
by an Assistant Secretary of Magellan DIS on the date
hereof as being complete, accurate and in effect.
22. The Certificate of Incorporation of Orbital
Communications Corporation ("OCC"), as amended, as
certified by the Secretary of State of the State of
Delaware on April 7, 1998 and as certified by an
Assistant Secretary of OCC on the date hereof as
being complete, accurate and in effect.
23. The Bylaws of OCC, as certified by an Assistant
Secretary of OCC on the date hereof as being
complete, accurate and in effect.
24. A certificate of good standing of OCC issued by the
Secretary of State of the State of Delaware on the
date hereof.
<PAGE> 40
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 5
25. Foreign qualification certificates of OCC issued by
the Virginia State Corporation Commission and the
Secretary of State of the State of Arizona, dated
April , 1998 and April 7, 1998, respectively.
26. Certain resolutions of the Board of Directors of OCC
relating to prior stock issuances and the stock
record books of OCC, as certified by an Assistant
Secretary of OCC on the date hereof as being
complete, accurate and in effect.
27. The Certificate of Limited Partnership of ORBCOMM
USA, L.P. ("ORBCOMM USA"), as amended, as certified
by the Secretary of State of the State of Delaware on
April 7, 1998 and as certified by an Assistant
Secretary of OCC, as a general partner of ORBCOMM
Global, L.P. ("ORBCOMM Global"), which is a general
partner of ORBCOMM USA, on the date hereof as being
complete, accurate and in effect.
28. The Restated Agreement of Limited Partnership of
ORBCOMM USA (the "ORBCOMM Partnership Agreement"), as
certified by an Assistant Secretary of OCC, as a
general partner of ORBCOMM Global, on the date hereof
as being complete, accurate and in effect.
29. A certificate of good standing of ORBCOMM USA issued
by the Secretary of State of the State of Delaware on
the date hereof.
30. A foreign qualification certificate of ORBCOMM USA
issued by the Virginia State Corporation Commission
dated April 8, 1998.
31. The Articles of Incorporation of Engineering
Technologies, Inc. ("Engineering Technologies"), as
amended, as certified by the Virginia State
Corporation Commission on April 8, 1998 and as
<PAGE> 41
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 6
certified by an Assistant Secretary of Engineering
Technologies on the date hereof as being complete,
accurate and in effect.
32. The Bylaws of Engineering Technologies, as certified
by an Assistant Secretary of Engineering Technologies
on the date hereof as being complete, accurate and in
effect.
33. A certificate of good standing of Engineering
Technologies issued by the Virginia State Corporation
Commission dated April 8, 1998 and telephonic
confirmation of such good standing received on the
date hereof.
34. Certain resolutions of the Board of Directors of
Engineering Technologies relating to prior stock
issuances and the stock record books of Engineering
Technologies, as certified by an Assistant Secretary
of Engineering Technologies on the date hereof as
being complete, accurate and in effect.
35. The Articles of Incorporation of Orbital Space
Systems, Inc. ("OSS"), as amended, as certified by
the Virginia State Corporation Commission on April 8,
1998 and as certified by an Assistant Secretary of
OSS on the date hereof as being complete, accurate
and in effect.
36. The Bylaws of OSS, as certified by an Assistant
Secretary of OSS on the date hereof as being
complete, accurate and in effect.
37. A certificate of good standing of OSS issued by the
Virginia State Corporation Commission dated April 8,
1998 and telephonic confirmation of such good
standing received on the date hereof.
38. Certain resolutions of the Board of Directors of OSS
relating to prior stock issuances and the stock
record books of OSS, as
<PAGE> 42
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 7
certified by an Assistant Secretary of OSS on the
date hereof as being complete, accurate and in
effect.
39. The Articles of Incorporation of Orbital Commercial
Systems, Inc. ("OCS"), as amended, as certified by
the Virginia State Corporation Commission on April 8,
1998 and as certified by an Assistant Secretary of
OCS on the date hereof as being complete, accurate
and in effect.
40. The Bylaws of OCS, as certified by the Secretary of
OCS on the date hereof as being complete, accurate
and in effect.
41. A certificate of good standing of OCS issued by the
Virginia State Corporation Commission dated April 8,
1998 and telephonic confirmation of such good
standing received on the date hereof.
42. Certain resolutions of the Board of Directors of OCS
relating to prior stock issuances and the stock
record books of OCS, as certified by an Assistant
Secretary of OCS on the date hereof as being
complete, accurate and in effect.
43. The Articles of Incorporation of Orbital
International, Inc. ("Orbital International"), as
amended, as certified by the Virginia State
Corporation Commission on April 8, 1998 and as
certified by an Assistant Secretary of Orbital
International on the date hereof as being complete,
accurate and in effect.
44. The Bylaws of Orbital International, as certified by
an Assistant Secretary of Orbital International on
the date hereof as being complete, accurate and in
effect.
45. A certificate of good standing of Orbital
International issued by the Virginia State
Corporation Commission dated April 8, 1998
<PAGE> 43
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 8
and telephonic confirmation of such good standing
received on the date hereof.
46. Certain resolutions of the Board of Directors of
Orbital International relating to prior stock
issuances and the stock record books of Orbital
International, as certified by an Assistant Secretary
of Orbital International on the date hereof as being
complete, accurate and in effect.
47. The Articles of Incorporation of Orbital
International Services, Inc. ("International
Services"), as amended, as certified by the Virginia
State Corporation Commission on April 8, 1998 and as
certified by an Assistant Secretary of International
Services on the date hereof as being complete,
accurate and in effect.
48. The Bylaws of International Services, as certified by
an Assistant Secretary of International Services on
the date hereof as being complete, accurate and in
effect.
49. A certificate of good standing of International
Services issued by the Virginia State Corporation
Commission dated April 8, 1998 and telephonic
confirmation of such good standing received on the
date hereof.
50. Certain resolutions of the Board of Directors of
International Services relating to prior stock
issuances and the stock record books of International
Services, as certified by an Assistant Secretary of
International Services on the date hereof as being
complete, accurate and in effect.
51. The Certificate of Limited Partnership of ORBCOMM
Global, as amended, as certified by the Secretary of
State of the State of Delaware on April 7, 1998 and
as certified by the Secretary of
<PAGE> 44
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 9
OCC, as a general partner of ORBCOMM Global, on the
date hereof as being complete, accurate and in
effect.
52. The Restated Agreement of Limited Partnership of
ORBCOMM Global, as amended, as certified by the
Secretary of OCC, as a general partner of ORBCOMM
Global, on the date hereof as being complete,
accurate and in effect.
53. The Amended and Restated Certificate of Incorporation
of Orbital Imaging Corporation ("ORBIMAGE"), as
certified by the Secretary of State of the State of
Delaware on April 7, 1998 and as certified by the
Secretary of ORBIMAGE on the date hereof as being
complete, accurate and in effect.
54. The Amended and Restated Bylaws of ORBIMAGE, as
certified by the Secretary of ORBIMAGE on the date
hereof as being complete, accurate and in effect.
55. The [Articles of Arrangement] of MacDonald, Dettwiler
Holdings Inc. ("MD Holdings"), as certified by the
[Secretary] of MD Holdings on the date hereof as
being complete, accurate and in effect.
56. The Bylaws of MD Holdings, as certified by the
[Secretary] of MD Holdings on the date hereof as
being complete, accurate and in effect.
57. The [Articles of Incorporation] of MacDonald,
Dettwiler and Associates Ltd. ("MDA"), as certified
by the [Secretary] of MDA on the date hereof as being
complete, accurate and in effect.
58. The Bylaws of MDA, as certified by the [Secretary] of
MDA on the date hereof as being complete, accurate
and in effect.
<PAGE> 45
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 10
59. Certain agreements and contracts to which the
Company, any of the Subsidiaries (as hereinafter
defined), MD Holdings or MDA is a party filed as an
exhibit to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1997
(collectively, the "Material Contracts").
60. A certificate of an Assistant Secretary of the
Company, dated as of the date hereof, as to the
incumbency and signatures of certain officers of the
Company.
61. A certificate of certain officers of the Company,
dated as of the date hereof, as to certain facts
relating to the Company and the Subsidiaries.
62. A certificate of certain officers of MD Holdings and
MDA as to certain facts relating to MD Holdings and
MDA.
Magellan, Magellan DIS, OCC, ORBCOMM USA, Engineering
Technologies, OSS, OCS, Orbital International and International Services are
sometimes hereinafter referred to collectively as the "Subsidiaries."
For purposes of rendering the Opinions, we have not, except as
specifically identified above, made any independent review or investigation of
factual or other matters, including the organization, existence, good standing,
assets, business or affairs of the Company, any of the Subsidiaries, MD Holdings
or MDA. In our examination of the Purchase Agreement and the aforesaid
certificates, records, documents and agreements, we have assumed the genuineness
of all signatures (other than those on behalf of the Company on the Purchase
Agreement), the legal capacity of all natural persons, the authenticity of all
original documents and the conformity to authentic original documents of all
documents submitted to us as copies (including telecopies). We also have assumed
the authenticity, accuracy and completeness of the foregoing certifications (of
public officials, governmental agencies and departments, corporate officers and
individuals) and statements of fact, on which we are relying, and have made no
independent investigations thereof.
<PAGE> 46
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 11
In rendering the Opinions we have relied as to factual matters, without
independent investigation, upon the representations, warranties and
certifications made by the Company in or pursuant to the Purchase Agreement and
upon the officers' certificates identified in Paragraphs 60, 61 and 62 above.
The Opinions are given in the context of the foregoing.
As used in this opinion letter, the phrase "to our knowledge"
means the actual knowledge (that is, the conscious awareness of facts or other
information) of lawyers in the firm who have given substantive legal attention
to representing the Company in connection with corporate law matters.
Nothing herein shall be construed to cause us to be considered
"experts" within the meaning of Section 11 of the Securities Act of 1933, as
amended.
The Opinions are based as to matters of law solely on
applicable provisions of (i) federal securities statutes and regulations, (ii)
the General Corporation Law of the State of Delaware, as amended (the "Delaware
Corporation Law"), (iii) the Delaware Revised Uniform Limited Partnership Act,
as amended (the "Delaware Limited Partnership Act"), (iv) the Virginia Stock
Corporation Act, as amended (the "Virginia Corporation Act") and (v) New York
law (but not including any statutes, ordinances, administrative decisions, rules
or regulations of any political subdivision of the State of New York), and we
express no opinion as to any other laws, statutes, ordinances, rules or
regulations (such as state securities or "blue sky" laws or federal or state
communications laws); it being understood that, with respect to clauses (i) and
(v) above, the Opinions are based upon our review of those laws, statutes and
regulations that, in our experience, are normally applicable to the transactions
contemplated in the Purchase Agreement. The Opinions expressed in Paragraphs (b)
and (d) below as to the authorization of the Company and certain of the
Subsidiaries to transact business as foreign corporations or limited
partnerships, as the case may be, in any jurisdiction other than the
Commonwealth of Virginia are based solely upon a review of the certificates
issued by governmental officials referred to in such Paragraphs. We note that
MDA and MD Holdings are Canadian corporations and, for purposes of the Opinions
<PAGE> 47
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 12
regarding MDA and MD Holdings, we have assumed that the relevant laws of Canada
are the same in substance as the Delaware Corporation Law.
Based upon, subject to and limited by the foregoing, we are of
the opinion that:
(a) The Company was incorporated, and is validly existing and
in good standing under the laws of the State of Delaware. The Company has the
corporate power and corporate authority to own, lease and operate its current
properties and to conduct its business as described in the Prospectus.
(b) The Company is authorized to transact business as a
foreign corporation in the Commonwealth of Virginia and the States of Maryland,
Alabama, Arizona, California, Florida, New Mexico and West Virginia as of the
respective dates of the certificates specified in Paragraph 9 above and is in
good standing as of such dates to the extent so stated in such certificates.
(c) The authorized capital stock of the Company, as of
December 31, 1997, was as set forth under the caption "Capitalization" in the
Prospectus. All shares of Common Stock shown as issued and outstanding under
such caption have been duly authorized and are validly issued, fully paid and
nonassessable, and were not issued in violation of (i) any preemptive rights
under the Company's Certificate of Incorporation or the Delaware Corporation Law
or (ii) to our knowledge, similar contractual rights.
(d) Each of Magellan, Magellan DIS and OCC was incorporated,
and is validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and corporate authority to own, lease and
operate its current properties and to conduct its business as described in the
Prospectus. Each of Magellan, Magellan DIS and OCC is authorized to transact
business as a foreign corporation in each jurisdiction identified in Paragraphs
15, 20 and 25 above, respectively, as of the respective dates of the
certificates specified in such Paragraphs and is in good standing as of such
dates to the extent so stated in such certificates.
<PAGE> 48
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 13
(e) All of the outstanding shares of capital stock of each of
Magellan, Magellan DIS and OCC (i) have been duly authorized and are validly
issued, fully paid and nonassessable, and (ii) to our knowledge, were not issued
in violation of any preemptive rights under such Subsidiary's certificate of
incorporation or under the Delaware Corporation Law or in violation of any
similar contractual rights.
(f) Each of Engineering Technologies, OSS, OCS, Orbital
International and International Services was incorporated, and is validly
existing and in good standing under the laws of the Commonwealth of Virginia,
and has the corporate power and corporate authority to own, lease and operate
its current properties and to conduct its business as described in the
Prospectus.
(g) All of the outstanding shares of capital stock of each of
Engineering Technologies, OSS, OCS, Orbital International and International
Services (i) have been duly authorized and are validly issued, fully paid and
nonassessable, and (ii) to our knowledge, were not issued in violation of any
preemptive rights under such Subsidiary's articles of incorporation or under the
Virginia Corporation Act or in violation of any similar contractual rights.
(h) ORBCOMM USA is a limited partnership formed, validly
existing and in good standing under the laws of the State of Delaware, and has
the limited partnership power and limited partnership authority to own, lease
and operate its current properties and to conduct its business as described in
the Prospectus. ORBCOMM USA is authorized to transact business as a foreign
limited partnership in the Commonwealth of Virginia as of the date of the
certificate specified in Paragraph 30 above. The partnership interests of OCC
and ORBCOMM Global in ORBCOMM USA have been authorized for issuance, are validly
issued and are fully paid.
(i) The Company has the corporate power and corporate
authority to execute and deliver the Purchase Agreement and to perform its
obligations thereunder. The Purchase Agreement has been duly authorized,
executed, and delivered on behalf of the Company.
<PAGE> 49
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 14
(j) The Shares have been duly authorized and, when issued in
accordance with the provisions of the Purchase Agreement, will be validly
issued, fully paid and non-assessable. No holder of outstanding shares of Common
Stock of the Company has any preemptive right under the Delaware Corporation Law
or under the Company's Certificate of Incorporation or Bylaws or, to our
knowledge, any contractual right, to subscribe for any of the Shares. Under
Section 102(b) of the Delaware Corporation Law, no holder of the Shares is
subject to personal liability for the payment of the Company's debts except by
reason of such holder's own conduct or acts. The form of certificate used to
evidence the Shares complies in all material respects with any applicable
requirements of the Delaware Corporation Law and the Company's Certificate of
Incorporation and Bylaws.
(k) The Registration Statement has been declared effective
under the Securities Act, the required filings of the Prospectus pursuant to
Rule 424(b) promulgated pursuant to the 1933 Act have been made in the manner
and within the time period required by Rule 424(b) and, to our knowledge, no
stop order suspending the effectiveness of the Registration Statement has been
issued under the 1933 Act and no proceedings for that purpose have been
instituted or are threatened by the Commission.
(l) The Registration Statement and the Prospectus, excluding
the documents incorporated by reference therein, as of their respective
effective or issue dates (except for the financial statements and supporting
schedules included therein or omitted therefrom, as to which we express no
opinion), complied as to form in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations. The documents incorporated by
reference in the Prospectus (except for the financial statements and supporting
schedules included therein or omitted therefrom, as to which we express no
opinion), when they were filed with the Commission, complied as to form in all
material respects with the requirements of the 1934 Act and the 1934 Act
Regulations.
(m) The information in the Prospectus under the caption
"Description of Capital Stock," to the extent that such information constitutes
matters of law or legal conclusions, has been reviewed by us, and is correct in
all
<PAGE> 50
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 15
material respects. The Common Stock conforms in all material respects to the
description thereof set forth in the Prospectus under the caption "Description
of Capital Stock -- Common Stock."
(n) The execution, delivery and performance as of the date
hereof by the Company of the Purchase Agreement and the consummation of the
transactions contemplated in the Purchase Agreement, including the issuance and
sale of the Shares and the use of the proceeds from the sale of the Shares as
described in the Prospectus under the caption "Use of Proceeds," do not (i)
violate the Company's Certificate of Incorporation or its Bylaws, the
certificates or articles of incorporation, bylaws, certificate of limited
partnership or limited partnership agreement, as applicable, of any of the
Subsidiaries, ORBIMAGE's certificate of incorporation, ORBIMAGE's bylaws,
ORBCOMM Global's certificate of limited partnership, ORBCOMM Global's limited
partnership agreement, MDA's [articles of incorporation] or bylaws, MD Holdings'
[articles of arrangement] or bylaws, or the Delaware Corporation Law, the
Delaware Limited Partnership Act or the Virginia Corporation Act, as applicable,
(ii) to our knowledge, violate any order, judgment, decree or arbitration award
binding upon the Company, any of the Subsidiaries, MDA or MD Holdings, (iii)
whether with or without the giving of notice or lapse of time or both, breach or
constitute a default or a Repayment Event under any Material Contract or (iv)
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company, any of the Subsidiaries, MDA or MD Holdings
pursuant to any Material Contract. No approval or consent of, or registration or
filing with, any federal (except as to (i) federal securities laws, as to which
we express no opinion in this Paragraph and (ii) federal communications laws),
Delaware, Virginia or New York governmental agency is required to be obtained or
made by the Company in connection with the execution, delivery and performance
as of the date hereof by the Company of the Purchase Agreement.
(o) The Company is not, and immediately after giving effect to
the issuance and sale of the Shares (assuming the application of the proceeds
therefrom in accordance with the statements in the Registration Statement and
Prospectus under the caption "Use of Proceeds") will not be, required to be
registered as an "investment company" under the 1940 Act.
<PAGE> 51
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 16
(p) To our knowledge, the Company or a Subsidiary owns of
record the interests in the Subsidiaries, ORBIMAGE and ORBCOMM Global set forth
on Schedule C to the Purchase Agreement free and clear of security interests,
claims, liens or similar encumbrances. To our knowledge, the shares of MD
Holdings owned of record by the Company as set forth on such Schedule C are free
and clear of security interests, claims, liens or similar encumbrances.
* * * * *
During the course of the preparation of the Registration
Statement, we participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants of the Company and with you and your representatives. While we have
not undertaken to determine independently, and we do not assume any
responsibility for, the accuracy, completeness, or fairness of the statements in
the Registration Statement or Prospectus (except to the extent set forth in
Paragraph (m) above), we may state on the basis of these conferences and our
activities as counsel to the Company in connection with the Registration
Statement that no facts have come to our attention which cause us to believe
that (i) the Registration Statement, at the time it became effective, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, or that the Prospectus, as of its date or the date
hereof, contained or contains an untrue statement of material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, (ii) there are any legal or governmental proceedings pending or
threatened against the Company or any of the Subsidiaries that are required to
be disclosed in the Registration Statement or the Prospectus, other than those
disclosed therein, or (iii) there are any contracts or documents of a character
required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement that are not described or
referred to therein or so filed;
<PAGE> 52
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
JP Morgan & Co.
J.P. Morgan Securities, Inc.
Morgan Stanley Dean Witter
Morgan Stanley & Co., Incorporated
April __, 1998
Page 17
provided that in making the foregoing statements (which shall not constitute an
opinion), we are not expressing any views as to the financial statements and
supporting schedules and other financial information and data included in or
omitted from the Registration Statement or the Prospectus and provided further,
that any statement contained in any documents incorporated by reference in the
Registration Statement or the Prospectus shall be deemed to be modified or
superseded to the extent that a statement contained in the Registration
Statement or the Prospectus, as the case may be, modifies or supersedes such
statement. Any statement as modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of the Registration Statement
or the Prospectus.
* * * * *
We assume no obligation to advise you of any changes in the
foregoing subsequent to the delivery of this opinion letter. This opinion letter
has been prepared solely for your use in connection with the Closing under the
Purchase Agreement on the date hereof, and should not be quoted in whole or in
part or otherwise be referred to, nor be filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
Very truly yours,
HOGAN & HARTSON L.L.P.
<PAGE> 53
Exhibit A-2
FORM OF OPINION OF FARRIS, VAUGHN, WILLS & MURPHY
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
Each of MacDonald, Dettwiler and Associates Ltd. ("MDA") and
MacDonald, Dettwiler Holdings Inc. ("MDHoldings") is a corporation duly
organized and validly existing under the laws of Canada, and is in good
standing with respect to the filing of annual returns and financial statements
under the Canadian Business Corporations Act and is duly qualified as a foreign
corporation to transact business and is in good standing in each Canadian
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a Material
Adverse Effect. Each of MDA and MDHoldings has all necessary corporate power
and authority to own, lease and operate its properties and to carry on its
business as described in the Prospectus.
All of the issued and outstanding capital stock of each of MDA and
MDHoldings has been duly authorized and validly issued, is fully paid and
non-assessable.(1)
- ------------------------------
(1) Please note that the revisions to the form of Canadian counsel's
opinion letter reflected on this blackline are subject to agreement
that the removed opinions will be delivered, with respect to MDA and
MDHoldings, by the Company's internal counsel or Hogan & Hartson.
Exhibit A-2-1
<PAGE> 54
Exhibit A-3
FORM OF OPINION OF HALPRIN, TEMPLE, GOODMAN & SURGRUE
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
The information in the Prospectus under "Business--Regulation" and in
the Company's annual report on Form 10-K filed with the Commission on March 26,
1998 under "Business--Regulation", to the extent that it constitutes matters of
law, summaries of legal matters or legal proceedings, or legal conclusions, has
been reviewed by us and is correct in all material respects.
All descriptions in the Registration Statement of the status of
regulatory and licensing matters are accurate in all material respects.
Exhibit A-3-1
<PAGE> 55
Exhibit A-4
FORM OF OPINION OF INTERNAL COUNSEL FOR ORBCOMM GLOBAL L.P.
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
ORBCOMM has been duly organized and is validly existing as a limited
partnership in good standing under the laws of the State of Delaware, has
limited partnership power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and is
duly qualified as a foreign limited partnership to transact business and is in
good standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good standing
would not result in a Material Adverse Effect.
All of the partnership interests in ORBCOMM (i) have been duly
authorized and validly issued, are fully paid and nonassessable and (ii) to our
knowledge, are owned by the Company free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity (except as disclosed in
the Prospectus) and were not issued in violation of the preemptive or similar
rights of any partner in ORBCOMM.
To the best of my knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which ORBCOMM is a
party, or to which the property of ORBCOMM is subject, before or brought by any
court or governmental agency or body, domestic or foreign, which might
reasonably be expected to result, singly or in the aggregate, in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets of ORBCOMM or the consummation of the
transactions contemplated in the Purchase Agreement or the performance by the
Company of its obligations thereunder.
To the best of my knowledge, ORBCOMM is not in violation of its
charter or by-laws and no default by ORBCOMM exists in the due performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectus or filed or incorporated by reference
as an exhibit to the Registration Statement.
Exhibit A-4-1
<PAGE> 56
Exhibit A-5
FORM OF OPINION OF INTERNAL COUNSEL FOR ORBITAL IMAGING CORPORATION
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
ORBIMAGE has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware and is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect. ORBIMAGE has corporate power and
corporate authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus.
All of the issued and outstanding capital stock of ORBIMAGE (i) has
been duly authorized and validly issued, is fully paid and non-assessable and
(ii) to our knowledge, is owned by the Company free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity (except as
disclosed in the Prospectus), and was not issued in violation of the preemptive
or similar rights of any securityholder of ORBIMAGE.
To the best of my knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which ORBIMAGE is a
party, or to which the property of ORBIMAGE is subject, before or brought by
any court or governmental agency or body, domestic or foreign, which might
reasonably be expected to result, singly or in the aggregate, in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets of ORBIMAGE or the consummation of
the transactions contemplated in the Purchase Agreement or the performance by
the Company of its obligations thereunder.
To the best of my knowledge, ORBIMAGE is not in violation of its
charter or by-laws and no default by ORBIMAGE exists in the due performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectus or filed or incorporated by reference
as an exhibit to the Registration Statement.
Exhibit A-5-1
<PAGE> 57
Exhibit A-6
FORM OF OPINION OF INTERNAL COUNSEL FOR THE COMPANY
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
To the best of our knowledge, neither the Company nor any subsidiary is
in violation of its charter or by-laws and no default by the Company or any
subsidiary exists in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described in the Registration Statement or the Prospectus or
filed or incorporated by reference as an exhibit to the Registration Statement.
Exhibit A-5-1
<PAGE> 58
FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS PURSUANT TO
SECTION 5(I)
Exhibit B
April [14], 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
J.P. MORGAN & CO.
J.P. Morgan Securities Inc.
MORGAN STANLEY DEAN WITTER
Morgan Stanley & Co. Incorporated
as Representative(s) of the several Underwriters
to be named in the within-mentioned
Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Orbital Sciences Corporation
Dear Sirs:
The undersigned, a stockholder and an officer and/or director of
Orbital Sciences Corporation, a Delaware corporation (the "Company"),
understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), J. P. Morgan & Co., J.P. Morgan Securities Inc.
and Morgan Stanley Dean Witter, Morgan Stanley & Co. propose to enter into a
Purchase Agreement (the "Purchase Agreement") with the Company providing for
the public offering of shares (the "Securities") of the Company's common stock,
par value $0.01 per share (the "Common Stock"). In recognition of the benefit
that such an offering will confer upon the undersigned as a stockholder and an
officer and/or director of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the undersigned agrees with each underwriter to be named in the Purchase
Agreement that, during a period of 90 days from the date of the Purchase
Agreement (the "Lock-Up Period"), the undersigned will not, without the prior
written consent of Merrill Lynch, directly or indirectly, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale of,
or otherwise dispose of or transfer any shares of the Company's Common Stock or
any securities convertible into or exchangeable or exercisable for Common Stock
(collectively, "Transfer"), whether now owned or hereafter acquired by the
undersigned or with respect to which the undersigned has or hereafter acquires
the power of
Exhibit B-1
<PAGE> 59
disposition, or file any registration statement under the Securities Act of
1933, as amended, with respect to any of the foregoing or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction is to be settled by delivery
of Common Stock or other securities, in cash or otherwise; provided, however,
that nothing contained in this letter will prohibit the Transfer by the
undersigned of up to 10,000 shares of Common Stock during the Lock-Up Period or
the Transfer of any stock options (and underlying shares of Common Stock) that
expire during the Lock-Up Period.
Very truly yours,
Signature:
----------------------
Print Name:
----------------------
Exhibit B-2
<PAGE> 60
Annex A
FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(e)
We are independent certified public accountants with respect to the Company and
ORBCOMM within the meaning of the 1933 Act and the applicable published 1933
Act Regulations.
(i) in our opinion, the audited financial statements and
the related financial statement schedules included or incorporated by
reference in the Registration Statement and the Prospectus comply as
to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder;
(ii) on the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of a
reading of the minutes of all meetings of the stockholders and
directors of the Company and the audit and finance, strategy and
technology and human resources and nominating Committees of the
Company's Board of Directors, inquiries of certain officials of the
Company responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter,
nothing came to our attention that caused us to believe that:
(A) at a specified date not more than five days
prior to the date of this Agreement, there was any change
in the capital stock of the Company and its subsidiaries
or any decrease in the net current assets or
stockholders' equity of the Company or any increase in
the long-term debt of the Company and its subsidiaries,
in each case as compared with amounts shown in the latest
balance sheet included in the Registration Statement,
except in each case for changes, decreases or increases
that the Registration Statement discloses have occurred
or may occur; or
(B) for the period from January 1, 1998 to a
specified date not more than five days prior to the date
of this Agreement, there was any decrease in the
Company's revenues, operating income, gross profit, net
income before income taxes or in the total or per share
amounts of income before extraordinary items or net
income, in each case as compared with the comparable
period in the preceding year, except in each case for any
decreases that the Registration Statement discloses have
occurred or may occur;
(iii) based upon the procedures set forth in clause (ii)
above and a reading of the "Selected Consolidated Financial Data" included in
the Registration Statement and a reading of the financial statements from which
such data were derived, nothing came to our attention that caused us to believe
that the "Selected Consolidated Financial Data" included in the Registration
Statement do not comply as to form in all material respects with the disclosure
requirements of Item 301 of Regulation S-K of the 1933 Act, that the amounts
included in the "Selected Consolidated Financial Data" are not in agreement
with the corresponding amounts in the audited consolidated financial statements
for the respective periods or that the financial statements not included in the
Registration
Annex A-1
<PAGE> 61
Statement from which certain of such data were derived are not in conformity
with generally accepted accounting principles;
(iv) we have compared the information in the Registration
Statement under selected captions with the disclosure requirements of
Regulation S-K of the 1933 Act and, on the basis of limited procedures
specified herein, nothing came to our attention that caused us to believe that
this information does not comply as to form in all material respects with the
disclosure requirements of Items 302, 402 and 503(d), respectively, of
Regulation S-K; and
(v) in addition to the procedures referred to in clause
(ii) above, we have performed other procedures, not constituting an audit, with
respect to certain amounts, percentages, numerical data and financial
information appearing in the Registration Statement or incorporated by
reference therein, which are specified herein, and have compared certain of
such items with, and have found such items to be in agreement with, the
accounting and financial records of the Company.
Annex A-2
<PAGE> 1
April 8, 1998
Board of Directors
Orbital Sciences Corporation
21700 Atlantic Boulevard
Dulles, Virginia 20166
Ladies and Gentlemen:
We are acting as Counsel to Orbital Sciences Corporation, a Delaware
corporation (the "COMPANY"), in connection with its registration statement on
Form S-3, as amended (the "REGISTRATION STATEMENT"), filed with the Securities
and Exchange Commission relating to the proposed public offering of up to
3,162,500 shares of the Company's common stock, par value $.O1 per share, all
of which shares (the "SHARES") are to be sold by the Company. This opinion
letter is furnished to you at your request to enable you to fulfill the
requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. Section
229.601(b)(5), in connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement.
2. The Certificate of Incorporation of the Company, as certified by
the Secretary of the State of the State of Delaware on April 7,
1998 and by the Assistant Secretary of the Company on the date
hereof as then being complete, accurate and in effect.
3. The Bylaws of the Company, as certified by the Assistant Secretary
of the Company on the date hereof as then being complete, accurate
and in effect.
4. The proposed form of Purchase Agreement among the Company and the
several Underwriters to be named therein, for whom Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P.
Morgan & Co., J.P. Morgan Securities Inc.,
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Morgan Stanley Dean Witter and Morgan Stanley & Co. Incorporated
will act as representatives, filed as Exhibit 1.1 to the
Registration Statement (the "UNDERWRITING AGREEMENT").
5. Resolutions of the Board of Directors of the Company adopted on
March 24, 1998, as certified by the Assistant Secretary of the
Company on the date hereof as then being complete, accurate and in
effect, relating to the issuance and sale of the Shares and
arrangements in connection therewith.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity, accuracy and completeness of all documents submitted to us, and
the conformity with the original documents of all documents submitted to us as
certified, telecopied, photostatic, or reproduced copies. This opinion letter
is given, and all statements herein are made, in the context of the foregoing.
This opinion letter is based as to matters of law solely on the
General Corporation Law of the State of Delaware. We express no opinion
herein as to any other laws, statutes, regulations, or ordinances.
Based upon, subject to and limited by the foregoing, we are of the
opinion that following (i) final action of the Pricing Committee of the Board
of Directors of the Company approving the price of the Shares, (ii) execution
and delivery by the Company of the Underwriting Agreement, (iii) effectiveness
of the Registration Statement, (iv) issuance of the Shares pursuant to the
terms of the Underwriting Agreement and (v) receipt by the Company of the
consideration for the Shares specified in the resolutions of the Board of
Directors and the Pricing Committee referred to above, the Shares will be
validly issued, fully paid and nonassessable under the General Corporation Law
of the State of Delaware.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has
been prepared solely for your use in connection with the filing of the
Registration Statement on the date of this opinion letter and should not be
quoted in whole or in part or otherwise be referred to, nor filed with or
furnished to any governmental agency or other person or entity, without the
prior written consent of this firm.
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We hereby consent to the filing of this opinion letter as Exhibit 5
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the Prospectus constituting a part of the
Registration Statement. In giving this consent, we do not thereby admit that
we are an "expert" within the meaning of the Securities Act of 1933, as
amended.
Very truly yours,
HOGAN & HARTSON L.L.P.
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EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Orbital Sciences Corporation and subsidiaries:
We consent to the use of our reports included and/or incorporated herein by
reference, which reports appear in the Company's 1997 annual report on Form
10-K, and to the reference to our firm under the heading "Experts" in the
prospectus.
KPMG PEAT MARWICK LLP
Washington, D.C.
April 13, 1998
