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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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ANNUAL REPORT ON
FORM 10-K
For the fiscal year ended December 31, 1998
COMMISSION FILE NUMBER 0-18287
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ORBITAL SCIENCES CORPORATION
(Exact name of registrant as specified in charter)
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DELAWARE 06-1209561
(State of Incorporation of Registrant) (I.R.S. Employer I.D. No.)
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21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166
(Address of principal executive offices)
(703) 406-5000
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01
(LISTED ON THE NEW YORK STOCK EXCHANGE)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing sales price as reported on the New York
Stock Exchange on March 22, 1999 was approximately $767,918,943.
As of March 22, 1999, 37,182,819 shares of the registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement dated March 29,
1999 are incorporated by reference in Part III of this Report.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
ITEM 1. Business.................................................... 1
ITEM 2. Properties.................................................. 11
ITEM 3. Legal Proceedings........................................... 12
ITEM 4. Submission of Matters to a Vote of Security Holders......... 12
ITEM 4A. Executive Officers of the Registrant........................ 12
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 14
ITEM 6. Selected Financial Data..................................... 15
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 23
ITEM 8. Financial Statements and Supplementary Data................. 24
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 53
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 53
ITEM 11. Executive Compensation...................................... 53
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 53
ITEM 13. Certain Relationships and Related Transactions.............. 53
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 53
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Pegasus(R) is a registered trademark and service mark of Orbital Sciences
Corporation; Taurus(R) is a registered trademark of Orbital Sciences
Corporation; Orbital(TM) is a trademark of Orbital Sciences Corporation;
OrbView(R) and ORBIMAGE(R) are registered service marks of Orbital Imaging
Corporation; and ORBCOMM(R) is a registered service mark of ORBCOMM Global L.P.
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PART I
ITEM 1. BUSINESS
BACKGROUND
Orbital Sciences Corporation, together with its subsidiaries, is a leading
space and information systems company that designs, manufactures, operates and
markets a broad range of space-related products and services. Our products and
services are grouped into three general business sectors: space and ground
infrastructure systems, satellite access products and satellite services. Space
and ground infrastructure systems include launch vehicles, satellites and
related space systems, electronics and sensor systems, and satellite ground
systems and software. Satellite access products include satellite-based
navigation, positioning and communications products and transportation
management systems. Satellite services include satellite-based two-way mobile
data communications services, satellite-based remote imaging services, and new
initiatives relating to satellite-based automotive information services and
satellite-based voice communications services.
Orbital was incorporated in Delaware in 1987 to consolidate the assets,
liabilities and operations of Space Systems Corporation and Orbital Research
Partners, L.P. Since inception, it has been our strategy to develop and grow a
core integrated business of space systems technologies and products, starting
with the design and manufacturing of small satellites and lightweight rockets
and other inexpensive space systems intended to capitalize on the commercial
development of space. A major part of this strategy has centered on
market-expanding innovations that we have pioneered. For example, in 1990, we
introduced the world's first privately-developed space launch vehicle; in 1992,
we operated the first commercial orbit transfer vehicle; in 1995, we launched
the first operational low-orbit commercial communications satellites; in 1997,
we deployed the first small geosynchronous television broadcast satellite and
also launched the first privately-owned remote imaging satellite; and in 1998,
we shipped the first hand-held satellite communications device.
In the last ten years, we have also expanded our space-based product lines
through a number of acquisitions and strategic investments. For example, in 1994
and 1997, we acquired Fairchild Space and Defense Corporation and the space
systems and communications service businesses of CTA Incorporated ("CTA"),
respectively, broadening our satellite system and subsystem development and
production capabilities and expanding our product lines by adding various
sophisticated electronics products and transportation management systems. We
further enhanced our transportation management systems product line with the
1998 acquisition of Raytheon Company's transportation management systems
business. Through our 1994 acquisition of Magellan Corporation ("Magellan"), we
expanded our technology base and product lines into the consumer markets for
hand-held receivers for Global Positioning System, or GPS, satellite-based
navigation and positioning. We expanded our GPS business with the 1997
acquisition of the satellite-aided automotive navigation product line from
Rockwell International Corporation and the 1997 merger of Magellan with Ashtech
Inc. ("Ashtech"), a developer and supplier of high-precision GPS products,
components and technologies. In 1995, we acquired MacDonald, Dettwiler and
Associates Ltd. ("MDA"), a leading supplier of commercial satellite imaging
ground stations and related information processing software based in Vancouver,
British Columbia.
In 1990, we developed the "ORBCOMM" concept and in 1993, our subsidiary,
Orbital Communications Corporation ("OCC"), and Teleglobe Mobile Partners
("Teleglobe Mobile"), an affiliate of Teleglobe Inc., formed ORBCOMM Global,
L.P. ("ORBCOMM") for the design, development, construction, integration, testing
and operation of a low-Earth orbit satellite communications system known as the
ORBCOMM System. OCC and Teleglobe Mobile are each 50% general partners in
ORBCOMM. Additionally, OCC is a 2% 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. We control and, therefore, consolidate ORBCOMM USA's results of
operations. We do not control ORBCOMM's or ORBCOMM International's operational
or financial affairs and therefore do not consolidate their results of
operations.
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In 1992, we established a subsidiary, Orbital Imaging Corporation
("ORBIMAGE"), to develop and operate commercial remote imaging satellites and to
market the products and services derived from such satellites. ORBIMAGE raised
equity in private placements of preferred stock in 1997 and 1998, and as a
result we own approximately 60% of ORBIMAGE. Based on certain rights granted to
the preferred equity investors, we do not control ORBIMAGE's operational or
financial affairs and therefore do not consolidate its results of operations.
We have also begun to pursue additional satellite-based services
opportunities. In early 1999, we formed a subsidiary, Orbital Navigation
Corporation ("ORBNAV"), to develop, operate and market, directly or through
joint ventures, satellite-aided automotive guidance and related value-added
information services for the rental car, private passenger car, commercial
delivery vehicle and emergency vehicle markets. ORBNAV plans to leverage
Magellan's satellite access products, ORBCOMM's satellite data network and other
technologies to pursue growth opportunities in these markets. ORBNAV's current
focus is on developing the rental car market through a joint venture with The
Hertz Corporation. In 1998, we also made a strategic investment in CCI
International N.V. ("CCI"), a company formed to offer satellite-based voice
communications services. We own approximately 40% of the equity interests in CCI
in the form of nonvoting preferred stock with various protective provisions, and
we have entered into a contract for the construction and launch of CCI's
satellites. We do not control CCI's operational or financial affairs and
therefore do not consolidate its results of operations.
DESCRIPTION OF ORBITAL'S PRODUCTS AND SERVICES
Our products and services are grouped into three general business sectors:
space and ground infrastructure systems, satellite access products and satellite
services. Our overall business is not seasonal to any significant extent.
SPACE AND GROUND INFRASTRUCTURE SYSTEMS
Our space and ground infrastructure systems sector currently includes
launch vehicles, satellites and related space systems, electronics and sensor
systems, and satellite ground systems and software products, and is described
more fully below.
Launch Vehicles. We developed and produce the Pegasus and Taurus space
launch vehicles that place small satellites into Earth orbit. Our Pegasus launch
vehicle is launched from beneath our L-1011 carrier 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 to low-Earth orbit and payloads weighing up
to 800 pounds to geosynchronous orbit.
The Pegasus has performed a total of 26 missions, including six successful
launches in 1998 and one successful mission so far in 1999. The Taurus has
performed a total of three launches, including two successful missions in 1998.
Customers for Pegasus launch services currently include the National Aeronautics
and Space Administration ("NASA"), the U.S. Air Force, the Defense Advanced
Research Projects Agency ("DARPA"), ORBCOMM and ORBIMAGE. Customers for Taurus
missions currently include the U.S. Air Force, South Korea's space agency and
ORBIMAGE.
Under a research and development contract with NASA, we are designing and
constructing three X-34 unmanned reusable launch vehicles that will be launched
from our L-1011 carrier 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 launch vehicles. We
have completed the detailed design of the X-34, have constructed and shipped one
vehicle to the launch test site and are constructing two other vehicles. The
first test flight of the X-34 is currently scheduled for later in 1999. NASA has
contracted with us to conduct up to 27 test flights using the X-34.
We also produce 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. Our 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 our suborbital launch
vehicles to launch scientific and other payloads and for defense-related
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applications such as target signature and interceptor experiments. Our primary
customers for suborbital launch vehicles include various branches of the U.S.
military. We conducted three successful suborbital launches in 1998 and, since
1982, we (including a predecessor company) have performed 102 suborbital
missions.
Orbital's space launch technology is also the basis for several other space
and suborbital programs. We are currently performing work under a 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 and suborbital launch missions over the next several years. In addition,
under NASA's Hyper-X project, we are building several Pegasus-derivative rockets
to explore technologies that could be applied to hypersonic aircraft of the
future.
Satellites and Related Space Systems. We design and manufacture small and
medium-class satellites to be used in low-Earth orbit, or LEO, and in
geosynchronous orbit, or GEO. In addition, we are in the process of designing
small and medium-class satellites to be used in medium-Earth orbit, or MEO. Our
satellites are used by various commercial and governmental customers for a wide
range of communications, broadcasting, remote imaging, scientific and military
missions. Since 1982, we (including two predecessor companies) have built and
delivered 74 satellites.
Twenty Orbital-built satellites were deployed during 1998, including 18
ORBCOMM communications satellites. Customers for our LEO and MEO satellites
include NASA, the U.S. Air Force, DARPA, the Canadian Space Agency, ORBCOMM,
ORBIMAGE and CCI, while Japan's Broadcast Satellite Systems Corporation has
ordered two GEO direct-to-home broadcast satellites from Orbital.
We design and manufacture various other space systems, including satellite
command and data handling, attitude control and structural subsystems for a
variety of government and commercial customers. In addition, we provide a broad
range of spacecraft design and engineering services as well as specialized
space-related analytical engineering services for U.S. government agencies,
including NASA, the Jet Propulsion Laboratory, the Department of Defense ("DoD")
and the Department of Energy.
Electronics and Sensor Systems. Orbital develops and manufactures 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
aircraft and similar 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. We are 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, we provide 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-16, F-18 and F-22 aircraft and the LAMPS
helicopter. The U.S. Army is also a customer for land combat vehicle-based
systems that are derived from Orbital's avionics systems.
Orbital also produces satellite-borne scientific sensors and instruments,
such as atmospheric ozone monitoring instruments and environmental sensors. For
example, our instruments have successfully operated in space, measuring ozone
concentrations around the world. We also developed and produced an atmospheric
monitoring system for use on the International Space Station. We provide sensors
performing similar functions for U.S. Navy nuclear submarines, and we are
developing sensors for the DoD for use in the detection of chemical or
biological weapons. In addition, Orbital manufactures and markets sensors that
analyze gas properties for commercial customers in the chemical, biotechnology,
pharmaceutical and steel industries.
Satellite Ground Systems and Software. Through our MDA subsidiary, we are
the leading supplier of turn-key commercial imaging satellite ground stations
and a provider of advanced image processing software used in such stations. In
recent years, our ground systems have also expanded to include
software-intensive products designed for air and sea navigation systems, along
with a variety of military applications including naval mine-hunting operations,
artillery command and control, radar deception and logistics support.
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Of approximately 45 major non-military imaging satellite ground stations
around the world, Orbital has been the prime contractor or a major supplier in
the construction of 35 ground stations in 19 countries. These ground stations
are designed to receive and process data from the eight 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 our ground stations and Earth
information systems and system upgrades include the European and Canadian space
agencies as well as ORBIMAGE, EarthWatch, Incorporated and various other
commercial and government customers in the United States, Brazil, China, Europe
and Japan.
We also produce 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 our
aeronautical systems products include the military and civil aviation
authorities in various countries such as Australia, Belgium, Canada, Malaysia,
Norway and Switzerland.
We are building on our expertise in satellite image processing software by
expanding into land-oriented information systems. In 1998, the British Columbia
government selected MDA to operate and enhance the province's electronic
information access system, which provides the public with electronic access to a
series of land-related government databases, such as land titles, tax records
and property assessment information.
SATELLITE ACCESS PRODUCTS
Our satellite access products include the satellite-based navigation,
positioning and communications products of our Magellan subsidiary, as well as
transportation management systems, as described more fully below.
GPS Navigation, Positioning and Communications Products. Magellan's
product line consists of inexpensive satellite-based navigation and positioning
products for consumer markets as well as GPS products that are used for
professional and other high-precision industrial applications. Its consumer
products are marketed to recreational marine and general aviation customers and
outdoor recreation users such as campers, hunters and hikers. In 1998, Magellan
introduced the GSC 100, a hand-held satellite communications device that
combines GPS and communications functions. The GSC 100 represents the first
generation of Magellan products that will be used in conjunction with the
ORBCOMM System described below.
Professional and industrial applications include using GPS for precision
surveying, guiding aircraft under low-visibility conditions, monitoring
movements of the Earth's surface for researchers, and managing natural
resources. 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.
Magellan has also entered the market for GPS-based car navigation products
with its automotive navigation system, which uses GPS information to provide
electronic map guidance to individual motorists. Magellan's automotive
navigation system is currently in use in approximately 6,000 Hertz rental cars.
Magellan recently introduced its second-generation vehicle navigation system,
which has greater functionality and improved features to address broader private
passenger vehicle and rental car markets. As one of the first opportunities we
are pursuing through our ORBNAV initiative, we have agreed with Hertz to enter
into an exclusive joint venture, subject to negotiation of final documentation,
whereby Hertz will offer Magellan's new automotive navigation systems in 50,000
of its rental cars in the U.S., Canada and Europe.
Magellan also pursues technology license agreements whereby Magellan
licenses its GPS and GLONASS technology to manufacturers of GPS consumer and
industrial products. Magellan has entered into such license arrangements with a
Mitsubishi subsidiary, Philips Semiconductor and Matsushita Electric Works.
In the first quarter of 1999, Magellan and Japan-based Topcon Corporation
entered into a preliminary agreement to form a joint venture to develop and sell
GPS-based positioning products for the surveying, industrial geographic
information systems, mapping and machine control markets. Under the terms of the
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agreement, which is subject to negotiation of final documentation, Magellan will
transfer certain assets and technology in exchange for cash, royalties, rights
in technology and a 30% ownership interest. Topcon also will contribute assets
to the venture in exchange for a 70% ownership interest.
In connection with the 1997 merger of Ashtech with Magellan, Orbital
entered into a stockholders' agreement with certain substantial stockholders of
Ashtech. The Ashtech stockholders were granted certain rights with respect to
Magellan, including, among others, the right to designate two members of
Magellan's seven-member board of directors and to 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. Orbital and
former Ashtech stockholders own approximately 66% and 34%, respectively, of
Magellan.
Transportation Management Systems. Orbital also produces satellite-related
vehicle location and fleet management systems that have been used primarily for
metropolitan mass transit operators. Our 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. The 1998 acquisition of Raytheon
Company's transportation management systems business expanded our
satellite-based vehicle location products to include fleet management software
for utilities and other companies. Customers for our transportation management
systems include the metropolitan mass transit authorities in Chicago, New York,
Oakland, Philadelphia, Houston and Detroit, as well as a number of smaller state
and municipal transit systems and vehicle fleets.
SATELLITE SERVICES
In Orbital's satellite services sector, our ORBCOMM and ORBIMAGE affiliates
are developing and providing satellite-based services to address markets for
global two-way data communications and digital imagery of the Earth's surface.
We have also begun to pursue additional satellite-provided services
opportunities in the markets for automotive information services through ORBNAV.
As a result of our equity investment in CCI, our satellite services sector also
includes the development of a satellite-based voice communications system.
ORBCOMM Communications Services. The ORBCOMM System consists of global
space and ground segments designed to provide continuous low-cost monitoring,
tracking and messaging communications coverage over most of the Earth's surface.
ORBCOMM is currently providing commercial service primarily in the monitoring
and tracking applications. 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 or mobile assets. We expect 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 those systems are
unable to reach.
The ORBCOMM System initial network consists of a constellation of 28 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 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 a satellite tracking station that sends signals to and receives
signals from the satellites and a message switching system that processes the
message traffic.
There are currently four operational U.S. gateway 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. These
licensees are responsible for obtaining the necessary regulatory approvals for
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operating the ORBCOMM System in their regions. Gateways located in Italy,
Brazil, and Japan, providing coverage for significant portions of Europe and
South America and all of Japan, have successfully completed acceptance testing.
ORBCOMM's international licensees in Italy and Brazil commenced commercial
service for their respective regions in early 1999, and Japan is expected to
commence commercial service shortly. ORBCOMM has agreements with several
manufacturers for the development and manufacture of hand-held communicators
used by individuals and various types of industrial communicators that monitor
fixed and mobile assets. Subscriber communicator manufacturers include
Panasonic, Magellan and Scientific Atlanta.
Orbital is completing construction of ORBCOMM's equatorial plane of seven
satellites, scheduled for launch on a Pegasus vehicle later in 1999. Orbital and
ORBCOMM have also entered into a procurement agreement valued at up to $72
million, under which Orbital has agreed to build and launch an additional seven
satellites on a fixed-price basis, with options to build and launch up to an
additional 22 satellites. Orbital also provides ORBCOMM with certain
administrative services, generally on a cost-reimbursable basis.
Orbital developed the "ORBCOMM" concept in 1990, and in 1993 formed the
ORBCOMM partnership with 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 $110,000,000 and $118,000,000, respectively, through December 31,
1998. OCC and Teleglobe Mobile also formed two marketing partnerships, ORBCOMM
USA and 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, OCC indirectly holds a
51% interest in ORBCOMM USA, with the result that OCC acting alone can generally
control the operational and financial affairs of ORBCOMM USA, and Teleglobe
Mobile indirectly holds a 51% interest in ORBCOMM International, with the result
that Teleglobe Mobile acting alone can generally control 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 operational and financial affairs, we account for our
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, we consolidate ORBCOMM USA's results of operations.
In accordance with the equity method of accounting, we recognize 100% of
the revenues earned and costs incurred on sales of products and services to
ORBCOMM. We also recognize as equity in earnings (losses) of affiliates our
proportionate share of ORBCOMM's profits and losses. To the extent ORBCOMM
capitalizes its purchases from Orbital, we eliminate as equity in earnings
(losses) of affiliates approximately 50%, our current equity ownership in
ORBCOMM, of our profits and losses from sales to ORBCOMM.
We believe that ORBCOMM will require significant additional funding in
1999. Orbital and ORBCOMM are currently in the process of exploring financing
alternatives to fund future capital expenditures and to fund ORBCOMM's
operations costs. Such alternatives include, but are not limited to, additional
capital contributions from ORBCOMM's existing partners or other strategic
investors, vendor financing, deferred invoicing, equity or debt transactions and
other strategic alternatives. There can be no assurance that any financing will
be completed or available on terms commercially acceptable to ORBCOMM. During
1998, Orbital deferred invoicing ORBCOMM for approximately $35,144,000 of work
performed under our ORBCOMM satellite and launch procurement agreement. During
1999, we may defer up to $25,000,000 of invoicing for work performed for
ORBCOMM. One-half of the deferred invoice amounts has been, and is expected to
continue to be, advanced to Orbital by an affiliate of Teleglobe Inc.
Orbital anticipates that start-up of the ORBCOMM System will continue to
produce substantial operating losses through 1999. There can be no assurance
that an adequate market will develop for ORBCOMM services, that ORBCOMM will
achieve profitable operations or that we will recover any of our 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, the atmosphere and weather conditions. ORBIMAGE's imaging
products and services are designed to provide customers with timely and
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competitively priced information concerning, among other things, the location
and movement of military assets, urban growth, forestry and crop health, land
and ocean-based natural resources and weather patterns and wind conditions.
In April 1995, ORBIMAGE launched its first satellite, OrbView-1, which
provides to NASA dedicated weather-related imagery and meteorological products.
ORBIMAGE's second satellite, OrbView-2 (operated under a licensing agreement
with Orbital), commenced commercial service in 1997 and is used by ORBIMAGE to
deliver high-quality multi-spectral ocean imagery and land surface imagery to
government and commercial customers. ORBIMAGE expects to launch two additional
satellites, OrbView-3 and OrbView-4, in 1999 and 2000, respectively. We believe
that OrbView-3 and OrbView-4 will be among the first commercial satellites with
high-resolution imagery capability and that OrbView-4 will be the world's first
satellite with commercially available hyperspectral imaging capability. As of
December 31, 1998, ORBIMAGE and MDA entered into a license agreement whereby
ORBIMAGE agreed to acquire from MDA the exclusive worldwide rights to distribute
and sell radar imagery from the RadarSat-2 satellite that is expected to be
operational in 2002. Orbital is constructing the RadarSat-2 satellite and ground
system, which are being financed by the Canadian Space Agency, the anchor
customer for RadarSat-2 imagery.
Under the procurement agreement between Orbital and ORBIMAGE, Orbital is
producing and launching the OrbView-3 and OrbView-4 satellites, and is
constructing the related ground segment on a fixed-price basis. Orbital also
provides ORBIMAGE with administrative services and technical support, generally
on a cost-reimbursable basis.
In February 1998, ORBIMAGE completed a private financing of $150,000,000
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 of ORBIMAGE exercised an
option to purchase additional preferred stock of ORBIMAGE, resulting in
additional net proceeds to ORBIMAGE of approximately $21,000,000. The preferred
stockholders have certain demand registration rights with respect to their
shares after June 30, 2002.
We own approximately 60% of ORBIMAGE, with the remainder owned primarily by
the 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, we do not
control the operational and financial affairs of ORBIMAGE. In accordance with
the equity method of accounting, we recognize 100% of the revenues earned and
costs incurred on sales of products and services to ORBIMAGE. We also recognize
as equity in earnings (losses) of affiliates our proportionate share of
ORBIMAGE's profits and losses. To the extent ORBIMAGE capitalizes its purchases
from Orbital, we eliminate as equity in earnings (losses) of affiliates
approximately 60%, our current equity ownership in ORBIMAGE, of our profits and
losses from sales to ORBIMAGE.
As of December 31, 1998, we had invested approximately $83,000,000 in
ORBIMAGE. We anticipate that ORBIMAGE will incur operating losses at least
through 1999. 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 we will recover our investment in ORBIMAGE.
ORBNAV Automotive Information Services. We established ORBNAV in early
1999 to develop, operate and market, directly or through joint ventures,
satellite-aided automotive guidance and related value-added information services
for the rental car, private passenger car, commercial delivery vehicle and
emergency vehicle markets. ORBNAV's initial focus is on developing the rental
car market through an exclusive joint venture for which final documentation is
currently under negotiation with Hertz, which venture will initially purchase
50,000 Magellan automotive navigation systems for installation in Hertz rental
cars. Through ORBNAV, Orbital intends to invest up to $30,000,000 in exchange
for a 60% interest, while Hertz intends to invest up to $20,000,000 and provide
initial marketing services in exchange for a 40% interest in the joint venture.
7
<PAGE> 10
CCI Voice Communications. In 1998, we made a strategic investment in CCI.
CCI was formed to develop, construct and operate a constellation of satellites
offering satellite-based voice communications services in the world's equatorial
regions. Pursuant to the terms of our stock purchase agreement, we have agreed,
subject to the satisfaction by CCI of various operational and financial
milestones, to purchase up to $50,000,000 of CCI's nonvoting convertible
preferred shares, and we have an option to purchase an additional $50,000,000 of
such preferred shares. In connection with the stock purchase transaction, we
also entered into a satellite and launch vehicle procurement contract valued at
approximately $480,000,000 for the satellites (and a price to be determined for
the launch vehicles in the event we procure them). We have also agreed, subject
to satisfaction of various conditions, to provide vendor financing.
We own approximately 40% of CCI, with the remainder owned by outside
investors. Our preferred shares in CCI are nonvoting, but pursuant to the terms
of such shares, we have approval rights with respect to significant management
decisions. Our approval rights may become diluted to the extent additional
investors in CCI purchase preferred shares with similar terms. Though we do not
control CCI, we are able to exercise significant influence over CCI's
operational and financial affairs, and we currently account for our investment
in CCI using a modified equity method of accounting. In accordance with the
modified equity method of accounting, we recognize 100% of the revenues earned
and costs incurred on sales of products and services to CCI, and we recognize
100% of CCI's profits and losses. As of December 31, 1998, we had purchased
$22,000,000 of the preferred shares and had not provided any vendor financing.
There can be no assurance that CCI will achieve its financial or operational
milestones, some of which entail raising additional capital, or that an adequate
market will develop for CCI's products and services, and we may be required to
write off all, or a portion, of our investment.
RECENT DEVELOPMENTS
On March 12, 1999, Orbital and Magellan signed a merger agreement with
Lowrance Electronics, Inc., a leading manufacturer of marine and recreational
electronics using GPS-satellite navigation and sonar technology. Under the terms
of the merger, Orbital will acquire all the outstanding common stock of Lowrance
and Lowrance shareholders will receive between 745,000 and 1,250,000 shares of
Orbital common stock, based on the fair market value of Orbital common stock
prior to closing. Lowrance will be merged into Magellan at the closing and
Orbital's ownership of Magellan following the merger will increase to
approximately 85%. We expect the transaction to close in the second half of
1999. Closing is subject to regulatory approval and Lowrance shareholder
approval.
On March 18, 1999, MDA and Toronto-based Spar Aerospace Limited signed an
asset purchase agreement pursuant to which MDA will acquire Spar's space
robotics division for approximately $43,000,000 in cash, one-half of which is
payable upon closing, with the other half payable a year following closing. The
Spar acquisition will expand our product lines to include advanced robotics
primarily for the manned space market. We expect the transaction to close in the
second quarter of 1999, subject to customary closing conditions.
COMPETITION
Orbital believes that competition for sales of its products and services is
based on performance and other technical features, price, reliability,
scheduling and customization.
The primary domestic competition for the Pegasus and Taurus launch vehicles
comes from the Athena launch vehicles developed by Lockheed Martin Corporation.
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 Kosmos SL-8 launch vehicle. Competition to Pegasus and Taurus
vehicles also exists in the form of partial or secondary payload capacity on
larger boosters including the Ariane, Atlas and Delta launch vehicles. Our
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<PAGE> 11
primary competitors in the suborbital launch vehicle product line are Coleman
Research Corporation, Lockheed Martin and Space Vector Corporation.
Our 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 and Technology Corporation,
Lockheed Martin, GM Hughes Electronics Corporation and Spectrum Astro, Inc. Our
airborne and ground-based electronics, data management systems, defense-oriented
avionics products and software systems, aviation systems and space sensors and
instruments face competition from several established manufacturers, including
Smiths Industries, Lockheed Sanders and Honeywell Inc. Our main competitors in
the area of satellite ground stations include Datron Systems Inc., Matra Marconi
Space N.V. and Hughes-STX Corp. Our satellite access products primarily face
competition from Trimble Navigation Ltd., Garmin International, Philips
Automotive Electonics, Alpine Electronics and Clarion. The main competitors to
our transportation management systems are Rockwell and Harris Corporation.
ORBCOMM 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 and EarthWatch, that provide or
are seeking to provide satellite-based imagery products.
Many of our competitors are larger and have substantially greater resources
than we do. 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 our products or services. Any such foreign competitor
could benefit from subsidies from or other protective measures by its home
country.
RESEARCH AND DEVELOPMENT
We expect 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,
third-party strategic investments in these products and services. Our research
and development expenses, excluding direct customer-funded development, were
approximately $44,597,000, $26,355,000 and $22,179,000, respectively, for the
fiscal years ended December 31, 1998, 1997 and 1996.
PATENTS AND TRADEMARKS
We rely, in part, on patents, trade secrets and know-how to develop and
maintain our competitive position and technological advantage. We hold and have
applications pending for various U.S. and foreign patents relating to the
Pegasus vehicle, our satellites, certain of our GPS products, and other systems
and products. Certain of the trademarks and service marks used in connection
with our 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
We purchase a significant percentage of our product components, including
rocket propulsion motors, structural assemblies, electronic equipment and
computer chips, from third parties. We also occasionally obtain from the U.S.
government parts and equipment that are used in the production of our products
or in the provision of our services. We have not experienced material difficulty
in obtaining product components or necessary parts and equipment and we believe
that alternative sources of supply would be available, although increased costs
and possible delays could be incurred in securing alternative sources of supply.
Our ability to launch our Pegasus vehicle depends on the availability of an
aircraft with the capability of carrying and launching such space launch
vehicle. We own the modified Lockheed L-1011 carrier aircraft that is used for
the Pegasus vehicle and will be used for the X-34 and one suborbital program. In
the event that the L-1011 carrier aircraft were to be unavailable, we 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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<PAGE> 12
U.S. GOVERNMENT CONTRACTS
During 1998, 1997 and 1996, approximately 46%, 38% and 45%, respectively,
of our 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 our 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 our financial condition or results of
operations. Customers that accounted for 10% or more of our consolidated 1998
revenues were NASA, DoD and ORBIMAGE.
The accuracy and appropriateness of our direct and indirect costs and
expenses under our 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 our cost estimates or allocations with respect to any such contract.
Additionally, a substantial portion of payments to Orbital under U.S. government
contracts are provisional payments that are subject to potential adjustment upon
audit by such agencies. We believe that any adjustments likely to result from
inquiries or audits of our contracts will not have a material adverse impact on
our financial condition or results of operations. Since Orbital's inception, we
have 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. Therefore, we bear the risk of
loss due to increased cost, although some of this risk may be passed on to
subcontractors. Under fixed-price government contracts, we may receive progress
payments, generally in an amount equal to between 80% and 95% of monthly costs
and profits, or we 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 Orbital and the
customer 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
Orbital, although some of this risk may be passed on to subcontractors. Under a
cost-plus-fee contract, we recover our actual allowable costs incurred and
receive 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 contractor's performance in terms of the criteria
stated in the contract.
All of our U.S. government contracts and, in general, our 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, respectively.
Furthermore, any of these contracts may become subject to a government-issued
stop work order under which we would be required to suspend production. In the
event of a termination at will, Orbital would normally be entitled to recognize
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. From time to
time we experience contract suspensions and terminations.
REGULATION
Our ability to pursue our 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 (the "DoT") and operation of our
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 ORBCOMM communications
network and CCI's business, require licenses from the U.S. Federal
Communications Commission (the "FCC") and frequently require the approval of
international and individual country regulatory authorities. ORBCOMM has
received the necessary FCC regulatory authority to operate its
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<PAGE> 13
system. ORBCOMM's international licensees have obtained or are responsible for
obtaining the necessary international regulatory licenses. In addition,
commercial remote imagery satellite systems such as those developed by ORBIMAGE
require licenses from the U.S. Department of Commerce (the "DoC") and the FCC
for the construction, launch and operation of remote imaging satellites.
ORBIMAGE has the necessary DoC licenses and its FCC license to construct, launch
and operate the OrbView-3 and OrbView-4 satellites. ORBIMAGE has applied to DoC
to amend its OrbView-4 license to permit the commercial distribution of
hyperspectral imagery from such satellite. The DoC has indicated that its
approval may be subject to certain limitations, such as delaying release of
imagery or degrading spatial resolution of imagery for commercial uses. Exports
of our products, services and technical information frequently require licenses
from the U.S. Department of State or the DoC.
There can be no assurance that we will be successful in our efforts to
obtain necessary licenses or regulatory approvals. The inability of Orbital,
ORBCOMM, ORBIMAGE or CCI to secure or maintain any necessary licenses or
approvals or significant delays in obtaining such licenses or approvals could
have a material adverse effect on the financial condition or results of
operations of Orbital.
BACKLOG
Orbital's contract backlog is attributable to its space and ground
infrastructure systems business. Our firm backlog at December 31, 1998 and 1997
was approximately $1,826,000,000 and $1,040,000,000, respectively. As of
December 31, 1998, approximately 41% of our firm 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 $1,300,000,000
and $435,000,000 as of December 31, 1998 and 1997, respectively. Approximately
55% of total firm backlog is currently scheduled to be performed beyond 1999.
Firm backlog excludes unexercised contract options and undefinitized new
contracts having an aggregate potential contract value at December 31, 1998 of
approximately $2,220,000,000.
EMPLOYEES
As of December 31, 1998, Orbital (including ORBCOMM and ORBIMAGE) had
approximately 4,400 full-time permanent employees. We do not have any collective
bargaining agreements with our employees and believe our employee relations are
good.
ITEM 2. PROPERTIES
Orbital owns or leases over 1,700,000 square feet of office, engineering
and manufacturing space in various locations throughout the world. In 1998, we
purchased a parcel of real estate adjacent to our corporate headquarters in
Northern Virginia to expand our satellite-related engineering, manufacturing and
operations facilities at this site, which will allow us to consolidate our
existing Northern Virginia and portions of our Maryland work force in a single
integrated site. Orbital expects to convey portions of this land to a
third-party developer shortly so that construction of the buildings can
commence. As such buildings are completed, Orbital expects to lease the
buildings pursuant to long-term leases.
In 1993, Orbital entered into a 12-year lease agreement for approximately
100,000 square feet of office and engineering space in Dulles, Virginia, which
serves as its corporate headquarters. We own a 59,000 square-foot manufacturing
facility on land adjacent to the Dulles office facility that has office,
engineering and manufacturing space. We intend to increase the size of this
facility by approximately 50,000 to 75,000 square feet over the next year.
Orbital also leases approximately 73,000 square feet of office, engineering and
manufacturing space in McLean, Virginia; 400,000 square feet of office,
engineering and manufacturing space in Germantown, Maryland; 345,000 square feet
of office, engineering and manufacturing space in Chandler, Arizona; 182,000
square feet of office and engineering space in Richmond, British Columbia;
135,000 square feet of office, engineering and manufacturing space in Pomona,
California; 75,000 square feet of office, engineering and manufacturing space in
San Dimas, California; and 82,500 square feet of office, engineering and
manufacturing space in Santa Clara, California. We lease or own other smaller
facilities, offices or
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<PAGE> 14
manufacturing space around the United States, in Canada and in Russia. Although
completion of our existing and pending contracts may in the future require
additional manufacturing capacity, we believe that our existing facilities are
adequate for our near-term requirements and that such facilities, along with
those to be constructed, will be adequate for our medium-term requirements.
ITEM 3. LEGAL PROCEEDINGS
In the first quarter of 1999, a number of class action lawsuits were filed
in federal court in the Eastern District of Virginia against Orbital, an officer
and an officer/director, alleging violations of the federal securities laws
during the period from April 21, 1998 through February 16, 1999 and seeking
monetary damages. In December 1998, Thomas van der Heyden filed a lawsuit in the
Circuit Court for Montgomery County, Maryland alleging that Orbital is in actual
or anticipatory breach of obligations allegedly imposed on Orbital in a judgment
in a previous action brought by plaintiff against CTA. The plaintiff claims that
he is entitled to a sum exceeding $30 million from Orbital, as
successor-in-interest to CTA. We believe that the allegations in the legal
proceedings described above are without merit and intend to vigorously defend
against the allegations. In addition, under the terms of the CTA acquisition, we
believe we are entitled to indemnification from CTA for all or a part of any
damages arising from the van der Heyden litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted to a vote of our security holders during the
fourth quarter of 1998.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position of each of the
executive officers of Orbital as of March 1, 1999. All executive officers are
elected annually and serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David W. Thompson.................... 44 Chairman of the Board, President and Chief Executive
Officer
James R. Thompson.................... 62 Director, Executive Vice President and General Manager/
Launch Systems Group
Robert R. Lovell..................... 62 Executive Vice President and General Manager/Space
Systems Group
John P. Huyett....................... 45 Executive Vice President and General Manager/Satellite
Access Products Group
Robert D. Strain..................... 42 Executive Vice President and General Manager/Electronics
and Sensor Systems Group
Daniel E. Friedmann.................. 42 Executive Vice President and General Manager/Systems
Integration and Software Group
Jeffrey V. Pirone.................... 38 Executive Vice President and Chief Financial Officer
Michael D. Griffin................... 49 Executive Vice President and Chief Technical Officer
Antonio L. Elias..................... 49 Senior Vice President for Advanced Programs
Leslie C. Seeman..................... 46 Senior Vice President, General Counsel and Secretary
</TABLE>
- - ------------------------
David W. Thompson is a co-founder of Orbital and has been Chairman of the
Board, President and Chief Executive Officer of Orbital 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 on the Space Shuttle's autopilot design at the Charles Stark Draper
Laboratory. Mr. Thompson serves as Chairman of Magellan, Chairman and Chief
Executive Officer of ORBIMAGE and as a director of ORBCOMM and CCI. Mr. Thompson
is a Fellow of the American Institute of Aeronautics and Astronautics, the
American Astronautical Society and the Royal Aeronautical Society.
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<PAGE> 15
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 Orbital since 1992. Mr. Thompson was Executive Vice President and
Chief Technical Officer of Orbital from 1991 to 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 Nichols Research Corp. and
SPACEHAB Incorporated.
John P. Huyett has been Executive Vice President and General Manager,
Satellite Access Products since January 1, 1999. Mr. Huyett also serves,
effective January 1, 1999, as President and Chief Executive Officer of Magellan.
Mr. Huyett joined Magellan as its Vice President and Chief Financial Officer in
1998. From 1993 through 1998, Mr. Huyett was the Vice President and Chief
Financial Officer of Avant! Corporation and its predecessor, Integrated Silicon
Systems, a software company. From 1985 through 1993, Mr. Huyett was a partner at
KPMG LLP. Mr. Huyett is a director of Magellan.
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. Mr. Lovell is a director of CCI.
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/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. Dr. Griffin is a director of Magellan.
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 Space and
Defense Corporation, including Vice President of Finance, Treasurer and
Controller.
Daniel E. Friedmann has been Executive Vice President and General
Manager/Systems Integration and Software Group since 1996. He continues to serve
as President and Chief Executive Officer of Orbital's 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.
Jeffrey V. Pirone has been Executive 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 LLP. Mr. Pirone is a director of
Magellan and ORBCOMM.
Antonio L. Elias has been Senior Vice President for Advanced Programs since
August 1997. From January 1996 until August 1997, Dr. Elias served as Senior
Vice President and Chief Technical Officer. From May 1993 through December 1995
he was Senior Vice President for Advanced Projects and was Senior Vice
President/Space Systems Division from 1990 to April 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.
Leslie C. Seeman has been Senior Vice President of Orbital since 1993 and
General Counsel and Secretary of Orbital since 1989. From 1989 to 1993, she was
also Vice President of Orbital, and from 1987 to 1989, Ms. Seeman was Assistant
General Counsel of Orbital. From 1984 to 1987, she was General Counsel of
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<PAGE> 16
Source Telecomputing Corporation, a telecommunications company. Prior to that,
she was an attorney at the law firm of Wilmer, Cutler and Pickering.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On March 22, 1999, there were 1,325 Orbital stockholders of record.
Our common stock began trading on the New York Stock Exchange ("NYSE") on
July 10, 1998 under the symbol ORB. Prior to that our common stock was traded on
the Nasdaq National Market under the symbol ORBI. The range of high and low
sales prices of Orbital common stock from 1996 through 1998, as reported on
Nasdaq or the NYSE, as applicable, was as follows:
<TABLE>
<CAPTION>
1998 HIGH LOW
---- ---- ---
<S> <C> <C>
4th Quarter................................................. $44 1/4 $19 1/2
3rd Quarter................................................. $39 1/4 $17 3/4
2nd Quarter................................................. $50 $32 1/4
1st Quarter................................................. $46 1/2 $29
</TABLE>
<TABLE>
<CAPTION>
1997 HIGH LOW
---- ---- ---
<S> <C> <C>
4th Quarter................................................. $30 3/4 $21
3rd Quarter................................................. $25 $15 7/8
2nd Quarter................................................. $18 $12 3/4
1st Quarter................................................. $19 1/4 $13 3/4
</TABLE>
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ---- ---
<S> <C> <C>
4th Quarter................................................. $21 7/8 $16 1/4
3rd Quarter................................................. $20 $16 3/8
2nd Quarter................................................. $19 7/8 $13
1st Quarter................................................. $16 1/8 $11 3/4
</TABLE>
We have never paid any cash dividends on our common stock. We presently
intend to retain future earnings for working capital and product development and
therefore do not anticipate paying cash dividends on our common stock at any
time in the foreseeable future. In addition, we are prohibited from paying cash
dividends under an existing credit facility.
The transfer agent for our Common Stock is:
The First National Bank of Boston
c/o Boston Equiserve
P.O. Box 8040
Boston, MA 02266-8040
Telephone: (617) 575-3170 or (800) 730-4001
www.bostonequiserve.com
The trustee for our 5% convertible subordinated notes due 2002 is:
Deutsche Bank AG, New York Branch
31 W. 52nd St.
New York, NY 10019
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<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and notes thereto
included in this Report. The consolidated operating data and other data for the
three-year period ended December 31, 1998 and the consolidated balance sheet
data at December 31, 1998 and 1997 are derived from and should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in this Report. The consolidated operating data and other data for the
years ended December 31, 1995 and 1994 and the consolidated balance sheet data
at December 31, 1996, 1995 and 1994 are derived from audited consolidated
financial statements not included or incorporated by reference herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues....................................... $ 734,277 $ 605,975 $ 461,435 $ 364,320 $ 301,576
Costs of goods sold............................ 546,721 456,772 336,261 268,016 216,417
---------- ---------- ---------- ---------- ----------
Gross profit................................... 187,556 149,203 125,174 96,304 85,159
Research and development expenses.............. 44,597 26,355 22,179 28,512 17,259
Selling, general and administrative expenses... 109,727 89,502 76,019 63,427 53,165
Amortization of excess of purchase price over
net assets acquired.......................... 7,939 3,852 3,134 3,221 2,360
---------- ---------- ---------- ---------- ----------
Income from operations......................... 25,293 29,494 23,842 1,144 12,375
Net investment income (expense)................ 2,567 1,475 (1,123) 639 (244)
Equity in earnings (losses) of affiliates...... (45,092) (26,034) (6,454) (759) (1,264)
Non-controlling interests in (earnings) losses
of consolidated subsidiaries................. 10,610 2,638 1,473 427 --
Gain on sale of subsidiary equity.............. 4,793 21,810 -- -- --
Acquisition expenses........................... -- (4,343) -- (3,441) (503)
---------- ---------- ---------- ---------- ----------
Income (loss) before provision (benefit) for
income taxes and cumulative effect of
accounting change............................ (1,829) 25,040 17,738 (1,990) 10,364
Provision (benefit) for income taxes........... 4,543 2,035 1,831 (1,302) 2,744
---------- ---------- ---------- ---------- ----------
Income (loss) before cumulative effect of
accounting change............................ (6,372) 23,005 15,907 (688) 7,620
Cumulative effect of accounting change, net of
taxes........................................ -- -- -- (4,160) --
---------- ---------- ---------- ---------- ----------
Net income (loss).............................. $ (6,372) $ 23,005 $ 15,907 $ (4,848) $ 7,620
========== ========== ========== ========== ==========
NET INCOME (LOSS) PER COMMON SHARE(1):
Income (loss) before cumulative effect of
accounting change............................ $ (0.18) $ 0.71 $ 0.55 $ (0.03) $ 0.33
Cumulative effect of accounting change......... -- -- -- (0.16) --
---------- ---------- ---------- ---------- ----------
$ (0.18) $ 0.71 $ 0.55 $ (0.19) $ 0.33
========== ========== ========== ========== ==========
Shares used in computing net income (loss) per
common share................................. 35,624,888 32,283,138 29,137,361 26,207,746 23,191,553
========== ========== ========== ========== ==========
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING
DILUTION(2):
Income (loss) before cumulative effect of
accounting change............................ $ (0.18) $ 0.69 $ 0.55 $ (0.03) $ 0.32
Cumulative effect of accounting change......... -- -- -- (0.16) --
---------- ---------- ---------- ---------- ----------
$ (0.18) $ 0.69 $ 0.55 $ (0.19) $ 0.32
========== ========== ========== ========== ==========
Shares used in computing net income (loss) per
common share, assuming dilution.............. 40,336,587 33,980,747 31,616,119 30,103,858 27,309,336
========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Cash and investments........................... $ 25,686 $ 15,126 $ 32,686 $ 35,030 $ 40,345
Net working capital............................ 53,330 50,198 83,673 87,553 57,449
Total assets................................... 962,738 793,992 500,770 466,908 441,042
Short-term borrowings.......................... 26,814 29,317 38,519 11,907 28,977
Long-term obligations, net..................... 181,281 198,394 33,076 96,990 86,068
Stockholders' equity........................... 510,573 355,101 330,502 238,908 206,943
</TABLE>
- - ------------------------
(1) Net income (loss) per common share is calculated using the weighted average
number of shares outstanding during the periods.
(2) 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
our convertible subordinated notes.
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<PAGE> 18
ITEM 7. 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" and elsewhere in this Annual Report on Form 10-K include
forward-looking statements that involve risks and uncertainties, many of which
are beyond our control. We wish to caution readers that a number of important
factors, including those identified below in "Outlook: Issues and
Uncertainties," may affect our actual results and may cause actual results to
differ materially from those in any forward-looking statement.
Our products and services are grouped into three general business sectors:
space and ground infrastructure systems, satellite access products and satellite
services. Space and ground infrastructure systems include launch vehicles,
satellites and related space systems, electronics and sensor systems, and
satellite ground systems and software. Satellite access products include
satellite-based navigation, positioning and communications products and
transportation management systems. Satellite services include satellite-based
two-way mobile data communications services, satellite-based remote imaging
services, our new ORBNAV initiative relating to satellite-based automotive
information services and satellite-based voice communications services provided
by ORBCOMM and ORBIMAGE and to be provided by ORBNAV and CCI, respectively.
We are accounting for our investments in ORBCOMM, ORBIMAGE and CCI using
the equity method of accounting. In accordance with the equity method of
accounting, we recognize as equity in earnings (losses) of affiliates our
proportionate share of ORBCOMM's and ORBIMAGE's profits and losses. In
accordance with a modified equity method of accounting, we currently recognize
as equity in earnings (losses) of affiliates 100% of CCI's profits and losses.
We also recognize 100% of the revenues earned and costs incurred on sales of
products and services to these entities. However, as these companies are
currently capitalizing substantially all system construction costs, including
amounts paid to Orbital, we eliminate as equity in earnings (losses) of
affiliates our proportionate share of our profits and losses from sales to
ORBCOMM, ORBIMAGE and CCI, respectively.
RECENT DEVELOPMENTS
In April 1998, we sold 3,450,000 shares of our common stock in a public
offering at $45.81 per share, generating net proceeds of approximately
$150,000,000.
In July 1998, our common stock began trading on the New York Stock Exchange
under the ticker symbol "ORB." Our stock had previously traded on the Nasdaq
National Market under the symbol "ORBI."
In August 1998, we entered into a stock purchase agreement with CCI
pursuant to which we agreed, subject to the satisfaction by CCI of certain
milestones and conditions, to purchase up to $50,000,000 of CCI's non-voting
convertible preferred shares, with an option to purchase an additional
$50,000,000 of preferred shares, and to provide vendor financing. In connection
with the execution of the stock purchase agreement, we entered into a satellite
and launch vehicle procurement contract with CCI valued at approximately
$480,000,000 for the satellites (and a price to be determined for the launch
vehicles in the event we procure them). As of December 31, 1998, we had
purchased $22,000,000 of the preferred shares and had not provided any vendor
financing. Should CCI not achieve its financial or operational milestones, some
of which entail raising capital, or if an adequate market for its products and
services should not develop, we may be required to write off all, or a portion,
of this investment.
In October 1998, we adopted a stockholder rights plan in which preferred
stock purchase rights were granted as a dividend at the rate of one right for
each share of common stock to stockholders of record on November 13, 1998. The
plan is designed to deter coercive or unfair takeover tactics. The rights become
exercisable only if a person or group in the future becomes the beneficial owner
of 15% or more of our common stock, or announces a tender or exchange offer that
would result in its ownership of 15% or more of our common stock. Each right,
when exercisable, entitles the holder to purchase one-one thousandth of a share
of Series B Junior Participating Preferred Stock. Under certain circumstances,
each holder of a right will
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<PAGE> 19
be able to exercise the right and receive common stock having a value equal to
two times the exercise price. The rights are generally redeemable by our Board
of Directors at a redemption price of $0.005 per right and expire on October 31,
2008.
On December 31, 1998, we acquired the transportation systems business of
Raytheon Company for approximately $21,000,000 in cash. We merged the acquired
business into our existing transportation management systems business.
RESULTS OF OPERATIONS
The following table shows our revenues, gross profits and gross margins by
major product category within each business sector for each of the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
GROSS GROSS GROSS
REVENUES PROFITS MARGIN REVENUES PROFITS MARGIN REVENUES PROFITS MARGIN
-------- -------- ------ -------- -------- ------ -------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SPACE AND GROUND
INFRASTRUCTURE
SYSTEMS................. $617,126 $153,998 25% $534,419 $131,209 25% $388,814 $101,867 26%
Launch Vehicles......... 173,178 38,539 22 121,631 28,631 24 108,478 23,356 22
Satellites.............. 237,533 54,376 23 233,989 56,940 24 105,148 22,406 21
Electronics and Sensor
Systems............... 111,033 34,494 31 100,554 26,236 26 92,070 26,608 29
Satellite Ground Systems
and Software.......... 95,382 26,589 28 78,245 19,402 25 83,118 29,497 36
SATELLITE ACCESS
PRODUCTS................ 116,392 33,556 29 71,384 18,205 26 71,188 25,134 35
SATELLITE SERVICES........ 759 2 N/A 172 (211) N/A 1,433 (1,827) N/A
-------- -------- --- -------- -------- --- -------- -------- ---
CONSOLIDATED TOTALS....... $734,277 $187,556 26% $605,975 $149,203 25% $461,435 $125,174 27%
======== ======== === ======== ======== === ======== ======== ===
</TABLE>
REVENUES
Our consolidated revenues for the years ended December 31, 1998, 1997 and
1996 were $734,277,000, $605,975,000 and $461,435,000, respectively.
Space and Ground Infrastructure Systems. Revenues from our space and
ground infrastructure systems sector increased to $617,126,000 in 1998, from
$534,419,000 in 1997 and $388,814,000 in 1996.
Revenues from our launch vehicles increased to $173,178,000 in 1998, from
$121,631,000 in 1997 and $108,478,000 in 1996. The increase in revenues in 1998
and 1997 was attributable to a number of factors, including increased work
performed under contracts received for our Taurus launch vehicle, a significant
increase in new orders for our Pegasus and suborbital launch vehicles and
increased work performed on the X-34 reusable launch vehicle.
Revenues from sales of satellites increased to $237,533,000 in 1998, from
$233,989,000 in 1997 and $105,148,000 in 1996. Satellite revenues remained
generally consistent from 1997 to 1998 as work on several programs were
completed concurrent with the receipt of new satellite orders. The substantial
increase in 1997 satellite revenues was primarily due to new satellite orders
received in the second half of 1996 and in 1997. Revenues in 1998 and 1997 also
included approximately $51,471,000 and $54,090,000, respectively, of sales
generated by the satellite contracts we acquired from CTA in August 1997.
Revenues from electronics and sensor systems increased to $111,033,000 in
1998, from $100,554,000 in 1997 and $92,070,000 in 1996. The increase in 1998
and 1997 revenues was primarily attributable to work performed on new orders for
defense electronics products received during 1997 and early 1998.
Revenues from satellite ground systems and software products increased to
$95,382,000 in 1998, from $78,245,000 in 1997 and $83,118,000 in 1996. The
increase in 1998 revenues is primarily due to work performed on orders received
in 1997 and 1998, including work on a new remote imaging system. The decrease in
1997 revenues from 1996 revenues was primarily due to the sale in late 1996 of a
software-related business that had generated 1996 revenues of approximately
$15,755,000.
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<PAGE> 20
Orbital's space and ground infrastructure systems sector revenues included
sales to ORBCOMM of approximately $35,479,000, $57,988,000 and $47,215,000 in
1998, 1997 and 1996, respectively, and to ORBIMAGE of approximately $89,006,000
and $88,618,000 in 1998 and 1997, respectively. This sector's revenues also
included $6,556,000 from sales to CCI in 1998 (none in earlier years). We expect
1999 sales to our satellite services affiliates to be less than those recorded
in 1998 primarily because the basic ORBCOMM satellite construction and launch
program is nearing completion.
Satellite Access Products. Revenues from sales of consumer, high-precision
and automotive satellite-based positioning and navigation products, satellite
communications products and transportation management systems increased to
$116,392,000 in 1998, from $71,384,000 in 1997 and $71,188,000 in 1996. Revenues
in 1998 included approximately $44,636,000 of sales generated by our
high-precision navigation products that were acquired as a result of the
December 1997 merger of Ashtech with our Magellan subsidiary. Although 1998
revenues from satellite access products were greater than 1997 revenues,
revenues were below our expectations due to increased competition in consumer
products and slower sales of automotive navigation products.
Gross Profit/Costs of Goods Sold
Costs of goods sold include the costs of personnel, materials, subcontracts
and overhead related to commercial products and under various development and
production contracts. Gross profit depends on a number of factors, including our
mix of contract types and costs incurred thereon in relation to estimated costs.
Our consolidated gross profit for 1998, 1997 and 1996 was $187,556,000 (26% of
revenues), $149,203,000 (25% of revenues) and $125,174,000 (27% of revenues),
respectively.
Space and Ground Infrastructure Systems. Gross profit from our space and
ground infrastructure systems sector was $153,998,000 (25% of sector revenues),
$131,209,000 (25% of sector revenues) and $101,867,000 (26% of sector revenues)
for 1998, 1997 and 1996, respectively.
Gross profit margins from our space and ground infrastructure systems
sector for 1998 were generally consistent with 1997 margins. Gross profit
margins were slightly higher in 1996 due to the inclusion of higher margins from
a software-related business that was part of our ground systems business and was
sold in late 1996. Gross profit margins in this sector are impacted by
management's periodic assessments and reevaluations of programmatic risks
included in estimated costs to complete long-term contracts.
Satellite Access Products. Gross profit from our satellite access products
sector was $33,556,000 (29% of sector revenues), $18,205,000 (26% of sector
revenues) and $25,134,000 (35% of sector revenues) for 1998, 1997 and 1996,
respectively. The overall increase in 1998 gross profit margins when compared to
1997 margins is due to the inclusion of higher margin, high-precision
positioning and navigation product lines acquired from Ashtech offset, in part,
by lower margins achieved on other consumer and automotive navigation product
sales. The decrease in gross profit margins from 1996 to 1997 was due to lower
unit sales prices for consumer products and certain fourth quarter 1997
reorganizational charges incurred by Magellan.
During 1998, Magellan disposed of approximately $12,500,000 of obsolete
inventory that was offset, in part, by previously established inventory
obsolescence reserves. Magellan continues to face increased competition, which
places significant pressure on individual product lifetimes and inventory
levels. Gross profit in 1998 was reduced by approximately $7,300,000 of
increased inventory obsolescence reserves.
Research and Development Expenses
Research and development expenses represent our self-funded product
development activities and exclude direct customer-funded development. Research
and development expenses during 1998, 1997 and 1996 were $44,597,000 (6% of
revenues), $26,355,000 (4% of revenues) and $22,179,000 (5% of revenues),
respectively. Research and development spending during these periods related
primarily to the development of
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<PAGE> 21
new or improved satellite access products, improved launch vehicles, and new
satellite initiatives. Research and development expenses in 1998 also included
approximately $5,000,000 of costs related to identifying and resolving certain
technical issues arising on ORBCOMM data communications satellites.
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, legal, administrative and general management functions of
Orbital. Selling, general and administrative expenses for 1998, 1997 and 1996
were $109,727,000 (15% of revenues), $89,502,000 (15% of revenues) and
$76,019,000 (17% of revenues), respectively. While selling, general and
administrative expenses as a percentage of revenues was consistent from 1998 to
1997, the total amount of selling, general and administrative costs increased
substantially, primarily as a result of growth in our space and ground
infrastructure systems sector and the impact of various business and product
line acquisitions. The decrease in selling, general and administrative expenses
as a percentage of revenues in 1997 from 1996 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.
Net Investment Income (Expense)
Net investment income (expense) was $2,567,000, $1,475,000 and ($1,123,000)
for 1998, 1997 and 1996, 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 $3,982,000, $429,000 and
$2,486,000 in 1998, 1997 and 1996, respectively. Interest expense was net of
capitalized interest of approximately $17,842,000, $9,700,000 and $7,300,000 in
1998, 1997 and 1996, respectively.
Equity in Earnings (Losses) of Affiliates and Non-Controlling Interests in
(Earnings) Losses of Consolidated Subsidiaries
Equity in earnings (losses) of affiliates and non-controlling interests in
(earnings) losses of consolidated subsidiaries were ($34,482,000), ($23,396,000)
and ($4,981,000) for 1998, 1997 and 1996, respectively. These amounts primarily
represent (i) elimination of proportionate profits or losses on sales of
infrastructure products to ORBCOMM, ORBIMAGE and CCI, (ii) our proportionate
share of ORBCOMM's, ORBCOMM International Partners, L.P.'s and ORBIMAGE's
earnings and losses for 1998, (iii) 100% of CCI's earnings and losses for 1998,
and (iv) non-controlling stockholders' proportionate share of ORBCOMM USA,
L.P.'s and Magellan's current period earnings and losses. The increases in 1998
and 1997 were primarily due to increased operational and system depreciation
expenses and resulting losses at ORBCOMM. We expect equity in earnings (losses)
of affiliates to increase in 1999 primarily due to increased losses at ORBCOMM.
Gain on Sale of Subsidiary Equity
We recorded a gain on sale of subsidiary equity of $4,793,000 and
$21,810,000 in 1998 and 1997, respectively. The 1998 gain related to the
issuance of additional equity by our ORBIMAGE affiliate. The 1997 gain related
to the issuance of additional equity by our Magellan subsidiary.
Provision for Income Taxes
We recorded consolidated income tax provisions of $4,543,000, $2,035,000
and $1,831,000 for 1998, 1997 and 1996, respectively. Our provisions for these
periods were entirely due to foreign taxes attributable to our Canadian
operations.
At December 31, 1998, we had U.S. federal net operating loss carryforwards
(portions of which expire beginning in 2004) of approximately $278,000,000, U.S.
research and experimental income tax credit carryforwards of approximately
$3,148,000, and foreign investment income tax credit carryforwards (subject to
expiration in 2008) of approximately $5,000,000. Such net operating loss
carryforwards and tax credits are
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<PAGE> 22
subject to certain limitations and other restrictions. At December 31, 1998 and
1997, we provided a valuation reserve of $71,139,000 and $49,588,000,
respectively, against certain of our consolidated deferred tax assets.
Net Income (Loss)
Our consolidated net income (loss) for the years ended December 31, 1998,
1997 and 1996 was ($6,372,000), $23,005,000 and $15,907,000, respectively. Our
space and ground infrastructure systems sector generated net income of
approximately $52,521,000, $45,670,000 and $27,474,000 for 1998, 1997 and 1996,
respectively. Our satellite access products sector reported net losses of
$16,318,000 for 1998, as compared to net income of $5,638,000 in 1997 and
$4,520,000 in 1996. Our satellite services sector generated net losses of
$42,575,000, $28,303,000 and $16,087,000 in 1998, 1997 and 1996, respectively,
and such losses are expected to increase in 1999 primarily as a result of
increased losses at ORBCOMM.
During 1998, our satellite access products sector continued to face
increased competition in consumer products and slower sales of automotive
navigation products, placing pressure on revenues and margins. Magellan has
introduced new products and is implementing cost savings measures intended to
moderate the unfavorable trends experienced in 1998 in this sector. In addition,
this sector incurred significant costs in 1998 associated with the integration
and restructuring of Ashtech and Magellan and research and development with
respect to new products and enhancements of existing products. Net income for
1997 included a $21,810,000 gain on the issuance of Magellan stock.
LIQUIDITY AND CAPITAL RESOURCES
Our growth has required substantial capital to fund expanding working
capital needs, investments in affiliates, certain business acquisitions, new
business initiatives, research and development and capital expenditures. We have
funded these requirements to date, and expect to fund our future requirements,
through cash generated by operations, working capital, loan facilities,
asset-based financings, joint venture arrangements and private and public equity
and debt offerings. We expect to continue to pursue potential acquisitions, new
business opportunities and equity investments that we believe would enhance our
businesses and to fund such transactions through existing cash, loan facilities,
joint ventures, the issuance of equity and/ or debt securities, asset-based
financings, and cash generated by operations.
At December 31, 1998, cash and investments were $25,686,000, and we had
total debt obligations outstanding of approximately $208,095,000. The
outstanding debt is comprised of our $100,000,000 5% convertible subordinated
notes, advances under our line of credit facilities, secured and unsecured
notes, and asset-based financings. Cash and investments at December 31, 1998
included approximately $7,757,000 of cash and short-term investments restricted
against outstanding letters of credit. Our current ratio was 1.2 at December 31,
1998 and 1997.
In 1998, we amended and restated our primary credit facility to increase
the maximum amount available under a revolving line of credit from $100,000,000
to $200,000,000 and to modify certain financial covenants. At December 31, 1998,
$36,000,000 was outstanding on the facility. During the first quarter of 1999,
the facility was amended to modify a financial covenant to provide full
availability under 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, 1998 was
7.5%. The facility is secured by accounts receivable, prohibits the payment of
cash dividends, contains certain covenants with respect to our working capital
levels, fixed charges ratio, leverage ratio and net worth, and expires in
December 2002.
During 1998, we provided $34,500,000 in capital to ORBCOMM. We currently
estimate that our share of additional funding for ORBCOMM's 1999 capital needs
could exceed $30,000,000, of which $18,450,000 has been contributed so far in
1999. We expect to fund our share of ORBCOMM's capital needs through existing
resources, including our primary credit facility. In addition, during 1998,
Orbital deferred invoicing ORBCOMM for approximately $35,144,000 of work
performed under our ORBCOMM satellite and launch procurement agreement. During
1999, we may defer up to $25,000,000 of invoicing for work done under our
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<PAGE> 23
ORBCOMM procurement agreement. One-half of the deferred invoice amounts has
been, and is expected to continue to be, advanced to Orbital by an affiliate of
Teleglobe Inc.
Our operations provided net cash of approximately $48,205,000 during 1998.
Also during 1998, in addition to our investment in ORBCOMM, we invested
approximately (i) $22,000,000 in CCI, (ii) $48,263,000 in capital expenditures
for various satellite and launch vehicle production, manufacturing and test
equipment and office equipment, and (iii) $22,751,000 in business acquisitions.
In the event CCI meets various operational and financial milestones, we may
invest an additional $28,000,000 in CCI over the next two years.
We are expanding our offices and satellite-related engineering,
manufacturing and operations facilities adjacent to our Dulles, Virginia
headquarters. Construction is scheduled to commence in the first half of 1999
and we expect completion in 2001. To finance the majority of this expansion,
Orbital is pursuing various financing alternatives, including third-party debt
financings and a "build-to-suit" agreement.
On March 18, 1999, MDA and Toronto-based Spar Aerospace Limited signed an
asset purchase agreement pursuant to which MDA will acquire Spar's robotics
division for approximately $43,000,000 in cash. The transaction is expected to
close during the second quarter of 1999. Approximately one-half of the purchase
price will be paid at closing and the balance is payable one year from closing.
We expect to fund the first installment of the purchase price through an
existing credit facility, and have received a commitment from a lender to
finance the second installment due in 2000.
In late 1998, we agreed to enter into an exclusive $50,000,000 joint
venture with Hertz whereby Hertz will offer Magellan's automotive navigation
systems in its rental cars in the U.S., Canada and Europe. The agreement, which
is subject to negotiation of the joint venture documents, contemplates that we
will receive a 60% interest in the venture in exchange for a $30,000,000
investment to be made during 1999 and 2000.
We expect that our capital needs for 1999 will be provided by working
capital, cash flows from operations, existing or new credit facilities, and
operating lease arrangements. To support further business expansion, we may also
consider equity and debt financings.
NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 becomes effective June 15, 1999
and will require the company to disclose additional information on its hedging
activities.
Also in 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5").
Initial application by the company of SOP 98-5 was as of January 1, 1998. This
SOP requires costs of start-up activities and organization costs to be expensed
as incurred. SOP 98-5 also amended certain sections of Statement of Position
81-1, "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts" ("SOP 81-1"), which addresses revenue recognition on
long-term contracts using the percentage-of-completion method of accounting. The
impact of adopting SOP 98-5 in 1998 was not significant.
YEAR 2000 ISSUES
We have developed a plan to prepare for potential "Year 2000" issues with
respect to various operational, technical and financial computer-related
systems. The plan has been designed to minimize risk to Orbital and its
customers using a standard industry five-phase approach. The five phases are
awareness, assessment, renovation, validation and implementation. We have
substantially completed the awareness and assessment phases, including
preparation of a comprehensive inventory of potentially affected systems. In
many cases renovation work is well underway and validation testing has begun
with respect to certain critical systems.
We currently plan to achieve our overall goal of Year 2000 readiness in
mid-1999. The first half of 1999 will be devoted to renovating, validating and
implementing our corrective action plan by reprogramming
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<PAGE> 24
affected software when appropriate and feasible, obtaining vendor-provided
software upgrades when available and completely replacing affected systems when
necessary.
The total costs to implement the plan, which costs include the already
planned replacement of existing systems to support our overall growth, are
estimated to be well less than one percent of 1998 revenues. Approximately 70%
of the estimated costs to implement the plan have been incurred to date and the
remaining costs are expected to be incurred in the remainder of 1999. All costs,
including the cost of internal personnel, outside consultants, system
replacements and other equipment, will be expensed as incurred, except for
long-lived assets, which will be capitalized in accordance with our
capitalization policies. We have not postponed the implementation or upgrade of
other systems as a result of focusing on the Year 2000 plan.
As part of the plan, formal communication with our suppliers, customers and
other service providers has been initiated. To date, however, we have not
determined whether "Year 2000" issues affecting key suppliers, significant
customers (including the U.S. government), or critical service providers will
materially impact our cash flows or operating results. A "reasonably likely
worst case" scenario of the Year 2000 issue for Orbital could include: isolated
performance problems with engineering, financial and administrative systems;
isolated interruption of deliveries from critical suppliers; product liability
or warranty issues; and the temporary inability of key customers to pay amounts
due to Orbital. Contingency plans are being prepared, and will be implemented if
necessary, including having sufficient liquidity available to sustain a
temporary interruption of cash receipts during early 2000 and the identification
of alternative suppliers for critical components. There can be no assurance that
we have identified, or will identify, all "Year 2000" affected systems,
suppliers, customers and service providers, or that our corrective action plan
will be timely and successful.
OUTLOOK: ISSUES AND UNCERTAINTIES
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor, in certain circumstances, for forward-looking statements made by or on
behalf of Orbital. Orbital and its representatives may from time to time make
written or verbal forward-looking statements, including statements contained in
our filings with the SEC and in the report to stockholders. All statements that
address operating performance, events or developments that we expect or
anticipate will occur in the future, including statements relating to our sales
and earnings growth, statements expressing general optimism about future
operating results, statements relating to our belief about the outcome of
pending litigation, and statements relating to our achievement of Year 2000
readiness are forward-looking statements within the meaning of the Act. The
forward-looking statements are and will be based on management's then-current
views and assumptions regarding future events and operating performance.
The following are some of the factors that could cause actual results to
differ materially from information contained in our forward-looking statements:
Most of the products we and our affiliates develop and manufacture are
technologically advanced and sometimes novel systems that must function under
demanding operating conditions and are subject to significant technological
change and innovation. We have occasionally experienced product failures or
other operational 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 product deliveries.
Our financial performance generally, as well as the recoverability of our
investments in ORBCOMM, ORBIMAGE and CCI and any other company in which we make
a strategic investment, and investments that we make in the development of new
technologies for new products or existing product enhancements, depend on
several factors including, among other things, the successful and timely funding
and implementation of innovative and novel technologies involving complex
systems in a cost-effective manner, the establishment and expansion of
commercial markets and customer acceptance, competition and such entities'
ability to raise necessary capital. If we conclude at any time that our
investments are not recoverable, we may be required to write off part or all of
such investments.
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<PAGE> 25
Historically, we have made strategic acquisitions of businesses, and we
routinely evaluate potential acquisition candidates that we believe would
enhance our business. We have also historically pursued strategic alliances
through joint ventures, and we routinely evaluate 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 we have little or no direct prior experience, potentially losing key
employees of acquired organizations, the diversion of management attention from
other ongoing business concerns and resolving potential disputes with joint
venture partners.
At December 31, 1998, approximately 41% of our total 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 our
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 our 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 our business.
The accuracy and appropriateness of our direct and indirect costs and
expenses under our 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 our cost estimates or allocations with respect to any such contract. A
substantial portion of payments to us under U.S. government contracts are
provisional payments that are subject to potential adjustment upon audit by such
agencies.
The majority of our contracts, particularly for our space and ground
infrastructure systems, are long-term contracts. We recognize 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.
The costs and other effects of pending or possible litigation or
governmental investigations could have an adverse effect on our business and
could divert the attention of management from ongoing business matters.
Virtually all our products and services face significant competition from
existing competitors, many of whom are larger and have substantially greater
resources than we do. Furthermore, the possibility exists that other domestic or
foreign companies or governments will seek to produce products or services that
compete with our products or services. A foreign competitor could benefit from
subsidies from, or other protective measures by, its home country.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
23
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ 25
Consolidated Statements of Earnings......................... 26
Consolidated Balance Sheets................................. 27
Consolidated Statements of Stockholders' Equity............. 28
Consolidated Statements of Cash Flows....................... 29
Notes to Consolidated Financial Statements.................. 30
</TABLE>
24
<PAGE> 27
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, 1998 and 1997, 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, 1998.
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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Washington, D.C.
February 16, 1999, except as to note 12
which is as of March 18, 1999
25
<PAGE> 28
ORBITAL SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues.............................................. $ 734,277 $ 605,975 $ 461,435
Costs of goods sold................................... 546,721 456,772 336,261
----------- ----------- -----------
Gross profit.......................................... 187,556 149,203 125,174
Research and development expenses..................... 44,597 26,355 22,179
Selling, general and administrative expenses.......... 109,727 89,502 76,019
Amortization of excess of purchase price over net
assets acquired..................................... 7,939 3,852 3,134
----------- ----------- -----------
Income from operations................................ 25,293 29,494 23,842
Net investment income, net of interest expense of
$3,982, $429 and $2,486, respectively............... 2,567 1,475 (1,123)
Equity in earnings (losses) of affiliates............. (45,092) (26,034) (6,454)
Non-controlling interests in (earnings) losses of
consolidated subsidiaries........................... 10,610 2,638 1,473
Gain on sales of subsidiary equity.................... 4,793 21,810 --
Acquisition expenses.................................. -- (4,343) --
----------- ----------- -----------
Income (loss) before provision for income taxes....... (1,829) 25,040 17,738
Provision for income taxes............................ 4,543 2,035 1,831
----------- ----------- -----------
Net income (loss)..................................... $ (6,372) $ 23,005 $ 15,907
=========== =========== ===========
Net income (loss) per common share.................... $ (0.18) $ 0.71 $ 0.55
=========== =========== ===========
Shares used in computing net income (loss) per common
share............................................... 35,624,888 32,283,138 29,137,361
=========== =========== ===========
Net income (loss) per common share, assuming
dilution............................................ $ (0.18) $ 0.69 $ 0.55
=========== =========== ===========
Shares used in computing net income (loss) per common
share, assuming dilution............................ 40,336,587 33,980,747 31,616,119
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 29
ORBITAL SCIENCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 17,764 $ 6,391
Restricted cash and short-term investments, at
market................................................ 7,922 8,735
Receivables, net....................................... 205,409 180,204
Inventories, net....................................... 64,710 59,239
Deferred income taxes and other assets................. 8,252 5,889
-------- --------
Total current assets.............................. 304,057 260,458
-------- --------
Property, plant and equipment, at cost, less accumulated
depreciation and amortization of $103,450 and $79,347,
respectively.............................................. 157,075 137,498
Investments in and advances to affiliates, net.............. 237,589 159,230
Excess of purchase price over net assets acquired, less
accumulated amortization of $27,542 and $19,794,
respectively.............................................. 228,624 208,295
Deferred income taxes and other assets...................... 35,393 28,511
-------- --------
TOTAL ASSETS...................................... $962,738 $793,992
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and current portion of long-term
obligations........................................... $ 26,814 $ 29,317
Accounts payable....................................... 39,093 36,217
Accrued expenses....................................... 110,833 98,588
Deferred revenue....................................... 73,987 46,138
-------- --------
Total current liabilities......................... 250,727 210,260
-------- --------
Long-term obligations, net of current portion............... 181,281 198,394
Other liabilities........................................... 3,007 2,443
-------- --------
Total liabilities................................. 435,015 411,097
-------- --------
Non-controlling interests in net assets of consolidated
subsidiaries.............................................. 17,150 27,794
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, par value $.01; 10,000,000 shares
authorized, none outstanding.......................... -- --
Common Stock, par value $.01; 80,000,000 shares
authorized, 37,018,256 and 32,481,719 shares
outstanding, respectively, after deducting 20,877
shares held in treasury............................... 370 325
Additional paid-in capital............................. 490,540 326,187
Accumulated other comprehensive income (loss).......... (7,225) (4,671)
Retained earnings...................................... 26,888 33,260
-------- --------
Total stockholders' equity........................ 510,573 355,101
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $962,738 $793,992
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 30
ORBITAL SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE RETAINED
------------------- PAID-IN INCOME EARNINGS
SHARES AMOUNT CAPITAL (LOSS) (DEFICIT) TOTAL
------ ------ ---------- ------------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995..... 26,766,029 $268 $247,580 $(3,288) $(5,652) $238,908
Conversion of convertible
debentures................ 3,895,653 39 53,598 -- -- 53,637
Shares issued in private
offering.................. 1,200,000 12 20,251 -- -- 20,263
Shares issued to employees
and directors............. 298,916 3 2,163 -- -- 2,166
Comprehensive income (loss):
Net income (loss)......... -- -- -- -- 15,907 15,907
Translation adjustment.... -- -- -- (325) -- (325)
Unrealized losses on
short-term
investments............. -- -- -- (54) -- (54)
---------- ---- -------- ------- ------- --------
Total comprehensive income
(loss).................... -- -- -- (379) 15,907 15,528
---------- ---- -------- ------- ------- --------
Balance, December 31, 1996..... 32,160,598 322 323,592 (3,667) 10,255 330,502
Shares issued to employees
and directors............. 321,121 3 2,595 -- -- 2,598
Comprehensive income (loss):
Net income (loss)......... -- -- -- -- 23,005 23,005
Translation adjustment.... -- -- -- (1,262) -- (1,262)
Unrealized gains on
short-term
investments............. -- -- -- 258 -- 258
---------- ---- -------- ------- ------- --------
Total comprehensive income
(loss).................... -- -- -- (1,004) 23,005 22,001
---------- ---- -------- ------- ------- --------
Balance, December 31, 1997..... 32,481,719 325 326,187 (4,671) 33,260 355,101
Shares issued in public
offering.................. 3,450,000 34 150,118 -- -- 150,152
Shares issued to employees
and directors............. 1,086,537 11 14,235 -- -- 14,246
Comprehensive income (loss):
Net income (loss)......... -- -- -- -- (6,372) (6,372)
Translation adjustment.... -- -- -- (2,282) -- (2,282)
Unrealized losses on
short-term
investments............. -- -- -- (272) -- (272)
---------- ---- -------- ------- ------- --------
Total comprehensive income
(loss).................... -- -- -- (2,554) (6,372) (8,926)
---------- ---- -------- ------- ------- --------
Balance, December 31, 1998..... 37,018,256 $370 $490,540 $(7,225) $26,888 $510,573
========== ==== ======== ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 31
ORBITAL SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)........................................... $ (6,372) $ 23,005 $ 15,907
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization expenses................. 36,563 23,854 25,096
Equity in losses of affiliates......................... 45,092 26,034 6,454
Non-controlling interests in losses of consolidated
subsidiaries......................................... (10,610) (2,638) (1,473)
(Gain) loss on sales of subsidiary equity, fixed assets
and investments, net................................. (5,097) (21,810) 226
Foreign currency translation adjustment................ (2,282) (1,262) (325)
Changes in assets and liabilities:
(Increase) decrease in receivables..................... (22,469) 10,915 (29,916)
(Increase) decrease in inventories..................... (3,207) (26,602) 10,261
(Increase) decrease in other assets.................... (7,534) (537) 1,317
Increase (decrease) in accounts payable and accrued
expenses............................................. 11,993 (11,181) (11,051)
Increase in deferred revenue........................... 13,433 3,742 919
Increase (decrease) in other liabilities............... (1,305) 6,363 (2,954)
--------- --------- --------
Net cash provided by operating activities............ 48,205 29,883 14,461
--------- --------- --------
Cash Flows from Investing Activities:
Capital expenditures................................... (48,263) (45,012) (43,544)
Proceeds from sales of assets, net..................... 620 34,682 9,518
Purchases of available-for-sale investment
securities........................................... (2,500) (25,328) (5,623)
Sales of available-for-sale investment securities...... -- 22,209 11,041
Maturities of available-for-sale investment
securities........................................... 2,408 6,631 8,220
Investments in and advances to affiliates.............. (116,128) (107,110) (21,991)
Payments for business acquisitions, net of cash
acquired............................................. (22,751) (66,558) --
--------- --------- --------
Net cash used in investing activities................ (186,614) (180,486) (42,379)
--------- --------- --------
Cash Flows from Financing Activities:
Net short-term borrowings (repayments)................. 1,940 (3,700) 26,200
Principal payments on long-term obligations............ (79,556) (20,237) (7,502)
Net proceeds from issuance of long-term obligations.... 63,000 163,078 --
Fees associated with conversion of debentures.......... -- -- (2,571)
Net proceeds from issuances of common stock............ 164,398 2,598 22,429
--------- --------- --------
Net cash provided by financing activities............ 149,782 141,739 38,556
--------- --------- --------
Net Increase (Decrease) in Cash and Cash Equivalents........ 11,373 (8,864) 10,638
Cash and Cash Equivalents, beginning of year................ 6,391 15,255 4,617
--------- --------- --------
Cash and Cash Equivalents, end of year...................... $ 17,764 $ 6,391 $ 15,255
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 32
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Orbital Sciences Corporation (together with its subsidiaries, "Orbital" or
the "company"), a Delaware corporation, is a leading space and information
systems company that designs, manufactures, operates and markets a broad range
of space-related 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 and related space systems, electronics and sensor systems, and
satellite ground systems and software. Satellite access products include
satellite-based navigation, positioning and communications products and
transportation management systems. Satellite services include satellite-based
two-way mobile data communications, satellite-based remote imaging and
satellite-based voice communications 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. Management periodically assesses and evaluates the
sufficiency and/or deficiency of estimated liabilities recorded for various
programmatic risks and uncertainties. Actual results could differ from these
estimates.
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 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 satellite access products and satellite services are generally
recognized when the product is shipped or the service is performed.
FOREIGN CURRENCY
Orbital's operating entities conduct business in a number of countries and
deal in a number of foreign currencies. The financial results of foreign
operations are translated into 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
30
<PAGE> 33
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
investment in the foreign operation. Translation losses in 1998, 1997 and 1996
were approximately $2,282,000, $1,262,000 and $325,000, respectively.
Transaction gains and losses relating to foreign operations that are a 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. 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, software and
intellectual property.................. 3 to 10 years
Satellite systems........................ 5 to 7 years
Shorter of estimated useful life or lease
Leasehold improvements................... term
</TABLE>
Orbital's policy is to review its long-lived assets, including excess of
purchase price over net assets acquired, investments in and advances to
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 expectation 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
in income in the period that includes the enactment date.
STOCK-BASED COMPENSATION
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 expense the fair value of all stock-based
awards on the date of grant, or (ii) continue to apply the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issues to
Employees" ("APB 25") and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants as
31
<PAGE> 34
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
EARNINGS PER SHARE
The company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), in the fourth quarter of 1997. SFAS 128
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. 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 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, 1998
and 1997, the company had approximately $7,757,000 and $6,162,000, respectively,
of cash and short-term investments 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. 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). 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
32
<PAGE> 35
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
costs, and exclude general and administrative and research and development
costs. Amortization of capitalized software costs begins when the software is
placed in service and totalled $1,050,000 in 1998 (none in prior years).
INVESTMENTS IN AND ADVANCES TO AFFILIATES
The company uses the equity method of accounting for its investments in and
advances to, 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 proportionate share of the affiliate's
income and is reduced to reflect its proportionate share of the affiliate's
losses. For those investments for which Orbital has provided substantially all
of the investee's funding, the company uses the modified equity method of
accounting whereby 100% of the investee's current period earnings or losses are
recognized. 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 an
affiliate has significant assets under construction. At December 31, 1998 and
1997, approximately $41,334,000 and $25,576,000, respectively, of interest costs
had been capitalized cumulatively as part of the historical cost of investments
in and advances to 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 EQUITY
At times, the company may divest a portion or all its ownership in its
subsidiaries through the sale of subsidiary equity or through the issuance of
additional subsidiary equity. The company recognizes the difference between the
carrying amount of its interest in the subsidiary equity sold and the fair
market value of the equity as a gain or loss upon divestiture or issuance when
the company believes the realization of the gain or loss is assured. The company
recognized a gain on sale of subsidiary equity of $4,793,000 and $21,810,000 in
1998 and 1997, respectively. The 1998 gain related to the issuance of additional
equity by the company's affiliate, Orbital Imaging Corporation ("ORBIMAGE"),
while the 1997 gain related to the issuance of additional equity by the
company's majority owned subsidiary, Magellan Corporation ("Magellan").
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.
33
<PAGE> 36
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 becomes effective June 15, 1999
and will require the company to disclose additional information on its hedging
activities.
Also in 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5").
Initial application by the company of SOP 98-5 was as of January 1, 1998. This
SOP requires costs of start-up activities and organization costs to be expensed
as incurred. SOP 98-5 also amended certain sections of Statement of Position
81-1, "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts" ("SOP 81-1"), which addresses revenue recognition on
long-term contracts using the percentage-of-completion method of accounting. The
impact of adopting SOP 98-5 in 1998 was not significant.
2. DISAGGREGATED FINANCIAL INFORMATION
INDUSTRY SECTOR INFORMATION
During 1998, the company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). The adoption of SFAS 131 had no significant impact on
the manner of presentation of Orbital's disaggregated financial information in
prior years. Orbital's operations are organized into three business sectors,
which correspond to the different markets served by the company's products and
services, as well as the manner in which these products and services are
managed. Orbital's three business sectors are: space and ground infrastructure
systems, satellite access products and satellite services. Space and ground
infrastructure systems include launch vehicles, satellites and related space
systems, electronics and sensor systems, and satellite ground systems and
software. Satellite access products include satellite-based navigation products,
satellite positioning and communications products and transportation management
systems. Satellite services include satellite-based two-way mobile data
communications, satellite-based remote imaging and satellite-based voice
communications services.
The following table presents operating information and identifiable assets
by business sector. Operating income (loss) is total revenues less costs of
goods sold, research and development expenses, selling, general and
administrative expenses, and amortization of goodwill. Identifiable assets are
those assets used in the operations of each business sector. There were no
significant sales or transfers between consolidated sectors.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
SPACE AND GROUND
INFRASTRUCTURE SYSTEMS:
Revenues............................................... $617,126 $534,419 $388,814
Operating income....................................... 54,223 47,953 26,376
Identifiable assets.................................... 593,818 519,264 362,700
Capital expenditures................................... 42,813 42,823 27,529
Depreciation and amortization.......................... 29,051 21,491 21,954
</TABLE>
34
<PAGE> 37
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. DISAGGREGATED FINANCIAL INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
SATELLITE ACCESS PRODUCTS:
Revenues............................................... $116,392 $ 71,384 $ 71,188
Operating income (loss)................................ (24,891) (11,754) 4,902
Non-controlling interests in losses of consolidated
subsidiaries......................................... 8,847 8,151 --
Gain on sale of subsidiary equity...................... -- 21,810 --
Identifiable assets.................................... 127,392 141,550 32,376
Capital expenditures................................... 5,450 1,692 3,402
Depreciation and amortization.......................... 7,512 1,962 944
SATELLITE SERVICES:
Revenues............................................... $ 759 $ 172 $ 1,433
Operating loss......................................... (4,039) (6,705) (7,436)
Equity in earnings (losses) of affiliates.............. (45,092) (26,034) (6,454)
Non-controlling interests in (earnings) losses of
consolidated subsidiaries............................ 1,763 (5,513) 1,473
Gain on sale of subsidiary equity...................... 4,793 -- --
Identifiable assets.................................... 241,528 133,178 105,694
Capital expenditures................................... -- 497 12,613
Depreciation and amortization.......................... -- 401 2,198
CONSOLIDATED:
Revenues............................................... $734,277 $605,975 $461,435
Operating income....................................... 25,293 29,494 23,842
Equity in earnings (losses) of affiliates.............. (45,092) (26,034) (6,454)
Non-controlling interests in losses of consolidated
subsidiaries......................................... 10,610 2,638 1,473
Gain on sales of subsidiary equity..................... 4,793 21,810 --
Identifiable assets.................................... 962,738 793,992 500,770
Capital expenditures................................... 48,263 45,012 43,544
Depreciation and amortization.......................... 36,563 23,854 25,096
</TABLE>
DOMESTIC AND NON-U.S. OPERATIONS
The following table presents Orbital's revenues, operating income (loss)
and identifiable assets by major originating location:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
REVENUES:
United States.......................................... $648,885 $525,144 $392,130
Canada and Mexico...................................... 71,820 75,584 65,350
Other.................................................. 13,572 5,247 3,955
-------- -------- --------
Total............................................. $734,277 $605,975 $461,435
======== ======== ========
</TABLE>
35
<PAGE> 38
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. DISAGGREGATED FINANCIAL INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
OPERATING INCOME (LOSS):
United States.......................................... $ 20,403 $ 27,959 $ 21,183
Canada and Mexico...................................... 6,460 1,465 2,416
Other.................................................. (1,570) 70 243
-------- -------- --------
Total............................................. $ 25,293 $ 29,494 $ 23,842
======== ======== ========
IDENTIFIABLE ASSETS:
United States.......................................... $901,130 $740,790 $450,394
Canada and Mexico...................................... 56,591 50,690 46,984
Other.................................................. 5,017 2,512 3,392
-------- -------- --------
Total............................................. $962,738 $793,992 $500,770
======== ======== ========
</TABLE>
EXPORT SALES AND MAJOR CUSTOMERS
Orbital's sales to geographic areas were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
United States............................................... $551,591 $447,041 $349,555
Canada...................................................... 48,330 39,274 46,742
Far East.................................................... 39,196 32,875 17,517
Middle East and other....................................... 38,486 24,326 13,859
Southeast Asia.............................................. 28,976 35,688 --
Europe...................................................... 27,698 26,771 33,762
-------- -------- --------
Total............................................. $734,277 $605,975 $461,435
======== ======== ========
</TABLE>
Approximately 46%, 38% and 45% of the company's revenues in 1998, 1997 and
1996, 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 AND ADVANCES TO AFFILIATES
ORBCOMM
In 1993, the company's subsidiary, Orbital Communications Corporation
("OCC"), and Teleglobe Mobile Partners ("Teleglobe Mobile"), an affiliate of
Teleglobe Inc. ("Teleglobe"), 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.
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 and consolidates the operational and financial
affairs of ORBCOMM USA, and (iii) Teleglobe Mobile controls the operational
36
<PAGE> 39
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS IN AND ADVANCES TO AFFILIATES -- (CONTINUED)
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 operational and financial affairs, the company accounts for its
investments in ORBCOMM and ORBCOMM International using the equity method of
accounting.
Orbital is the primary supplier to ORBCOMM of its communications
satellites, launch vehicles and certain of its satellite ground systems and
software. During 1998, 1997 and 1996, Orbital recorded sales to ORBCOMM of
approximately $35,479,000, $57,988,000 and $47,215,000, respectively. During
1998, Orbital deferred invoicing ORBCOMM for approximately $35,144,000 for work
done under a satellite and launch procurement agreement. Approximately one-half
of the deferred invoice amount has been advanced to Orbital by an affiliate of
Teleglobe. This deferral is classified as an advance to ORBCOMM and is repayable
by December 31, 1999, or at the time of ORBCOMM's initial public offering,
whichever occurs first. In addition, since 1995 Orbital has provided certain
administrative services to ORBCOMM on a cost-reimbursable basis. During 1998,
1997 and 1996, Orbital was reimbursed approximately $3,183,000, $2,298,000 and
$1,295,000, respectively, for such services. At December 31, 1998 and 1997,
Orbital had approximately $118,627,000 and $84,291,000, respectively, in
investments in and advances to ORBCOMM, of which $49,570,000 and $32,704,000,
respectively, represented receivables and deferred invoicing (net of the amount
advanced by Teleglobe).
At December 31, 1998 and 1997, ORBCOMM had approximately $346,634,000 and
$316,969,000 in total assets, $241,844,000 and $210,551,000 in total liabilities
and $104,790,000 and $106,418,000 of total partners' capital, respectively.
ORBCOMM recorded approximately $1,262,000 and $527,000 in revenues and
$69,628,000 and $31,436,000 in net losses for the years ended December 31, 1998
and 1997, respectively.
ORBIMAGE
In 1997, the company's then-subsidiary, ORBIMAGE, completed a private
placement of equity. Since Orbital is unable to control, but is able to exercise
significant influence over ORBIMAGE's operational and financial affairs, the
company uses the equity method of accounting for its 60% ownership interest in
ORBIMAGE. As of December 31, 1998 and 1997, the company's investments in and
advances to ORBIMAGE were $94,973,000 and $86,987,000, respectively.
Orbital is the primary supplier to ORBIMAGE of imaging satellites, launch
services and satellite ground systems and software. During the years ended
December 31, 1998 and 1997, Orbital recorded sales to ORBIMAGE of approximately
$89,006,000 and $88,618,000, respectively. Additionally, Orbital provides
certain administrative services to ORBIMAGE on a cost-reimbursable basis. During
1998 and 1997, Orbital was reimbursed approximately $1,985,000 and $1,444,000,
respectively, for such administrative services. At December 31, 1998 and 1997,
the company had total receivables due from ORBIMAGE of approximately $18,725,113
and $3,548,000, respectively.
At December 31, 1998 and 1997, ORBIMAGE had approximately $307,969,000 and
$137,750,000 in total assets, $194,597,000 and $52,389,000 in total liabilities
and $113,372,000 and $85,361,000 of total stockholders' equity, respectively.
ORBIMAGE recorded approximately $11,663,000 and $2,062,000 in revenues and
$5,519,000 and $4,082,000 in net losses for the years ended December 31, 1998
and 1997, respectively.
CCI INTERNATIONAL, N.V.
In 1998, the company entered into a stock purchase agreement with CCI
International, N.V. ("CCI"), a corporation that plans to provide satellite-based
voice-communication services. In connection with the execution of the agreement,
the company and CCI entered into a satellite and launch vehicle procurement
37
<PAGE> 40
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS IN AND ADVANCES TO AFFILIATES -- (CONTINUED)
contract valued at approximately $480,000,000 for the satellites (and a price to
be determined for the launch vehicles in the event Orbital procures them).
Pursuant to this contract, the company recorded $6,556,000 in sales to CCI
during 1998. As of December 31, 1998, the company's investment in and advances
to CCI was $21,382,000. The company currently owns 40% of CCI and may make
additional investments in CCI during 1999, and uses the modified equity method
of accounting to account for its investment in CCI.
OTHER INVESTMENTS
The company owns equity interests in several emerging space-related
companies. The cost basis of these investments was approximately $6,947,000 and
$7,275,000, respectively, at December 31, 1998 and 1997.
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, 1998 and 1997, approximately $4,338,000 and
$4,886,000 of allowance had been recorded against certain of these investments.
4. BUSINESS COMBINATIONS
RAYTHEON COMPANY
On December 31, 1998, the company acquired the transportation management
systems business of Raytheon Company for approximately $21,000,000 in cash. The
acquired business produces satellite-based automatic vehicle location systems
for public transit fleets. 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 $19,931,000, which is being amortized on a
straight-line basis over 15 years.
ASHTECH INC.
On December 31, 1997, Orbital merged Magellan with Ashtech Inc.
("Ashtech"). To effect the merger Orbital paid approximately $52,800,000 to
former Ashtech stockholders consisting of $25,000,000 in cash and approximately
23,954,000 shares of Magellan common stock, and now owns a controlling interest
of approximately 66% of Magellan. Orbital recognized a gain of $21,810,000 on
the issuance of the shares of Magellan common stock. The merger was accounted
for using the purchase method of accounting. The purchase price exceeded the
fair value of the net assets acquired by approximately $73,002,000, which is
being amortized on a straight-line basis over 20 years.
CTA INCORPORATED
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 paid approximately $13,000,000 in cash, and repaid
$27,000,000 of outstanding debt related to the acquired business. The company
accounted for the acquisition using the purchase method of accounting. The
purchase price exceeded the preliminary estimates of 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 1998, the company revised the
preliminary allocation of the purchase price to the fair value of the net assets
acquired and received a $2,100,000 refund of the initial purchase price pursuant
to the terms of the acquisition agreement, resulting in a net increase in
goodwill of approximately $4,500,000. 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.
38
<PAGE> 41
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. BUSINESS COMBINATIONS -- (CONTINUED)
ROCKWELL INTERNATIONAL CORPORATION.
In July 1997, Orbital acquired 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. 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.
The following unaudited, supplemental financial information presents the
consolidated results of operations, on a pro forma basis, as though the
acquisitions were consummated on January 1, 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
--------- ---------
(In thousands, except
per share data)
<S> <C> <C>
Revenues.................................................... $753,349 $719,699
Net income (loss)........................................... $ (9,454) $ 21,434
Net income (loss) per common share.......................... $ (0.27) $ 0.66
Net income (loss) per common share, assuming dilution....... $ (0.27) $ 0.64
</TABLE>
The allocation of purchase price to net assets acquired in 1998 may be
adjusted in 1999 if additional information becomes known about certain business
assumptions used to estimate the fair value of such net assets.
In October 1996, Orbital's wholly owned subsidiary, MacDonald, Dettwiler
and Associates Ltd. ("MDA"), sold substantially all the assets of The PSC
Communications Group Inc. for approximately $13,000,000, resulting in a gain of
approximately $3,600,000. The gain was included in revenues in the 1996
consolidated statement of earnings.
5. BALANCE SHEET ACCOUNTS
SHORT-TERM INVESTMENTS
The following table sets forth the aggregate amortized cost, aggregate fair
value and gross unrealized gains for Orbital's short-term investments in debt
securities:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1997
------ ------
(In thousands)
<S> <C> <C>
Amortized cost.............................................. $2,665 $2,301
Fair value.................................................. 2,665 2,573
------ ------
Unrealized gains............................................ $ -- $ 272
====== ======
</TABLE>
During 1998, the company did not realize any significant gains on sales of
investments corresponding to unrealized gains included in other comprehensive
income as of December 31, 1997. All debt securities held at December 31, 1998
are scheduled to mature in 1999.
39
<PAGE> 42
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. BALANCE SHEET ACCOUNTS -- (CONTINUED)
INVENTORY
Inventories, net of allowances for obsolescence, consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Components and raw materials................................ $ 14,488 $ 24,913
Work-in-process............................................. 51,747 35,246
Finished goods.............................................. 6,690 9,980
Allowance for inventory obsolescence........................ (8,215) (10,900)
-------- --------
Total............................................. $ 64,710 $ 59,239
======== ========
</TABLE>
Work-in-process inventory was reduced by contractual progress payments
received of $5,624,000 and $5,899,000 at December 31, 1998 and 1997,
respectively.
ACCOUNTS RECEIVABLE
The components of receivables were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Billed and billable......................................... $102,443 $118,613
Recoverable costs and accrued profit not billed............. 119,549 73,536
Retainages due upon contract completion..................... 4,987 6,132
Allowance for doubtful accounts............................. (21,570) (18,077)
-------- --------
Total............................................. $205,409 $180,204
======== ========
</TABLE>
Approximately 84% of recoverable costs and accrued profit not billed and
retainages due upon contract completion at December 31, 1998 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, 1998 and 1997, $50,165,000 and $43,294,000, 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, 1998,
40
<PAGE> 43
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. BALANCE SHEET ACCOUNTS -- (CONTINUED)
outstanding foreign exchange contracts to sell (purchase) foreign currencies,
along with current market values:
<TABLE>
<CAPTION>
CURRENCIES CURRENT UNREALIZED
HEDGED CONTRACT MARKET GAIN
FOREIGN CURRENCY HEDGED AGAINST AMOUNT VALUE (LOSS)
----------------------- ---------- -------- ------- ----------
(U.S. dollars, in thousands)
<S> <C> <C> <C> <C>
Australian Dollars............................ CD $ 144 $ 142 $ (2)
Belgian Francs................................ CD 243 232 (11)
European Currency Units....................... CD 2,053 2,023 (30)
European Currency Units....................... PS 759 732 (27)
Pounds Sterling............................... CD (373) (384) (11)
Norwegian Kroner.............................. CD 1,016 981 (35)
U.S. Dollars.................................. CD 16,430 14,917 (1,513)
U.S. Dollars.................................. PS 64 66 2
</TABLE>
- - ------------------------
CD -- Canadian Dollars
PS -- Pounds Sterling
MDA is also subject to off-balance sheet risk for a letter-of-credit
facility to cover foreign exchange commitments. At December 31, 1998,
$10,000,000 of letters of credit were secured by this facility and $37,000,000
remained available.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- --------
(In thousands)
<S> <C> <C>
Land........................................................ $ 4,123 $ 852
Buildings and leasehold improvements........................ 21,557 22,112
Machinery and equipment..................................... 160,795 136,310
Equipment and satellite systems under construction.......... 38,035 41,821
Software, intellectual property and technical drawings...... 36,015 15,750
Accumulated depreciation and amortization................... (103,450) (79,347)
--------- --------
Total............................................. $ 157,075 $137,498
========= ========
</TABLE>
Interest expense of approximately $2,084,000, $90,000 and $1,430,000 was
capitalized during 1998, 1997 and 1996, respectively, as part of the historical
cost of land, buildings and equipment under construction.
41
<PAGE> 44
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. BALANCE SHEET ACCOUNTS -- (CONTINUED)
ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Payroll, payroll taxes and fringe benefits.................. $ 39,289 $ 28,291
Payable to subcontractors................................... 18,703 15,534
Accrued contract costs...................................... 32,118 38,866
Other accrued expenses...................................... 20,723 15,897
-------- --------
Total............................................. $110,833 $ 98,588
======== ========
</TABLE>
Approximately $6,520,000 and $16,332,000 of accrued contract costs at
December 31, 1998 and 1997, respectively, related to certain contracts acquired
in 1997.
6. DEBT OBLIGATIONS
The following sets forth long-term obligations, excluding capital lease
obligations (see note 7):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
7% note, principal and interest due monthly through 1998.... $ -- $ 631
7.09 - 9.35% notes, principal and interest due monthly
1998-1999................................................. 3,098 7,421
8.25% bank note, principal and interest due monthly through
2001...................................................... 1,142 --
7.19% - 8.64% notes, principal and interest due monthly
through 2003.............................................. 24,428 24,562
8.41% note, principal and interest due monthly through
2005...................................................... 8,439 9,407
6% note, principal and interest due semi-annually through
2000...................................................... 2,900 4,350
6% bank notes, principal and interest due monthly through
2002...................................................... 1,823 1,964
12% note, interest due semi-annually, principal due
1999-2001................................................. 20,000 20,000
7.5% bank notes, interest and principal due quarterly
through 2002.............................................. 36,000 47,750
5% convertible subordinated notes, interest due
semi-annually, principal due 2002......................... 100,000 100,000
-------- --------
197,830 216,085
LESS CURRENT PORTION........................................ (19,236) (18,189)
-------- --------
LONG-TERM PORTION........................................... $178,594 $197,896
======== ========
</TABLE>
The 7.09% - 9.35% notes are secured by certain equipment located at the
company's Germantown, Maryland facility. The 8.25% bank note is secured by
certain Magellan assets. 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. The 6% note is unsecured.
The 6% bank notes due 2002 are secured by MDA's accounts receivable,
inventory and certain other assets. The related credit agreements contain
certain covenants with respect to MDA's leverage ratio and tangible net worth.
42
<PAGE> 45
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT OBLIGATIONS -- (CONTINUED)
The company's 12% unsecured note restricts the payment of cash dividends
and contains certain covenants with respect to fixed charges ratio, leverage
ratio and tangible net worth, and includes certain cross-default provisions.
Orbital's primary credit facility from an international syndicate of six
banks was amended and restated in 1998 to increase maximum borrowings to
$200,000,000 from $100,000,000. 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, 1998 was
7.5%. 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 December 2002.
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.
The fair value of Orbital's long-term obligations at December 31, 1998 and
1997 is estimated at approximately $127,830,000 and $178,455,000, respectively.
Fair value estimates are based on quoted market prices or on current rates
offered for debt of similar remaining maturities. Scheduled maturities of
long-term debt for each of the years in the five-year period ending December 31,
2003 and thereafter are $19,236,000, $16,614,000, $15,491,000, $142,366,000,
$1,668,000 and $2,455,000, respectively.
Magellan maintains its own short-term credit facility. At December 31, 1998
and 1997, approximately $6,008,000 and $6,567,000 was outstanding on this
facility at an average borrowing rate of 9.25% and 8%, respectively. These
borrowings are secured by Magellan's accounts receivable, inventory, equipment
and general intangibles.
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.
43
<PAGE> 46
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LEASE COMMITMENTS
Aggregate minimum rental commitments under non-cancelable operating and
capital leases (primarily for office space and equipment) at December 31, 1998
were as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
(In thousands)
<S> <C> <C>
1999........................................................ $14,425 $ 1,877
2000........................................................ 13,462 1,308
2001........................................................ 10,995 1,213
2002........................................................ 9,135 202
2003........................................................ 8,878 169
2004 and thereafter......................................... 29,948 --
------- -------
$86,843 4,769
=======
Less interest at 10%........................................ (512)
Less current portion........................................ (1,570)
-------
Long-term portion........................................... $ 2,687
=======
</TABLE>
Rent expense for 1998, 1997 and 1996 was approximately $14,124,000,
$10,870,000 and $12,300,000, respectively.
8. INCOME TAXES
The provisions for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
CURRENT PROVISION:
U.S. Federal.............................................. $ -- $ -- $ --
Foreign................................................... 1,394 1,283 1,831
State..................................................... -- -- --
DEFERRED PROVISION:
U.S. Federal.............................................. -- -- --
Foreign................................................... 3,149 752 --
State..................................................... -- -- --
------ ------ ------
Total............................................. $4,543 $2,035 $1,831
====== ====== ======
</TABLE>
44
<PAGE> 47
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES -- (CONTINUED)
The income tax provisions were different from those computed using the
statutory U.S. Federal income tax rate as set forth below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
U.S. Federal statutory rate................................. (35.0)% 35.0% 35.0%
Changes in valuation allowance.............................. 652.4 (36.1) (15.0)
Investments in affiliates and non-controlling interests in
net assets of consolidated subsidiaries................... (568.9) -- --
Intangible amortization..................................... 126.6 5.0 13.2
Foreign income taxes, net................................... 60.0 3.3 (12.9)
Other, net.................................................. 13.3 0.9 (10.0)
------ ----- -----
Effective rate.................................... 248.4% 8.1% 10.3%
====== ===== =====
</TABLE>
The tax effects of significant temporary differences were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
-------- -------
(In thousands)
<S> <C> <C>
TAX ASSETS:
U.S. Federal net operating loss carryforward.............. $106,390 $64,261
Non-deductible financial statement accruals............... 49,384 55,792
U.S. Federal and foreign tax credit carryforward.......... 9,993 11,219
Intangible assets......................................... 5,012 5,988
-------- -------
170,779 137,260
Valuation allowance....................................... (71,139) (49,588)
-------- -------
Tax assets, net........................................ $ 99,640 $87,672
======== =======
TAX LIABILITIES:
Excess deductions for tax reporting purposes.............. $ 48,827 $34,850
Excess tax depreciation................................... 27,216 15,916
Investments in subsidiaries/affiliates.................... 7,627 16,790
Percentage-of-completion accounting....................... 5,049 5,211
-------- -------
Tax liabilities........................................ $ 88,719 $72,767
======== =======
</TABLE>
In 1998, 1997 and 1996 approximately $8,300,000, $5,200,000 and $4,900,000,
respectively, of income (loss) before provision for income taxes was generated
from foreign sources. At December 31, 1998, the company had U.S. federal net
operating loss carryforwards (portions of which expire beginning in 2004) of
approximately $278,000,000, U.S. research and experimental income tax credit
carryforwards of approximately $3,148,000, and foreign investment income tax
credit carryforwards (subject to expiration in 2008) of approximately
$5,000,000. Such net operating loss carryforwards and tax credits are subject to
certain limitations and other restrictions. Additionally, at December 31, 1998,
approximately $43,000,000 of net deferred tax assets will reduce goodwill and
approximately $9,700,000 of net deferred tax assets will reduce equity to the
extent such assets reduce future taxable income. Management believes that it is
more likely than not that the net deferred tax assets recorded will be realized
in the future.
45
<PAGE> 48
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMON STOCK AND STOCK OPTION PLANS
In October 1998, the company adopted a stockholder rights plan in which
preferred stock purchase rights were granted as a dividend at the rate of one
right for each share of common stock to stockholders of record on November 13,
1998. The plan is designed to deter coercive or unfair takeover tactics. The
rights become exercisable only if a person or group in the future becomes the
beneficial owner of 15% or more of Orbital's common stock, or announces a tender
or exchange offer that would result in its ownership of 15% of more of the
company's common stock. The rights are generally redeemable by Orbital's Board
of Directors at a redemption price of $0.005 per right and expire on October 31,
2008.
Effective January 1, 1999, the company adopted, subject to stockholder
approval, an Employee Stock Purchase Plan ("ESPP") for employees of the company
(including its consolidated U.S. subsidiaries). Under the ESPP, eligible
employees may purchase up to 1,000,000 shares of Orbital's common stock, subject
to certain limitations. The ESPP has semi-annual offering periods beginning on
January 1 and July 1 and allows employees to purchase shares of stock at the
lesser of 85% of the fair market value of shares at either the beginning or the
end of the offering period. Also effective January 1, 1999, the company adopted
a similar employee stock purchase plan for its Canadian employees to purchase up
to 500,000 shares of Orbital common stock.
As of December 31, 1998, the company's 1997 Stock Option and Incentive Plan
(the "1997 Plan") provided for awards of up to 3,200,000 incentive or
non-qualified stock options and shares of restricted stock to employees,
directors, consultants and advisors of the company and its subsidiaries. In
January 1999, the Board approved an amendment to the 1997 Plan to increase the
number of shares available for option grants by 1,800,000 to 5,000,000. 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 nonemployee directors of the company. The company
also has options outstanding that were issued pursuant to two predecessor plans
to the 1997 Plan as well as replacement options issued 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
AVERAGE OUTSTANDING
NUMBER OF OPTION PRICE EXERCISE AND
ORBITAL OPTIONS SHARES PER SHARE PRICE EXERCISABLE
--------------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C>
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
Cancelled 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
Cancelled 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
Granted.............................. 2,236,700 18.38-38.44 32.49
Exercised............................ (1,086,537) 1.76-20.75 13.39
Cancelled or expired................. (713,898) 3.51-38.44 35.07
----------
Outstanding at December 31, 1998....... 4,443,556 $3.51-$38.44 $21.09 1,548,218
========== ============ ====== =========
</TABLE>
46
<PAGE> 49
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMON STOCK AND STOCK OPTION PLANS -- (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ---------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT DEC. 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE AT DEC. 31, 1998 EXERCISE PRICE
--------------- ---------------- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.51-$16.50 1,987,735 6.66 $14.30 1,064,127 $13.43
$16.63-$30.69 1,959,821 8.76 $24.26 450,757 $18.60
$32.88-$38.44 496,000 9.35 $35.77 33,334 $32.88
------------- --------- ---- ------ --------- ------
$ 3.51-$38.44 4,443,556 7.88 $21.09 1,548,218 $15.36
============= ========= ==== ====== ========= ======
</TABLE>
OCC adopted a stock option plan in 1992 (the "OCC Plan"). The OCC 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 OCC Plan, incentive stock 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. Options under the OCC Plan 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 following the date of
grant. Certain provisions of the OCC 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 1998 and 1997, OCC repurchased
1,000 and 43,800 shares, respectively, of OCC common stock under this provision.
The following two tables summarize information regarding options under the
OCC Plan for the last three years:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE OUTSTANDING
NUMBER OF OPTION PRICE EXERCISE AND
OCC OPTIONS SHARES PER SHARE PRICE EXERCISABLE
----------- --------- ------------ -------- -----------
<S> <C> <C> <C> <C>
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
Cancelled 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
Cancelled 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
Granted............................... 305,300 26.50-39.75 32.37
Exercised............................. (32,600) 1.50-13.00 3.15
Cancelled or expired.................. (17,700) 1.50-26.50 23.94
---------
Outstanding at December 31, 1998........ 1,004,830 $1.50-$39.75 $20.40 520,864
========= ============ ====== =======
</TABLE>
47
<PAGE> 50
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMON STOCK AND STOCK OPTION PLANS -- (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT DEC. 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE AT DEC. 31, 1998 EXERCISE PRICE
--------------- ---------------- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.50-$13.00 345,530 4.10 $ 4.96 345,530 $ 4.96
$17.00-$25.00 77,500 7.19 $20.35 43,750 $19.97
$26.50-$39.75 581,800 8.83 $29.58 131,584 $26.50
------------- --------- ---- ------ ------- ------
$ 1.50-$39.75 1,004,830 7.08 $20.40 520,864 $11.66
============= ========= ==== ====== ======= ======
</TABLE>
Magellan adopted a stock option plan in 1998 (the "1998 Magellan Plan").
The 1998 Magellan Plan authorizes the issuance of incentive or non-qualified
options to purchase up to 19,900,000 shares of Magellan common stock to Magellan
and Orbital employees, consultants or advisors. Stock options may not be granted
with an exercise price less than 85% of the fair market value of the common
stock at the date of grant as determined by Magellan's Board of Directors.
Options under the 1998 Magellan 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 the grant. There are also
Magellan options outstanding that were issued pursuant to an option plan adopted
in 1996.
The following two tables summarize information regarding options under
Magellan's stock option plans for the last three years:
<TABLE>
<CAPTION>
WEIGHTED OUTSTANDING
NUMBER OF OPTION PRICE AVERAGE AND
MAGELLAN OPTIONS SHARES PER SHARE EXERCISE PRICE EXERCISABLE
---------------- ---------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1995............. -- -- -- --
Granted.................................... 6,915,900 $ 1.10 $1.10
Exercised.................................. -- -- --
Cancelled 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
Cancelled or expired....................... (1,427,531) 1.10 1.10
----------
Outstanding at December 31, 1997............. 6,779,660 1.10 1.10 2,528,097
Granted.................................... 15,307,204 0.40 0.40
Exercised.................................. (21,300) 0.40-1.10 $0.98
Cancelled or expired....................... (5,093,210) 0.40-1.10 1.03
----------
Outstanding at December 31, 1998............. 16,972,354 $0.40-$1.10 $0.47 5,389,208
========== =========== ===== =========
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT DEC., 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE AT DEC., 31, 1998 EXERCISE PRICE
--------------- ----------------- ---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$0.40-$0.40 15,268,917 8.28 $0.40 3,900,075 $0.40
$1.10-$1.10 1,703,437 7.59 $1.10 1,489,133 $1.10
----------- ---------- ---- ----- --------- -----
$0.40-$1.10 16,972,354 8.21 $0.47 5,389,208 $0.59
=========== ========== ==== ===== ========= =====
</TABLE>
In connection with Magellan's merger with Ashtech on December 31, 1997,
Magellan assumed Ashtech's option plan and issued replacement options that are
exercisable into Magellan common stock. At December 31, 1998, 650,077
non-qualified replacement options were outstanding, 494,561 of which were
48
<PAGE> 51
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMON STOCK AND STOCK OPTION PLANS -- (CONTINUED)
exercisable at prices ranging from $0.81 to $1.72. The weighted average
remaining contractual life on these outstanding options is seven years.
10. STOCK-BASED COMPENSATION
The company uses the Black-Scholes option pricing model to determine the
pro forma impact under SFAS 123 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 1998, 1997 and 1996 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
----------------------------- ------------------ ------------------ ------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996 1998 1997 1996
--------- ------- ------- ---- ---- ---- ---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Orbital Plans........ 271,619 218,868 231,955 55% 54% 56% 5.8% 6.1% 5.3% $32.49 $17.29 $13.26
OCC Plan............. 56,925 48,878 20,778 30% 30% 30% 5.4% 6.1% 5.6% $32.37 $26.50 $20.50
Magellan Plans....... 9,892,346 116,431 406,400 30% 30% 30% 5.5% 5.9% 6.4% $ 0.40 $ 1.10 $ 1.10
</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.
Had the company determined compensation expense in accordance with the
provisions of SFAS 123, based on the calculated fair value of stock options at
the grant date, the company's net income (loss), net income (loss) per common
share and net income (loss) per common share, assuming dilution, would have been
$(26,267,000), $(0.74) and $(0.65), respectively, for the year ended December
31, 1998; $11,804,000, $0.37 and $0.35, respectively, for the year ended
December 31, 1997; and $7,202,000, $0.25 and $0.25, respectively, for the year
ended December 31, 1996. Pro forma net income (loss) reflects only options
granted in 1998, 1997 and 1996 and, therefore, may not be representative of the
effects for future periods.
In 1996, the company issued 150,000 stock appreciation rights that vested
annually through 1998. Payment was dependent on appreciation of the company's
common stock over the vesting period. The company recorded approximately
$250,000 and $1,470,000, respectively, in compensation expense during 1998 and
1997 with respect to these rights (none in 1996).
11. SUPPLEMENTAL DISCLOSURES
DEFINED CONTRIBUTION PLANS
At December 31, 1998, 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 $10,370,000,
$9,108,000 and $7,097,000 during 1998, 1997 and 1996, respectively.
49
<PAGE> 52
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SUPPLEMENTAL DISCLOSURES -- (CONTINUED)
CASH FLOWS
Cash payments for interest and income taxes were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Interest paid............................................ $16,032 $10,059 $10,860
Income taxes paid, net of refunds........................ 1,624 544 1,327
</TABLE>
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) and outstanding shares of common stock used in
calculating earnings (loss) per share differed from those amounts reported in
the consolidated financial statements as follows:
<TABLE>
<CAPTION>
NET INCOME (LOSS)
NET INCOME (LOSS) PER COMMON SHARE,
PER COMMON SHARE ASSUMING DILUTION
----------------- -----------------
(In thousands)
<S> <C> <C>
1998
Net income (loss).......................................... $(6,372) N/A
Assuming conversion of convertible notes................... -- N/A
------- -------
Net income (loss), as adjusted........................ $(6,372) N/A
======= =======
Outstanding common shares.................................. 37,018 N/A
Effect of weighting for outstanding shares................. (1,393) N/A
Dilutive impact of outstanding stock options............... -- N/A
Assuming conversion of convertible notes................... -- N/A
------- -------
Adjusted shares....................................... 35,625 N/A
======= =======
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)
Dilutive impact of 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................. (3,024) (3,024)
Dilutive impact of outstanding stock options............... -- 83
Assuming conversion of convertible notes................... -- 2,396
------- -------
Adjusted shares....................................... 29,137 31,616
======= =======
</TABLE>
50
<PAGE> 53
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SUPPLEMENTAL DISCLOSURES -- (CONTINUED)
In periods of net loss, the assumed conversion of convertible notes and
stock options are anti-dilutive. For the year ended December 31, 1998, assuming
conversion of convertible notes and the dilutive impact of outstanding stock
options, diluted shares would have been 40,336,587.
SUMMARY SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Based on accounting decisions made in connection with the preparation of
the company's consolidated year-end financial statements, the company restated
its interim financial statements for the first three quarters of 1998. 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>
1998
Revenues............................................ $186,159 $184,516 $187,688 $175,914
Gross profit........................................ 51,374 50,851 46,493 38,838
Income (loss) from operations....................... 13,365 8,251 9,292 (5,615)
Net income (loss)................................... 4,745 5,998 2,436 (19,551)
Net income (loss) per common share.................. 0.14 0.17 0.07 (0.53)
Net income (loss) per common share, assuming
dilution.......................................... 0.13 0.17 0.06 (0.53)
1997
Revenues............................................ 122,112 142,226 164,670 176,967
Gross profit........................................ 33,678 39,673 46,015 29,837
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
Gross profit........................................ 32,312 32,888 31,875 28,099
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
</TABLE>
12. SUBSEQUENT EVENTS AND OTHER MATTERS
Litigation. In the first quarter of 1999, a number of class action
lawsuits were filed in federal court in the Eastern District of Virginia against
Orbital, an officer and an officer/director, alleging violations of the federal
securities laws during the period from April 21, 1998 through February 16, 1999
and seeking monetary damages. In December 1998, Thomas van der Heyden filed a
lawsuit in the Circuit Court for Montgomery County, Maryland alleging that
Orbital is in actual or anticipatory breach of obligations allegedly imposed on
Orbital in a judgment in a previous action brought by plaintiff against CTA. The
plaintiff claims that he is entitled to a sum exceeding $30 million from
Orbital, as successor-in-interest to CTA. The company believes that the
allegations in the legal proceedings described above are without merit and
intends to vigorously defend against the allegations. In addition, under the
terms of the CTA acquisition, the company believes it is entitled to
indemnification from CTA for all or a part of any damages arising from the van
der Heyden litigation.
Business Combinations. On March 12, 1999, Orbital and Magellan signed a
merger agreement with Lowrance Electronics, Inc., a leading manufacturer of
marine and recreational electronics using GPS-satellite navigation and sonar
technology. Under the terms of the merger, Orbital will acquire all the
outstanding
51
<PAGE> 54
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENTS AND OTHER MATTERS -- (CONTINUED)
common stock of Lowrance and Lowrance shareholders will receive between 745,000
and 1,250,000 shares of Orbital common stock, based on the fair market value of
Orbital common stock prior to closing. Lowrance will be merged into Magellan at
the closing and Orbital's ownership of Magellan following the merger will
increase to approximately 85%. The transaction is expected to close in the
second half of 1999. Closing is subject to regulatory approval and Lowrance
shareholder approval.
On March 18, 1999, MDA and Toronto-based Spar Aerospace Limited signed an
asset purchase agreement pursuant to which MDA will acquire Spar's space
robotics division for approximately $43,000,000 in cash, one half of which is
payable upon closing, with the other half payable a year following closing. The
acquisition will expand the company's product lines to include advanced robotics
primarily for the manned space market. Orbital expects the transaction to close
in the second quarter of 1999, subject to customary closing conditions.
52
<PAGE> 55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is included in Item 4A above and
under the caption "Election of Directors -- Directors to be Elected at the 1999
Annual Meeting, -- Directors Whose Terms Expire in 2000 and -- Directors Whose
Terms Expire in 2001" and "Section 16(a) Beneficial Ownership Reporting
Compliance" of the Proxy Statement filed pursuant to Regulation 14A on or about
March 29, 1999 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included under the captions
"Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values,"
"Indemnification Agreements," "Executive Employment Agreements" and "Information
Concerning the Board and Its Committees" of the Proxy Statement filed pursuant
to Regulation 14A on or about March 29, 1999 and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included under the caption
"Ownership of Common Stock" of the Proxy Statement filed pursuant to Regulation
14A on or about March 29, 1999 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included under the caption
"Related Transactions" of the Proxy Statement filed pursuant to Regulation 14A
on or about March 29, 1999 and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. Financial Statements. The following financial statements, together
with the report of KPMG LLP are filed as a part of this report:
A. Independent Auditors' Report
B. Consolidated Statements of Earnings
C. Consolidated Balance Sheets
D. Consolidated Statements of Stockholders' Equity
E. Consolidated Statements of Cash Flows
F. Notes to Consolidated Financial Statements
53
<PAGE> 56
2. Financial Statements of 50-Percent Owned Subsidiary and Financial
Statement Schedules.
The financial statements of ORBCOMM Global, L.P. are transmitted with this
report.
The following additional financial data are transmitted with this report
and should be read in conjunction with the Consolidated Financial Statements
contained herein. Schedules other than those listed below have been omitted
because they are inapplicable or are not required.
Independent Auditors' Report on Consolidated Financial Statements
Schedule II -- Valuation and Qualifying Accounts
3. Exhibits. A complete listing of exhibits required is given in the
Exhibit Index that precedes the exhibits filed with this report.
(b) Reports on Form 8-K
(i) On October 23, 1998, we filed a Current Report on Form 8-K, dated
October 20, 1998, disclosing, under Item 5 our financial results for the
fiscal quarter ending September 30, 1998.
(ii) On November 2, 1998, we filed a Current Report on Form 8-K, dated
October 30, 1998, disclosing under Item 5, the adoption of a stockholder
rights plan.
(c) See Item 14(a)(3) of this report.
(d) See Item 14(a)(2) of this report.
54
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 29, 1999 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 Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Dated: March 29, 1999
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ DAVID W. THOMPSON Chairman of the Board, Principal Executive
- - ------------------------------------------------ Officer and Director
DAVID W. THOMPSON
/s/ Jeffrey V. Pirone Executive Vice President and Chief
- - ------------------------------------------------ Financial Officer
JEFFREY V. PIRONE
/s/ Michael P. Keegan Vice President and Controller
- - ------------------------------------------------
MICHAEL P. KEEGAN
Director
- - ------------------------------------------------
FRED C. ALCORN
/s/ Kelly H. Burke Director
- - ------------------------------------------------
KELLY H. BURKE
/s/ Bruce W. Ferguson Director
- - ------------------------------------------------
BRUCE W. FERGUSON
/s/ Daniel J. Fink Director
- - ------------------------------------------------
DANIEL J. FINK
/s/ Lennard A. Fisk Director
- - ------------------------------------------------
LENNARD A. FISK
/s/ Jack L. Kerrebrock Director
- - ------------------------------------------------
JACK L. KERREBROCK
/s/ Douglas S. Luke Director
- - ------------------------------------------------
DOUGLAS S. LUKE
</TABLE>
55
<PAGE> 58
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ John L. McLucas Director
- - ------------------------------------------------
JOHN L. MCLUCAS
/s/ Janice I. Obuchowski Director
- - ------------------------------------------------
JANICE I. OBUCHOWSKI
Director
- - ------------------------------------------------
FRANK L. SALIZZONI
Director
- - ------------------------------------------------
HARRISON H. SCHMITT
/s/ James R. Thompson Director
- - ------------------------------------------------
JAMES R. THOMPSON
Director
- - ------------------------------------------------
SCOTT L. WEBSTER
</TABLE>
56
<PAGE> 59
Independent Auditors' Report
The Board of Directors and Stockholders
Orbital Sciences Corporation:
Under date of February 16, 1999, except as to note 12, which is as of March 18,
1999, we reported on the consolidated balance sheets of Orbital Sciences
Corporation and subsidiaries as of December 31, 1998 and 1997, 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, 1998, as
contained in the 1998 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in
the annual report on Form 10-K for the year 1998. In connection with our audits
of the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule as listed in Item 14(a)2 in
the Company's Form 10-K as of and for the years ended December 31, 1998, 1997
and 1996. This consolidated financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this consolidated financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Washington, D.C.
February 16, 1999, except as to note 12,
which is as of March 18, 1999
<PAGE> 60
ORBITAL SCIENCES CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C
- - ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
---------------------------------------------------
CHARGED/
BALANCE AT CHARGED TO COSTS CREDITED TO
DESCRIPTION START OF PERIOD AND EXPENSES OTHER ACCOUNTS (1)
- - -------------------------------------------------- ------------------------ ---------------------- -------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts $ 773 $ 603 $ -
Allowance for obsolete inventory 3,778 667 685
Allowance for unrecoverable investments 1,100 - -
Deferred income tax valuation reserve 60,041 - -
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts $ 1,368 $ 709 $ 16,550
Allowance for obsolete inventory 5,098 1,527 4,902
Allowance for unrecoverable investments 1,100 729 3,057
Deferred income tax valuation reserve 52,233 - -
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts $ 18,077 $ 4,635 794
Allowance for obsolete inventory 10,900 6,023 4,161
Allowance for unrecoverable investments 4,886 552 (1,100)
Deferred income tax valuation reserve 49,588 21,551 -
<CAPTION>
COLUMN A COLUMN D COLUMN E
- - ------------------------------------------------------------------------------------------------------------
BALANCE AT
DESCRIPTION DEDUCTIONS (2) END OF PERIOD
- - -------------------------------------------------- ------------------------- --------------------------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts $ (8) $ 1,368
Allowance for obsolete inventory (32) 5,098
Allowance for unrecoverable investments - 1,100
Deferred income tax valuation reserve (7,808) 52,233
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts $ (550) $ 18,077
Allowance for obsolete inventory (627) 10,900
Allowance for unrecoverable investments - 4,886
Deferred income tax valuation reserve (2,645) 49,588
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts (1,936) $ 21,570
Allowance for obsolete inventory (12,869) 8,215
Allowance for unrecoverable investments - 4,338
Deferred income tax valuation reserve - 71,139
</TABLE>
(1)- Amounts charged/credited to other accounts represent valuation and
qualifying accounts recorded pursuant to purchase business combinations
as described in Note (4) to the consolidated financial statements
incorporated by reference elsewhere herein, and certain other
reclassifications.
(2)- Deduction for revaluation of allowance account.
<PAGE> 61
EXHIBIT INDEX
The following exhibits are filed as part of this report. Where such filing
is made by incorporation by reference to a previously filed statement or report,
such statement or report is identified in parentheses.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - ------- ----------------------
<C> <S>
3.1 Restated Certificate of Incorporation (incorporated by
reference to Exhibit 4.1 to the company's Registration
Statement on Form S-3 (File Number 333-08769) filed and
effective on July 25, 1996).
3.2 By-Laws of Orbital Sciences Corporation, as amended on July
27, 1995 (incorporated by reference to Exhibit 3 to the
company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995).
3.3 Certificate of Amendment to Restated Certificate of
Incorporation, dated April 29, 1997 (transmitted herewith).
3.4 Certificate of Designation, Preferences and Rights of Series
B Junior Participating Preferred Stock, dated November 2,
1998 (incorporated by reference to Exhibit 2 to the
company's Report on Form 8-A filed on November 2, 1998).
4.1 Form of Certificate of Common Stock (incorporated 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).
4.2 Indenture dated as of September 16, 1997 between the company
and Deutsche Bank AG, New York Branch, as Trustee
(incorporated by reference to Exhibit 4.1 to the company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
4.3 First Supplemental Indenture dated as of December 15, 1997
between the company and Deutsche Bank AG, New York Branch,
as Trustee (incorporated by reference to Exhibit 4.4 to the
company's Registration Statement on Form S-3 (File Number
333-42271) filed on December 15, 1997 and effective on March
12, 1998).
4.4 Form of 5% Convertible Subordinated Note (incorporated by
reference to Exhibit 4.5 to the company's Registration
Statement on Form S-3 (File Number 333-42271) filed on
December 15, 1997 and effective on March 12, 1998).
4.5 Registration Rights Agreement dated as of September 16, 1997
among the company and Deutsche Morgan Grenfell Inc. and J.P.
Morgan Securities Inc. (incorporated by reference to Exhibit
4.6 to the company's Registration Statement on Form S-3
(File Number 333-42271) filed on December 15, 1997 and
effective on March 12, 1998).
4.6 Rights Agreement dated as of October 22, 1998 between the
company and BankBoston N.A., as Rights Agent (incorporated
by reference to Exhibit 1 to the company's Report on Form
8-A filed on November 2, 1998).
4.7 Form of Rights Certificate (incorporated by reference to
Exhibit 3 to the company's Report on Form 8-A filed on
November 2, 1998).
10.1 Third Amended and Restated Credit Agreement, dated as of
December 21, 1998 among the company, Magellan Corporation,
the Banks listed therein, Morgan Guaranty Trust Company of
New York, as Administrative Agent and Collateral Agent (the
"Credit Agreement") (transmitted herewith).
10.2 Note Agreement, dated as of June 14, 1995 between the
company and The Northwestern Mutual Life Insurance Company
(the "NWML Note Agreement") (incorporated by reference to
Exhibit 4.7.1 to the company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995).
</TABLE>
57
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - ------- ----------------------
<C> <S>
10.2.1 First Amendment to the NWML Note Agreement, dated as of June
30, 1995, between the company and The Northwestern Mutual
Life Insurance Company (incorporated by reference to the
company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995).
10.2.2 Second Amendment to the NWML Note Agreement, dated as of
March 15, 1996 (incorporated by reference to Exhibit 10.2.2
to the company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
10.2.3 Third Amendment to NWML Note Agreement, dated as of July 13,
1996 (incorporated by reference to Exhibit 10.2 to the
company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
10.2.4 Fourth Amendment to NWML Note Agreement, dated as of March
31, 1997 (incorporated by reference to Exhibit 10.2.4 to the
company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997).
10.2.5 Fifth Amendment to NWML Note Agreement, dated as of December
23, 1997 (incorporated by reference to Exhibit 10.2.5 to the
company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997).
10.2.6 Sixth Amendment to NWML Note Agreement, dated as of August
14, 1998 (incorporated by reference to Exhibit 10.2.6 to the
company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998).
10.3 Promissory Notes dated as of August 31, 1994 made by
Fairchild Space and Defense Corporation and Corporate
Guaranty dated August 31, 1994 made by the company
(incorporated by reference to Exhibit 10.7 to the company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994).
10.4 Amended and Restated Security Agreement dated as of August
5, 1997 among the company, Morgan Guaranty Trust Company, as
Collateral Agent, and NationsBank, N.A., as Designated
Lockbox Bank (incorporated by Reference to Exhibit 10.4 to
the company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997).
10.4.1 Security Agreement dated as of August 5, 1997 among the
company, Morgan Guaranty Trust Company, as Collateral Agent,
and NationsBank, N.A., as Designated Lockbox Bank
(incorporated by Reference to Exhibit 10.4.1 to the
company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997).
10.5 Master Security Agreement dated as of August 31, 1994
between Fairchild Space and Defense Corporation and General
Electric Capital Corporation (incorporated by reference to
Exhibit 10.7 to the company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994).
10.6 Orbital Sciences Corporation 1990 Stock Option Plan,
restated as of April 27, 1995 (incorporated by reference to
Exhibit 10.5.1 to the company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995).*
10.7 Orbital Sciences Corporation 1990 Stock Option Plan for
Non-Employee Directors, restated as of April 27, 1995
(incorporated by reference 10.7 to Exhibit 10.5.2 to the
company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995).*
10.8 Orbital Communications Corporation Restated 1992 Stock
Option Plan, restated as of September 12, 1995 (incorporated
by reference to Exhibit 10.8 to the company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
10.8.1 Amendment to Orbital Communications Corporation Restated
1992 Stock Option Plan, dated February 5, 1997 (incorporated
by reference to Exhibit 10.8.1 to the company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996).*
</TABLE>
58
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - ------- ----------------------
<C> <S>
10.9 Orbital Sciences Corporation 1995 Deferred Compensation Plan
(incorporated by reference to Exhibit 10.9 to the company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).*
10.10 Magellan Corporation 1996 Stock Option Plan (incorporated by
reference to Exhibit 10.3 to the company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996).*
10.11 Orbital Imaging Corporation 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.11 to the company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996).*
10.12 Form of Executive Employment Agreement entered into between
the Company and Executive Officers and certain other
Officers of the Company (incorporated by reference to
Exhibit 10.17 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).*
10.12.1 Performance Share Agreement dated October 23, 1996 between
the Company and Mr. D. W. Thompson (incorporated by
reference to Exhibit 10.12.1 to the company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996).*
10.12.2 Amendment No. 1 to Performance Share Agreement dated January
30, 1998 between the company and Mr. D.W. Thompson
(incorporated by reference to Exhibit 10.12.2 to the
company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997).*
10.13 Form of Indemnification Agreement entered into between the
company and directors, executive Officers and certain other
officers of the company (incorporated by reference to
Exhibit 10.18 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).*
10.13.1 Amendment dated October 22, 1992 to form of Indemnification
Agreement entered into between the company and directors,
executive officers and certain other officers of the company
(incorporated by reference to Exhibit 19 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992).*
10.15 Restated Master Agreement, dated as of September 12, 1995,
by and among the company, OCC, Teleglobe Inc. and Teleglobe
Mobile Partners (incorporated by reference to Exhibit 10 to
ORBCOMM Global L.P.'s Registration Statement on Form S-4
(File Number 333-11149) filed on August 30, 1996.
10.15.1 Amendment No. 1 to Restated Master Agreement, restated as of
September 12, 1995, by and among the company, OCC, Teleglobe
Inc. and Teleglobe Mobile Partners filed on August 30, 1996
(incorporated by reference to Exhibit 10.15.1 to the
company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997).
10.16 Restated Agreement of Limited Partnership of ORBCOMM Global,
L.P., dated as of September 12, 1995, between OCC and
Teleglobe Mobile Partners (incorporated by reference to
Exhibit 3.2 to ORBCOMM Global L.P.'s Registration Statement
on Form S-4 (File Number 333-11149) filed on August 30,
1996.
10.16.1 Amendment No. 1 to Restated Agreement of Limited Partnership
of ORBCOMM Global, L.P., dated December 2, 1996
(incorporated by reference to Exhibit 10.16.1 to the
company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996).
10.17 Restated Agreement of Limited Partnership of ORBCOMM USA,
L.P., dated as of September 12, 1995 between Orbital
Communications Corporation and ORBCOMM Global (incorporated
by reference to Exhibit 3.4 to ORBCOMM Global L.P.'s
Registration Statement on Form S-4 (File Number 333-11149)
filed on August 30, 1996.
10.18 Amended and Restated Orbital Sciences Corporation 1997 Stock
Option and Incentive Plan (transmitted herewith).
</TABLE>
59
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - ------- ----------------------
<C> <S>
10.19 Promissory Note dated June 27, 1997 from the company payable
to the order of General Electric Capital Corporation
("GECC") (incorporated by reference to Exhibit 10.19 to the
company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997).
10.20 Aircraft Security Agreement dated as of June 27, 1997 from
the company to GECC (incorporated by reference to Exhibit
10.20 to the company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997).
10.21 1998 Magellan Stock Option Plan (transmitted herewith).
10.22 Letter Agreement between the company and Robert Lovell dated
July 28, 1997 (transmitted herewith).*
10.23 Form of 1998 Indemnification Agreement (transmitted
herewith).*
10.24 Form of 1998 Executive Employment Agreement (transmitted
herewith).*
11 Statement re: Computation of Earnings Per Share (transmitted
herewith).
13.1 ORBCOMM Global, L.P. financial statements (transmitted
herewith).
21 Subsidiaries of the Company (transmitted herewith).
23.1 Consent of KPMG LLP (transmitted herewith).
27 Financial Data Schedule for year ended December 31, 1998
(such schedule is furnished for the information of the
Securities and Exchange Commission and is not to be deemed
"filed" as part of the Form 10-K, or otherwise subject to
the liabilities of Section 18 of the Securities Exchange Act
of 1934) (transmitted herewith).
</TABLE>
- - ---------------
* Management Contract or Compensatory Plan or Arrangement.
60
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
ORBITAL SCIENCES CORPORATION
Orbital Sciences Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(the "Corporation"), does hereby certify:
FIRST: That at a meeting of the Board of Directors of the Corporation
(the "Board") on January 24, 1997, the Board duly adopted the following
resolutions in accordance with Section 242 of the General Corporation Law of
the State of Delaware:
RESOLVED, that the Board hereby declares it advisable
and in the best interest of the Corporation that the first
paragraph of Section 5 of the Restated Certificate of
Incorporation of the Corporation be amended to read in its
entirety as follows:
"5. The total number of shares of stock that this
Corporation shall have authority to issue is 90,000,000
shares consisting of 80,000,000 shares of Common Stock,
$.01 par value per share (the "Common Stock") and
10,000,000 shares of Preferred Stock, $.01 par value per
share (the "Preferred Stock") which may be issued as
follows:" and
FURTHER RESOLVED, that this amendment be submitted to
the Corporation's stockholders for their approval; and
that, subject to the approval of the stockholders, a
Certificate setting forth such amendment and certifying
that the amendment has been duly adopted in accordance with
Section 242 of the General Corporation Law of the State of
Delaware be executed, acknowledged, filed and recorded in
accordance with Section 103 of the General Corporation Law
of the State of Delaware.
SECOND: That the said amendment has been considered and approved by
the Corporation's stockholders at the Corporation's annual meeting of
stockholders on April 24, 1997, called and held in accordance with the
provisions of Section 222 of the General Corporation Law of the State of
Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law
of the State of Delaware.
<PAGE> 2
IN WITNESS WHEREOF, Orbital Sciences Corporation has caused this
Certificate to be executed on its behalf by David W. Thompson, its President,
and attested by Susan Herlick, its Assistant Secretary, as of this April 29,
1997.
By: /s/ David W. Thompson
-------------------------------
David W. Thompson
President
The foregoing is attested:
By: /s/ Susan Herlick
-------------------------------
Susan Herlick
Assistant Secretary
<PAGE> 3
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
-------------------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY (CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "ORBITAL SCIENCES CORPORATION", FILED IN THIS OFFICE ON THE
THIRTIETH DAY OF APRIL, A.D. 1997, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[STATE OF DELAWARE SEAL]
/s/ EDWARD J. FREEL
-----------------------------------
EDWARD J. FREEL, SECRETARY OF STATE
2130792 8100 AUTHENTICATION: 8444504
971139853 DATE: 04-30-97
<PAGE> 1
Exhibit 10.1
CONFORMED COPY
$200,000,000
THIRD AMENDED AND RESTATED
CREDIT AND REIMBURSEMENT AGREEMENT
dated as of
December 21, 1998
among
Orbital Sciences Corporation
The Banks Listed Herein
and
Morgan Guaranty Trust Company of New York,
as Administrative Agent and as Collateral Agent
----------------------------------------------
The Bank of Nova Scotia
and
NationsBank, N.A.,
Co-Syndication Agents
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions.....................................................2
SECTION 1.02. Accounting Terms and Determinations............................17
SECTION 1.03. Types of Borrowings............................................17
ARTICLE 2
THE CREDITS
SECTION 2.01. Commitments to Lend............................................18
SECTION 2.02. Method of Borrowing............................................18
SECTION 2.03. Letters of Credit..............................................19
SECTION 2.04. Notes..........................................................22
SECTION 2.05. Maturity of Loans..............................................23
SECTION 2.06. Interest Rates.................................................23
SECTION 2.07. Commitment Fees................................................25
SECTION 2.08. Participation Fees.............................................25
SECTION 2.09. Optional Termination of the Commitments........................25
SECTION 2.10. Mandatory Termination of Commitments...........................25
SECTION 2.11. Optional Prepayments...........................................25
SECTION 2.12. General Provisions as to Payments..............................26
SECTION 2.13. Funding Losses.................................................26
SECTION 2.14. Computation of Interest and Fees...............................27
SECTION 2.15. Withholding Tax Exemption......................................27
SECTION 2.16. Method of Electing Interest Rates..............................28
ARTICLE 3
CONDITIONS
SECTION 3.01. Effectiveness..................................................29
SECTION 3.02. Transitional Provisions........................................31
SECTION 3.03. All Credit Events..............................................31
SECTION 3.04. First Borrowing by Each Borrower Subsidiary....................32
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE CREDIT PARTIES
SECTION 4.01. Corporate Existence and Power..................................33
<PAGE> 3
SECTION 4.02. Corporate and Governmental Authorization No Contravention......33
SECTION 4.03. Binding Effect.................................................33
SECTION 4.04. Lien Enforceable...............................................33
SECTION 4.05. Assignments Valid..............................................34
SECTION 4.06. Financial Information..........................................34
SECTION 4.07. Litigation.....................................................34
SECTION 4.08. Compliance with ERISA..........................................35
SECTION 4.09. Environmental Matters..........................................35
SECTION 4.10. Taxes..........................................................35
SECTION 4.11. Subsidiaries...................................................36
SECTION 4.12. Full Disclosure................................................36
ARTICLE 5
COVENANTS
SECTION 5.01. Information....................................................36
SECTION 5.02. Payment of Obligations.........................................39
SECTION 5.03. Maintenance of Property; Insurance.............................39
SECTION 5.04. Conduct of Business and Maintenance of Existence...............41
SECTION 5.05. Compliance with Laws...........................................41
SECTION 5.06. Inspection of Property, Books and Records......................41
SECTION 5.07. Investments....................................................41
SECTION 5.08. Minimum Consolidated Net Worth.................................44
SECTION 5.09. Leverage.......................................................44
SECTION 5.10. Consolidated Fixed Charge Ratio................................44
SECTION 5.11. Consolidated Loss Ratio........................................44
SECTION 5.12. Consolidated Delinquency Ratio.................................45
SECTION 5.13. Consolidated DSO Ratio.........................................45
SECTION 5.14. Negative Pledge................................................45
SECTION 5.15. Consolidations, Mergers and Sales of Assets....................47
SECTION 5.16. Use of Proceeds................................................47
SECTION 5.17. Subsidiary Debt................................................47
SECTION 5.18. Restricted Payments............................................47
ARTICLE 6
DEFAULTS
SECTION 6.01. Events of Default..............................................48
SECTION 6.02. Notice of Default..............................................51
ARTICLE 7
THE AGENTS
<PAGE> 4
SECTION 7.01. Appointment and Authorization..................................51
SECTION 7.02. Agents and Affiliates..........................................51
SECTION 7.03. Action by Agents...............................................51
SECTION 7.04. Consultation with Experts......................................52
SECTION 7.05. Liability of Agents............................................52
SECTION 7.06. Indemnification................................................52
SECTION 7.07. Credit Decision................................................52
SECTION 7.08. Successor Agents...............................................53
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.......53
SECTION 8.02. Illegality.....................................................54
SECTION 8.03. Increased Cost and Reduced Return..............................54
SECTION 8.04. Base Rate Loans Substituted for Affected Euro-Dollar Loans.....56
ARTICLE 9
GUARANTY
SECTION 9.01. The Guaranty...................................................57
SECTION 9.02. Guaranty Unconditional.........................................57
SECTION 9.03. Discharge Only upon Payment in Full; Reinstatement.............58
SECTION 9.04. Waiver by the Guarantor........................................58
SECTION 9.05. Limit of Liability.............................................58
SECTION 9.06. Subrogation....................................................58
SECTION 9.07. Stay of Acceleration...........................................58
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. Notices.......................................................59
SECTION 10.02. No Waiver.....................................................59
SECTION 10.03. Expenses; Documentary Taxes; Indemnification..................59
SECTION 10.04. Sharing of Set-Offs...........................................60
SECTION 10.05. Amendments and Waivers........................................61
SECTION 10.06. Successors and Assigns........................................61
SECTION 10.07. Collateral....................................................62
SECTION 10.08. Proprietary Information.......................................62
SECTION 10.09. Governing Law; Submission to Jurisdiction.....................63
SECTION 10.10. Counterparts; Integration.....................................63
<PAGE> 5
SECTION 10.11. Severability..................................................63
SECTION 10.12. WAIVER OF JURY TRIAL..........................................63
PRICING SCHEDULE.............................................................69
SCHEDULE I - Investment Policies of the Company
SCHEDULE II - Liens Existing on and as of the Effective Date
SCHEDULE III - MDA Investments
EXHIBIT A - Note
EXHIBIT B - Opinion of Hogan & Hartson L.L.P., Special Counsel for the
Borrowers
EXHIBIT C - Opinion of Davis Polk & Wardwell, Special Counsel for the
Administrative Agent and the Collateral Agent
EXHIBIT D - Form of Subsidiary Security Agreement
EXHIBIT E - [Intentionally Omitted]
EXHIBIT F - Form of Assignment and Assumption Agreement
EXHIBIT G-1 - Government Contracts
EXHIBIT G-2 - Form of Assignment
EXHIBIT G-3 - Form of Notice of Assignment
EXHIBIT H - Commercial Contractors
EXHIBIT I - [Intentionally Omitted]
EXHIBIT J - Form of Election to Participate
EXHIBIT K - Form of Election to Terminate
EXHIBIT L - Form of Opinion of Counsel for each Borrower Subsidiary
<PAGE> 6
THIRD AMENDED AND RESTATED
CREDIT AND REIMBURSEMENT AGREEMENT
AGREEMENT dated as of December 21, 1998 among ORBITAL SCIENCES
CORPORATION, as Borrower and Guarantor, the BANKS listed on the signature pages
hereof, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent
and as Collateral Agent.
W I T N E S S E T H :
WHEREAS, Orbital Sciences Corporation, a Delaware corporation (together
with its successors, the "COMPANY"), as Borrower, the banks party thereto (the
"ORIGINAL BANKS"), Morgan Guaranty Trust Company of New York, as Administrative
Agent (the "ADMINISTRATIVE AGENT") and J.P. Morgan Delaware, as Collateral Agent
(the "COLLATERAL AGENT"), are parties to an Amended and Restated Credit and
Reimbursement Agreement dated as of September 27, 1994 (as amended, the
"ORIGINAL CREDIT AGREEMENT"); and
WHEREAS, pursuant to an Amended and Restated Security Agreement dated
as of June 30, 1992 and amended and restated as of August 5, 1997 among the
Company, the Collateral Agent and NationsBank, N.A., as Designated Lockbox Bank
(as amended from time to time, the "COMPANY SECURITY AGREEMENT"), the
obligations of the Company under the Financing Documents (as defined in the
Existing Agreement (as defined below)) are secured by Liens (as defined below)
on the Collateral (as defined below);
WHEREAS, the Company, Magellan Corporation, the Original Banks, the
Administrative Agent, and the Collateral Agent are parties to a Second Amended
and Restated Credit and Reimbursement Agreement dated as of August 5, 1997 (as
amended prior to the Effective Date (as defined below), the "EXISTING
AGREEMENT") amending and restating the Original Credit Agreement and the other
Financing Documents;
WHEREAS, pursuant to that certain Amendment No. 1 to the Existing
Agreement dated as of December 19, 1997 among the Company, the Original Banks,
the Administrative Agent and the Collateral Agent, Magellan Corporation was
released from its obligations as a borrower and a guarantor under the Financing
Documents; and
WHEREAS, the Company and the Banks wish to amend and restate the
Existing Agreement as set forth herein;
<PAGE> 7
NOW, THEREFORE, the parties hereto hereby agree that, on and as of the
Effective Date, the Existing Agreement is hereby amended and restated in its
entirety as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have the
following meanings:
"ADJUSTED LONDON INTERBANK OFFERED RATE" has the meaning set forth in
Section 2.06(b).
"ADMINISTRATIVE AGENT" means Morgan Guaranty Trust Company of New York
in its capacity as administrative agent for the Banks hereunder, and its
successors in such capacity.
"ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Administrative Agent
and submitted to the Administrative Agent (with a copy to the Company) duly
completed by such Bank.
"AFFILIATE" means, with respect to any Person (i) any Person that
directly, or indirectly through one or more intermediaries, controls such Person
(a "CONTROLLING PERSON") or (ii) any Person (other than a Subsidiary of such
Person) which is controlled by or is under common control with a Controlling
Person. As used herein, the term "control" means possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"AGENT" means the Administrative Agent or the Collateral Agent, as the
context may require, and "AGENTS" means both of them.
"AGGREGATE LC AMOUNT" has the meaning set forth in Section 6.01.
"AGREEMENT" means the Existing Agreement as amended and restated by the
Amended Agreement and as the same may be further amended or restated from time
to time in accordance with the terms hereof.
"AMENDED AGREEMENT" means this Third Amended and Restated Credit and
Reimbursement Agreement.
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<PAGE> 8
"APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the
case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case of
its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"ASSET SALE" means any sale, lease (as lessor) or other disposition
(including any such transaction effected by way of merger or consolidation or
any sale-leaseback transaction) by the Company or any of its Subsidiaries of any
asset, but excluding (i) dispositions of inventory, cash, cash equivalents and
other cash management investments and obsolete, unused or unnecessary equipment
and undeveloped real estate, in each case in the ordinary course of business and
(ii) dispositions to the Company or any Subsidiary.
"ASSIGNEE" has the meaning set forth in Section 10.06(c).
"ASSIGNMENT OF CLAIMS ACT" means the Assignment of Claims Act of 1940,
as amended, or any successor statute.
"AVAILABLE LC AMOUNT" means, on any date, with respect to each
Borrower, an amount equal to the excess (if any) of $15,000,000 over the
aggregate Letter of Credit Liabilities of all other Borrowers on such date.
"BANK" means each bank listed on the signature pages hereof, each
Assignee which becomes a Bank pursuant to Section 10.06(c), and their respective
successors.
"BASE RATE" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.
"BASE RATE LOAN" means a loan made by a Bank pursuant to Section 2.01
which bears interest at the Base Rate plus the Base Rate Margin pursuant to the
applicable Notice of Borrowing or Notice of Interest Rate Election or the
provisions of Article 8.
"BASE RATE MARGIN" means a rate per annum determined daily in
accordance with the Pricing Schedule.
"BENEFIT ARRANGEMENT" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA that is not a Plan or a Multiemployer Plan
and that is maintained or otherwise contributed to by any member of the ERISA
Group.
"BORROWER LC AMOUNT" has the meaning set forth in Section 6.01.
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<PAGE> 9
"BORROWERS" means the Company and each of the Borrower Subsidiaries,
and "BORROWER" means any one of them.
"BORROWER SUBSIDIARIES" means any Wholly-Owned Subsidiary of the
Company as to which an Election to Participate shall have been delivered to the
Administrative Agent and as to which an Election to Terminate shall not have
been delivered to the Administrative Agent. Each such Election to Participate
and Election to Terminate shall be duly executed on behalf of such Wholly-Owned
Subsidiary and the Company in such number of copies as the Administrative Agent
may request. The delivery of an Election to Terminate shall not affect any
obligation of a Borrower Subsidiary theretofore incurred. The Administrative
Agent shall promptly give notice to the Banks of the receipt of any Election to
Participate or Election to Terminate.
"COLLATERAL" means all of the collateral in which a security interest
is granted to the Collateral Agent on behalf of the Banks in the Security
Agreements.
"COLLATERAL ACCOUNT" has the meaning set forth in each Security
Agreement.
"COLLATERAL AGENT" means Morgan Guaranty Trust Company of New York (as
successor by merger to J.P. Morgan Delaware) in its capacity as collateral agent
for the Secured Parties hereunder and under each Security Agreement and its
successors in such capacity.
"COMMITMENT" means (i) with respect to each Bank listed on the
signature pages hereof, the amount set forth opposite the name of such Bank on
the signature pages hereof and (ii) with respect to each Assignee that becomes a
Bank pursuant to Section 10.06(c), the amount of the Commitment thereby assumed
by it, in each case as such amount may be increased or reduced from time to time
pursuant to Section 10.06(c) or reduced from time to time pursuant to Section
2.09.
"COMMITMENT FEE RATE" means a rate per annum determined in accordance
with the Pricing Schedule.
"COMPANY" has the meaning set forth in the first WHEREAS clause.
"COMPANY SECURITY AGREEMENT" has the meaning set forth in the second
WHEREAS clause.
"COMPANY'S 1997 FORM 10-K" means the Company's annual report on Form
10-K for the fiscal year ended December 31, 1997, as filed with the
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<PAGE> 10
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended.
"CONSOLIDATED DEBT" means at any date, without duplication, the sum of
(i) the Debt of the Company and its Consolidated Subsidiaries determined on a
consolidated basis plus (ii) the portion of the Debt (other than Excluded
ORBCOMM Debt) of any Person accounted for by the Company on the equity method
properly allocable to the direct or indirect interest of the Company in such
Person, all determined as of such date.
"CONSOLIDATED DELINQUENCY RATIO" means, for any period, the percentage
equivalent of a fraction (i) the numerator of which is the average amount of
Receivables of all the Borrowers as of the last day of each calendar month
during such period that have remained unpaid for more than 60 days from the
original due date specified at the time of the original issuance of the invoice
therefor and (ii) the denominator of which is the average amount of Receivables
of all the Borrowers outstanding as of the last day of each calendar month
during such period.
"CONSOLIDATED DSO RATIO" means, for any period, a fraction (i) the
numerator of which is the average amount of Receivables of all the Borrowers as
of the last day of each calendar month during such period and (ii) the
denominator of which is the average daily revenues of all the Borrowers for the
preceding twelve month period ending on the last day of such period.
"CONSOLIDATED EBITDA" means, for any period, Consolidated Net Income
for such period plus, to the extent deducted in determining such Consolidated
Net Income, the aggregate amount of (i) consolidated interest expense, (ii)
income tax expense and (iii) depreciation, amortization and other similar
non-cash charges.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum, without
duplication, of (i) interest accrued on all Debt of the Company and its
Consolidated Subsidiaries (other than Debt owing to the Company or a
Consolidated Subsidiary) during such period, whether expensed or capitalized and
(ii) rental expense of the Company and its Consolidated Subsidiaries for such
period under operating leases of real or personal property.
"CONSOLIDATED LEVERAGE RATIO" means on any date the ratio of
Consolidated Debt on such date to Consolidated EBITDA for the period of four
consecutive fiscal quarters most recently ended on or prior to such date.
"CONSOLIDATED LOSS RATIO" means, for any calendar month, the percentage
equivalent of a fraction (i) the numerator of which is the gross credit
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<PAGE> 11
write offs of Receivables by all the Borrowers during such month and (ii) the
denominator of which is the amount of Receivables of all the Borrowers
outstanding at the end of such month.
"CONSOLIDATED NET INCOME" means, for any period, the consolidated net
income of the Company and its Consolidated Subsidiaries for such period.
"CONSOLIDATED NET WORTH" means, at any date, the consolidated
stockholders' equity of the Company and its Consolidated Subsidiaries as of such
date.
"CONSOLIDATED SUBSIDIARY" means, at any date with respect to any
Person, any Subsidiary or other entity the accounts of which would be
consolidated with those of such Person in its consolidated financial statements
if such statements were prepared as of such date; provided that in no event
shall Orbital Imaging be a "Consolidated Subsidiary" of the Company.
"CONSOLIDATED TANGIBLE NET WORTH" means, at any date, Consolidated Net
Worth less consolidated Intangible Assets, all determined as of such date. For
purposes of this definition "INTANGIBLE ASSETS" means the amount (to the extent
reflected in determining such consolidated stockholders' equity) of (i) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of assets of a going concern business made within twelve months after
the acquisition of such business) subsequent to December 31, 1996 in the book
value of any asset owned by the Company or a Consolidated Subsidiary, and (ii)
all goodwill, patents, trademarks, service marks, trade names, anticipated
future benefit of tax loss carry-forwards not fully reserved, copyrights,
organization or developmental expenses and other intangible assets.
"CONTROLLING PERSON" has the meaning assigned to such term in the
definition of "Affiliate".
"CREDIT EVENT" means the making of a Loan or the issuance of a Letter
of Credit.
"DEBT" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee which are capitalized in
accordance with generally accepted accounting principles, (v) all obligations of
such Person (whether fixed or contingent) to reimburse any bank or other Person
in respect of amounts paid or payable under a letter of credit or similar
instrument, (vi) all Debt
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<PAGE> 12
of others secured by a Lien on any asset of such Person, whether or not such
Debt is assumed by such Person (such Debt to have a principal amount, for
purposes of determinations under this Agreement, not exceeding the greater of
(x) the net unencumbered carrying value of such asset under generally accepted
accounting principles and (y) the fair market value of such asset as of the date
the principal amount of such Debt is determined), and (vii) all Debt of others
Guaranteed by such Person; provided that Excluded ORBCOMM Debt shall not
constitute Debt of the Company or any of its Consolidated Subsidiaries.
"DEFAULT" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"DERIVATIVES OBLIGATIONS" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"DESIGNATED INSURANCE POLICIES" has the meaning set forth in Section
5.03(c).
"DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to close.
"DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Company and the Administrative Agent.
"DOMESTIC RECEIVABLE" means any Receivable due from an Obligor that is
both domiciled in the United States of America and (if not a natural person)
organized under the laws of the United States of America or any State thereof.
"EARNINGS AVAILABLE FOR FIXED CHARGES" means, for any period,
Consolidated Net Income for such period (excluding therefrom (i) any
extraordinary items of gain or loss and (ii) any gain or loss of any other
Person accounted for pursuant to the equity method, except in the case of gain
to the extent of cash distributions received from such Person during the
relevant period),
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<PAGE> 13
plus the aggregate amounts deducted in determining Consolidated Net Income for
such period in respect of (i) interest and rental expense and (ii) income taxes.
"EFFECTIVE DATE" means the date this Amended Agreement becomes
effective in accordance with Section 3.01.
"ELECTION TO PARTICIPATE" means an Election to Participate
substantially in the form of Exhibit J hereto.
"ELECTION TO TERMINATE" means an Election to Terminate substantially in
the form of Exhibit K hereto.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA GROUP" means the Company, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company, or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
"EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office, branch
or Affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or Affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Company and the Administrative Agent.
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<PAGE> 14
"EURO-DOLLAR LOAN" means a loan made by a Bank pursuant to Section 2.01
which bears interest at a Euro-Dollar Rate plus the Euro-Dollar Margin pursuant
to the applicable Notice of Borrowing or Notice of Interest Rate Election.
"EURO-DOLLAR MARGIN" means a rate per annum determined daily in
accordance with the Pricing Schedule.
"EURO-DOLLAR RATE" means a rate of interest determined pursuant to
Section 2.06(b) on the basis of an Adjusted London Interbank Offered Rate.
"EVENTS OF DEFAULT" has the meaning set forth in Section 6.01.
"EXCLUDED ORBCOMM DEBT" means, at any date, (i) any Debt of ORBCOMM
Global which is not Guaranteed by the Borrower or any Consolidated Subsidiary
(other than OCC and ORBCOMM USA) and (ii) the ORBCOMM Global Guaranty and any
other Guarantee by OCC or ORBCOMM USA of any Debt of ORBCOMM Global so long as
at such date (A) the only assets owned or otherwise held by OCC are the Federal
Communications Commission's licenses and authorizations to construct, launch and
operate 34 satellites for the ORBCOMM low-earth satellite system and to operate
related gateway earth stations and subscriber communications, as such licenses
and authorizations may be amended or modified, contracts between OCC and the
Partnerships related to the construction or operation of the ORBCOMM low-earth
satellite system and OCC's investments in ORBCOMM Global and ORBCOMM USA, (B)
OCC conducts no business activities other than holding such assets and (C) such
Guarantee is non-recourse to, and is not otherwise supported by the credit of,
the Company or any of its Consolidated Subsidiaries (other than OCC and ORBCOMM
USA).
"EXISTING AGREEMENT" has the meaning set forth in the third WHEREAS
clause.
"EXPOSURE" means, with respect to each Bank and in respect of any
Borrower, at any time, an amount equal to the sum of (i) the aggregate principal
amount of the Loans of such Bank to such Borrower outstanding at such time and
(ii) such Bank's LC Exposure at such time with respect to such Borrower.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day; provided that (i) if such day is not a Domestic
Business
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<PAGE> 15
Day, the Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Domestic Business Day as so published on the next
succeeding Domestic Business Day, and (ii) if no such rate is so published on
such next succeeding Domestic Business Day, the Federal Funds Rate for such day
shall be the average rate quoted to Morgan Guaranty Trust Company of New York on
such day on such transactions as determined by the Administrative Agent.
"FINANCING DOCUMENTS" means this Agreement, the Security Agreements and
the Notes, and "FINANCING DOCUMENT" means any one of them.
"GROUP OF LOANS" means, at any time, a group of Loans consisting of (i)
all Loans to a single Borrower which are Base Rate Loans at such time or (ii)
all Euro-Dollar Loans to a single Borrower having the same Interest Period at
such time, provided that, if a Loan of any particular Bank is converted to or
made as a Base Rate Loan pursuant to Article 8, such Loan shall be included in
the same Group or Groups of Loans from time to time as it would have been in if
it had not been so converted or made.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part); provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"GUARANTOR" means, with respect to each Borrower, the other Borrowers.
"INSURANCE ACCOUNT" has the meaning set forth in each Security
Agreement.
"INTEREST PERIOD" means, with respect to each Euro-Dollar Loan, the
period commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in an applicable Notice of Interest Rate
Election and ending one, two or three months thereafter as the Borrower may
elect in such notice; provided that:
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<PAGE> 16
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"INVESTMENT" means any investment in any Person, whether by means of
share purchase, capital contribution, loan, time deposit or otherwise.
"LC BANK" means First Union National Bank, First Union National Bank of
Virginia or First Union National Bank through First Union National Bank of North
Carolina in its capacity as LC Bank under the letter of credit facility
described in Section 2.03, and its successors in such capacity.
"LC EXPOSURE" means, with respect to each Bank and in respect of any
Borrower, at any one time, an amount equal to such Bank's Percentage of the
aggregate amount of Letter of Credit Liabilities at such time in respect of all
Letters of Credit issued upon the request of such Borrower.
"LETTER OF CREDIT COMMISSION RATE" means a rate per annum determined in
accordance with the Pricing Schedule.
"LETTER OF CREDIT LIABILITIES" means, on any date and in respect of any
Letter of Credit, the sum, without duplication, of (i) the amount available for
drawing under such Letter of Credit on such date plus (ii) the aggregate amount
outstanding on such date of all Reimbursement Obligations in respect of such
Letter of Credit.
"LETTERS OF CREDIT" has the meaning set forth in Section 2.03(a), and
"LETTER OF CREDIT" means any one of them.
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<PAGE> 17
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Company or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.
"LOAN" means a Base Rate Loan or a Euro-Dollar Loan and "LOANS" means
Base Rate Loans or Euro-Dollar Loans or both.
"MAGELLAN" means Magellan Corporation, a Delaware corporation, and its
successors.
"MAGELLAN FINANCING" means one or more credit agreements to which
Magellan is or may become a party providing for loans thereunder to be used by
Magellan for working capital purposes; provided that the aggregate principal
amount of Debt that may be incurred under such credit agreements shall not
exceed $20,000,000.
"MATERIAL DEBT" means Debt in an aggregate principal amount exceeding
$10,000,000 (other than the Loans and the Reimbursement Obligations) of the
Company and/or one of more of its Subsidiaries arising in one or more related or
unrelated transactions.
"MATERIAL PLAN" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $5,000,000.
"MDA" means MacDonald, Dettwiler and Associates Ltd, a Canadian
corporation, and its successors.
"MOODY'S" means Moody's Investors Service, Inc. or any successor to
such corporation's business of rating debt securities.
"MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"NOTES" means promissory notes of a Borrower, substantially in the form
of Exhibit A hereto, evidencing the obligation of such Borrower to repay the
Loans made to it, together with any modifications, substitutions, extensions or
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<PAGE> 18
renewals of such promissory notes, and "NOTE" means any one of such promissory
notes issued hereunder.
"NOTICE OF BORROWING" has the meaning set forth in Section 2.02.
"NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in
Section 2.16.
"OCC" means Orbital Communications Corporation, a Delaware corporation,
and its successors.
"ORBCOMM GLOBAL" means ORBCOMM Global L.P., a Delaware limited
partnership, and its successors.
"ORBCOMM GLOBAL GUARANTY" means the non-recourse guaranty dated August
7, 1996, by OCC and ORBCOMM USA of the $170,000,000 14% Senior Notes Due 2004
issued by ORBCOMM Global and ORBCOMM Global Capital Corp., contained in the
Indenture dated as of August 7, 1996, issued by ORBCOMM Global and ORBCOMM
Global Capital Corp. in favor of Marine Midland Bank as Trustee, the proceeds of
which Notes are to be applied to develop the ORBCOMM system.
"ORBCOMM USA" means ORBCOMM USA L.P., a Delaware limited partnership,
and its successors.
"ORBITAL IMAGING" means Orbital Imaging Corporation, a Delaware
corporation, and its successors.
"ORIGINAL CREDIT AGREEMENT" has the meaning set forth in the first
WHEREAS clause.
"PARENT" means, with respect to any Bank, any Controlling Person
of such Bank.
"PARTNERSHIPS" means ORBCOMM Global, ORBCOMM USA and ORBCOMM
International Partners L.P.
"PARTICIPANT" has the meaning set forth in Section 10.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERCENTAGE" means, with respect to each Bank, at any time, the
percentage that such Bank's Commitment constitutes of the aggregate amount of
the Commitments at such time.
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"PERMITTED LIEN" has the meaning set forth in Section 5.14.
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof (including,
without limitation, the Government).
"PLAN" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) that is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person that
was at such time a member of the ERISA Group for employees of any Person that
was at such time a member of the ERISA Group.
"PRICING SCHEDULE" means the Schedule attached hereto and identified
as such.
"PRIME RATE" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York from time to time as its Prime Rate.
"QUARTERLY PAYMENT DATE" means each March 31, June 30, September 30 and
December 31.
"RECEIVABLE" means, at any date of determination thereof, the amount of
the unpaid portion of an obligation, as stated in the invoice to a customer of
any Borrower which such Borrower has issued with respect thereto, in respect of
goods delivered, services rendered or the achievement of other contractual
milestones in the ordinary course of business, which amount has been earned by
performance under the terms of the contract between the Borrower and such
customer relating to such goods, services or other contractual milestones, as
the case may be, net of any credits, rebates or offsets owed to the customer.
"REFERENCE BANKS" means the principal London offices of First Union
National Bank, The Bank of Nova Scotia and Morgan Guaranty Trust Company of New
York.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REIMBURSEMENT OBLIGATIONS" means at any date, with respect to any
Borrower, the obligations of such Borrower pursuant to Section 2.03 to reimburse
the LC Bank for any amount, outstanding as of such date, paid by the LC Bank in
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respect of a drawing under a Letter of Credit issued upon request of such
Borrower.
"REQUIRED BANKS" means at any time Banks having at least 66 2/3% of the
aggregate amount of the Commitments or, if theCommitments shall have been
terminated, having at least 66 2/3% of the aggregate Exposures at such time.
"RESTRICTED PAYMENT" means (i) any dividend or other distribution on
any shares of the Company's capital stock (except dividends payable solely in
shares of its capital stock) or (ii) any payment on account of the purchase,
redemption, retirement or acquisition of (a) any shares of the Company's capital
stock or (b) any option, warrant or other right to acquire shares of the
Company's capital stock.
"SECURED PARTY" has the meaning set forth in any Security Agreement.
"SECURITY AGREEMENTS" means, collectively, the Company Security
Agreement and any Subsidiary Security Agreements executed after the Effective
Date, and "SECURITY AGREEMENT" means any one of them.
"SECURITY EVENT" has the meaning set forth in any of the Security
Agreements.
"S&P" means Standard and Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc., or any successor to its business of rating debt
securities.
"SUBSIDIARY" means any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Company (or if such term is used with
reference to any other Person, by such other Person); provided that in no event
shall Orbital Imaging or ORBCOMM USA be a "Subsidiary" of the Company.
"SUBSIDIARY SECURITY AGREEMENTS" means security agreements
substantially in the form of Exhibit D, among each Borrower Subsidiary, the
Collateral Agent and NationsBank, N.A., as the Designated Lockbox Bank, as
amended from time to time, and "SUBSIDIARY SECURITY AGREEMENT" means any one of
them.
"TEMPORARY CASH INVESTMENT" means any Investment in (i) direct
obligations of the United States or Canada or any agency thereof, or obligations
guaranteed by the United States or Canada or any agency thereof, (ii) commercial
paper rated at least A-1 by S&P and P-1 by Moody's, (iii) time deposits with,
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including certificates of deposit issued by, any office located in the United
States or Canada of any Bank or any bank or trust company which is organized
under the laws of the United States or any state thereof or Canada or any
province thereof, has capital, surplus and undivided profits aggregating at
least $100,000,000 and the unsecured long-term debt of which is rated at least
investment grade by each nationally recognized statistical rating organization
that rates such debt, (iv) money market funds that invest only in securities
described in clause (i), (ii) or (iii) above, (v) Investments made in accordance
with the investment policies set forth on Schedule I, or (vi) repurchase
agreements with respect to securities described in clause (i) above entered into
with an office of a bank or trust company meeting the criteria specified in
clause (iii) above; provided in each case that such Investment matures within
two years from the date of acquisition thereof by the Company or a Subsidiary.
"TERMINATION DATE" means December 21, 2002, or, if such day is not a
Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.
"TYPE" has the meaning set forth in Section 1.03.
"UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"WHOLLY-OWNED SUBSIDIARY" means any Subsidiary all of the shares of
capital stock or other ownership interests of which (except directors'
qualifying shares) are at the time directly or indirectly owned by the Company
(or if such term is used with reference to any other Person, by such other
Person).
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes in accordance with generally accepted
accounting principles) with the most recent audited consolidated financial
statements of the Company and its Consolidated Subsidiaries delivered to the
Banks provided that, if the Company notifies the Administrative Agent that the
Company wishes to amend any covenant in Article 5 to eliminate the effect of any
change in generally accepted accounting principles on the operation of such
covenant (or if the Administrative Agent notifies the Company that the Required
Banks wish to
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amend Article 5 for such purpose), then the Company's compliance with such
covenant shall be determined on the basis of generally accepted accounting
principles in effect immediately before the relevant change in generally
accepted accounting principles became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Company
and the Required Banks. For purposes of Sections 5.08, 5.09, 5.10, and 5.17 and
related definitions, only the percentage of Debt, net income, interest expense,
rental expense, income taxes, Intangible Assets and equity of Magellan equal to
the percentage of the equity of Magellan held directly or indirectly by the
Company at the relevant time shall be included in such computations.
SECTION 1.3. Types of Borrowings. The term "Borrowing" denotes the
aggregation of Loans of one or more Banks to be made to a Borrower pursuant to
Article 2 on the same date, all of which Loans are of the same Type (subject to
Article 8) and, except in the case of Base Rate Loans, have the same initial
Interest Period. The "Type" of a Loan refers to the determination whether such
Loan is a Euro-Dollar Loan or a Base Rate Loan.
ARTICLE 2
THE CREDITS
SECTION 2.1. Commitments to Lend. Each Bank severally agrees, on the
terms and conditions set forth in this Agreement, to make Loans to any Borrower
from time to time prior to the Termination Date in amounts such that the
Exposure of such Bank at such time shall not exceed the amount of its Commitment
at such time. Each Borrowing under this Section shall be in an aggregate
principal amount of $1,000,000 or any larger multiple thereof (except that any
such Borrowing may be in the aggregate amount available in accordance with
Section 3.03(d)) and shall be made from the several Banks ratably in proportion
to their respective Commitments. Within the foregoing limits, the Borrower may
borrow under this Section, prepay Loans to the extent permitted by Section 2.10
and reborrow at any time under this Section.
SECTION 2.2. Method of Borrowing. (a) The Borrower shall give the
Administrative Agent notice (a "NOTICE OF BORROWING") not later than Noon (New
York City time) on (x) the date of each Base Rate Borrowing and (y) the third
Euro-Dollar Business Day before each Euro-Dollar Borrowing; specifying:
(i the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Base Rate Borrowing or a Euro-Dollar
Business Day in the case of a Euro-Dollar Borrowing,
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(ii the aggregate amount of such Borrowing,
(iii the Type of such Borrowing, and
(iv in the case of a Euro-Dollar Borrowing, the duration of
the initial Interest Period applicable thereto, subject to the
provisions of the definition of Interest Period.
(b Upon receipt (or deemed receipt) of a Notice of Borrowing, the
Administrative Agent shall promptly notify each Bank of the contents thereof and
of such Bank's ratable share of such Borrowing and such Notice of Borrowing
shall not thereafter be revocable by the Borrower.
(c Not later than 1:00 P.M. (New York City time) on the date of each
Borrowing, each Bank shall make available its ratable share of such Borrowing,
in Federal or other immediately available funds, to the Administrative Agent at
its address specified in or pursuant to Section 10.01. Unless the Administrative
Agent determines that any applicable condition specified in Article 3 has not
been satisfied, the Administrative Agent will make the funds so received from
the Banks available to the Borrower at the Administrative Agent's aforesaid
address.
(d Unless the Administrative Agent shall have received notice from a
Bank prior to the date of any Borrowing that such Bank will not make available
to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsection 2.02(c) and the Administrative Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent that such Bank shall not have so made such share available
to the Administrative Agent, such Bank and the Borrower severally agree to repay
to the Administrative Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the
Administrative Agent, at the Federal Funds Rate. If such Bank shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Loan included in such Borrowing for purposes of this
Agreement.
SECTION 2.3. Letters of Credit. (a The LC Bank agrees, subject to the
terms and conditions hereof, to issue sight letters of credit hereunder from
time to time upon the request of any Borrower (such letters of credit issued,
the "LETTERS OF CREDIT"); provided that, immediately after each such Letter of
Credit is issued,
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the Letter of Credit Liabilities of such Borrower shall not exceed its
Available LC Amount. Each Letter of Credit shall be issued in an amount equal to
or greater than $100,000. Upon the date of issuance by the LC Bank of a Letter
of Credit, the LC Bank shall be deemed, without further action by any party
hereto, to have sold to each Bank, and each Bank shall be deemed, without
further action by any party hereto, to have purchased from the LC Bank, a
participation in such Letter of Credit and the related Letter of Credit
Liabilities equal to such Bank's Percentage. The Borrower shall pay to the LC
Bank issuance fees in the amounts and at the times as agreed between the
Borrower and the LC Bank.
(b Notice of Issuance. The Borrower shall give the LC Bank at least
three Domestic Business Days' prior notice (effective upon receipt) specifying
the date each Letter of Credit is to be issued, and describing the proposed
terms of such Letter of Credit and the nature of the transactions proposed to be
supported thereby. Upon receipt of such notice the LC Bank shall promptly notify
the Administrative Agent, and the Administrative Agent shall promptly notify
each Bank, of the contents thereof and of the amount of such Bank's
participation in such proposed Letter of Credit (determined in accordance with
Section 2.03(a)). The issuance by the LC Bank of each Letter of Credit shall, in
addition to the conditions precedent set forth in Article 3, be subject to the
conditions precedent that such Letter of Credit shall be in such form and
contain such terms as shall be reasonably satisfactory to the LC Bank and that
the Borrower shall have executed and delivered such other instruments and
agreements relating to such Letter of Credit as the LC Bank shall have
reasonably requested. No Letter of Credit shall have a term extending beyond the
fifth Domestic Business Day prior to the Termination Date.
(c Reimbursement of Payments. Upon receipt from the beneficiary of
any Letter of Credit of any demand for payment or other drawing under such
Letter of Credit, the LC Bank shall notify the Administrative Agent and the
Administrative Agent shall promptly notify the Borrower and each other Bank as
to the amount to be paid as a result of such demand or drawing and the payment
date. If at any time the LC Bank shall make a payment to a beneficiary of a
Letter of Credit in respect of a drawing under such Letter of Credit, each Bank
will pay to the Administrative Agent, for the account of the LC Bank,
immediately upon the LC Bank's demand at any time during the period commencing
after such payment until reimbursement therefor in full by the Borrower, an
amount equal to such Bank's Percentage multiplied by the amount of such payment,
together with interest on such amount for each day from the date of the LC
Bank's demand for such payment (or, if such demand is made after 3:00 P.M. (New
York City time) on such date, from the next succeeding Domestic Business Day) to
the date of payment by such Bank of such amount at a rate of interest per annum
equal to the Federal Funds Rate for such period. The LC Bank shall reimburse
each Bank
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for any such payments made for a draw honored under the Letter of Credit as a
result of the LC Bank's willful misconduct or gross negligence in honoring a
draw which does not conform to the terms of the Letter of Credit together with
interest thereon at a rate of interest per annum equal to the Federal Funds Rate
for each day from the date on which the Bank made payment to the LC Bank until
the date the LC Bank repays such amount in full.
(d Reimbursement Unconditional. The Borrower shall be irrevocably and
unconditionally obligated forthwith to reimburse the LC Bank for any amounts
paid by the LC Bank upon any drawing under any Letter of Credit on the date of
such payment by the LC Bank, without presentment, demand, protest or other
formalities of any kind; provided that the Borrower shall not hereby be
precluded from asserting any claim for direct (but not consequential) damages
suffered by the Borrower to the extent, but only to the extent, caused by (i)
the willful misconduct or gross negligence of such LC Bank in determining
whether a request presented under any Letter of Credit complied with the terms
of such Letter of Credit or (ii) such Bank's failure to pay under any Letter of
Credit after the presentation to it of a request strictly complying with the
terms and conditions of the Letter of Credit. All such amounts paid by the LC
Bank and remaining unpaid by the Borrower shall bear interest, payable on
demand, for each day until paid at a rate per annum equal to the sum of 2% plus
the rate applicable to Base Rate Loans for such day. The LC Bank will pay to
each Bank ratably in accordance with its Commitment all amounts (including
interest) received from the Borrower for application in payment, in whole or in
part, of the Reimbursement Obligations in respect of any Letter of Credit, but
only to the extent such Bank has made payment to the LC Bank in respect of such
Letter of Credit pursuant to Section 2.03(c).
(e Indemnification. The Borrower hereby indemnifies and holds
harmless each Bank and Agent from and against any and all claims and damages,
losses, liabilities, costs or expenses which such Bank or Agent may incur by
reason of or in connection with the execution and delivery or transfer of or
payment or failure to pay under any Letter of Credit, including, without
limitation, any claims, damages, losses, liabilities, costs or expenses which
the LC Bank may incur by reason of or in connection with the failure of any
other Bank to fulfill or comply with its obligations to the LC Bank hereunder
(but nothing herein contained shall affect any rights the Borrower may have
against such defaulting Bank); provided that the Borrower shall not be required
to indemnify any Bank or Agent for any claims, damages, losses, liabilities,
costs or expenses to the extent, but only to the extent, caused by (i) the
willful misconduct or gross negligence of such Bank or Agent in determining
whether a request presented under any Letter of Credit complied with the terms
of such Letter of Credit or (ii) such Bank's failure to pay under any Letter of
Credit after the presentation to
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it of a request strictly complying with the terms and conditions of the Letter
of Credit. Nothing in this Section is intended to limit the obligations of the
Borrower under any other provision of this Agreement.
(f Limited Liability of the LC Bank. The Borrower assumes all risks
of the acts or omissions of any beneficiary and any transferee of any Letter of
Credit with respect to its use of such Letter of Credit. The Banks, the LC Bank
and their respective officers and directors shall not be liable or responsible
for, and the obligations of each Bank to make payments, and of the Borrower to
reimburse the LC Bank for payments, pursuant to this Section shall not be
excused by, any action or inaction of any Bank or the LC Bank related to: (i)
the use which may be made of any Letter of Credit or any acts or omissions of
any beneficiary or transferee in connection therewith; (ii) the validity,
sufficiency or genuineness of documents presented under any Letter of Credit, or
of any endorsements thereon, even if such documents should in fact prove to be
in any or all respects invalid, insufficient, fraudulent or forged; (iii)
payment by the LC Bank against presentation of documents to the LC Bank which do
not comply with the terms of any Letter of Credit, including failure of any
documents to bear any reference or adequate reference to such Letter of Credit;
or (iv) any other circumstances whatsoever in making or failing to make or
notifying or failing to notify the LC Bank that it is required to make any
payment under any Letter of Credit. Notwithstanding the foregoing, the Borrower
shall have a claim against the LC Bank and the LC Bank shall be liable to the
Borrower, to the extent, but only to the extent, of any direct, as opposed to
consequential, damages suffered by the Borrower which were caused by (i) the LC
Bank's willful misconduct or gross negligence in determining whether documents
presented under any Letter of Credit comply with the terms thereof or (ii) the
LC Bank's willful failure to pay, or to notify any Bank that it is required to
pay, under any Letter of Credit after the presentation to the LC Bank by any
beneficiary (or a successor beneficiary to whom such Letter of Credit has been
transferred in accordance with its terms) of documents strictly complying with
the terms and conditions of such Letter of Credit. Subject to the preceding
sentence, the LC Bank may accept documents that appear on their face to be in
order, without responsibility for further investigation, regardless of any
notice or information to the contrary unless any beneficiary (or a successor
beneficiary to whom such Letter of Credit has been transferred in accordance
with its terms) and the Borrower shall have notified the LC Bank that such
documents do not comply with the terms and conditions of such Letter of Credit.
Each Bank shall, ratably in accordance with its Commitment, indemnify the LC
Bank (to the extent not reimbursed by the Borrower) against any cost, expense
(including counsel fees and disbursements), claim, demand, action, loss or
liability (except such as result from the LC Bank's gross negligence or willful
misconduct) that the LC Bank may suffer or incur in
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connection with this Agreement or any action taken or omitted by the LC Bank
hereunder.
(g Letter of Credit Commission. The Borrower agrees to pay to the
Administrative Agent for the account of each Bank, ratably in proportion to the
Percentage of such Bank, a letter of credit commission with respect to each
Letter of Credit, computed for each day from and including the date of issuance
of such Letter of Credit up to but excluding the last day a drawing is available
under such Letter of Credit, at the Letter of Credit Commission Rate on the
undrawn amount of such Letter of Credit on such day. Such commission shall be
payable quarterly in arrears on each Quarterly Payment Date and on the
Termination Date or, if earlier, the date of effectiveness of the termination of
the Commitments in their entirety.
SECTION 2.4. Notes. (a The Loans of each Bank to each Borrower shall be
evidenced by a single Note of such Borrower payable to the order of such Bank
for the account of its Applicable Lending Office in an amount equal to the
aggregate unpaid principal amount of such Bank's Loans to such Borrower.
(b Each Bank may, by notice to a Borrower and the Administrative
Agent, request that its Loans of a particular Type to such Borrower be evidenced
by a separate Note in an amount equal to the aggregate unpaid principal amount
of such Loans. Each such Note shall be in substantially the form of Exhibit A
hereto with appropriate modifications to reflect the fact that it evidences
solely Loans of the relevant Type. Each reference in this Agreement to a "Note"
or the "Notes" of such Bank shall be deemed to refer to and include any or all
of such Notes, as the context may require.
(c Upon receipt of each Bank's Note pursuant to Section 3.01(b), the
Administrative Agent shall mail such Note to such Bank. Each Bank shall record
the date and amount of each Loan made by it to each Borrower and the date and
amount of each payment of principal made with respect thereto, and prior to any
transfer of its Note of any Borrower, shall endorse on the schedule forming a
part thereof appropriate notations to evidence the foregoing information with
respect to each such Loan to such Borrower then outstanding; provided that the
failure of any Bank to make any such recordation or endorsement shall not affect
the obligations of the Borrowers hereunder or under the Notes or any other
Financing Documents. Each Bank is hereby irrevocably authorized by each Borrower
so to endorse its Note and to attach to and make a part of any Note a
continuation of any such schedule as and when required.
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SECTION 2.5. Maturity of Loans. Each Loan shall mature, and the
outstanding principal amount thereof shall be due and payable (together with
accrued interest thereon), on the Termination Date.
SECTION 2.6. Interest Rates. (a Each Base Rate Loan shall bear interest
on the outstanding principal amount thereof, for each day from the date such
Loan is made until it becomes due, at a rate per annum equal to the sum of the
Base Rate Margin plus the Base Rate, in each case for such day. Such interest
shall be payable quarterly in arrears on each Quarterly Payment Date and, with
respect to the principal amount of any Base Rate Loan converted to a Euro-Dollar
Loan, on the date such amount is so converted. Any overdue principal of or
interest on any Base Rate Loan shall bear interest, payable on demand, for each
day until paid at a rate per annum equal to the sum of 2% plus the rate
otherwise applicable to Base Rate Loans for such day.
(b Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such
day plus the Adjusted London Interbank Offered Rate applicable to such Interest
Period. Such interest shall be payable for each Interest Period on the last day
thereof.
The "ADJUSTED LONDON INTERBANK OFFERED RATE" applicable to any Interest
Period means a rate per annum equal to the quotient obtained (rounded upward, if
necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London
Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage.
The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next highest 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Reference Banks in the London Interbank market at approximately
11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of
such Interest Period in an amount approximately equal to the principal amount of
the Euro-Dollar Loan of such Euro-Dollar Reference Bank to which such Interest
Period is to apply and for a period of time comparable to such Interest Period.
"EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve system in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
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liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents). The Adjusted London Interbank Offered Rate shall be adjusted
automatically on and as of the effective date of any change in the Euro-Dollar
Reserve Percentage.
(c Any overdue principal of or interest on any Euro-Dollar Loan shall
bear interest, payable on demand, for each day from and including the date
payment thereof was due to but excluding the date of actual payment, at a rate
per annum equal to the sum of 2% plus the higher of (i) the sum of the
Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate
applicable to such Loan on the day before such payment was due and (ii) the
Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if
necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded
upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per
annum at which one day (or, if such amount due remains unpaid more than three
Euro-Dollar Business Days, then for such other period of time not longer than
six months as the Administrative Agent may select) deposits in dollars in an
amount approximately equal to such overdue payment due to each of the
Euro-Dollar Reference Banks are offered to such Euro-Dollar Reference Bank in
the London interbank market for the applicable period determined as provided
above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the
circumstances described in clause 8.01(a) or 8.01(b) shall exist, at a rate per
annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for
such day).
SECTION 2.7. Commitment Fees. The Company shall pay to the
Administrative Agent for the account of each Bank a commitment fee at the
Commitment Fee Rate (determined in accordance with the Pricing Schedule) on the
daily amount by which such Bank's Commitment exceeds such Bank's Exposure to all
Borrowers. Such commitment fee shall accrue from and including the Effective
Date to but excluding the Termination Date. Such commitment fee shall be payable
quarterly in arrears on each Quarterly Payment Date and on the Termination Date
or, if earlier, the date of effectiveness of the termination of the Commitments
in their entirety.
SECTION 2.8. Participation Fees. The Company shall pay to the
Administrative Agent on the Effective Date for the account of the Banks a
participation fee in an amount equal to .25% of the aggregate amount of the
Commitments in effect on such date under this Amended Agreement, which
participation fee shall be payable to the Banks ratably in proportion to their
respective Commitments as in effect on the Effective Date under this Amended
Agreement.
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SECTION 2.9. Optional Termination of the Commitments. The Company may,
upon at least three Domestic Business Days' notice to the Administrative Agent,
terminate the Commitments at any time, if no Loans and no Letters of Credit are
outstanding at such time. If the Commitments are so terminated, all accrued
commitment fees shall be payable on the effective date of such termination.
Other than as set forth in the first sentence of this Section, at no time may
the Company reduce or terminate any Commitments.
SECTION 2.10. Mandatory Termination of Commitments. The Commitments
shall terminate on the Termination Date.
SECTION 2.11. Optional Prepayments. (a Subject in the case of any
Euro-Dollar Borrowing, to Section 2.13, the Borrower may, upon at least one
Domestic Business Day's notice to the Administrative Agent, prepay any Group of
Base Rate Loans or upon at least three Euro-Dollar Business Days' notice to the
Administrative Agent, prepay any Group of Euro-Dollar Loans, in each case in
whole at any time, or from time to time in part in amounts aggregating
$1,000,000 or any larger multiple thereof by paying the principal amount to be
prepaid together with accrued interest thereon to the date of prepayment. Each
such optional prepayment shall be applied to prepay ratably the Loans of the
several Banks included in such Group of Loans.
(b Upon receipt of a notice of prepayment pursuant to this Section,
the Administrative Agent shall promptly notify each Bank of the contents thereof
and of such Bank's ratable share of such prepayment and such notice shall not
thereafter be revocable by the Borrower.
SECTION 2.12. General Provisions as to Payments. (a The Borrowers shall
make each payment of principal of, and interest on, the Loans and of commissions
and fees hereunder, not later than 12:00 Noon (New York City time) on the date
when due, in Federal or other immediately available funds, to the Administrative
Agent at its address referred to in Section 10.01. The Administrative Agent will
promptly distribute to each Bank its ratable share of each such payment received
by the Administrative Agent for the account of the Banks. Whenever any payment
of principal of, or interest on, the Base Rate Loans or fees shall be due on a
day which is not a Domestic Business Day, the date for payment thereof shall be
extended to the next succeeding Domestic Business Day. Whenever any payment of
principal of, or interest on, the Euro-Dollar Loans shall be due on a day which
is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar
Business Day falls in another calendar month, in which case the date for payment
thereof shall be the next preceding Euro-Dollar Business Day. If
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the date for any payment of principal is extended by operation of law or
otherwise, interest thereon shall be payable for such extended time.
(b Unless the Administrative Agent shall have received notice from a
Borrower prior to the date on which any payment is due from such Borrower to the
Banks hereunder that such Borrower will not make such payment in full, the
Administrative Agent may assume that such Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent that
such Borrower shall not have so made such payment, each Bank shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Rate.
SECTION 2.13. Funding Losses. If a Borrower makes any payment of
principal with respect to any Euro-Dollar Loan or any Euro-Dollar Loan is
converted to a Base Rate Loan (pursuant to Article 2, 6 or 8 or otherwise,
except pursuant to Section 8.02) on any day other than the last day of an
Interest Period applicable thereto, or the end of an applicable period fixed
pursuant to Section 2.06(c), or if the Borrower fails to borrow, prepay, convert
or continue any Euro-Dollar Loans after notice has been given to any Bank in
accordance with Section 2.02(a), 2.05(c), 2.11(b) or 2.16 the Company shall
reimburse each Bank within 15 days after demand for any resulting loss or
expense incurred by it (or by an existing or prospective Participant in the
related Loan), including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, but excluding loss of
margin for the period after any such payment or conversion or failure to borrow,
prepay, convert or continue; provided that such Bank shall have delivered to the
Company a certificate as to the amount of such loss or expense, which
certificate shall be conclusive in the absence of manifest error.
SECTION 2.14. Computation of Interest and Fees. Interest based on the
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and all
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.15. Withholding Tax Exemption. At least five Domestic
Business Days prior to the first date on which interest or any fees are payable
hereunder for the account of any Bank, each Bank that is not incorporated under
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the laws of the United States of America or a state thereof agrees that it will
deliver to each of the Company and the Administrative Agent two duly completed
copies of United States Internal Revenue Service Form 1001 or 4224, certifying
in either case that such Bank is entitled to receive payments under this
Agreement and the Notes without deduction or withholding of any United States
federal income taxes. Each Bank which so delivers a Form 1001 or 4224 further
undertakes to deliver to each of the Company and the Administrative Agent two
additional copies of such form (or a successor form) on or before the date that
such form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Company or the Administrative Agent, in each case certifying
that such Bank is entitled to receive payments under this Agreement and the
Notes without deduction or withholding of any United States federal income
taxes, unless an event (including without limitation any change in treaty, law
or regulation) has occurred prior to the date in which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Bank from duly completing and delivering any such form with respect
to it and such Bank advises the Company and the Administrative Agent that it is
not capable of receiving payments without any deduction or withholding of United
States federal income tax.
SECTION 2.16. Method of Electing Interest Rates. (a The Loans included
in each Borrowing shall initially be of the Type specified by the Borrower in
the applicable Notice of Borrowing. Thereafter, the Borrower may from time to
time elect to change or continue the Type of Loans in each Group of Loans,
subject in each case to the provisions of Article 8, as follows:
(i if such Loans are Base Rate Loans, the Borrower may,
subject to subsection (d), elect to convert such Loans to Euro-Dollar
Loans as of any Euro-Dollar Business Day; and
(ii if such Loans are Euro-Dollar Loans, the Borrower may
elect to convert such Loans to Base Rate Loans as of any Domestic
Business Day or, subject to subsection (d), to continue such Loans as
Euro-Dollar Loans for an additional Interest Period as of any
Euro-Dollar Business Day, further subject to Section 2.13 in the case
of any such conversion or continuation effective on any day other than
the last day of the then current Interest Period applicable to such
Loans.
Each such election shall be made by delivering a notice (a "NOTICE OF INTEREST
RATE ELECTION") to the Administrative Agent not later than 12:00 Noon (New York
City time) on the third Euro-Dollar Business Day before the conversion or
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continuation selected in such notice is to be effective. A Notice of Interest
Rate Election may, if it so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans; provided that (i) such portion
is allocated ratably among the Loans comprising such Group and (ii) the portion
to which such Notice applies, and the remaining portion to which it does not
apply, are each at least $1,000,000 (unless such portion is comprised of Base
Rate Loans). If no such notice is timely received before the end of an Interest
Period for any Group of Euro-Dollar Loans, the Borrower shall be deemed to have
elected that such Group of Loans be converted to Base Rate Loans at the end of
such Interest Period.
(b Each Notice of Interest Rate Election shall specify:
(i the Group of Loans (or portion thereof) to which such
notice applies;
(ii the date on which the conversion or continuation
selected in such notice is to be effective;
(iii if the Loans comprising such Group are to be converted,
the new Type of Loans and, if the Loans being converted are to be
Euro-Dollar Loans, the duration of the next succeeding Interest Period
applicable thereto; and
(iv if such Loans are to be continued as Euro-Dollar Loans for
an additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c Upon receipt of a Notice of Interest Rate Election from the
Borrower pursuant to subsection (a) above, the Administrative Agent shall
promptly notify each Bank of the contents thereof and such notice shall not
thereafter be revocable by the Borrower.
(d) The Borrower shall not be entitled to elect to convert any Loans
to, or continue any Loans for an additional Interest Period as, Euro-Dollar
Loans if a Default shall have occurred and be continuing when the Borrower
delivers notice of such election to the Administrative Agent.
ARTICLE 3
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CONDITIONS
SECTION 3.1. Effectiveness. This Amended Agreement shall become
effective on and as of the date when the Administrative Agent shall have
received all of the following (except Sections 2.13 and 10.03, which shall
become effective when the Administrative Agent shall have received the documents
specified in paragraph (a) below):
(a counterparts hereof signed by each of the parties hereto
(or, in the case of any party as to which an executed counterpart shall
not have been received, receipt by the Administrative Agent in form
satisfactory to it of telegraphic, telex, facsimile or other written
confirmation from such party of execution of a counterpart hereof by
such party);
(b duly executed Notes of each Borrower for the account of
each Bank dated on or before the Effective Date and complying with the
provisions of Section 2.04;
(c an opinion of Hogan & Hartson L.L.P., special counsel for
the Borrowers, substantially in the form of Exhibit B hereto and
covering such additional matters relating to the transactions
contemplated by the Financing Documents as the Required Banks may
reasonably request;
(d an opinion of Davis Polk & Wardwell, special counsel for
the Administrative Agent and the Collateral Agent, substantially in the
form of Exhibit C hereto and covering such additional matters relating
to the transactions contemplated by the Financing Documents as the
Required Banks may reasonably request;
(e certificates of insurance reasonably satisfactory to
it evidencing compliance with Section 5.03;
(f evidence satisfactory to it that all amounts owing by the
Company to Deutsche Bank, AG pursuant to that certain Note dated July
8, 1996 in the principal amount of $25,000,000 shall have been paid in
full and such Note shall have been canceled; and
(g all documents it may reasonably request relating to the
existence of the Borrowers, the corporate authority for and the
validity of the Financing Documents, and any other matters reasonably
relevant hereto, all in form and substance reasonably satisfactory to
the Administrative Agent;
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provided that this Agreement shall not become effective or be binding on any
party hereto unless the foregoing conditions are satisfied not later than
December 31, 1998. On the Effective Date the Existing Agreement will be
automatically amended and restated in its entirety to read as set forth herein.
On and after the Effective Date the rights and obligations of the parties hereto
shall be governed by this Amended Agreement; provided that rights and
obligations of the parties hereto with respect to the period prior to the
Effective Date shall continue to be governed by the provisions of the Existing
Agreement. On the Effective Date the Commitment of each Bank shall be the amount
set forth opposite the name of such Bank on the signature pages of this Amended
Agreement. The Notes delivered to each Bank under the Existing Agreement shall
become void on the Effective Date and, upon receiving its new Notes delivered
pursuant to subsection (b), each Bank will cancel its original Notes and return
them to the Company. No failure of a Bank so to cancel and return its original
Note shall affect the validity of its new Notes. The Administrative Agent shall
promptly notify the Company and the Banks of the effectiveness of this Amended
Agreement, and such notice shall be conclusive and binding on all parties
hereto.
SECTION 3.2. Transitional Provisions. (a Each Loan outstanding under
the Existing Agreement on the Effective Date shall mature on the Termination
Date.
(b The interest rates determined in accordance with Section 2.06 of
this Amended Agreement shall be effective on the Effective Date; provided that,
the interest rate applicable to each Euro-Dollar Loan outstanding on the
Effective Date for each day during the then current Interest Period applicable
thereto shall be the rate per annum equal to the sum of the Euro-Dollar Margin
(as defined in this Amended Agreement) for such day plus the Adjusted London
Interbank Offered Rate applicable to such Loan for such Interest Period (as
determined pursuant to Section 2.06 of the Existing Agreement).
(c On the Effective Date, in the case of any Group of Base Rate Loans
then outstanding, and at the end of the then current Interest Period with
respect thereto in the case of any Group of Euro-Dollar Loans then outstanding,
the Borrower shall prepay such Group in its entirety and, to the extent the
Borrower elects to do so and subject to the conditions specified in this Article
3, the Borrower shall reborrow Loans from the Banks in proportion to their
respective Commitments after giving effect hereto, until such time as all
outstanding Loans are held by the Banks in such proportion.
SECTION 3.3. All Credit Events. The obligation of any Bank to make a
Loan on the occasion of any Borrowing and the obligation of the LC Bank to
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issue a Letter of Credit on the occasion of a request therefor by any Borrower
are each subject to the satisfaction of the following conditions:
(a receipt (or deemed receipt) by the Administrative Agent of
a Notice of Borrowing as required by Section 2.02 or receipt by the LC
Bank of a request for issuance of a Letter of Credit as required by
Section 2.03, as the case may be;
(b the fact that, immediately before and after such
Credit Event, no Default shall have occurred and be continuing;
(c the fact that the representations and warranties of the
Borrowers contained in Article 4 of this Agreement (except, in the case
of any Borrowing subsequent to the Effective Date, the representations
and warranties contained in Sections 4.06(a) and 4.06(b)) and Section 2
of the respective Security Agreements shall be true on and as of the
date of such Credit Event; and
(d the fact that, immediately after such Credit Event, the
aggregate Exposures of all Banks in respect of all Borrowers will not
exceed the aggregate amount of the Commitments.
Each Credit Event hereunder shall be deemed to be a representation and warranty
by the Borrower on the date of such Credit Event as to the facts specified in
clauses 3.03(b), 3.03(c) and 3.03(d).
SECTION 3.4. First Borrowing by Each Borrower Subsidiary. The
obligation of each Bank to make a Loan on the occasion of the first Borrowing by
each Borrower Subsidiary is subject to the satisfaction of the following further
conditions:
(a) receipt by the Agent for the account of each Bank of a
duly executed Note of such Borrower Subsidiary, dated on or before the
date of such Borrowing complying with the provisions of Section 2.04.
(b) receipt by the Agent of an opinion of counsel for such
Borrower Subsidiary acceptable to the Agent, substantially in the form
of Exhibit L hereto and covering such additional matters relating to
the transactions contemplated hereby as the Required Banks may
reasonably request;
(c) receipt by the Agent of counterparts of a Subsidiary
Security Agreement executed by such Borrower Subsidiary and each
Lockbox
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Letter referred to in such Subsidiary Security Agreement duly
executed by the parties thereto;
(d) receipt by the Agent of a duly executed Perfection
Certificate (as defined in the Subsidiary Security Agreement to which
such Borrower Subsidiary is a party) and evidence satisfactory to the
Collateral Agent that the security interest created by such Subsidiary
Security Agreement constitutes a perfected first priority Lien to the
extent a Lien may be created thereunder; and
(e) receipt by the Agent of all documents which it may
reasonably request relating to the existence of such Borrower
Subsidiary, the corporate authority for and the validity of the
Election to Participate of such Eligible Subsidiary, this Agreement,
the Subsidiary Security Agreement and the Notes of such Borrower
Subsidiary, and any of the matters relevant thereto, all in form and
substance satisfactory to the Agent.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE CREDIT PARTIES
Each Borrower represents and warrants that:
SECTION 4.1. Corporate Existence and Power. Each Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and each has all corporate powers and
all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
SECTION 4.2. Corporate and Governmental Authorization No Contravention.
The execution, delivery and performance by each Borrower of the Financing
Documents to which it is a party are within its corporate powers, have been duly
authorized by all necessary corporate action, require no action by or in respect
of (except as contemplated herein) or filing with (except as contemplated herein
or by the Security Agreements), any governmental body, agency or official and do
not contravene, or constitute a default under, any provision of (i) any
applicable law, rule or regulation, (ii) the certificate of incorporation or
by-laws of any Borrower, (iii) any Material Debt instrument binding upon any
Borrower or (iv) any judgment, injunction, order, decree or other material
agreement or instrument binding upon any Borrower or, except as contemplated by
the Security
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Agreements, result in the creation or imposition of any Lien on any asset of any
Borrower or any of their respective Subsidiaries.
SECTION 4.3. Binding Effect. (i) This Agreement constitutes, (ii) each
of the Subsidiary Security Agreements and the Notes, when executed and delivered
in accordance with this Amended Agreement will constitute and (iii) the Company
Security Agreement constitutes a valid and binding agreement or obligation of
each Borrower signatory hereto or thereto, as the case may be, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity.
SECTION 4.4. Lien Enforceable. (a) (i) Each Subsidiary Security
Agreement, when executed and delivered in accordance with this Agreement, will
create and (ii) the Company Security Agreement creates, in favor of the
Collateral Agent for the ratable benefit of the Secured Parties, a valid and
binding first priority Lien on the Collateral referred to therein.
(b) The information set forth in the Perfection Certificate delivered
by the Company as of the date of this Amended Agreement is true and correct as
of the Effective Date.
SECTION 4.5. Assignments Valid. The assignments and notices of
assignment substantially in the form of Exhibits G-2 and G-3, respectively, when
completed by the Borrower and duly acknowledged by each governmental authority
or agency described therein, will constitute valid assignments of the monies due
or to become due under the government contracts described therein under the
Assignment of Claims Act.
SECTION 4.6. Financial Information. (a) The consolidated balance sheet
of the Company and its Consolidated Subsidiaries as of December 31, 1997 and the
related consolidated statements of operations and cash flows for the fiscal year
then ended, reported on by KPMG Peat Marwick LLP, copies of which have been
delivered to each of the Banks, fairly present in all material respects, in
conformity with generally accepted accounting principles, the consolidated
financial position of the Company and its Consolidated Subsidiaries as of such
date and their consolidated results of operations and cash flows for such fiscal
year.
(b) The unaudited consolidated balance sheet of the Company and its
Consolidated Subsidiaries as of September 30, 1998 and the related unaudited
consolidated statements of operations and cash flows for the three months then
ended, copies of which have been delivered to each of the Banks, fairly present
in all material respects, in conformity with generally accepted accounting
principles applied on a basis consistent with the financial statements referred
to in
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subsection (a), the consolidated financial position of the Company and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such three month period (subject to normal
year-end adjustments).
(c) Since September 30, 1998 there has been no material adverse change
in the business, financial position or results of operations of the Company and
its Consolidated Subsidiaries, taken as a whole, and no event has taken place
which is reasonably likely to have a such material adverse effect in the future.
SECTION 4.7. Litigation. Except as to any matter that has been
disclosed prior to the date hereof in writing by the Company to the Banks, there
is no action, suit or proceeding pending against, or to the knowledge of any
Borrower threatened against the Company or any of its Subsidiaries before any
court or arbitrator or any governmental body, agency or official in which there
is a reasonable possibility of an adverse decision which could materially
adversely affect the business, financial position or results of operations of
the Company and its Consolidated Subsidiaries, taken as a whole, or which in any
manner draws into question the validity of any of the Financing Documents.
SECTION 4.8. Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multi-employer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
SECTION 4.9. Environmental Matters. Except as to any matter that has
been disclosed prior to the date hereof in writing by the Company to the Banks,
(i) the Company and each of its Consolidated Subsidiaries have obtained all
permits, licenses and other authorizations that are required under all
Environmental Laws, except to the extent failure to have any such permit,
license or authorization would not have a material adverse effect on the
business, financial position or results of operations of the Company and its
Consolidated Subsidiaries, taken as a whole and (ii) the Company and its
Consolidated Subsidiaries are in compliance with the terms and conditions of all
such permits, licenses and authorizations, and
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are also in compliance with all other provisions of any applicable Environmental
Law or any order, judgment, injunction, notice or demand letter issued or
entered thereunder, except to the extent failure to comply would not have a
material adverse effect on the business, financial position or results of
operations of the Company and its Consolidated Subsidiaries, taken as a whole.
SECTION 4.10. Taxes. The Company and its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Company or any of its
Subsidiaries other than taxes or assessments the validity of which the Company
or the relevant Subsidiary is contesting in good faith by appropriate
proceedings and is maintaining adequate reserves with respect thereto in
accordance with generally accepted accounting principles. The charges, accruals
and reserves on the books of the Company and its Subsidiaries in respect of
taxes or other governmental charges are, in the opinion of the Company,
adequate.
SECTION 4.11. Subsidiaries. (a) Each of the Company's corporate
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
(b) Each Borrower Subsidiary is a Wholly-Owned Subsidiary of the
Company, unless such Borrower Subsidiary has been merged with and into the
Company as permitted by the proviso in Section 5.15.
SECTION 4.12. Full Disclosure. No information heretofore or hereafter
furnished by any Borrower to the Agents or any Bank for purposes of or in
connection with this Agreement, the other Financing Documents or any transaction
contemplated hereby or thereby contains or, taken together with all such
information so furnished, will contain any untrue statement of a material fact
or omits or will omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE 5
COVENANTS
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Each Borrower agrees for itself and each of its Subsidiaries that so
long as any Bank has any Commitment hereunder or any amount payable under any
Financing Document remains unpaid:
SECTION 5.1. Information. The Company will deliver to each of the
Banks:
(a) as soon as available and in any event within 90 days after
the end of each fiscal year of the Company, a consolidated balance
sheet of the Company and its Consolidated Subsidiaries as of the end of
such fiscal year and the related consolidated statements of operations
and cash flows for such fiscal year, together with consolidating
balance sheets, statements of operations and operating cash flows for
such fiscal year for each of the Company's Consolidated Subsidiaries in
the form currently prepared by the Company, setting forth in each case
in comparative form the figures for the previous fiscal year, all such
consolidated statements reported on in a manner acceptable to the
Securities and Exchange Commission by KPMG Peat Marwick or other
independent public accountants of nationally recognized standing;
(b) as soon as available and in any event within 45 days
after the end of each of the first three quarters of each fiscal year
of the Company, a consolidated balance sheet of the Company and its
Consolidated Subsidiaries as of the end of such quarter and the related
consolidated statements of operations and cash flows for such quarter
and for the portion of the Company's fiscal year ended at the end of
such quarter, together with consolidating balance sheets, statements of
operations and operating cash flows for such quarter and the portion of
the Company's fiscal year ended at the end of such quarter for each of
the Company's Consolidated Subsidiaries in the form currently prepared
by the Company, setting forth in each case in comparative form the
figures for the corresponding quarter and the corresponding portion of
the Company's previous fiscal year, all certified (subject to normal
year-end adjustments) as to fairness of presentation in all material
respects and generally accepted accounting principles by the chief
financial officer or the chief accounting officer of the Company;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses 5.01(a) and 5.01(b) above, a
certificate of the chief financial officer or the treasurer of the
Company (i) setting forth in reasonable detail the calculations
required to establish whether the Company and, if applicable, each
other Borrower, is in compliance with the requirements of Sections 5.07
through 5.13, inclusive, and Section 5.17, on the date of such
financial statements and (ii) stating whether any
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Default exists on the date of such certificate and, if any Default then
exists, setting forth the details thereof and the action which the
Borrowers are taking or propose to take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause 5.01(a) above, a statement of the firm
of independent public accountants that reported on such statements
whether anything has come to their attention to cause them to believe
the Company or if applicable, any of the other Borrowers, was not in
compliance with the requirements of Sections 5.07 through 5.13,
inclusive, and Section 5.17 on the date of such financial statements;
(e) promptly upon the mailing thereof to the shareholders of
the Company generally, copies of all financial statements, reports and
proxy statements so mailed;
(f) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent) and reports on
Forms 10-K, 10-Q and 8-K (or their equivalents) which the Company shall
have filed with the Securities and Exchange Commission;
(g) within five (5) days after any executive officer obtains
knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer or the treasurer of the
Company setting forth the details thereof and the action which the
Borrowers are taking or propose to take with respect thereto (for
purposes of this Section, "executive officer" shall mean any of the
President, Chief Executive Officer, Chief Financial Officer, Chief
Operating Officer, Treasurer, Controller and General Counsel of the
Company and the President of any Borrower);
(h) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as
defined in Section 4043 of ERISA) with respect to any Plan that might
constitute grounds for a termination of such Plan under Title IV of
ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy of the
notice of such reportable event given or required to be given to the
PBGC; (ii) receives notice of complete or partial withdrawal liability
under Title IV of ERISA or notice that any Multiemployer Plan is in
reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of
an intent to terminate, impose liability (other
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than for premiums under Section 4007 of ERISA) in respect of, or
appoint a trustee to administer any Plan, a copy of such notice; (iv)
applies for a waiver of the minimum funding standard under Section 412
of the Internal Revenue Code, a copy of such application; (v) gives
notice of intent to terminate any Plan under Section 4041(c) of ERISA,
a copy of such notice and other information filed with the PBGC; (vi)
gives notice of withdrawal from any Plan pursuant to Section 4063 of
ERISA, a copy of such notice; or (vii) fails to make any payment or
contribution to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement or makes any amendment to any Plan or Benefit
Arrangement that has resulted or could result in the imposition of a
Lien or the posting of a bond or other security, a certificate of the
chief financial officer or the chief accounting officer of the Company
setting forth details as to such occurrence and action, if any, which
the Company or applicable member of the ERISA Group is required or
proposed to take; and
(i) from time to time such additional information regarding
the financial position or business of the Company and its Subsidiaries
as the Collateral Agent or the Administrative Agent, at the request of
any Bank, may reasonably request.
SECTION 5.2. Payment of Obligations. Each Borrower will pay and
discharge, and will cause each of its Subsidiaries to pay and discharge, at or
before maturity or in accordance with customary trade practices, all their
respective material obligations and liabilities, including, without limitation,
tax liabilities, except where the same may be contested in good faith by
appropriate proceedings, and will maintain, and will cause each of their
respective Subsidiaries to maintain, in accordance with and to the extent
required by generally accepted accounting principles, appropriate reserves for
the accrual of any of the same.
SECTION 5.3. Maintenance of Property; Insurance. (a) Each Borrower will
keep, and will cause each of its Subsidiaries to keep, all property useful and
necessary in its business in good working order and condition, ordinary wear and
tear excepted.
(b) Each Borrower will maintain, and will cause each of its
Subsidiaries to maintain:
(i) at all times, physical damage insurance on all real and
personal property owned by it on an all risks basis covering the repair
and replacement cost of all such property and consequential loss
coverage for business interruption and extra expense;
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(ii) at all times, public liability insurance (including
products/completed operations liability coverage) in an amount not less
than $10,000,000, and
(c) from time to time, such other insurance coverage in such amounts
and with respect to such risks as it shall have determined in its reasonable
discretion to be necessary or advisable in the conduct of its business.
All such insurance will be provided by financially sound and reputable
insurers. The Company will deliver to the Banks (i) upon request of any Bank
through the Administrative Agent from time to time full information as to the
insurance carried, (ii) within five (5) days of receipt of notice from any
insurer a copy of any notice of cancellation or material change in coverage from
that existing on the date of this Amended Agreement (other than any notice of
increase in the amount of any such coverage from the amount in effect on the
date of this Amended Agreement) and (iii) forthwith, notice of any cancellation
or nonrenewal of coverage by any Borrower or any of its Subsidiaries with
respect to any insurance such Borrower must maintain, and must cause its
Subsidiaries to maintain, pursuant to this subsection.
(d) Prior to the Effective Date, each Borrower has caused the
Collateral Agent to be named as an additional insured party and the loss payee
(to the extent that the insurance policy is of a type that provides for a loss
payee) on each insurance policy (the "DESIGNATED INSURANCE POLICIES") such
Borrower is required to maintain pursuant to this Section and which is in
existence on the Effective Date, other than any such policy, or portion thereof,
solely with respect to equipment. Each Borrower will deliver to the Collateral
Agent, upon request, the insurance policies for each Designated Insurance
Policy. Each Designated Insurance Policy includes and shall include effective
waivers by the insurer of all claims for insurance premiums against the
Collateral Agent or any other Secured Party, provides and will provide that (i)
all insurance proceeds (other than any insurance proceeds with respect to any
mission success insurance policy (a "Mission Success Policy")) in excess of
$1,000,000 per claim for which the Collateral Agent is loss payee shall be
adjusted with and payable to the Collateral Agent, (ii) all insurance proceeds
with respect to any Mission Success Policy in excess of $1,000,000 per claim for
which the Collateral Agent is loss payee shall be payable to the Collateral
Agent and the Collateral Agent shall have the right to attend all meetings
relating to the adjustment of any such claim and shall be provided with all
information relating to such claim provided by the Borrower to the insurance
company with which such claim is being adjusted and any additional information
the Collateral Agent may reasonably request relating to such claim, (iii) the
insurer shall notify the Collateral Agent of any failure by the
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<PAGE> 45
Borrower to pay any premiums or other amounts due on any insurance policy and
(iv) no cancellation or termination of such Designated Insurance Policy shall be
effective until at least thirty (30) days after receipt by the Collateral Agent
of written notice thereof; provided that, solely with respect to any Mission
Success Policy, such Policy may provide that no cancellation or termination of
such Policy shall be effective until at least fifteen (15) days after receipt by
the Collateral Agent of written notice thereof. All insurance proceeds payable
to the Collateral Agent pursuant to this Section shall be deposited in the
Insurance Account. Each Borrower agrees that it will (x) give prior notice to
the Collateral Agent of any meeting referred to in clause (ii) of this
subsection, promptly upon request, provide the Collateral Agent with all
information referred to in clause (ii) of this subsection and (z) not agree to
any adjustment with respect to any claim described in clause (ii) of this
subsection without the prior written consent of the Collateral Agent, which
consent shall not be unreasonably withheld.
(e) Each Borrower will cause the Collateral Agent to be named as an
additional insured party and the loss payee (to the extent that the insurance
policy is of a type that provides for a loss payee) on each Designated Insurance
Policy such Borrower acquires after the Effective Date pursuant to this Section;
provided that, nothing in this subsection shall be construed to require the
Company to cause the Collateral Agent to be named as an additional insured party
and the loss payee on any portion of any mission success insurance being
obtained by the Company or any of its Subsidiaries on behalf of a customer as to
which such customer is named loss payee. Each such insurance policy shall
include each of the waivers and provisions described in Section 5.03(d).
SECTION 5.4. Conduct of Business and Maintenance of Existence. Each
Borrower will continue, and will cause each of its Subsidiaries to continue, to
engage in business of the same general type as now conducted by it, and will
preserve, renew and keep in full force and effect, and will cause each of its
Subsidiaries to preserve, renew and keep in full force and effect its corporate
existence and rights, privileges and franchises necessary or desirable in the
normal conduct of business; provided that nothing contained in this Section
shall prohibit any transaction expressly permitted under Section 5.15.
SECTION 5.5. Compliance with Laws. Each Borrower will comply, and will
cause each of its Subsidiaries to comply, in all material respects with all
applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities except where the necessity of compliance therewith is
contested in good faith by appropriate proceedings.
SECTION 5.6. Inspection of Property, Books and Records. Each Borrower
will keep, and will cause each of its Subsidiaries to keep, proper books of
record
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<PAGE> 46
and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities; and will
permit, and will cause each of its Subsidiaries to permit, representatives of
any Agent or any Bank, at such Agent's or Bank's expense, to visit and inspect
any of their respective properties, to examine and make abstracts from any of
their respective books and records and to discuss their respective affairs,
finances and accounts with their respective officers, employees and independent
public accountants, all at such reasonable times during normal business hours,
upon reasonable notice and as often as may reasonably be desired by such Agent
or such Bank.
SECTION 5.7. Investments. Neither the Company nor any Subsidiary
will make, acquire or hold any Investment in any Person other than:
(a) Investments in any Borrower;
(b) Investments (other than (i) Investments described in
clause (a) above and (ii) the ORBCOMM Global Guaranty)) in an aggregate
principal amount not exceeding $5,000,000 in direct or indirect
Subsidiaries of the Company immediately after such Investment is made
or acquired;
(c) Temporary Cash Investments;
(d) Investments made by the Company, any of its Wholly-Owned
Subsidiaries or OCC in an aggregate principal amount not exceeding
$110,000,000, in any entity or entities through which the Company, any
of its Wholly-Owned Subsidiaries or OCC will develop, construct,
operate and/or market the ORBCOMM low-earth orbit satellite
communications system;
(e) Investments (other than Investments described in clause
(b) above) made or acquired or committed to be made or acquired by MDA
prior to the date MDA was acquired by the Company and listed on
Schedule III;
(f) any payments made pursuant to the ORBCOMM Global Guaranty;
(g) Investments in Orbital Imaging (i) made on or prior to
June 15, 1997; provided that (A) the aggregate amount of such
Investments ("ROLLOVER INVESTMENTS") does not exceed the aggregate
amount of Investments made by the Company in the Orbital Imaging
Project on or prior to December 1, 1996 and (B) neither the Company nor
any of its
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<PAGE> 47
Subsidiaries shall contribute any cash or assets in connection with, or
as consideration for, the making of any such Rollover Investment and
(ii) in an aggregate principal amount not exceeding $80,000,000 (in
addition to Investments described in clause (i));
(h) Investments in an aggregate amount not exceeding
$38,000,000 consisting of capital stock of Engineering Technologies,
Inc. and CTA Commercial Systems Inc. purchased by the Company pursuant
to an Asset Acquisition Agreement dated as of July 11, 1997 between CTA
INCORPORATED and the Company;
(i) Investments by the Company or any of its Subsidiaries
constituting "vendor financing" under contracts entered into in the
ordinary course of business;
(j) Investments (x) made by the Company on or before the
effective date of the Ashtech Merger (as defined in Amendment No. 1 to
the Existing Agreement dated as of December 19, 1997 among the Company,
the Original Banks, the Administrative Agent and the Collateral Agent)
consisting of subordinated unsecured intercompany loans to Magellan in
an aggregate principal amount not in excess of $10,000,000 and (y) made
by the Company after the effective date of the Ashtech Merger
consisting of subordinated unsecured intercompany loans to Magellan in
an aggregate principal amount not in excess of $35,000,000, but in each
case solely if such Investments are evidenced by an intercompany note
issued by Magellan for the account of the Company and in form and
substance satisfactory to the Collateral Agent and such intercompany
note is subject to a perfected first priority Lien in favor of the
Collateral Agent for the benefit of the Banks;
(k) (i) Investments by the Company or any of its Subsidiaries
in an aggregate amount not to exceed $50,000,000 and consisting of
shares of capital stock of CCI International N.V. ("CCI"), a company
formed and existing under the laws of the Netherlands Antilles, made
prior to March 31, 1999, (ii) Investments (other than Investments
permitted pursuant to clause (i)) in an aggregate amount up to
$50,000,000 and consisting of shares of capital stock of CCI made on
any date after March 31, 1999 and on or prior to June 31, 2000;
provided that (1) prior to making any such Investment, the aggregate
amount of Investments permitted pursuant to clause (i) has been made
and (2) on any date (an "INVESTMENT DATE") immediately after giving
effect to any such proposed Investment, the Company is in pro forma
compliance with the covenants set forth in Sections 5.08, 5.09 and
5.10, after giving effect to such proposed
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<PAGE> 48
Investment (and for such purposes, "Consolidated EBITDA" and "Earnings
Available for Fixed Charges" shall be calculated for the period of four
consecutive fiscal quarters most recently ended on or prior to such
Investment Date, adjusted to give effect to such proposed Investment),
(iii) Investments by the Company or any of its Subsidiaries consisting
of warrants exercisable for the capital stock of CCI; provided that (1)
such warrants are acquired contemporaneously with the making of any
Investment permitted by clause (ii), (2) no cash consideration is paid
by the Company or any of its Subsidiaries for the acquisition of any
such warrants and (3) such warrants are substantially on the terms
described by the Company to the Banks prior to June 18, 1998 and (iv)
Investments by the Company or any of its Subsidiaries in CCI
constituting "vendor financing" substantially on the terms described by
the Company to the Banks prior to June 18, 1998; and
(l) any Investment (other than any Investment in direct or
indirect Subsidiaries of the Company immediately after such Investment
is made or acquired) not otherwise permitted by the foregoing clauses
of this Section 5.07 if, immediately after such Investment is made or
acquired, the aggregate net book value of all Investments permitted by
this clause (l) does not exceed 12% of Consolidated Tangible Net Worth.
SECTION 5.8. Minimum Consolidated Net Worth. Consolidated Net Worth at
the last day of any fiscal quarter will not be less than (i) $476,100,000 plus
(ii) 50% of Consolidated Net Income for each fiscal quarter of the Company ended
on or after September 30, 1998, which such Consolidated Net Income is positive
(but with no deduction on account of any fiscal quarter for which Consolidated
Net Income is negative) plus (iii) 100% of the aggregate amount by which
Consolidated Net Worth shall have been increased by reason of the issuance and
sale after September 30, 1998 and on or prior to such date of any capital stock
or the conversion or exchange of any Debt of the Company into or with capital
stock of the Company consummated after September 30, 1998 and on or prior to
such date.
SECTION 5.9. Leverage. The Consolidated Leverage Ratio will at no
time during any period set forth below exceed the ratio set forth below
opposite such period:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C>
Effective Date-3/30/00 3.75:1
3/31/00 and thereafter 3.50:1
</TABLE>
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SECTION 5.10. Consolidated Fixed Charge Ratio. At the last day of any
fiscal quarter, the ratio of Earnings Available for Fixed Charges to
Consolidated Fixed Charges, in each case for the four consecutive fiscal
quarters then ended, will not be less than the ratio set forth below opposite
the period in which such last day falls:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C>
Effective Date-12/30/98 1.10:1
12/31/98-12/30/99 1.25:1
12/31/99 and thereafter 1.50:1
</TABLE>
SECTION 5.11. Consolidated Loss Ratio. The Consolidated Loss Ratio
will not at any time, for the calendar month then most recently ended,
exceed .5%.
SECTION 5.12. Consolidated Delinquency Ratio. The Consolidated
Delinquency Ratio will not at any time, for the two consecutive calendar months
then most recently ended, exceed 35%.
SECTION 5.13. Consolidated DSO Ratio. The Consolidated DSO Ratio will
not at any time, for the three consecutive calendar months then most recently
ended, exceed 80 days.
SECTION 5.14. Negative Pledge. Neither the Company nor any Subsidiary
will create, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired by it, except the following (each a "PERMITTED LIEN"):
(a) Liens existing or provided for pursuant to a contract
existing as of the Effective Date and listed on Schedule II;
(b) any Lien existing on any asset of any corporation at the
time such corporation becomes a Subsidiary and not created in
contemplation of such event;
(c) any Lien on any asset securing Debt incurred or assumed
for the purpose of financing all or any part of the cost of acquiring
such asset; provided that such Lien attaches to such asset concurrently
with or within 120 days after the acquisition thereof;
(d) any Lien on any asset of any corporation existing at the
time such corporation is merged or consolidated with or into the
Company or a Subsidiary and not created in contemplation of such event;
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<PAGE> 50
(e) any Lien existing on any asset prior to the acquisition
thereof by the Company or a Subsidiary and not created in contemplation
of such acquisition;
(f) any Lien arising out of the refinancing, extension,
renewal or refunding of any Debt secured by any Lien permitted by any
of the foregoing clauses of this Section; provided that such Debt is
not increased and is not secured by any additional assets;
(g) Liens arising in the ordinary course of its business which
do not secure Debt or Derivatives Obligations and do not in the
aggregate materially detract from the value of its assets or materially
impair the use thereof in the operation of its business;
(h) Liens created pursuant to any of the Security
Agreements;
(i) Liens on assets other than the Collateral securing Debt
(other than the Loans and the Letter of Credit Liabilities)(other than
Liens permitted by subsection (t) hereunder), in an aggregate amount
not exceeding $75,000,000;
(j) Liens imposed by any governmental authority for taxes,
assessments, governmental charges, duties or levies not yet due or
which are being contested in good faith and by appropriate proceedings;
provided adequate reserves with respect thereto are maintained on the
books of the Company and its Consolidated Subsidiaries in accordance
with generally accepted accounting principles;
(k) carriers', warehousemen's, mechanics', transporters,
materialmen's, repairmen's or other like Liens arising in the ordinary
course of business; provided any such Lien is either (A) discharged
within five (5) days of the date when payment of the obligation secured
by such Lien is due or (B) is being contested in good faith and by
appropriate proceedings;
(l) Liens securing judgments for an amount not exceeding
$5,000,000 and for a period not resulting in an Event of Default under
Section 6.01(k);
(m) pledges or deposits under worker's compensation,
unemployment insurance and other social security legislation;
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<PAGE> 51
(n) deposits to secure the performance of bids, trade
contracts (other than for Debt), leases, statutory obligations, surety
and appeal bonds, performance bonds and other similar obligations
incurred in the ordinary course of business;
(o) Liens on any such asset imposed under the Federal
Acquisition Regulations to secure advance payments made by the
Government under contracts;
(p) Liens existing or provided for pursuant to a contract to
which any Borrower becomes a party as a result of a novation of a
contract described in clause 5.14(a);
(q) Liens on assets of Magellan securing Debt and other
obligations of Magellan under the Magellan Financing;
(r) solely until the first anniversary of the effective date
of the Ashtech Merger, Liens on shares of capital stock of Magellan
held by the Company to secure contingent indemnity obligations of the
Company under the Agreement and Plan of Merger dated as of November 28,
1997 among the Company, Ashtech Inc. and Magellan; provided that the
aggregate value (determined in accordance with the Escrow Agreement
attached as Exhibit C to such Merger Agreement) of such shares subject
to such Liens shall not exceed at any time $1,500,000;
(s) Liens on cash and cash equivalents securing Derivatives
Obligations; provided that the aggregate amount of cash and cash
equivalents subject to such Liens may at no time exceed $3,000,000; and
(t) Liens on the Dulles highbay facility located at 21830
Atlantic Boulevard, Dulles, VA 20166-6801, owned by the Company
securing Debt in an aggregate amount not exceeding $15,000,000.
SECTION 5.15. Consolidations, Mergers and Sales of Assets. The Company
will not (a) consolidate or merge with or into any other Person or (b) sell,
lease or otherwise transfer, directly or indirectly, all or any substantial part
of the assets of the Company and its Subsidiaries, taken as a whole, to any
other Person; provided that nothing contained herein shall prohibit the Company
from merging any of its Subsidiaries with and into the Company.
SECTION 5.16. Use of Proceeds. The proceeds of the Loans made and the
Letters of Credit issued under this Agreement will be used by the Borrowers for
general corporate purposes, including refinancing of existing Debt, working
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<PAGE> 52
capital purposes and the funding of acquisitions and, to the extent such funds
are not required by the Borrowers for refinancing of existing Debt, working
capital purposes or the funding of any such acquisitions, for advances to the
Company, its Subsidiaries and any entity that is a Subsidiary on the date
hereof.
SECTION 5.17. Subsidiary Debt. Total Debt of all of the Company's
Subsidiaries (excluding (i) Loans and Letter of Credit Liabilities hereunder
and, (ii) Debt of a Subsidiary to the Company or to a Wholly-Owned Subsidiary of
the Company) will at no time exceed 50% of Consolidated Tangible Net Worth. For
purposes of this Section, any preferred stock of a Subsidiary held by a Person
other than the Company or a Wholly-Owned Subsidiary of the Company shall be
included, at the higher of its voluntary or involuntary liquidation value, in
the "Debt" of such Subsidiary.
SECTION 5.18. Restricted Payments. Neither the Company nor any
Subsidiary will declare or make any Restricted Payment.
ARTICLE 6
DEFAULTS
SECTION 6.1. Events of Default. If one or more of the following
events ("EVENTS OF DEFAULT") shall have occurred and be continuing:
(a) any principal of any Loan or any Reimbursement Obligation
shall not be paid when due;
(b) any interest on any Loan, any fees or commissions or any
other amount payable under any Financing Document, shall not be paid
within one (1) Domestic Business Day after the due date thereof;
(c) any Borrower shall fail to observe or perform any covenant
or agreement contained in Sections 5.01(g) and 5.07 to 5.18 inclusive;
(d) any Borrower shall fail to observe or perform any covenant
or agreement contained in any Financing Document (other than those
covered by clauses 6.01(a), 6.01(b) or 6.01(c) above) for thirty (30)
days after written notice thereof has been given to the Company by the
Administrative Agent at the request of any Bank;
(e) any representation, warranty, certification or statement
made by any Borrower in any Financing Document, or in any certificate,
financial statement or other document delivered pursuant thereto shall
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<PAGE> 53
prove to have been incorrect in any material respect when made (or
deemed made);
(f) any Borrower or any of its Subsidiaries shall fail to make
any payment in respect of any Material Debt beyond any notice, grace or
cure period applicable with respect thereto;
(g) any event or condition (other than an event or condition
described in Section 6.01(f)) shall occur which results in the
acceleration of the maturity of any Material Debt or the accelerated
termination of binding commitments to lend monies or extend credit in
any other form to the Borrower or any Subsidiary in an aggregate amount
in excess of $10,000,000 or enables (or, with the giving of notice or
lapse of time or both, would enable) the holder of such Debt or the
maker of any such commitment, as the case may be, or any Person acting
on such holder's or maker's behalf, to accelerate the maturity of such
Debt or terminate any such commitment prior to the scheduled
termination thereof;
(h) the Company or any Subsidiary shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as
they become due, or shall take any corporate action to authorize any of
the foregoing;
(i) an involuntary case or other proceeding shall be commenced
against the Company or any Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of 60 days; or an order
for relief shall be entered against the Company or any Subsidiary under
the federal bankruptcy laws as now or hereafter in effect;
(j) any member of the ERISA Group shall fail to pay when due
an amount or amounts aggregating in excess of $5,000,000 which it shall
48
<PAGE> 54
have become liable to pay under Title IV of ERISA; or notice of intent
to terminate a Material Plan shall be filed under Title IV of ERISA by
any member of the ERISA Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate, to impose liability (other than
for premiums under Section 4007 of ERISA) in respect of, or to cause a
trustee to be appointed to administer any Material Plan; or a condition
shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated; or there
shall occur a complete or partial withdrawal from, or a default, within
the meaning of Section 4219(c)(5) of ERISA, with respect to, one or
more Multiemployer Plans which could cause one or more members of the
ERISA Group to incur a current payment obligation in excess of
$5,000,000;
(k) a judgment or order for the payment of money in excess of
$5,000,000 shall be rendered by a court of competent jurisdiction
against the Company and/or any of its Subsidiaries and the same shall
not be discharged (or provision shall not be made for such discharge),
or a stay of execution thereof shall not be procured, within 30 days
from the date of entry thereof and the Company or the relevant
Subsidiary shall not, within said period of 30 days, or such longer
period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during
such appeal;
(l) any Person or group of Persons (within the meaning of
Section 13 or 14 of the Securities Exchange Act of 1934, as amended)
shall have acquired beneficial ownership (within the meaning of Rule
13d-3 promulgated by the Securities and Exchange Commission under said
Act) of 30% or more of the outstanding shares of common stock of the
Company; or, during any period of 12 consecutive calendar months,
individuals who were directors of the Company on the first day of such
period shall cease to constitute a majority of the board of directors
of the Company; or, except as permitted by the proviso in Section 5.15,
any Borrower Subsidiary shall cease to be a Wholly-Owned Subsidiary of
the Company; or
(m) the Lien created by any Security Agreement shall at any
time and for any reason not constitute a valid and perfected Lien on
the Collateral referred to therein subject to no prior or equal Lien
other than a Permitted Lien;
then, and in every such event, the Administrative Agent shall (i) if requested
by Banks having more than 50% in aggregate amount of the Commitments, by notice
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<PAGE> 55
to the Company terminate the Commitments and they shall thereupon terminate,
(ii) if requested by Banks holding Notes evidencing more than 50% in aggregate
principal amount of the Loans, by notice to the Company declare the Notes of any
or all of the Borrowers (together with accrued interest thereon) to be, and such
Notes shall thereupon become, immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
each Borrower and (iii) if requested by Banks having more than 50% in aggregate
amount of the LC Exposures, by notice to the Company declare an amount (the
"AGGREGATE LC AMOUNT") equal to the sum of the maximum amount which may at any
time be drawn under all Letters of Credit at the time outstanding issued upon
request of each Borrower (the "BORROWER LC AMOUNT") (whether or not a
beneficiary shall have presented, or shall be entitled at such time to present,
the drafts or other documents required to draw under any such Letter of Credit)
to be, and the Aggregate LC Amount shall thereupon become, immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by each Borrower; provided that in the case of any of
the Events of Default specified in clause 6.01(h) or 6.01(i) above with respect
to any Borrower, without any notice to any Borrower or any other act by any
Agent or Bank, the Commitments shall thereupon terminate, and the Notes of all
Borrowers (together with accrued interest thereon) and the Aggregate LC Amount
shall become immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by each Borrower.
Each Borrower LC Amount, when received by the Administrative Agent,
shall be deposited in the Borrower's Collateral Account, as cash collateral for
the Reimbursement Obligations of the Borrower in the event of any drawing under
any Letter of Credit issued upon request of such Borrower. Upon any drawing
under any such Letter of Credit, the Collateral Agent shall apply such amounts
held in the Collateral Account to such Reimbursement Obligations.
SECTION 6.2. Notice of Default. The Administrative Agent shall give
notice to the Company under Section 6.01(d) promptly upon being requested to do
so by any Bank and shall thereupon notify all the Banks thereof.
ARTICLE 7
THE AGENTS
SECTION 7.1. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes each Agent to take such action as agent on its behalf
and to exercise such powers under the Financing Documents as are delegated to
such
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<PAGE> 56
Agent by the terms thereof, together with all such powers as are reasonably
incidental thereto.
SECTION 7.2. Agents and Affiliates. Each of the Agents in its
individual capacity shall have the same rights and powers under the Financing
Documents as any other Bank and may exercise or refrain from exercising the same
as though it were not an Agent and each of the Agents in its individual capacity
and their respective Affiliates may accept deposits from, lend money to, and
generally engage in any kind of business with the Company or any Subsidiary or
Affiliate of the Company as if it were not an Agent.
SECTION 7.3. Action by Agents. The obligations of each Agent under the
Financing Documents are only those expressly set forth therein. Without limiting
the generality of the foregoing, no Agent shall be required to take any action
with respect to any Default, except, in the case of the Administrative Agent, as
expressly provided in Article 6 and in the case of the Collateral Agent, as
expressly provided for in the Security Agreements.
SECTION 7.4. Consultation with Experts. Each Agent may consult with
legal counsel (who may be counsel for a Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.5. Liability of Agents. None of the Agents, their respective
Affiliates nor any of their respective directors, officers, agents, or employees
shall be liable to any Bank or any other Agent for any action taken or not taken
by it in connection with the Financing Documents (i) with the consent or at the
request of the Required Banks (or such greater number as may be required by
Section 10.05) or (ii) in the absence of its own gross negligence or willful
misconduct. None of the Agents, their respective Affiliates nor any of their
respective directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into or verify (i) any statement, warranty
or representation made in connection with the Financing Documents or any
borrowing or the issuance of any letter of credit hereunder; (ii) the
performance or observance of any of the covenants or agreements of any Borrower,
(iii) the satisfaction of any condition specified in Article 3 hereof, except,
in the case of the Administrative Agent, receipt of items required to be
delivered to the Administrative Agent; (iv) the validity, effectiveness or
genuineness of the Financing Documents or any other instrument or writing
furnished in connection therewith or (v) the existence or sufficiency of the
Collateral. No Agent shall incur any liability by acting in reliance upon any
notice, consent, certificate, statement, or other writing (which
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may be a bank wire, telex, facsimile or similar writing) believed by it to be
genuine or to be signed by the proper party or parties.
SECTION 7.6. Indemnification. Each Bank shall, ratably in accordance
with its Commitment, indemnify each Agent, their respective Affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitee's gross negligence or willful misconduct) that such
indemnitee may suffer or incur in connection with the Financing Documents or any
action taken or omitted by such indemnitee thereunder.
SECTION 7.7. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon any Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon any Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.8. Successor Agents. Any Agent may resign at any time by
giving written notice thereof to the Banks and the Company. Upon any such
resignation, the Required Banks shall have the right to appoint a successor
Agent. If no successor Agent shall have been so appointed by the Required Banks,
and shall have accepted such appointment, within 30 days after the retiring
Agent gives notice of resignation, then the retiring Agent may, on behalf of the
Banks, appoint a successor Agent, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $50,000,000. Upon the
acceptance of its appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the rights
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
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<PAGE> 58
SECTION 8.1. Basis for Determining Interest Rate Inadequate or Unfair.
If prior to the first day of any Interest Period for any Euro-Dollar Loan:
(a) the Administrative Agent is advised by the Reference Banks
that deposits in dollars (in the applicable amounts) are not being
offered to the Reference Banks in the London interbank market for such
Interest Period, or
(b) Banks holding 50% or more of the aggregate amount of the
affected Euro-Dollar Loans advise the Administrative Agent that the
Adjusted London Interbank Offered Rate as determined by the
Administrative Agent will not adequately and fairly reflect the cost to
such Banks of funding such Euro-Dollar Loans for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Company and
the Banks, whereupon until the Administrative Agent notifies the Company that
the circumstances giving rise to such suspension no longer exist, (i) the
obligations of the Banks to make Euro-Dollar Loans or to continue or convert
outstanding Loans as or into Euro-Dollar Loans, shall be suspended and (ii) each
outstanding Euro-Dollar Loan, shall be converted into a Base Rate Loan on the
last day of the then current Interest Period applicable thereto. Unless the
Borrower notifies the Administrative Agent at least one Domestic Business Day
before the date of any Euro-Dollar Borrowing for which a Notice of Borrowing has
previously been given that it elects not to borrow on such date, such Borrowing
shall instead be made as a Base Rate Borrowing.
SECTION 8.2. Illegality. If, on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change therein,
or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Euro-Dollar Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency shall
make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office)
to make, maintain or fund its Euro-Dollar Loans to any Borrower and such Bank
shall so notify the Administrative Agent, the Administrative Agent shall
forthwith give notice thereof to the other Banks and the Company, whereupon
until such Bank notifies the Company and the Administrative Agent that the
circumstances giving rise to such suspension no longer exist, the obligation of
such Bank to make Euro-Dollar Loans, or to continue or convert outstanding Loans
as or into Euro-Dollar Loans shall be suspended. Before giving any notice to the
Administrative Agent pursuant to this Section, such Bank shall designate a
different Euro-Dollar Lending Office if such designation will avoid the need for
giving such notice and
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<PAGE> 59
will not, in the judgment of such Bank, be otherwise disadvantageous to such
Bank. If such notice is given, each Euro-Dollar Loan of such Bank then
outstanding shall be converted to a Base Rate Loan either (a) on the last day of
the then current Interest Period applicable to such Euro-Dollar Loan if such
Bank may lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan
to such day or (b) immediately if such Bank shall determine that it may not
lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such
day.
SECTION 8.3. Increased Cost and Reduced Return. (a) If on or after the
date hereof, the adoption of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Euro-Dollar Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency:
(i) shall subject any Bank (or its Euro-Dollar Lending Office)
to any tax, duty or other charge with respect to its Euro-Dollar Loans,
its Notes or its obligation to make Euro-Dollar Loans, its letters of
credit or its obligation to issue or participate in any letters of
credit, or shall change the basis of taxation of payments to any Bank
(or its Euro-Dollar Lending Office) of the principal of or interest on
its Euro-Dollar Loans or any other amounts due under this Agreement in
respect of its Euro-Dollar Loans or its obligation to make Euro-Dollar
Loans or its letters of credit or its obligation to issue or
participate in any letters of credit, (except for changes in the rate
of tax on the overall net income of such Bank or its Euro-Dollar
Lending Office imposed by the jurisdiction in which such Bank's
principal executive office or Euro-Dollar Lending Office is located);
or
(ii) shall impose, modify or deem applicable any reserve,
special deposit, insurance assessment or similar requirement
(including, without limitation, any such requirement imposed by the
Board of Governors of the Federal Reserve System but excluding any such
requirement included in an applicable Euro-Dollar Reserve Percentage)
against assets of, deposits with or for the account of, or credit
extended by, any Bank (or its Euro-Dollar Lending Office) or shall
impose on any Bank (or its Euro-Dollar Lending Office) or the London
interbank market any other condition affecting its Euro-Dollar Loans,
its Notes or its obligation to make Euro-Dollar Loans;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Euro-Dollar Lending Office) of making or maintaining its Euro-Dollar Loans
or
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<PAGE> 60
issuing or participating in any Letters of Credit, or to reduce the amount of
any sum received or receivable by such Bank (or its Euro-Dollar Lending Office)
under this Agreement or under its Note with respect thereto, by an amount deemed
by such Bank to be material, then, within 15 days after demand by such Bank
which demand shall set forth in reasonable detail the basis for such request
(with a copy to the Administrative Agent), the Company shall pay to such Bank
such additional amount or amounts as will compensate such Bank for such
increased cost or reduction.
(b) If any Bank shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency (other than as contemplated by
Section 8.03(a)), has or would have the effect of reducing the rate of return on
capital of such Bank (or its Parent) as a consequence of such Bank's obligations
hereunder to a level below that which such Bank (or its Parent) could have
achieved but for such adoption, change, request or directive (taking into
consideration its policies with respect to capital adequacy) by an amount deemed
by such Bank to be material, then from time to time, within 15 days after demand
by such Bank which demand shall set forth in reasonable detail the basis for
such request (with a copy to the Administrative Agent), the Company shall pay to
such Bank such additional amount or amounts as will compensate such Bank (or its
Parent) for such reduction.
(c) Each Bank will promptly notify the Company and the Administrative
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank to compensation pursuant to this Section and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate
of any Bank claiming compensation under this Section and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. In determining such amount, such Bank may use any
reasonable averaging and attribution methods.
SECTION 8.4. Base Rate Loans Substituted for Affected Euro-Dollar
Loans. If (i) the obligation of any Bank to make, or to continue or convert
outstanding Loans as or to, Euro-Dollar Loans to any Borrower has been suspended
pursuant to Section 8.02 or (ii) any Bank has demanded compensation under
Section 8.03(a) and the Borrower shall, by at least five Euro-Dollar
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<PAGE> 61
Business Days' prior notice to such Bank through the Administrative Agent, have
elected that the provisions of this Section shall apply to such Bank, then,
unless and until such Bank notifies the Company that the circumstances giving
rise to such suspension or demand for compensation no longer apply all Loans
which would otherwise be made by such Bank as (or continued as or converted to)
Euro-Dollar Loans shall instead be Base Rate Loans (on which interest and
principal shall be payable contemporaneously with the related Euro-Dollar Loans
of the other Banks). If such Bank notifies the Company that the circumstances
giving rise to such suspension or demand for compensation no longer exist, the
principal amount of each such Base Rate Loan shall be converted into Euro-Dollar
Loan on the first day of the next succeeding Interest Period applicable to the
related Euro-Dollar Loans of the other Banks.
ARTICLE 9
GUARANTY
SECTION 9.1. The Guaranty. Each Guarantor hereby jointly, severally and
unconditionally guarantees the full and punctual payment (whether at stated
maturity, upon acceleration or otherwise) of the principal of and interest on
each Note issued by any Borrower pursuant to this Agreement, and the full and
punctual payment of all other amounts payable by any Borrower under any
Financing Document to which such Borrower is a party. Upon failure by any
Borrower to pay punctually any such amount, each Guarantor shall forthwith on
demand pay the amount not so paid at the place and in the manner specified in
this Agreement and the Banks need not proceed to first preserve, utilize or
exhaust any right or remedy against any Borrower or any other Guarantor or any
security for any obligation of any Borrower under any Financing Document held by
the Banks.
SECTION 9.2. Guaranty Unconditional. Subject to Section 9.05, the joint
and several obligations of each Guarantor hereunder shall be unconditional and
absolute and, without limiting the generality of the foregoing, each Guarantor
shall not be released, discharged or otherwise affected by:
(i) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of any other Borrower under any
Financing Document, by operation of law or otherwise;
(ii) any modification or amendment of or supplement to any
Financing Document;
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<PAGE> 62
(iii) any release, non-perfection or invalidity of any direct or
indirect security for any obligation of any other Borrower under any
Financing Document;
(iv) any change in the corporate existence, structure or
ownership of any other Borrower or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting any other Borrower
or its assets or any resulting release or discharge of any obligation
of any other Borrower contained in any Financing Document;
(v) the existence of any claim, defense, set-off or other
rights which such Guarantor may have at any time against any other
Borrower, any Agent, any Bank or any other Person, whether in
connection herewith or any unrelated transactions; provided that
nothing herein shall prevent the assertion of any such claim by
separate suit or compulsory counterclaim; or
(vi) any other act or omission to act or delay of any kind by
any other Borrower, any Agent, any Bank or any other Person or any
other circumstance whatsoever which might, but for the provisions of
this paragraph, constitute a legal or equitable discharge of such
Guarantor's obligations hereunder.
SECTION 9.3. Discharge Only upon Payment in Full; Reinstatement . Each
Guarantor's obligations hereunder shall remain in full force and effect until
the Commitments shall have terminated, all Letters of Credit shall have expired,
the principal of and interest on the Notes, the Reimbursement Obligations, and
all other amounts payable by any Borrower under this Agreement or any other
Financing Document shall have been paid in full. If at any time any payment of
the principal of or interest on any Note or any other amount payable by any
Borrower under this Agreement or any other Financing Document is rescinded or
must be otherwise restored or returned upon the insolvency, bankruptcy or
reorganization of such Borrower or otherwise, each Guarantor's obligations
hereunder with respect to such payment shall be reinstated at such time as
though such payment had been due but not made at such time.
SECTION 9.4. Waiver by the Guarantor. Each Guarantor irrevocably waives
acceptance hereof, presentment, demand, protest and any notice not provided for
herein, as well as any requirement that at any time any action be taken by any
Person against any other Borrower or any other Person.
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<PAGE> 63
SECTION 9.5. Limit of Liability. The obligations of each Borrower
Subsidiary as a Guarantor hereunder shall be limited to an aggregate amount
equal to the largest amount that would not render its obligations hereunder
subject to avoidance under Section 548 of the United States Bankruptcy Code or
any comparable provisions of any applicable state law.
SECTION 9.6. Subrogation. Upon making any payment with respect to any
Borrower hereunder, the Guarantor making such payment shall be subrogated to the
rights of the payee against the Borrower with respect to such payment; provided
that such Guarantor shall not enforce or accept any payment by way of
subrogation until all amounts of principal of and interest on the Notes and all
other amounts payable by all Borrowers under the Financing Documents have been
paid in full.
SECTION 9.7. Stay of Acceleration. In the event that acceleration of
the time for payment of any amount payable by any Borrower under any Financing
Document to which such Borrower is a party is stayed upon insolvency, bankruptcy
or reorganization of such Borrower, all such amounts otherwise subject to
acceleration under the terms of this Agreement shall nonetheless be payable by
each Guarantor hereunder forthwith on demand by the Administrative Agent made at
the request of the Required Banks.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex,
facsimile transmission or similar writing) and shall be given to such party: (x)
in the case of any Borrower or Agent, at its address or facsimile number set
forth on the signature pages hereof, (y) in the case of any Bank, at its address
or telex or facsimile number set forth in its Administrative Questionnaire or
(z) in the case of any party, such other address or telex or facsimile number as
such party may hereafter specify for the purpose by notice to the Administrative
Agent and the Company. Each such notice, request or other communication shall be
effective (i) if given by telex, when such telex is transmitted to the telex
number specified in or pursuant to this Section and the appropriate answerback
is received, (ii) if given by reputable overnight courier, one (1) Domestic
Business Day after being delivered to such courier, (iii) if given by certified
mail (return receipt requested), three (3) Domestic Business Days after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iv) if given by
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<PAGE> 64
any other means, when received at the address specified in this Section;
provided that notices to the Administrative Agent under Article 2 or Article 8
and notices to the LC Bank under Section 2.03(b) shall not be effective until
received.
SECTION 10.2. No Waiver. No failure or delay by any Agent or any Bank
in exercising any right, power or privilege under any of the Financing Documents
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies therein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 10.3. Expenses; Documentary Taxes; Indemnification. (a) The
Company shall pay (i) all reasonable out-of-pocket expenses of the Agents,
including reasonable fees and disbursements of special counsel for the Agents
and any local counsel for the Agents, in connection with (x) the preparation of
the Financing Documents, (y) any waiver or consent under the Financing Documents
or (z) any amendment of the Financing Documents or any Default or alleged
Default thereunder and (ii) if an Event of Default occurs, all reasonable
out-of-pocket expenses incurred by any Agent or Bank, including reasonable fees
and disbursements of counsel, in connection with such Event of Default and
collection, bankruptcy, insolvency and other enforcement proceedings resulting
therefrom. The Company shall indemnify each Bank against any transfer taxes,
documentary taxes, assessments or charges made by any governmental authority by
reason of the execution and delivery of the Financing Documents.
(b) The Company agrees to indemnify each Bank and hold each Bank
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by any Bank (or by any Agent in
connection with its actions as Agent) in connection with any investigative,
administrative or judicial proceeding (whether or not such Bank shall be
designated a party thereto) relating to or arising out of the Financing
Documents, the Collateral or any transaction relating thereto; provided that no
Bank shall have the right to be indemnified hereunder for its own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction.
SECTION 10.4. Sharing of Set-Offs. Each Bank agrees that if it shall,
by exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount of principal and interest due with
respect to the Note of any Borrower held by it which is greater than the
proportion received by any other Bank in respect of the aggregate amount of
principal and interest due with respect to the Note of such Borrower held by
such other Bank, the Bank receiving such proportionately greater payment shall
purchase such participations
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<PAGE> 65
in the Notes of such Borrower held by the other Banks, and such other
adjustments shall be made, as may be required so that all such payments of
principal and interest with respect to the Notes of such Borrower held by the
Banks shall be shared by the Banks pro rata; provided that if the Bank
purchasing such participations (the "SHARING BANK") should subsequently be
required to refund such payment to such Borrower, then each Bank from whom a
participation was purchased shall pay to the Sharing Bank its pro rata share of
the participations purchased together with its pro rata share of interest on
such amount if and to the extent the Sharing Bank is required to pay interest on
any refunded amount; provided further that nothing in this Section shall impair
the right of any Bank to exercise any right of set-off or counterclaim it may
have and to apply the amount subject to such exercise to the payment of
indebtedness of a Borrower other than its indebtedness hereunder. Each Borrower
agrees, to the fullest extent it may effectively do so under applicable law,
that any holder of a participation in a Note in respect of which it is an
obligor acquired pursuant to the foregoing arrangements, may exercise rights of
set-off or counterclaim and other rights with respect to such participation as
fully as if such holder of a participation were a direct creditor of such
Borrower in the amount of such participation.
SECTION 10.5. Amendments and Waivers. Any provision of this Agreement
or the Notes may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrowers and the Required Banks (and, if the
rights or duties of the LC Bank or either Agent are affected thereby, by it);
provided that no such amendment or waiver shall, unless signed by all the Banks,
(i) increase or decrease the Commitment of any Bank (except for a ratable
decrease in the Commitments of all Banks) or subject any Bank to any additional
obligation, (ii) reduce the principal of or rate of interest on any Loan or any
fees hereunder, (iii) postpone the date fixed for any payment of principal of or
interest on any Loan or any fees hereunder or for termination of any Commitment,
(iv) amend any provision of Article 9 hereof, or (v) change the percentage of
the Commitments or of the aggregate unpaid principal amount of the Notes, or the
number of Banks, which shall be required for the Banks or any of them to take
any action under this Section or any other provision of this Agreement or the
Notes.
SECTION 10.6. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that no Borrower may assign
or otherwise transfer any of its rights under this Agreement without the prior
written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "PARTICIPANT") participating interests in its Commitment or
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any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrowers and the Administrative Agent, such Bank shall remain responsible for
the performance of its obligations hereunder, and the Borrowers and the
Administrative Agent shall continue to deal solely and directly with such Bank
in connection with such Bank's rights and obligations under this Agreement. Any
agreement pursuant to which any Bank may grant such a participating interest
shall provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrowers hereunder including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement; provided that such participation agreement may
provide that such Bank will not agree to any modification, amendment or waiver
of this Agreement described in clauses (i), (ii), (iii) or (iv) of Section 10.05
without the consent of the Participant.
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "ASSIGNEE") all, or a proportionate part of all, of its
rights and obligations with respect to its Commitment (and corresponding Loans
and Letter of Credit Liabilities), and such Assignee shall assume such rights
and obligations, pursuant to an Assignment and Assumption Agreement in
substantially the form of Exhibit F hereto executed by such Assignee and such
transferor Bank, with (and subject to) the subscribed consent of the Company,
the LC Bank and the Administrative Agent (which consents shall not be
unreasonably withheld); provided that (i) if an Assignee is another Bank or an
Affiliate of such transferor Bank, no such consent shall be required, and (ii)
immediately after giving effect to any such assignment, (x) the transferor
Bank's Commitment is equal to either $0 or at least $3,000,000 and (y) the
Assignee's Commitment is at least equal to $3,000,000. Upon execution and
delivery of such instrument and payment by such Assignee to such transferor Bank
of an amount equal to the purchase price agreed between such transferor Bank and
such Assignee, such Assignee shall be a Bank party to this Agreement and shall
have all the rights and obligations of a Bank with a Commitment as set forth in
such instrument of assumption, and the transferor Bank shall be released from
its obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation of any assignment
pursuant to this subsection, the transferor Bank, the Administrative Agent and
the Borrowers shall make appropriate arrangements so that, if required, new
Notes are issued to the Assignee. In connection with any such assignment, the
transferor Bank shall pay to the Administrative Agent an administrative fee for
processing such assignment in the amount of $3,000. If the Assignee is not
incorporated under the laws of the United States of America or a state thereof,
it shall, prior to the first date on which interest or fees are payable
hereunder for its account, deliver to the Company and the Administrative Agent
certification as to exemption from deduction or
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withholding of any United States federal income taxes in accordance with
Section 2.15.
(d) Any Bank may at any time assign all or any portion of its rights
under the Financing Documents to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.
SECTION 10.7. Collateral. Each of the Banks represents to each Agent
and each of the other Banks that it in good faith is not relying upon any
"margin stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
SECTION 10.8. Proprietary Information. The Administrative Agent and
each Bank shall keep confidential any information provided by or on behalf of
any Borrower or any of their respective Subsidiaries and marked as confidential
or proprietary; provided, that nothing herein shall prevent the Administrative
Agent or any Bank from disclosing such information (i) to its officers,
directors, employees, agents, attorneys and accountants in accordance with
customary banking practices, (ii) upon the order of a court or administrative
agency, (iii) upon the request or demand of any regulatory agency or authority
having jurisdiction over such party, (iv) that has become publicly available
without breach of any agreement between the parties hereto, (v) as necessary for
the exercise of any remedy under any Financing Document or (vi) subject to
provisions similar to those contained in this Section, to any prospective
Participant or Assignee.
SECTION 10.9. Governing Law; Submission to Jurisdiction. Except as
otherwise provided for in the Security Agreements, each of the Financing
Documents shall be governed by and construed in accordance with the laws of the
State of New York. Each Borrower hereby submits to the nonexclusive jurisdiction
of the United States District Court for the Southern District of New York and of
any New York State court sitting in New York City for purposes of all legal
proceedings arising out of or relating to this Agreement, any other Financing
Document or the transactions contemplated hereby or thereby. Each Borrower
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum.
SECTION 10.10. Counterparts; Integration. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement and the other Financing Documents constitute the entire
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agreement and understanding among the parties hereto and supersede any and all
prior agreements and understandings, oral or written, relating to the subject
matter hereof.
SECTION 10.11. Severability. If any provision hereof is invalid or
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Agents and the
Banks in order to carry out the intentions of the parties hereto as nearly as
may be possible, and (ii) the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability of
such provision in any other jurisdiction.
SECTION 10.12. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE AGENTS
AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER
FINANCING DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
ORBITAL SCIENCES CORPORATION
By: /s/ Kenneth H. Sunshine
------------------------------------------
Title: Vice President & Treasurer
21700 Atlantic Boulevard
Dulles, VA 20166
Facsimile number: (703) 406-3509
Commitment:
AGENT:
$29,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ Diana H. Imhof
------------------------------------------
Title: Vice President
CO-SYNDICATION AGENTS:
$29,000,000 THE BANK OF NOVA SCOTIA, New York
Agency
By: /s/ James R. Trimble
------------------------------------------
Title: Senior Relationship Manager
$29,000,000 NATIONSBANK, N.A.
By: /s/ Michael Brick
------------------------------------------
Title: Vice President
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OTHER BANKS:
$28,000,000 FIRST UNION COMMERCIAL CORPORATION
By: /s/ Michael Landini
------------------------------------------
Title: Vice President
$25,000,000 DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLANDS BRANCHES
By: /s/ Jon D. Storck
------------------------------------------
Title: Vice President
By: /s/ Sangita Gupte
------------------------------------------
Title: Associate
$20,000,000 KEYBANK, N.A.
By: /s/ Marianne T. Meil
------------------------------------------
Title: Vice President
$15,000,000 BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By: /s/ Catherine Moeser
------------------------------------------
Title: Vice President
$15,000,000 WACHOVIA BANK, N.A.
By: /s/ Roberts A. Bass
------------------------------------------
Title: Vice President
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$10,000,000 CHEVY CHASE BANK
By: /s/ Steven Hass
------------------------------------------
Title: Vice President
- - ---------------------
Total Commitments
- - ---------------------
$200,000,000
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MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By: /s/ Diana H. Imhof
------------------------------------------
Title: Vice President
60 Wall Street
New York, New York 10260-0060
Facsimile number: (212) 648-5018
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PRICING SCHEDULE
Each of "Commitment Fee Rate", "Euro-Dollar Margin", "Base Margin" and
"Letter of Credit Commission Rate" means, for any day, the rate per annum set
forth below in the row opposite such term and in the column corresponding to the
Pricing Level that applies for such day:
<TABLE>
<CAPTION>
Pricing Level Level IA Level Level Level Level Level
I II III IV V
<S> <C> <C> <C> <C> <C> <C>
Commitment Fee Rate 0.375% 0.375% 0.375% 0.50% 0.50% 0.750%
Euro-Dollar 1.50% 1.75% 2.00% 2.50% 3.00% 3.25%
Margin
Base 0.50% 0.75% 1.00% 1.50% 2.00% 2.25%
Margin
Letter of Credit 1.50% 1.75% 2.00% 2.50% 3.00% 3.25%
Commission Rate
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings, subject to the last sentence of this Pricing Schedule:
"Level IA Pricing" applies for any day if (i) such day falls on or
after June 21, 1999 and (ii) on such day, the Loans are rated BB+ or higher by
S&P and Ba1 or higher by Moody's. "Level IA Pricing" shall apply (and shall be
the only Pricing Level that applies) on any day on which the conditions set
forth in the immediately preceding sentence are satisfied, regardless of whether
any other Pricing Level would otherwise apply on such day.
"Level I Pricing" applies for any day if, on such day, the Company's
senior unsecured long-term debt is rated BB+ or higher by S&P and Ba1 or higher
by Moody's.
"Level II Pricing" applies for any day if, on such day, (i) the
Company's senior unsecured long-term debt is rated BB or higher by S&P or Ba2 or
higher by Moody's and (ii) Level I Pricing does not apply.
<PAGE> 74
"Level III Pricing" applies for any day if, on such day, (i) the
Company's senior unsecured long-term debt is rated BB- or higher by S&P and Ba3
or higher by Moody's and (ii) neither Level I Pricing nor Level II Pricing
applies.
"Level IV Pricing" applies for any day if, on such day, (i) the
Company's senior unsecured long-term debt is rated B+ or higher by S&P and B1 or
higher by Moody's and (ii) none of Level I Pricing, Level II Pricing or Level
III Pricing applies.
"Level V Pricing" applies for any day if no other Pricing Level applies
for such day.
"Pricing Level" refers to the determination of which of Level IA, Level
I, Level II, Level III, Level IV, or Level V applies for any day.
The credit ratings to be utilized for purposes of this Schedule (other
than with respect to Pricing Level 1A) are those assigned to the senior
unsecured long-term debt securities of the Company without third-party credit
enhancement, and any rating assigned to any other debt security of the Company
shall be disregarded. The credit ratings to be utilized for purposes of Pricing
Level 1A are those assigned to the Loans, and any rating assigned to any other
senior secured long-term debt securities of the Company shall be disregarded;
provided that an "implied rating" of the Loans may be utilized for purposes of
determining Pricing Level 1A, so long as the Company shall have delivered to the
Administrative Agent on or prior to the first date on which such implied rating
is to be utilized a letter from each of Moody's and S&P duly executed by each of
them, setting forth the implied rating of the Loans assigned by such rating
agency and stating that such rating is an "implied rating". The ratings in
effect for any day are those in effect at the close of business on such day.
Notwithstanding the foregoing until such time as the senior unsecured
long-term debt securities of the Company are rated by Moody's, the Pricing Level
that exists on any day shall be determined solely with reference to the rating
by S&P, provided that in no event may Level IA Pricing or Level I Pricing apply
unless the required ratings from both S&P and Moody's are in effect.
2
<PAGE> 1
EXHIBIT 10.18
ORBITAL SCIENCES CORPORATION
1997 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE OF PLAN
The purpose of this 1997 Stock Option and Incentive Plan (the "Plan")
is to advance the interests of Orbital Sciences Corporation and its
stockholders by enabling Orbital and Participating Companies (as defined
below) to attract and retain highly talented employees, directors,
consultants and advisers who are in a position to make significant
contributions to the success of Orbital, to reward them for their
contributions to the success of Orbital, and to encourage them, through stock
ownership, to increase their proprietary interest in Orbital and their
personal interest in its continued success and progress.
The Plan provides for the award of Orbital stock options and Orbital
common stock. Options granted pursuant to the Plan may be incentive or
nonstatutory stock options. Options granted pursuant to the Plan shall be
presumed to be nonstatutory options unless expressly designated as incentive
options at the time of grant.
2. DEFINITIONS
For the purposes of this Plan and related documents, the following
definitions apply:
"Award Agreement" means the stock option agreement, restricted stock
agreement or other written agreement between Orbital and a Grantee that
evidences and sets out the terms and conditions of a Grant.
"Board" means the Board of Directors of the Company.
"Committee" means a committee of, and designated from time to time by
resolution of the Board, which shall consist of no fewer than two members of
the Board, none of whom shall be an officer or other salaried employee of the
Company or any affiliate, and each of whom shall qualify in all respects as a
"non-employee director" within the meaning of Rule 16b-3 under the Exchange
Act or any successor rule or regulation. Commencing on the Effective Date,
and until such time as the Board shall determine otherwise, the Committee
shall be the Human Resources and Nominating Committee of the Board.
"Company" or "Orbital" means Orbital Sciences Corporation, a Delaware
corporation, or any successor thereof.
"Effective Date" means January 24, 1997.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
<PAGE> 2
"Fair Market Value" means the closing sale price of Stock on the
national securities exchange on which the Stock is then principally traded
or, if that measure of price is not available, on a composite index of such
exchanges or, if that measure of price is not available, in a national market
system for securities on the date of the option grant (or such other date as
is specified herein). In the event that there are no sales of Stock on any
such exchange or market on date of the option grant (or such other date as is
specified herein), the fair market value of Stock on the date of the grant
(or such other date as is specified herein) shall be deemed to be the closing
sales price on the next preceding day on which Stock was sold on any such
exchange or market. In the event that the Stock is not listed on any such
market or exchange on the applicable date, a reasonable valuation of the fair
market value of the Stock on such date shall be made by the Board.
"Grant" means an award of an option or Restricted Stock under the Plan.
"Grantee" means a person who receives or holds an option or Restricted
Stock under the Plan.
"I.R.C." means the Internal Revenue Code of 1986, as it may be amended
from time to time.
"Incentive Option" means any option granted under the Plan intended to
satisfy the requirements under I.R.C. Section 422(b) as an incentive stock
option.
"Nonstatutory Option" means any option granted under the Plan that does
not qualify as an Incentive Option.
"Old Option Plans" shall mean Orbital's 1990 Stock Option Plan and
Orbital's 1990 Stock Option Plan for Non-Employee Directors.
"Option Termination Date" is defined in Section 11(c) below.
"Outside Director" means a member of the Board who is not an officer or
employee of the Company.
"Parent" means a parent corporation as defined in I.R.C. Section 424(e).
"Participating Company" means the Company, any Parent of the Company,
and any subsidiary (as defined in Rule 405 under the Securities Act of 1933,
as amended) of the Company or its Parent.
"Plan" means this 1997 Stock Option and Incentive Plan.
"Restricted Stock" means shares of Stock awarded to a Grantee pursuant
to Section 13 hereof.
2
<PAGE> 3
"Stock" means shares of the Company's authorized Common Stock, $.01 par
value per share.
"Subsidiary" means a subsidiary corporation as defined in I.R.C.
Section 424(f).
"Terminating Transaction" means any of the following events: (a) the
dissolution or liquidation of the Company; (b) a reorganization, merger or
consolidation of the Company with one or more other persons in which the
Company is not the surviving corporation or becomes a subsidiary of another
corporation other than a corporation that was a Participating Company
immediately prior to such event; (c) a sale of substantially all the
Company's assets to a person or entity other than a corporation that was a
Participating Company immediately prior to such event; or (d) a person (or
persons acting as a group or otherwise in concert) owning equity securities
of the Company that represent a majority or more of the aggregate voting
power of all outstanding equity securities of the Company. As used herein or
elsewhere in this Plan, the word "person" shall mean an individual,
corporation, partnership, association or other person or entity, or any group
of two or more of the foregoing that have agreed to act together.
"Total Disability" means a "total and permanent disability" as defined
in I.R.C. Section 22(e)(3).
3. ADMINISTRATION OF PLAN
(a) Administration by Board. The Plan shall be administered by the
Board. The Board shall have authority, not inconsistent with the express
provisions of the Plan, to:
(i) award Grants consisting of options or Restricted Stock, or
both, to such eligible persons as the Board may select;
(ii) determine the timing of Grants and the number of shares of
Stock subject to each Grant;
(iii) determine the terms and conditions of each Grant, including
whether an option is an Incentive Option or a Nonstatutory Option
(consistent with the requirements of the I.R.C.) and the nature and
duration of any restriction or condition (or provision for lapse
thereof) relating to the vesting or forfeiture of a Grant;
(iv) adopt such rules and regulations as the Board may deem
necessary or appropriate to carry out the purposes of the Plan; and
(v) interpret the provisions of the Plan and of any Grants made
hereunder and decide any questions and settle all controversies and
disputes that may arise in connection with the Plan.
3
<PAGE> 4
All decisions, determinations, interpretations or other actions by the Board
with respect to the Plan shall be final, conclusive and binding on all
persons, including the Company, Participating Companies and Grantees and
their respective legal representatives, their successors in interest and
permitted assigns and upon all other persons claiming by, through, under or
against any of them.
(b) Administration and Delegation by Committee. The Board, in its
sole discretion, may delegate some or all of its powers with respect to the
Plan to a Committee (in which case references to the Board in this Plan shall
be deemed to refer to the Committee, where appropriate) except for
interpreting or making changes to Section 9 or Section 11(b) and except with
respect to any grants to directors of the Company under Sections 8 and 13.
The Committee, in its sole discretion, may delegate to the Chairman, the
President and the Chief Executive Officer, or any of them, while any such
officer is a member of the Board, authority to award Grants under the Plan.
Such authority shall be on such terms and conditions, and subject to such
limitations, as the Committee shall specify in its delegation of authority.
Except to the extent otherwise specified by the Committee in such delegation,
the delegated authority to grant awards of options and Restricted Stock shall
include the power to:
(i) award Grants consisting of options or Restricted Stock, or
both, to such eligible persons as the authorized officer may select;
(ii) determine the timing of Grants and the number of shares of
Stock subject to each award; and
(iii) determine the terms and conditions of each Grant, including
whether an option is an Incentive Option or a Nonstatutory Option
(consistent with the requirements of the I.R.C.) and the nature and
duration of any restriction or condition (or provision for lapse
thereof) relating to the vesting or forfeiture of a Grant.
Except to the extent otherwise specified by the Committee in such delegation,
the authority so delegated shall be in addition to, and not in lieu of, the
authority of the Committee to make awards under the Plan.
4. SHARES SUBJECT TO THE PLAN
(a) Availailability. Subject to adjustment as provided in Section
4(c) below, the maximum aggregate number of shares of Stock available for
issuance under the Plan shall be 5,000,000 (authorized shares adopted by the
Board of Directors on January 20, 1999).
(b) Reavailability of Options; Stock to be Delivered. If any Stock
covered by a Grant is not purchased or is forfeited, or if a Grant otherwise
terminates without delivery of any Stock subject thereto, then the number of
shares of Stock so terminated or forfeited shall again be
4
<PAGE> 5
available for making Grants under the Plan. In the event that Stock that was
previously issued by the Company is reacquired by the Company as part of the
consideration received (in accordance with Section 12(b) below) upon the
subsequent exercise of an option, such reacquired Shares shall again be
available for the granting of options hereunder. Stock delivered under the
Plan shall be authorized but unissued shares or, at the Board 's discretion,
previously issued Stock acquired by the Company and held in its treasury. No
fractional shares of Stock shall be delivered under the Plan.
(c) Changes in Stock. In the event of a stock dividend, stock split
or combination of shares, exchange of shares, distribution payable in capital
stock, recapitalization or other change in Orbital's capital stock, the
number and kind of shares of Stock subject to Grants then outstanding or
subsequently awarded under the Plan, the exercise price of any outstanding
option, the maximum number of shares of Stock that may be delivered under the
Plan, and other relevant provisions shall be appropriately adjusted by the
Board, so that the proportionate interest of the Grantee immediately
following such event shall, to the extent practicable, be the same as
immediately before such event.
5. EFFECTIVE DATE.
The Plan shall be effective as of the Effective Date, subject to
approval of the Plan within one year of the Effective Date by Orbital's
shareholders. Upon approval of the Plan by the stockholders of Orbital as
set forth above, all Grants made under the Plan on or after the Effective
Date shall be fully effective as if Orbital's stockholders had approved the
Plan on the Effective Date. If the stockholders fail to approve the Plan
within one year of the Effective Date, any Grants made hereunder shall be
null and void and of no effect.
6. AWARD AGREEMENT
Each Grant pursuant to the Plan shall be evidenced by an Award
Agreement, to be executed by Orbital and by the Grantee, in such form or
forms as the Board shall from time to time approve. Each Award Agreement
evidencing a Grant of options shall specify whether such options are intended
to be Nonstatutory Options or Incentive Options.
7. OPTION EXERCISE PRICE
The option exercise price for shares of Stock to be issued under the
Plan shall be the Fair Market Value of the Stock on the Grant date (or 110%
of the Fair Market Value in the case of an Incentive Option granted to a
ten-percent shareholder).
5
<PAGE> 6
8. DISCRETIONARY OPTION GRANTS. Grants may be made under the Plan to any
employee or director of any Participating Company as the Board shall
determine and designate from time to time. Grants of options may be made
under the Plan to any consultant or adviser to any Participating Company
whose participation in the Plan is determined by the Board to be in the best
interests of the Company and is so designated by the Board. Notwithstanding
the foregoing, grants to persons who are not employees of the Company or any
Parent or Subsidiary of the Company shall not be Incentive Options.
9. OUTSIDE DIRECTOR OPTION GRANTS
(a) Automatic Grants. On January 2 of each year, each Outside
Director shall automatically be awarded a Grant of a Nonstatutory Option to
purchase 3,000 shares of Stock.
(b) Grants in Lieu of Annual Fee. Each Outside Director shall be
entitled to receive a Nonstatutory Option to purchase a specified number of
shares of Stock in lieu of his or her annual Board retainer fee. Such
specified number (i) shall be calculated by the Chief Financial Officer of
the Company, using a Black-Scholes (or other generally accepted) valuation
method based on the Fair Market Value of the Stock on January 15 of the
applicable year (or the next business day, if January 15 falls on a weekend),
assuming a ten-year option term and (ii) shall be adjusted upward by 10% to
take into account the one-year vesting term. The exercise price of such
option shall be equal to the Fair Market Value of Shares on January 15 (or
the next business day, if January 15 falls on a weekend), which shall also be
the Grant date. Any Outside Director desiring to receive an option in lieu
of cash shall notify the Company of this election, which shall be
irrevocable, by submitting a written notice to the Corporate Secretary in
accordance to procedures as determined by the Board.
10. LIMITATIONS ON GRANTS
(a) Limitation on Shares of Stock Subject to Grants. The maximum
number of shares of Stock subject to Options that can be awarded under the
Plan to any person eligible for a Grant under Section 8 hereof is 750,000
shares of Stock during the first ten (10) calendar years of the Plan, and
100,000 per year thereafter. The "per individual" limitations described in
this paragraph shall be construed and applied consistent with the rules and
regulations under I.R.C. Section 162(m).
(b) Limitations on Incentive Options. Incentive Options may only be
granted to employees of the Company or any Parent or Subsidiary of the
Company.
6
<PAGE> 7
11. VESTING AND TERMINATION OF OPTIONS
(a) Vesting of Discretionary Options. Subject to the other
provisions of this Section 11, Options granted pursuant to Section 8 shall
vest and become exercisable at such time and in such installments as the
Board shall provide in each individual Award Agreement. Notwithstanding the
foregoing, the Board may, in its sole discretion, accelerate the time at
which all or any part of an option may be exercised.
(b) Vesting of Outside Director Options. Subject to the other
provisions of this Section 11, options granted under Section 9 shall become
exercisable as to 100% of the Stock covered thereby on the first anniversary
of the Grant date.
(c) Termination of Options. All options shall expire and terminate
on such date as the Board shall determine ("Option Termination Date"), which
in no event shall be later than ten (10) years from the date such option was
granted. In the case of an Incentive Option granted to a ten-percent
stockholder, the option shall not be exercisable after the expiration of five
(5) years from the date such option was granted. Upon termination of an
option or portion thereof, the Grantee shall have no further right to
purchase Stock pursuant to such option.
(d) Termination of Employment or Service.
(i) Termination of Employment or Directorship. Upon the
termination of the employment or directorship of a Grantee with a
Participating Company for any reason other than for "cause" (pursuant to
Section 14 below) or by reason of death or Total Disability, all options that
are not exercisable shall terminate on the employment/directorship
termination date. Options that are exercisable on the
employment/directorship termination date shall continue to be exercisable for
(A) six (6) months following the employment/directorship termination date (in
the case of Nonstatutory Options), (B) three (3) months following the
employment termination date (in the case of Incentive Options), or (C) the
Option Termination Date, whichever occurs first. A Grantee who is an
employee or director of a Participating Company shall be deemed to have
incurred a termination for purposes of this Section 11 (d)(i) if such
Participating Company ceases to be a Participating Company, unless such
Grantee is an employee, director, consultant or adviser of any other
Participating Company.
(ii) Service Termination. In the case of an optionee who
is not an employee or director of any Participating Company, provisions
relating to the exercisability of options following termination of service
shall be specified in the award. If not so specified, all options held by
such optionee that are not then exercisable shall terminate upon termination
of service for any reason. Unless such termination was for "cause" (pursuant
to Section 14 below), options that are exercisable on the date the optionee's
service as a consultant or adviser terminates shall continue to be
exercisable for a period of six (6) months following the service termination
date (as defined in a consulting or similar agreement or as determined by the
Board) or the Option Termination Date, whichever occurs first.
7
<PAGE> 8
(e) Rights in the Event of Death. In the event that the employment
and/or directorship of an optionee with a Participating Company is terminated
by reason of death, all options that are not exercisable shall terminate on
the date of death. Options that were exercisable on the date prior to the
optionee's death may be exercised by the optionee's executor or administrator
or by the person or persons to whom the option is transferred by will or the
applicable laws of descent and distribution, at any time within the one-year
period (or such longer period as the Board may determine prior to the
expiration of such one-year period) beginning with the date of the optionee's
death, but in no event beyond the Option Termination Date.
(f) Rights in the Event of Total Disability. In the event that the
employment and/or directorship of an optionee with a Participating Company is
terminated by reason of Total Disability, all options that are not
exercisable shall terminate on the employment/directorship termination date.
Options that were exercisable on the employment/directorship termination date
may be exercised at any time within the one-year period (or such longer
period as the Board may determine prior to the expiration of such one-year
period) beginning with the commencement of the optionee's Total Disability
(as determined by the Board) but in no event beyond the Option Termination
Date.
(g) Leave of Absence. An approved leave of absence shall not
constitute a termination of employment under the Plan. An approved leave of
absence shall mean an absence approved pursuant to the policy of a
Participating Company for military leave, sick leave, or other bona fide
leave, not to exceed ninety (90) days or, if longer, as long as the
employee's right to re-employment is guaranteed by contract, statute or the
policy of a Participating Company. Notwithstanding the foregoing, in no
event shall an approved leave of absence extend an option beyond the Option
Termination Date.
12. EXERCISE OF OPTIONS; NON-TRANSFERABILITY
(a) Exercise of Options. Vested options may be exercised, in whole
or in part, by giving written notice of exercise to the Company, which notice
shall specify the number of shares of Stock to be purchased and shall be
accompanied by payment in full of the purchase price in accordance with
Section 12(b) below and the full amount of any federal and state withholding
and other employment taxes applicable to such person as a result of such
exercise. No shares of Stock shall be issued until full payment of the
purchase price and applicable withholding tax has been made. Until the
issuance of stock certificates, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to optioned shares
notwithstanding the exercise of the option.
(b) Payment. Full payment of the purchase price for the Stock as to
which an option is being exercised shall be made (i) in United States dollars
in cash or by check in a form satisfactory to the Company, (ii) at the
Grantee's election, and subject to discretion of the Board, through delivery
of Shares having a Fair Market Value on the day immediately preceding the day
notice of exercise is received by the Company equal to the cash exercise
price of the option, (iii)
8
<PAGE> 9
in accordance with a so-called cashless exercise plan established with a
securities brokerage firm, or (iv) by any combination of the permissible forms
of payment.
(c) Non-Transferability of Options. Except as the Board may
otherwise determine, no option may be transferred other than by will or by
the laws of descent and distribution, and during an optionee's lifetime an
option may be exercised only by the Grantee.
13. RESTRICTED STOCK
(a) Grant of Restricted Stock. The Board may from time to time grant
Restricted Stock to certain employees and directors of a Participating
Company, subject to such restrictions, conditions and other terms, if any, as
the Board may determine.
(b) Restrictions. At the time a Grant of Restricted Stock is made,
the Board may establish a period of time (the "Restricted Period") during
which a Grantee's right to all or a portion of such Restricted Stock shall
vest over time, subject to certain terms and conditions. Each Grant of
Restricted Stock may be subject to a different Restricted Period. The Board
may, in its sole discretion, at the time a Grant of Restricted Stock is made,
prescribe forfeiture or vesting conditions in addition to or other than the
expiration of the Restricted Period. The Board also may, in its sole
discretion, shorten or terminate the Restricted Period or waive any other
restrictions applicable to all or a portion of the Restricted Stock.
Restricted Stock may not be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of during the Restricted Period or prior to the
satisfaction of any other restrictions prescribed by the Board with respect
to such Restricted Stock.
(c) Restricted Stock Certificates. Orbital shall issue, in the name
of each Grantee to whom Restricted Stock has been granted, stock certificates
representing the total number of shares of Restricted Stock granted to the
Grantee. The Secretary of Orbital shall hold such certificates for the
Grantee's benefit until such time as the restrictions lapse or the Restricted
Stock is forfeited to Orbital.
(d) Rights of Holders of Restricted Stock. Unless the Board
otherwise provides in an Award Agreement, holders of Restricted Stock shall
have the right to vote such Stock and the right to receive any dividends
declared or paid with respect to such Stock. The Board may provide that any
dividends paid on Restricted Stock must be reinvested in Stock, which may or
may not be subject to the same vesting conditions and restrictions applicable
to such Restricted Stock. All distributions, if any, received by a Grantee
with respect to Restricted Stock as a result of any stock split, stock
dividend, combination of shares, or other similar transaction shall be
subject to the restrictions applicable to the original Grant.
(e) Termination of Employment. Upon termination of the
employment/directorship of a Grantee with Orbital, other than by reason of
death or Total Disability, any Restricted Stock held by such Grantee that has
not vested, or with respect to which all applicable restrictions and
conditions have not lapsed, shall immediately be deemed forfeited, unless the
Board, in its
9
<PAGE> 10
discretion, determines otherwise. Upon forfeiture of Restricted Stock, the
Grantee shall have no further rights with respect to such Grant, including but
not limited to any right to vote Restricted Stock or any right to receive
dividends with respect to shares of Restricted Stock.
(f) Rights in the Event of Total Disability or Death. The rights of
a Grantee with respect to Restricted Stock in the event such Grantee
terminates employment/directorship with Orbital by reason of Total Disability
or death shall be determined by the Board at the time of Grant.
(g) Delivery of Stock and Payment Therefor. Upon the expiration or
termination of the Restricted Period and the satisfaction of any other
conditions prescribed by the Board, the restrictions applicable to shares of
Restricted Stock shall lapse, and, upon payment by the Grantee to Orbital, in
cash or by check, of the aggregate par value of the shares of Stock
represented by such Restricted Stock, a stock certificate for such shares
shall be delivered, free of all such restrictions, to the Grantee or the
Grantee's beneficiary or estate, as the case may be.
14. FORFEITURE CONDITIONS.
The Board may provide in an Award Agreement for conditions of
forfeiture for "cause" of any Grantee's rights with respect to a Grant.
"Cause" shall include engaging in an activity that is detrimental to the
Company including, without limitation, criminal activity, failure to carry
out the duties assigned to the Grantee as a result of incompetence or willful
neglect, conduct casting such discredit on the Company as in the opinion of
the Board justifies termination or forfeiture of the Grant, or such other
reasons, including the existence of a conflict of interest, as the Board may
determine. "Cause" is not limited to events that have occurred prior to the
Grantee's termination of service, nor is it necessary that the Board's
finding of "cause" occur prior to such termination. If the Board determines,
subsequent to a Grantee's termination of service but prior to the exercise of
any rights under a Grant, that either prior or subsequent to the Grantee's
termination the Grantee engaged in conduct that would constitute "cause,"
then the rights with respect to a Grant shall be forfeited.
15. COMPLIANCE WITH SECURITIES LAWS.
(a) The delivery of Stock upon the exercise of an option or lapse of
a Restricted Period shall be subject to compliance with (i) applicable
federal and state laws and regulations, (ii) all applicable listing
requirements of any national securities exchange or national market system on
which the Stock is then listed or quoted, and (iii) Company counsel's
approval of all other legal matters in connection with the issuance and
delivery of such Stock. If the sale of Stock has not been registered under
the Securities Act of 1933, as amended, the Company may require, as a
condition to exercise of the option or receipt of Restricted Stock, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
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<PAGE> 11
(b) It is the intent of the Company that Grants pursuant to the Plan
and the exercise of options granted hereunder will qualify for the exemption
provided by Rule 16b-3 under the Exchange Act. To the extent that any
provision of the Plan or action by the Board does not comply with the
requirements of Rule 16b-3 in respect of an employee or director subject to
Section 16(b) of the Exchange Act, it shall be deemed inoperative to the
extent permitted by law and deemed advisable by the Board, and shall not
affect the validity of the Plan. In the event that Rule 16b-3 is revised or
replaced, the Board may exercise its discretion to modify this Plan in any
respect necessary to satisfy the requirements of, or take advantage of any
features of the revised exemption or its replacement.
16. MERGERS, etc.
(a) Effect on Options and Plan. Except as otherwise provided herein,
all options outstanding under the Plan shall accelerate and become
immediately exercisable for a period of fifteen days (or such longer or
shorter period as the Board may prescribe) immediately prior to the scheduled
consummation of a Terminating Transaction, which exercise shall be (i)
conditioned upon the consummation of the Terminating Transaction and (ii)
effective only immediately before the consummation of such Terminating
Transaction. Upon consummation of any such event, the Plan and all
outstanding but unexercised options shall terminate. Notwithstanding the
foregoing, to the extent provision is made in writing in connection with such
Terminating Transaction, for the continuation of the Plan and the assumption
of options under the Plan theretofore granted, or for the substitution for
such options of new options covering the stock of a successor company, or a
parent or subsidiary thereof, with appropriate adjustments as to the number
and kinds of shares or units and exercise prices, then the Plan and options
theretofore granted shall continue in the manner and under the terms so
provided, and the acceleration and termination provisions set forth in the
first two sentences of this Section 16(a) shall be of no effect. The Company
shall send written notice of a Terminating Transaction to all individuals who
hold options not later than the time at which the Company gives notice
thereof to its stockholders.
b. Effect on Restricted Stock. All outstanding shares of Restricted
Stock shall be deemed to have vested, and all restrictions and conditions
applicable to such shares of Restricted Stock shall be deemed to have lapsed
immediately prior to the occurrence of a Terminating Transaction.
17. TAXES
The Board shall make such provisions and take such steps as it deems
necessary or appropriate for the withholding of any federal, state, local and
other tax required by law to be withheld with respect to the grant or
exercise of options, or the vesting of or other lapse of restrictions
applicable to Restricted Stock, or with respect to the disposition of Stock
acquired pursuant to the Plan, including, but without limitation, the
deduction of the amount of any such
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withholding tax from any compensation or other amounts payable to a Grantee, or
requiring a Grantee (or the optionee's beneficiary or legal representative), as
a condition of a Grant or exercise of an option or receipt of Restricted Stock,
to pay to the appropriate Participating Company any amount required to be
withheld, or to execute such other documents as the Board deems necessary or
desirable in connection with the satisfaction of any applicable withholding
obligation.
18. EMPLOYMENT RIGHTS
Neither the adoption of the Plan nor the making of any Grants shall
confer upon any Grantee any right to continue as an employee or director of,
or consultant or adviser to, any Participating Company or affect in any way
the right of any Participating Company to terminate them at any time. Except
as specifically provided by the Board in any particular case, the loss of
existing or potential profit in Grants under this Plan shall not constitute
an element of damages in the event of termination of the relationship of a
Grantee even if the termination is in violation of an obligation of the
Company to the Grantee by contract or otherwise.
19. AMENDMENT OR TERMINATION OF PLAN
(a) Neither adoption of the Plan nor the making of any Grants shall
affect the Company's right to make awards to any person that is not subject
to the Plan, to issue to such persons Stock as a bonus or otherwise, or to
adopt other plans or arrangements under which Stock may be issued.
(b) The Board may at any time discontinue granting awards under the
Plan. With the consent of the Grantee, the Board may at any time cancel an
existing Grant in whole or in part and make any other Grant for such number
of shares as the Board specifies. The Board may at any time, prospectively
or retroactively, amend the Plan or any outstanding Grant for the purpose of
satisfying the requirements of I.R.C. Section 422 or of any changes in
applicable laws or regulations or for any other purpose that may at the time
be permitted by law, or may at any time terminate the Plan as to further
grants of awards, but no such amendment shall materially adversely affect the
rights of any Grantee (without the Grantee's consent) under any outstanding
Grant.
(c) In the Board's discretion, the Board may, with an optionee's
consent, substitute Nonstatutory Options for outstanding Incentive Options,
and any such substitution shall not constitute a new option grant for the
purposes of the Plan, and shall not require a revaluation of the option
exercise price for the substituted option. Any such substitution may be
implemented by an amendment to the applicable option agreement or in such
other manner as the Board in its discretion may determine.
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20. GENERAL PROVISIONS
(a) Titles and Headings. Titles and headings of sections of the Plan
are for convenience of reference only and shall not affect the construction
of any provision of the Plan.
(b) Governing Law. The Plan shall be governed by, interpreted under
and construed and enforced in accordance with the internal laws, and not the
laws pertaining to conflicts or choice of laws, of the State of Delaware,
applicable to agreements made and to be performed wholly within the State of
Delaware.
(c) Severability. If any provision of the Plan or any Award
Agreement shall be determined to be illegal or unenforceable by any court of
law in any jurisdiction, the remaining provisions hereof and thereof shall be
severable and enforceable in accordance with their terms, and all provisions
shall remain enforceable in any other jurisdiction.
* * *
The Plan was duly adopted by the Board of Directors of the Company as
of January 24, 1997.
/s/ Leslie C. Seeman
------------------------------------------
Leslie C. Seeman
Senior Vice President, General Counsel and Secretary
of the Company
The Plan was duly approved by the stockholders of the Company on April
24, 1997.
/s/ Leslie C. Seeman
------------------------------------------
Leslie C. Seeman
Senior Vice President, General Counsel and Secretary
of the Company
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EXHIBIT 10.21
MAGELLAN CORPORATION
1998 STOCK OPTION AND INCENTIVE PLAN, AS AMENDED
1. PURPOSE OF PLAN
The purpose of this 1998 Stock Option and Incentive Plan (the "Plan")
is to advance the interests of Magellan Corporation ("Magellan") and its
stockholders by enabling Magellan and Participating Companies (as defined
below) to attract and retain highly talented employees, directors and
consultants who are in a position to make significant contributions to the
success of Magellan, to reward them for their contributions to the success of
Magellan, and to encourage them, through stock ownership, to increase their
proprietary interest in Magellan and their personal interest in its continued
success and progress.
The Plan provides for the award of Magellan stock options and Magellan
common stock. Options granted pursuant to the Plan may be incentive or
nonstatutory stock options. Options granted pursuant to the Plan shall be
presumed to be nonstatutory options unless expressly designated as incentive
options at the time of grant.
2. DEFINITIONS
For the purposes of this Plan and related documents, the following
definitions apply:
"Award Agreement" means the stock option agreement, restricted stock
agreement or other written agreement between Magellan and a Grantee that
evidences and sets out the terms and conditions of a grant.
"Board" means the Board of Directors of the Company.
"Committee" means a committee of, and designated from time to time by
resolution of the Board, which shall consist of no fewer than two members of
the Board, none of whom shall be an officer or other salaried employee of the
Company or any affiliate, and each of whom shall qualify in all respects as a
"non-employee director" within the meaning of Rule 16b-3 under the Exchange
Act or any successor rule or regulation.
"Company" or "Magellan" means Magellan Corporation, a Delaware
corporation, or any successor thereof.
"Effective Date" means January 28, 1998, the date of adoption of the
Plan by the Board.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the closing sale price of Stock on the
national securities exchange on which the Stock is then principally traded
or, if that measure of price is not
<PAGE> 2
available, on a composite index of such exchanges or, if that measure of price
is not available, in a national market system for securities on the date of the
option grant (or such other date as is specified herein). In the event that
there are no sales of Stock on any such exchange or market on the date of the
option grant (or such other date as is specified herein), the fair market value
of Stock on the date of the grant (or such other date as is specified herein)
shall be deemed to be the closing sales price on the next preceding day on which
Stock was sold on any such exchange or market. In the event that the Stock is
not listed on any such market or exchange on the applicable date, a reasonable
valuation of the fair market value of the Stock on such date shall be made by
the Board. In each case, Fair Market Value shall be determined in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations.
"Grant" means an award of an option or Restricted Stock under the Plan.
"Grantee" means a person who receives or holds an option or Restricted
Stock under the Plan.
"I.R.C." means the Internal Revenue Code of 1986, as it may be amended
from time to time.
"Incentive Option" means any option granted under the Plan intended to
satisfy the requirements under I.R.C. Section 422(b) as an incentive stock
option.
"Nonstatutory Option" means any option granted under the Plan that does
not qualify as an Incentive Option.
"Option Termination Date" is defined in Section 10(b) below.
"Outside Director" means a member of the Board who is not an officer or
employee of the Company.
"Parent" means a parent corporation as defined in I.R.C. Section 424(e).
"Participating Company" means the Company, any Parent of the Company,
Orbital Sciences Corporation, and any subsidiary (as defined in Rule 405
under the Securities Act of 1933, as amended) of the Company or its Parent.
"Plan" means this 1998 Stock Option and Incentive Plan.
"Restricted Stock" means shares of Stock awarded to a Grantee pursuant
to Section 12 hereof.
"Stock" means shares of the Company's authorized Common Stock, $.01 par
value per share.
"Subsidiary" means a subsidiary corporation as defined in I.R.C.
Section 424(f).
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"Terminating Transaction" means any of the following events: (a) the
dissolution or liquidation of the Company; (b) a reorganization, merger or
consolidation of the Company with one or more other persons in which the
Company is not the surviving corporation or becomes a subsidiary of another
corporation other than a corporation that was a Participating Company
immediately prior to such event; (c) a sale of substantially all the
Company's assets to a person or entity other than a corporation that was a
Participating Company immediately prior to such event; or (d) a person (or
persons acting as a group or otherwise in concert), other than Orbital
Sciences Corporation, owning equity securities of the Company that represent
a majority or more of the aggregate voting power of all outstanding equity
securities of the Company. As used herein or elsewhere in this Plan, the
word "person" shall mean an individual, corporation, partnership, association
or other person or entity, or any group of two or more of the foregoing that
have agreed to act together.
"Total Disability" means a "total and permanent disability" as defined
in I.R.C. Section 22(e)(3).
3. ADMINISTRATION OF PLAN
(a) Administration by Board. The Plan shall be administered by the
Board. The Board shall have authority, not inconsistent with the express
provisions of the Plan, to:
(i) award Grants consisting of options or Restricted Stock, or
both, to such eligible persons as the Board may select;
(ii) determine the timing of Grants and the number of shares of
Stock subject to each Grant;
(iii) determine the terms and conditions of each Grant, including
whether an option is an Incentive Option or a Nonstatutory Option
(consistent with the requirements of the I.R.C.) and the nature and
duration of any restriction or condition (or provision for lapse
thereof) relating to the vesting or forfeiture of a Grant;
(iv) adopt such rules and regulations as the Board may deem
necessary or appropriate to carry out the purposes of the Plan; and
(v) interpret the provisions of the Plan and of any Grants made
hereunder and decide any questions and settle all controversies and
disputes that may arise in connection with the Plan.
All decisions, determinations, interpretations or other actions by the Board
with respect to the Plan shall be final, conclusive and binding on all
persons, including the Company, Participating Companies and Grantees and
their respective legal representatives, their successors in interest
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and permitted assigns and upon all other persons claiming by, through, under or
against any of them.
(b) Administration and Delegation by Committee. The Board, in its
sole discretion, may delegate some or all of its powers with respect to the
Plan to a Committee (in which case references to the Board in this Plan shall
be deemed to refer to the Committee, where appropriate) except with respect
to any grants to directors of the Company under Sections 8 and 12. Except to
the extent otherwise specified by the Board in such delegation, the delegated
authority to grant awards of options and Restricted Stock shall include the
power to:
(i) award Grants consisting of options or Restricted Stock, or
both, to such eligible persons as the authorized officer may select;
(ii) determine the timing of Grants and the number of shares of
Stock subject to each award; and
(iii) determine the terms and conditions of each Grant, including
whether an option is an Incentive Option or a Nonstatutory Option
(consistent with the requirements of the I.R.C.) and the nature and
duration of any restriction or condition (or provision for lapse
thereof) relating to the vesting or forfeiture of a Grant.
Except to the extent otherwise specified by the Board in such delegation, the
authority so delegated shall be in addition to, and not in lieu of, the
authority of the Board to make awards under the Plan.
4. SHARES SUBJECT TO THE PLAN
(a) Availability. Subject to adjustment as provided in Section 4(c)
below, the maximum aggregate number of shares of Stock available for issuance
under the Plan shall be 19,900,000.
(b) Reavailability of Options; Stock to be Delivered. If any Stock
covered by a Grant is not purchased or is forfeited, or if a Grant otherwise
terminates without delivery of any Stock subject thereto, then the number of
shares of Stock so terminated or forfeited shall again be available for
making Grants under the Plan. In the event that Stock that was previously
issued by the Company is reacquired by the Company as part of the
consideration received (in accordance with Section 11(b) below) upon the
subsequent exercise of an option, such reacquired Shares shall again be
available for the granting of options hereunder. Stock delivered under the
Plan shall be authorized but unissued shares or, at the Board 's discretion,
previously issued Stock acquired by the Company and held in its treasury. No
fractional shares of Stock shall be delivered under the Plan.
(c) Changes in Stock. In the event of a stock dividend, stock split,
reverse stock split or combination of shares, exchange of shares,
distribution payable in capital stock,
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<PAGE> 5
recapitalization, reclassification of stock or other change in Magellan's
capital stock, the number and kind of shares of Stock subject to Grants then
outstanding or subsequently awarded under the Plan, the exercise price of any
outstanding option, the maximum number of shares of Stock that may be delivered
under the Plan, and other relevant provisions shall be appropriately adjusted by
the Board, so that the proportionate interest of the Grantee immediately
following such event shall, to the extent practicable, be the same as
immediately before such event.
5. EFFECTIVE DATE AND TERM OF PLAN
(a) The Plan shall be effective as of the Effective Date, subject to
approval of the Plan within one year of the Effective Date by the
stockholders of the Company. Upon approval of the Plan by the stockholders
of Magellan as set forth above, all Grants made under the Plan on or after
the Effective Date shall be fully effective as if Magellan's stockholders had
approved the Plan on the Effective Date. If the stockholders fail to approve
the Plan within one year of the Effective Date, any Grants made hereunder
shall be null and void and of no effect.
(b) The Plan shall terminate upon the earliest of (i) the expiration
of a ten (10) year period measured from the Effective Date, (ii) in
connection with a Terminating Transaction in accordance with Section 15, or
(iii) as the Board may determine in accordance with Section 18.
6. AWARD AGREEMENT
Each Grant pursuant to the Plan shall be evidenced by an Award
Agreement, to be executed by Magellan and by the Grantee, in such form or
forms as the Board shall from time to time approve. Each Award Agreement
evidencing a Grant of options shall specify whether such options are intended
to be Nonstatutory Options or Incentive Options.
7. OPTION EXERCISE PRICE
The option exercise price for shares of Stock to be issued under the
Plan shall be determined by the Board in its sole discretion, but in no event
shall the option exercise price be less than the Fair Market Value of the
Stock on the Grant date in the case of an Incentive Stock Option (or 110% of
the Fair Market Value in the case of an Incentive Option granted to a
ten-percent stockholder, including a ten-percent (10%) stockholder of Parent)
or less than eighty-five percent (85%) of the Fair Market Value in the case
of a Nonstatutory Stock Option.
8. DISCRETIONARY OPTION GRANTS
Grants may be made under the Plan to any employee or director of any
Participating Company as the Board shall determine and designate from time to
time. Grants of options may be made under the Plan to any consultant to any
Participating Company whose participation in
5
<PAGE> 6
the Plan is determined by the Board to be in the best interests of the Company
and is so designated by the Board. Notwithstanding the foregoing, grants to
persons who are not employees of the Company or any Parent or Subsidiary of the
Company shall not be Incentive Options.
9. LIMITATIONS ON GRANTS
(a) Limitation on Shares of Stock Subject to Grants. The maximum
number of shares of Stock subject to Options that can be awarded under the
Plan to any person eligible for a Grant under Section 8 hereof is
fifty-percent (50%) of the aggregate number of shares of Stock set forth
under Section 4(c) during a ten-year period. The "per individual"
limitations described in this paragraph shall be construed and applied
consistent with the rules and regulations under I.R.C. Section 162(m).
(b) Limitations on Incentive Options. Incentive Options may only be
granted to employees of the Company or any Parent or Subsidiary of the
Company.
10. VESTING AND TERMINATION OF OPTIONS
(a) Vesting of Discretionary Options. Subject to the other
provisions of this Section 10, Options granted pursuant to Section 8 shall
vest and become exercisable at such time and in such installments as the
Board shall provide in each individual Award Agreement, provided that the
Board shall not impose a vesting schedule that is more restrictive than
twenty-percent (20%) per year over five years from the date of grant.
Notwithstanding the foregoing, the Board may, in its sole discretion,
accelerate the time at which all or any part of an option may be exercised.
(b) Termination of Options. All options shall expire and terminate
on such date as the Board shall determine ("Option Termination Date"), which
in no event shall be later than ten (10) years from the date such option was
granted. In the case of an Incentive Option granted to a ten-percent (10%)
stockholder (including a ten-percent (10%) stockholder of Parent), the option
shall not be exercisable after the expiration of five (5) years from the date
such option was granted. Upon termination of an option or portion thereof,
the Grantee shall have no further right to purchase Stock pursuant to such
option.
(c) Termination of Employment or Service.
(i) Termination of Employment or Directorship. Upon the
termination of the employment or directorship of a Grantee with a
Participating Company for any reason other than for "cause" (pursuant
to Section 13 below) or by reason of death or Total Disability, all
options that are not exercisable shall terminate on the
employment/directorship termination date. Options that are exercisable
on the employment/directorship termination date shall continue to be
exercisable for (A) six (6) months following the
employment/directorship termination date (in the case of
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<PAGE> 7
Nonstatutory Options), (B) three (3) months following the employment
termination date (in the case of Incentive Options), or (C) the Option
Termination Date, whichever occurs first. A Grantee who is an employee or
director of a Participating Company shall be deemed to have incurred a
termination for purposes of this Section 10 (c)(i) if such Participating
Company ceases to be a Participating Company, unless such Grantee is an
employee, director or consultant of any other Participating Company.
(ii) Service Termination. In the case of an optionee who is not
an employee or director of any Participating Company, provisions
relating to the exercisability of options following termination of
service shall be specified in the award. If not so specified, all
options held by such optionee that are not then exercisable shall
terminate upon termination of service for any reason. Unless such
termination was for "cause" (pursuant to Section 13 below), options
that are exercisable on the date the optionee's service as a consultant
terminates shall continue to be exercisable for a period of six (6)
months following the service termination date (as defined in a
consulting or similar agreement or as determined by the Board) or the
Option Termination Date, whichever occurs first.
(d) Rights in the Event of Death. In the event that the employment
and/or directorship of an optionee with a Participating Company is terminated
by reason of death, all options that are not exercisable shall terminate on
the date of death. Options that were exercisable on the date prior to the
optionee's death may be exercised by the optionee's executor or administrator
or by the person or persons to whom the option is transferred by Will or the
applicable laws of descent and distribution, at any time within the one-year
period (or such longer period as the Board may determine prior to the
expiration of such one-year period) beginning with the date of the optionee's
death, but in no event beyond the Option Termination Date.
(e) Rights in the Event of Total Disability. In the event that the
employment and/or directorship of an optionee with a Participating Company is
terminated by reason of Total Disability, all options that are not
exercisable shall terminate on the employment/directorship termination date.
Options that were exercisable on the employment/directorship termination date
may be exercised at any time within the one-year period (or such longer
period as the Board may determine prior to the expiration of such one-year
period) beginning with the commencement of the optionee's Total Disability
(as determined by the Board) but in no event beyond the Option Termination
Date.
(f) Leave of Absence. An approved leave of absence shall not
constitute a termination of employment under the Plan. An approved leave of
absence shall mean an absence approved pursuant to the policy of a
Participating Company for military leave, sick leave, or other bona fide
leave, not to exceed ninety (90) days or, if longer, as long as the
employee's right to re-employment is guaranteed by contract, statute or the
policy of a Participating Company. Notwithstanding the foregoing, in no
event shall an approved leave of absence extend an option beyond the Option
Termination Date.
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<PAGE> 8
11. EXERCISE OF OPTIONS; NON-TRANSFERABILITY
(a) Exercise of Options. Vested options may be exercised, in whole
or in part, by giving written notice of exercise to the Company, which notice
shall specify the number of shares of Stock to be purchased and shall be
accompanied by payment in full of the purchase price in accordance with
Section 11(b) below and the full amount of any federal and state withholding
and other employment taxes applicable to such person as a result of such
exercise. No shares of Stock shall be issued until full payment of the
purchase price and applicable withholding tax has been made. Until the
issuance of stock certificates, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to optioned shares
notwithstanding the exercise of the option.
(b) Payment. Full payment of the purchase price for the Stock as to
which an option is being exercised shall be made (i) in United States dollars
in cash or by check in a form satisfactory to the Company, (ii) at the
Grantee's election, and subject to discretion of the Board, through delivery
of Shares having a Fair Market Value on the day immediately preceding the day
notice of exercise is received by the Company equal to the cash exercise
price of the option, (iii) in accordance with a so-called cashless exercise
plan established with a securities brokerage firm, or (iv) by any combination
of the permissible forms of payment.
(c) Non-Transferability of Options. Except as the Board may
otherwise determine, no option may be transferred other than by Will or by
the laws of descent and distribution, and during an optionee's lifetime an
option may be exercised only by the Grantee.
12. RESTRICTED STOCK
(a) Grant of Restricted Stock. The Board may from time to time grant
Restricted Stock to certain employees and directors of a Participating
Company, subject to such restrictions, conditions and other terms, if any, as
the Board may determine.
(b) Restrictions. At the time a Grant of Restricted Stock is made,
the Board may establish a period of time (the "Restricted Period") during
which a Grantee's right to all or a portion of such Restricted Stock shall
vest over time, subject to certain terms and conditions. Each Grant of
Restricted Stock may be subject to a different Restricted Period. The Board
may, in its sole discretion, at the time a Grant of Restricted Stock is made,
prescribe forfeiture or vesting conditions in addition to or other than the
expiration of the Restricted Period. The Board also may, in its sole
discretion, shorten or terminate the Restricted Period or waive any other
restrictions applicable to all or a portion of the Restricted Stock.
Restricted Stock may not be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of during the Restricted Period or prior to the
satisfaction of any other restrictions prescribed by the Board with respect
to such Restricted Stock.
(c) Restricted Stock Certificates. Magellan shall issue, in the
name of each Grantee to whom Restricted Stock has been granted, stock
certificates representing the total number of
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shares of Restricted Stock granted to the Grantee. The Secretary of Magellan
shall hold such certificates for the Grantee's benefit until such time as the
restrictions lapse or the Restricted Stock is forfeited to Magellan.
(d) Rights of Holders of Restricted Stock. Unless the Board
otherwise provides in an Award Agreement, holders of Restricted Stock shall
have the right to vote such Stock and the right to receive any dividends
declared or paid with respect to such Stock. The Board may provide that any
dividends paid on Restricted Stock must be reinvested in Stock, which may or
may not be subject to the same vesting conditions and restrictions applicable
to such Restricted Stock. All distributions, if any, received by a Grantee
with respect to Restricted Stock as a result of any stock split, stock
dividend, combination of shares, or other similar transaction shall be
subject to the restrictions applicable to the original Grant.
(e) Termination of Employment. Upon termination of the
employment/directorship of a Grantee with Magellan, other than by reason of
death or Total Disability, any Restricted Stock held by such Grantee that has
not vested, or with respect to which all applicable restrictions and
conditions have not lapsed, shall immediately be deemed forfeited, unless the
Board, in its discretion, determines otherwise. Upon forfeiture of
Restricted Stock, the Grantee shall have no further rights with respect to
such Grant, including but not limited to any right to vote Restricted Stock
or any right to receive dividends with respect to shares of Restricted Stock.
(f) Rights in the Event of Total Disability or Death. The rights of
a Grantee with respect to Restricted Stock in the event such Grantee
terminates employment/directorship with Magellan by reason of Total
Disability or death shall be determined by the Board at the time of Grant.
(g) Delivery of Stock and Payment Therefor. Upon the expiration or
termination of the Restricted Period and the satisfaction of any other
conditions prescribed by the Board, the restrictions applicable to shares of
Restricted Stock shall lapse, and, upon payment by the Grantee to Magellan,
in cash or by check, of the aggregate par value of the shares of Stock
represented by such Restricted Stock, a stock certificate for such shares
shall be delivered, free of all such restrictions, to the Grantee or the
Grantee's beneficiary or estate, as the case may be.
13. FORFEITURE CONDITIONS
Subject to applicable law, the Board may provide in an Award Agreement
for conditions of forfeiture for "cause" of any Grantee's rights with respect
to a Grant. "Cause" shall include engaging in an activity that is
detrimental to the Company including, without limitation, criminal activity,
failure to carry out the duties assigned to the Grantee as a result of
incompetence or willful neglect, conduct casting such discredit on the
Company as in the opinion of the Board justifies termination or forfeiture of
the Grant, or such other reasons, including the existence of a conflict of
interest, as the Board may determine. "Cause" is not limited to events that
have occurred prior to the Grantee's termination of service, nor is it
necessary that the Board's finding of "cause" occur prior to such
termination. If the Board determines, subsequent to a Grantee's
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termination of service but prior to the exercise of any rights under a Grant,
that either prior or subsequent to the Grantee's termination the Grantee engaged
in conduct that would constitute "cause," then the rights with respect to a
Grant shall be forfeited.
14. COMPLIANCE WITH SECURITIES LAWS
(a) The delivery of Stock upon the exercise of an option or lapse of
a Restricted Period shall be subject to compliance with (i) applicable
federal and state laws and regulations, (ii) all applicable listing
requirements of any national securities exchange or national market system on
which the Stock is then listed or quoted, and (iii) Company counsel's
approval of all other legal matters in connection with the issuance and
delivery of such Stock. If the sale of Stock has not been registered under
the Securities Act of 1933, as amended, the Company may require, as a
condition to exercise of the option or receipt of Restricted Stock, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
(b) It is the intent of the Company that Grants pursuant to the Plan
and the exercise of options granted hereunder will qualify for the exemption
provided by Rule 16b-3 under the Exchange Act. To the extent that any
provision of the Plan or action by the Board does not comply with the
requirements of Rule 16b-3 in respect of an employee or director subject to
Section 16(b) of the Exchange Act, it shall be deemed inoperative to the
extent permitted by law and deemed advisable by the Board, and shall not
affect the validity of the Plan. In the event that Rule 16b-3 is revised or
replaced, the Board may exercise its discretion to modify this Plan in any
respect necessary to satisfy the requirements of, or take advantage of any
features of the revised exemption or its replacement.
15. MERGERS, etc.
(a) Effect on Options and Plan. Except as otherwise provided herein,
all options outstanding under the Plan shall accelerate and become
immediately exercisable for a period of fifteen days (or such longer or
shorter period as the Board may prescribe) immediately prior to the scheduled
consummation of a Terminating Transaction, which exercise shall be (i)
conditioned upon the consummation of the Terminating Transaction and (ii)
effective only immediately before the consummation of such Terminating
Transaction. Upon consummation of any such event, the Plan and all
outstanding but unexercised options shall terminate. Notwithstanding the
foregoing, to the extent provision is made in writing in connection with such
Terminating Transaction, for the continuation of the Plan and the assumption
of options under the Plan theretofore granted, or for the substitution for
such options of new options covering the stock of a successor company, or a
parent or subsidiary thereof, with appropriate adjustments as to the number
and kinds of shares or units and exercise prices, then the Plan and options
theretofore granted shall continue in the manner and under the terms so
provided, and the acceleration and termination provisions set forth in the
first two sentences of this Section 15(a)
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shall be of no effect. The Company shall send written notice of a Terminating
Transaction to all individuals who hold options not later than the time at which
the Company gives notice thereof to its stockholders.
b. Effect on Restricted Stock. All outstanding shares of Restricted
Stock shall be deemed to have vested, and all restrictions and conditions
applicable to such shares of Restricted Stock shall be deemed to have lapsed
immediately prior to the occurrence of a Terminating Transaction.
16. TAXES
The Board shall make such provisions and take such steps as it deems
necessary or appropriate for the withholding of any federal, state, local and
other tax required by law to be withheld with respect to the grant or
exercise of options, or the vesting of or other lapse of restrictions
applicable to Restricted Stock, or with respect to the disposition of Stock
acquired pursuant to the Plan, including, but without limitation, the
deduction of the amount of any such withholding tax from any compensation or
other amounts payable to a Grantee, or requiring a Grantee (or the optionee's
beneficiary or legal representative), as a condition of a Grant or exercise
of an option or receipt of Restricted Stock, to pay to the appropriate
Participating Company any amount required to be withheld, or to execute such
other documents as the Board deems necessary or desirable in connection with
the satisfaction of any applicable withholding obligation.
17. EMPLOYMENT RIGHTS
Neither the adoption of the Plan nor the making of any Grants shall
confer upon any Grantee any right to continue as an employee or director of,
or consultant to, any Participating Company or affect in any way the right of
any Participating Company to terminate them at any time. Except as
specifically provided by the Board in any particular case, the loss of
existing or potential profit in Grants under this Plan shall not constitute
an element of damages in the event of termination of the relationship of a
Grantee even if the termination is in violation of an obligation of the
Company to the Grantee by contract or otherwise.
18. AMENDMENT OR TERMINATION OF PLAN
(a) Neither adoption of the Plan nor the making of any Grants shall
affect the Company's right to make awards to any person that is not subject
to the Plan, to issue to such persons Stock as a bonus or otherwise, or to
adopt other plans or arrangements under which Stock may be issued.
(b) The Board may at any time discontinue granting awards under the
Plan. With the consent of the Grantee, the Board may at any time cancel an
existing Grant in whole or in part
11
<PAGE> 12
and make any other Grant for such number of shares as the Board specifies. The
Board may at any time, prospectively or retroactively, amend the Plan or any
outstanding Grant for the purpose of satisfying the requirements of I.R.C.
Section 422 or of any changes in applicable laws or regulations or for any other
purpose that may at the time be permitted by law, or may at any time terminate
the Plan as to further grants of awards, but no such amendment shall materially
adversely affect the rights of any Grantee (without the Grantee's consent) under
any outstanding Grant.
(c) In the Board's discretion, the Board may, with an optionee's
consent, substitute Nonstatutory Options for outstanding Incentive Options,
and any such substitution shall not constitute a new option grant for the
purposes of the Plan, and shall not require a revaluation of the option
exercise price for the substituted option. Any such substitution may be
implemented by an amendment to the applicable option agreement or in such
other manner as the Board in its discretion may determine.
19. FINANCIAL STATEMENTS
The Company shall deliver annually to each Grantee a balance sheet and
income statement of the Company. This section shall not apply to any Grantee
who is a member of the Board or a key employee whose duties in connection
with the Company assure such person access to equivalent information.
20. GENERAL PROVISIONS
(a) Titles and Headings. Titles and headings of sections of the Plan
are for convenience of reference only and shall not affect the construction
of any provision of the Plan.
(b) Governing Law. The Plan shall be governed by, interpreted under
and construed and enforced in accordance with the internal laws, and not the
laws pertaining to conflicts or choice of laws, of the State of Delaware,
applicable to agreements made and to be performed wholly within the State of
Delaware.
(c) Severability. If any provision of the Plan or any Award
Agreement shall be determined to be illegal or unenforceable by any court of
law in any jurisdiction, the remaining provisions hereof and thereof shall be
severable and enforceable in accordance with their terms, and all provisions
shall remain enforceable in any other jurisdiction.
12
<PAGE> 13
* * *
The Plan was duly adopted by the Board of Directors of the Company as
of January 28, 1998.
----------------------------------------
Leslie C. Seeman
Vice President, General Counsel and Secretary
of the Company
13
<PAGE> 1
Exhibit 10.22
[ORBITAL LETTERHEAD]
July 28, 1997
Robert R. Lovell
162 Wilton Creek Road
Hartfield, Virginia 23071
Dear Bob:
This letter confirms my verbal offer to you to join Orbital Sciences Corporation
as Executive Vice President and General Manager of our Space Systems Group, with
responsibilities that include executive management and related duties of our
satellite and space support services businesses based in Dulles and McLean,
Virginia, and Germantown and Greenbelt, Maryland. You would report to me, be
based at our headquarters in Dulles, Virginia, and assume this position upon the
closing of Orbital's acquisition of CTA Incorporated's space business. The
compensation package that I propose for this position is outlined below.
Your compensation package would consist of several elements. First, your base
salary would be at the rate of $300,000 per year, paid on a bi-weekly basis and
reviewed on an annual basis. Second, as a senior executive, you would
participate in our management incentive plan, which provides an annual
performance bonus in January of each year of up to 50% of base salary, based on
overall company and operating group performance during the year. Third, you
would be granted options to purchase 50,000 shares of Orbital common stock at
fair market value on the date of grant in accordance with the terms of Orbital's
1997 Stock Option and Incentive Plan. In addition, as we discussed, you would
participate in a special new business incentive plan, as outlined in Exhibit A
hereto, and would be eligible for stock option grants in our International
Satellite Holdings, Inc. subsidiary when it is established later this year.
Fourth, in recognition of the fact that you will be living temporarily in the
Northern Virginia area away from your home in Hartfield, Virginia, you will
receive a housing allowance of $2,000 per month. Fifth, you would be eligible
for Orbital's standard Change of Control Agreement and Indemnification
Agreement, copies of which are attached hereto.
You also would be eligible for Orbital's deferred salary profit-sharing plan
(our "401(k) Plan"), to which the company annually contributes an amount up to
4% of your salary, dependent upon company performance. In addition, Orbital will
match your voluntary
<PAGE> 2
Robert R. Lovell
July 28, 1997
Page Two
tax-deferred contributions to the plan with an amount up to 4% of your salary.
(Employee tax-deferred contributions to the plan are currently limited by law to
$9,500 per year.) In addition, Orbital provides life, medical, dental and
disability insurance programs for employees and eligible dependents. Our leave
policy consists of four weeks per year of combined annual and sick leave, and we
also recognize ten annual holidays.
If these terms are acceptable, please forward your acknowledgment to us by
signing below.
Bob, I am very excited about the prospect of you joining our team and helping to
make the company the world's leading space enterprise in the 21st Century. All
of us at Orbital look forward to working with you in the years ahead.
With best regards,
David W. Thompson
President and Chief Executive Officer
Enclosures
ACCEPTANCE:
/s/ ROBERT R. LOVELL
- - ---------------------------------- ---------------
Robert R. Lovell (Date)
<PAGE> 3
Exhibit A
SPECIAL NEW BUSINESS INCENTIVE PLAN
Special cash bonuses paid (shared 1/2 by Robert R. Lovell and 1/2 by Ricardo de
Bastos) as follows:
1/4% for first $25 million (after initial $100 million) in
SSG-generated, firm backlog new business booked in each July 1 - June 30
12-month period
3/8% for next $50 million in SSG-generated, firm backlog new business
booked in each July 1 - June 30 12-month period
1/2% for next $75 million in SSG-generated, firm backlog new business
booked in each July 1 - June 30 12-month period
(Maximum bonus = $625,000 per year/$312,500 per person)
Notes:
1. If another Orbital division is responsible for bringing in new business
that includes a satellite order, only that satellite is credited under
the Incentive Plan.
2. If SSG is responsible for bringing in new business that includes launch
vehicles, ground stations, or other products other than satellites, all
such other products are also credited under the Incentive Plan.
3. For the purposes of this Plan, sales made by ISH shall be considered in
the same fashion as sales made directly by SSG (as in (2.) above).
<PAGE> 1
Exhibit 10.23
FORM OF
OFFICER INDEMNIFICATION AGREEMENT
This Indemnification Agreement is made and entered into as of
__________________, 19___, by and between ORBITAL SCIENCES CORPORATION (the
"Corporation") and (the "Officer").
W I T N E S S E T H:
WHEREAS, the Officer has agreed to serve as an officer of the
Corporation; and
WHEREAS, the Corporation wishes to indemnify the Officer against
certain liabilities and expenses that may be incurred in connection with the
Officer's service on behalf of the Corporation.
NOW THEREFORE, the parties hereto agree, subject to the terms and
conditions hereof, as follows:
1. Indemnification Agreement.
a. Third Party Actions. The Corporation shall indemnify and hold
harmless the Officer in the event that the Officer 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 right of the Corporation) by reason of the fact
that the Officer (A) is or was a director, officer, employee or agent of (i) the
Corporation or (ii) any subsidiary of the Corporation or any corporation,
partnership or other entity affiliated with the Corporation (each of the
foregoing being hereinafter referred to as an "Affiliate") or (B) is or was
serving at the request of the Corporation or any Affiliate as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (including any employee benefit plan of the
Corporation or any Affiliate) against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the Officer in connection with such action, suit or proceeding if the Officer
acted in good faith and in a manner the Officer 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 Officer's
conduct was unlawful; provided, however, that the foregoing shall not require
the 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.
b. Actions By or In Right of the Corporation. The Corporation shall,
to the full extent permitted by applicable law as then in effect, indemnify and
hold harmless the Officer in the event that the Officer 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 right of the Corporation to procure a judgment in its favor by
reason of the fact that the Officer (A) is or was a director, officer, employee
or agent of the Corporation or any Affiliate or (B) is or was serving at the
request of
<PAGE> 2
the Corporation or any Affiliate as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(including any employee benefit plan of the Corporation or any Affiliate)
against expenses (including attorneys' fees) actually and reasonably incurred by
the Officer in connection with the defense or settlement of such action or suit
if the Officer acted in good faith and in a manner the Officer 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 the Officer shall have been adjudged to be liable to the
Corporation unless and only to the extent that the court in which such action
was brought shall determine that the Officer is entitled to be indemnified.
c. Nature of Right; Non-Exclusivity; Survival. The indemnification
provided by this Agreement shall be a contract right of the Officer and shall
not be deemed exclusive of and shall be in addition to, and not in lieu of, any
other rights to which the Officer may be entitled under any provision of the
Corporation's Certificate of Incorporation or By-Laws or pursuant to any
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in the Officer's official capacity and as to action in another
capacity while holding such office. The indemnification and advancement of
expenses provided by this Agreement shall continue as to the Officer when the
Officer has ceased to be a director, officer, employee or agent of the
Corporation and shall inure to the benefit of the Officer's heirs, executors and
administrators.
2. Advancement of Expenses; Procedures; Presumptions. In furtherance,
but not in limitation of the foregoing provisions, the following procedures and
presumptions shall apply with respect to the advancement of expenses and the
right to indemnification under this Agreement:
a. Advancement of Expenses. All reasonable expenses incurred by the
Officer in defending an action, suit or proceeding for which indemnification may
be had under Section 1(a) shall be advanced to the Officer by the Corporation
within ten (10) days after submission by the Officer to the Corporation of each
statement requesting such advance and setting forth in reasonable detail such
expenses, whether prior to or after final disposition of such action, suit or
proceeding; provided, however, that if required by law at the time such
advancement of expenses is to be made, then no such advancement shall be made
except upon receipt of an undertaking by or on behalf of the Officer, in form
and substance satisfactory to the Corporation, to repay any amounts advanced to
the Officer pursuant to this Section 2(a) if it shall ultimately be determined
that the Officer is not entitled to be indemnified by the Corporation with
respect to the matter for which such advancement was made.
b. Procedure for Determination of Entitlement to Indemnification. To
obtain indemnification under this Agreement, the Officer shall submit to the
Secretary of the Corporation a written request therefor, including such
documentation and information as is reasonably available to the Officer and
reasonably necessary to determine whether and to what extent the Officer is
entitled to indemnification (the "Supporting Documentation"). The determination
of the Officer's entitlement to indemnification shall be made by the
Corporation's Board of Directors (the "Board") or in such other manner as
required by law as then in effect not later than sixty (60) days after receipt
by the Corporation of the Officer's written request for indemnification together
with the Supporting Documentation. The Secretary of the Corporation
-2-
<PAGE> 3
shall, promptly upon receipt of such a request for indemnification, advise the
Board in writing that the Officer has requested indemnification.
c. Presumptions and Effect of Certain Proceedings. Except as otherwise
expressly provided in this Agreement, the Officer shall be presumed to be
entitled to indemnification under this Agreement upon submission of a written
request for indemnification together with the Supporting Documentation in
accordance with Section 2(b) hereof, and thereafter the Corporation shall have
the burden of proof to overcome such presumption in reaching a contrary
determination. In any event, if a determination of the Officer's entitlement to
indemnification shall not have been made within sixty (60) days after receipt by
the Corporation of the Officer's written request therefor together with the
Supporting Documentation, the Officer shall be deemed to be entitled to
indemnification and shall be entitled to such indemnification unless (A) the
Officer misrepresented or failed to disclose a material fact in making the
request for indemnification or (B) such indemnification is prohibited by
applicable law as then in effect. 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, adversely affect the right of
the Officer to indemnification or create a presumption that the Officer did not
act in good faith and in a manner which the Officer reasonably believed to be in
or not opposed to the best interests of the Corporation or, with respect to any
criminal action or proceeding, that the Officer had reasonable cause to believe
that his or her conduct was unlawful.
3. Notification and Defense of Claim. Promptly after receipt of notice
of the commencement of any action, suit or proceeding, the Officer shall, if a
claim for indemnification in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof, but the omission so to notify the Corporation will not relieve the
Corporation from any liability that the Corporation may have to the Officer
under this Agreement unless the Corporation is materially prejudiced thereby.
With respect to any such action, suit or proceeding as to which the Officer
notifies the Corporation of the commencement thereof:
a. The Corporation will be entitled to participate therein at its own
expense;
b. Except as otherwise provided below, the Corporation jointly with
any other indemnifying party similarly notified will be entitled to assume the
defense thereof, with counsel reasonably satisfactory to the Officer. After
notice from the Corporation to the Officer of the Corporation's election to
assume the defense thereof, the Corporation will not be liable to the Officer
under this Agreement for any legal or other expenses subsequently incurred by
the Officer in connection with the defense thereof other than reasonable costs
of investigation or as otherwise provided below. The Officer shall have the
right to employ the Officer's own counsel in any such action, suit or
proceeding, but the fees and disbursements of such counsel incurred after notice
from the Corporation of the Corporation's assumption of the defense thereof
shall be at the expense of the Officer unless (i) the employment of counsel by
the Officer has been authorized by the Corporation, (ii) the Officer shall have
reasonably concluded that there may be a conflict of interest between the
Corporation and the Officer in the conduct of the defense of such action, suit
or proceeding, (iii) such action, suit or proceeding seeks penalties or other
relief against the Officer with respect to which the Corporation could not
provide monetary indemnification to the Officer (such as injunctive relief or
incarceration) or (iv) the Corporation
-3-
<PAGE> 4
shall not in fact have employed counsel to assume the defense of such action,
suit or proceeding, in each of which cases the reasonable fees and disbursements
of the Officer's counsel shall be at the expense of the Corporation. The
Corporation shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Corporation, or which involves
penalties or other relief against the Officer of the type referred to in clause
(iii) above; and
c. The Corporation shall not be liable to indemnify the Officer under
this Agreement for any amounts paid in settlement of any action, suit or
proceeding entered into without the Corporation's written consent. The
Corporation shall not settle any action, suit or proceeding in any manner that
would impose any penalty or limitation on the Officer without the Officer's
written consent. Neither the Corporation nor the Officer will unreasonably
withhold consent to any proposed settlement.
4. Expenses of Enforcing Agreement or Other Indemnification Rights. The
Corporation agrees to pay all out-of-pocket expenses of the Officer (including
reasonable fees and expenses of the Officer's counsel) in connection with any
action brought by the Officer to enforce any provision of this Agreement or in
connection with any action brought by the Officer to enforce the Officer's right
to indemnification under applicable law as then in effect or under the
Corporation's or any Affiliate's Certificate of Incorporation or By-Laws, as
either may be amended from time to time, in any case only if and to the extent
that the Officer prevails in such action.
5. Corporation's Right to Indemnification. Nothing in this Agreement
shall diminish, limit or otherwise restrict or modify in any way the
Corporation's right to indemnification or contribution from the Officer or the
Officer's obligation to indemnify or hold harmless the Corporation under any
agreement, instrument, commitment or understanding now or hereafter in effect.
6. Amendments and Waiver.
a. No amendment, modification or discharge of this Agreement, and no
waiver hereunder, shall be valid or binding unless set forth in writing and duly
executed by both of the parties hereto. Neither the waiver by any of the parties
hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure of any of the parties, on one or more occasions, to
enforce any of the provisions of this Agreement or to exercise any right or
privilege hereunder shall thereafter be construed as a waiver of any subsequent
breach or default of a similar nature, or as a waiver of any of such provisions,
rights or privileges hereunder. No delay or failure on the part of any party in
exercising any right, power or privilege under this Agreement or under any other
instruments given in connection with or pursuant to this Agreement shall impair
any such right, power or privilege or be construed as a waiver of any default or
any acquiescence therein. No single or partial exercise of any such right, power
or privilege shall preclude the further exercise of such right, power or
privilege, or the exercise of any other right, power or privilege.
b. No amendment or repeal of the Corporation's or any Affiliate's
Certificate of Incorporation or By-Laws shall adversely affect or deny to the
Officer the rights of indemnification provided herein with respect to any
action, suit or proceeding relating to any act
-4-
<PAGE> 5
or omission, or alleged act or omission, of the Officer that occurs before such
amendment or repeal; and the provisions of this Agreement shall apply to any
such action, suit or proceeding whenever commenced, including any such action,
suit or proceeding commenced after any such amendment or repeal of the
Corporation's or any Affiliate's Certificate of Incorporation or By-Laws.
7. Subrogation. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Officer, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution and delivery of such documents as may be necessary, in the reasonable
judgment of the Corporation, to enable the Corporation effectively to bring suit
to enforce such rights.
8. No Duplication of Payment. The Corporation shall not be liable under
this Agreement to make any payment in connection with any claim made against the
Officer to the extent the Officer has otherwise actually received payment (under
any provision of applicable law as then in effect, under any provision of the
Certificate of Incorporation or By-Laws of the Corporation or any Affiliate,
under any insurance policy or otherwise) of amounts otherwise indemnifiable
hereunder.
9. Severability. If, at any time subsequent to the date hereof, any
provisions of this Agreement shall be held by any court of competent
jurisdiction to be illegal, void or unenforceable, such provision shall be of no
force and effect; but the illegality or unenforceability of such provision shall
have no effect upon and shall not impair the enforceability of any other
provision of this Agreement.
10. Governing Law; Headings. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in such state without giving
effect to the conflicts of laws principles thereof. The section and other
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
11. Benefit; Assignment; Binding Effect. It is the explicit intention of
the parties hereto that no person or entity other than the parties hereto is or
shall be entitled to bring any action to enforce any provision of this Agreement
against either of the parties hereto, and that the covenants, undertakings and
agreements set forth in this Agreement shall be solely for the benefit of, and
shall be enforceable only by, the parties hereto or their respective successors
and assigns as permitted hereunder. The Officer may not assign the Officer's
rights under this Agreement. The Officer may not attempt to have any other
person or entity assume the Officer's obligations under this Agreement without
the prior written consent of the Corporation. The rights and obligations of the
Corporation under this Agreement may be freely assigned to any person or entity
as long as the obligations of the Corporation hereunder are satisfied in full.
Subject to the foregoing provisions restricting assignment of this Agreement,
this Agreement shall be binding upon and shall inure to the benefit of the
Officer and the Corporation and their respective successors and permitted
assigns.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement or have caused this Agreement to be executed and delivered as of
the day and year first above written.
ORBITAL SCIENCES CORPORATION: OFFICER:
By
----------------------------- ----------------------------
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<PAGE> 1
Exhibit 10.24
FORM OF
EXECUTIVE EMPLOYMENT AGREEMENT
Date
Address
Dear :
Orbital Sciences Corporation and its subsidiaries (together, the
"Company") consider the maintenance of a sound and vital management to be
essential to protecting and enhancing the best interests of the Company and its
stockholders. In this connection, the Company recognizes that the possibility of
a change in control may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
stockholders. Accordingly, the Company's Board of Directors (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage the
continued attention and dedication of members of the Company's management,
including yourself, to their assigned duties without distraction in the face of
the potentially disturbing circumstances arising from the possibility of a
change in control of the Company.
This letter agreement (the "Agreement") sets forth the severance
benefits that the Company agrees will be provided to you in the event your
employment with the Company terminates following a "Change in Control" (as
defined in Section 2 hereof) under the circumstances described below. This
Agreement is not an employment contract nor does it alter your status as an
at-will employee of the Company. No benefit shall be payable under this
Agreement except on termination of your employment with the Company as a result
of a Change in Control (as defined below).
1. Term. This Agreement shall commence on the date hereof and shall
remain in effect so long as you are employed as an executive officer of the
Company, provided, however, that in the event of a Change in Control, this
Agreement shall remain in full force and effect for a 24-month period commencing
on the date of the Change in Control regardless of whether you remain an
executive officer of the Company during such 24-month period.
2. Change in Control. For purposes of this Agreement, a Change in
Control shall mean:
(a)the acquisition by any individual, entity or group (within
the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934 (the "Exchange
<PAGE> 2
Page 2
Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 of the Exchange Act) of 30% or more of
either (i) the then outstanding shares of common stock of the
Company or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors;
(b)within any 24-month period, the persons who were directors of
the Company immediately prior thereto (the "Incumbent Board")
shall cease to constitute a majority of the Board of Directors
of the Company or of its successor by merger, consolidation or
sale of assets. For this purpose, the Incumbent Board includes
any new director whose (i) election to the Board resulted from
a vacancy caused by the retirement, death or disability of a
director and was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the
beginning of the period, or (ii) nomination to the Board was
approved by a committee of the Board whose majority consisted
of directors who were directors in office at the beginning of
the period; or
(c)the consummation by the Company of a reorganization, merger,
consolidation or sale or disposition of all or substantially
all the assets of the Company (other than any such transaction
initiated by the action of the Board) (a "Business
Combination"), the result of which is that (i) the
stockholders of the Company at the time of the execution of
the agreement to effect the Business Combination own less than
60% of the total equity of the surviving or resulting entity
entitled to vote generally in the election of directors, (ii)
a Person (excluding any corporation resulting from the
Business Combination) becomes the beneficial owner of 20% or
more of the then outstanding shares of common stock of the
corporation resulting from such Business Combination or (iii)
at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination
were members of the Board of Directors of the Company at the
time of execution of the initial agreement or other action of
the Board that provided for such Business Combination.
Notwithstanding the above, a Change in Control shall not be deemed to
occur as a result of a transaction where either you, individually or as an
officer, director or 5% stockholder or partner of any entity, or any employee
benefit plan (or related trust) of the Company (a) becomes the beneficial owner
of securities representing 30% or more of the combined voting power of the
Company 's then outstanding securities, or (b) enters into an agreement with the
Company providing for the merger, consolidation, or sale or transfer of all or
substantially all the assets of the Company. In addition, a Change in Control
shall not be deemed to occur where you enter into an employment agreement with
the Company, any Person whose acquisition of the
<PAGE> 3
Page 3
Company's securities resulted in the Change in Control or any entity resulting
from a Business Combination.
3. Termination Following Change in Control. If a Change in Control as
described in Section 2 occurs, you shall be entitled to the benefits provided in
Section 4 of this Agreement if your employment is terminated by the Company for
Disability or Cause, as described below, or by you for Good Reason, as described
below.
(i) Disability. If, as a result of your incapacity due to physical
or mental illness, you shall have been absent from your duties with the
Company on a full-time basis for nine consecutive months, and within 30 days
after written notice of termination is given you shall not have returned to the
full-time performance of your duties, the Company may terminate your employment
for "Disability."
(ii) Cause. Termination by the Company of your employment for
"Cause" shall mean termination on (A) the willful and continued failure by you
substantially to perform your duties with the Company in accordance with the
instructions of the Board or the executive officers to whom you report (other
than any such failure resulting from your incapacity due to physical or mental
illness), after a demand for substantial performance is delivered to you by the
Board which specifically identifies the manner in which the Board believes that
you have not substantially performed your duties, or (B) the willful engaging by
you in conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. For purposes of this Subsection, no act, or failure to
act, on your part shall be considered "willful" unless done, or omitted to be
done, by you not in good faith and without reasonable belief that your action or
omission was in the best interest of the Company. Notwithstanding the foregoing,
you shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the entire membership of the
Board at a meeting of the Board called and held for the purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board you were guilty of conduct set forth above in clause (A) or (B) of the
first sentence of this Subsection and specifying the particulars thereof in
detail.
(iii) Good Reason. You shall be entitled to terminate your
employment for Good Reason in connection with a Change in Control. For purposes
of this Agreement, "Good Reason" shall mean:
(A) without your written consent, the assignment to you of any
position (including status, offices, titles and reporting requirements),
authorities, duties and responsibilities, that are not at least
commensurate in all material respects with the most significant of those
held, exercised and assigned by you at any time during the 180-day
period immediately preceding a Change in Control, or any other action by
the Company
<PAGE> 4
Page 4
that results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and that is
remedied by the Company promptly after receipt of notice thereof given
by you;
(B) a reduction by the Company in your annual base salary
("Annual Base Salary"), which for the purposes of this Agreement shall
mean an amount at least equal to 12 times the highest monthly base
salary paid or payable, including any base salary that has been earned
but deferred, to you by the Company in respect of the 12-month period
immediately preceding the month in which the Change of Control occurs;
(C) the Company's requiring you to be based anywhere other than
the office of the Company in which you are based prior to the Change in
Control or any office or location within a 50 mile radius of such
office, except for required travel on the Company's business to an
extent substantially consistent with your present business travel
obligations;
(D) the failure by the Company to continue in effect any
compensation plan in which you participate, or to provide you with plans
substantially similar, including but not limited to any stock purchase
plan, stock option plan, incentive compensation, bonus, and other plan
in which you were participating at the time of the Change in Control, or
the failure by the Company to continue your participation therein;
(E) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Company's retirement, pension, 401(k), deferred compensation, life
insurance, medical, health, accident, disability or other benefit plans
in which you were participating at the time of a Change in Control, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits enjoyed by you at the time of the
Change in Control, or the failure by the Company to provide you with the
number of paid vacation days to which you are entitled in accordance
with the Company's normal vacation policy in effect at the time of the
Change in Control;
(F) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 5 hereof; or
(G) any termination of your employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of
Section 3(iv) hereof (and, if applicable, Section 3(ii) hereof); and for
purposes of this Agreement, no such purported termination shall be
effective.
<PAGE> 5
Page 5
(iv) Notice of Termination. Any termination by the Company or by
you shall be communicated by written Notice of Termination to the other party
hereto in accordance with Section 6 hereof, and if by the Company for Cause,
shall not be effective unless such notice includes the information set forth in
Section 3(ii) hereof.
(v) Date of Termination, etc. "Date of Termination" shall mean
(A) if your employment is terminated by reason of death or Disability, the date
of your death or 30 days after Notice of Termination is given (provided that you
shall not have returned to the performance of your duties on a full-time basis
during such 30 day period), as the case may be, (B) if your employment is
terminated by the Company for Cause or for any other reason, the date specified
in the Notice of Termination which shall not be less than 30 days from the date
such Notice of Termination is given, and (C) if you terminate your employment
for "Good Reason," the date such Notice of Termination is given or any later
date specified therein.
4. Benefits Upon Termination or During Disability.
(i) During any period that you fail to perform your duties
hereunder as a result of incapacity due to physical or mental illness, and in
the event your employment is terminated pursuant to Section 3(i) hereof, your
benefits shall be determined in accordance with the Company's insurance and
benefit programs then in effect.
(ii) If your employment shall be terminated for Cause, the
Company shall pay you your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given, and the Company
shall have no further obligations to you under this Agreement.
(iii) If your employment shall be terminated immediately prior to
or any time after a Change in Control (a) by the Company for any reason other
than for Cause or Disability or (b) by you for Good Reason, then you shall be
entitled to all the benefits provided below:
(A) The Company shall pay you on the Date of Termination your
full base salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given.
(B) In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay to you, not
later than 15 days following the Date of Termination, a lump sum payment
equal to two times the sum of (a) your Annual Base Salary and (b) the
sum of any incentive, annual and other cash bonuses, paid to you for the
12-month period immediately preceding the month in which the Change in
Control occurred.
<PAGE> 6
Page 6
(C) The Company shall also immediately fully vest you in all your
account balances under the Company's retirement, deferred compensation
and pension plans (the "Plans"); provided, however, that should the
Company be unable to provide for such vesting under the terms of any
such Plans, the Company shall pay to you in the manner and as directed
by you, an amount that equals on an after-tax basis the value of any
amounts that were not vested or would otherwise be forfeited by you
under the Plans upon your termination of employment with the Company.
(D) The Company shall also allow you the opportunity to surrender
to the Company any then outstanding vested and unvested options (whether
exercisable or not) to purchase Common Stock of the Company and any of
its subsidiaries and affiliates that you own and that you did not
previously surrender or convert in the transaction that resulted in the
Change in Control, and the Company shall promptly pay to you in
consideration therefor a cash payment equal to the difference between
the respective exercise price for such options and the higher of the (a)
highest price paid in connection with the transaction that resulted in
the Change in Control or (b) then current fair-market value.
(E) The Company shall also pay to you all reasonable legal fees
and expenses incurred by you as a result of such termination (including
all such fees and expenses, if any, incurred in contesting or disputing
any such termination or in seeking to obtain or enforce any right or
benefit provided by this Agreement) upon presentation to the Company of
a reasonably detailed invoice for such expenses, whether or not you have
already made payment for such expenses.
(F) For a 24-month period after such termination, the Company
shall arrange to provide you with life, disability, accident and health
insurance benefits substantially similar to those you were receiving
immediately prior to the Notice of Termination, provided, however, that
should the Company be unable to provide for any such benefits under the
terms of the benefit plans, or by law, the Company shall pay you an
amount equal to the premiums the Company would have paid for such
benefits under such plans.
(G) You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for
in this Section 4 be reduced by any compensation earned by you as the
result of employment by another employer or by retirement benefits after
the Date of Termination, or otherwise.
(H) In addition to all other amounts payable to you under this
Section 4, you shall be entitled to receive all benefits payable to you
under any of the Company's plans or agreements relating to retirement
benefits.
<PAGE> 7
Page 7
(iv) All payments required to be made by the Company hereunder to
you shall be subject to the withholding of such amounts relating to Federal,
state, local or foreign taxes as the Company reasonably may determine it should
withhold pursuant to any applicable law or regulation. Notwithstanding any other
provision of this Agreement or of any other agreement, contract or understanding
heretofore or hereafter entered into by you and the Company, you shall not have
any right to receive any payment or other benefit under this Agreement if such
payment or benefit, taking into account all other payments to or benefits
received by you, would cause any payment to you under this Agreement to be
considered a "parachute payment" within the meaning of Section 280G(b)(2) of the
Internal Revenue Code (a "Parachute Payment"). In the event that the receipt of
any such payment or benefit under this Agreement would cause you to be
considered to have received a Parachute Payment under this Agreement, then you
shall have the right, in your sole discretion, to designate those payments or
benefits under this Agreement which should be reduced or eliminated so as to
avoid having the payment to you under this Agreement be deemed to be a Parachute
Payment.
5. Successors; Binding Agreement.
(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all its business and/or assets to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement no later than ten
days prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle you to compensation from the Company in the same
amount and on the same terms as you would be entitled under section 4(iii),
except that for purposes of implementing the foregoing, a date ten days prior to
the date on which any such succession becomes effective shall be deemed the Date
of Termination. As used in this Agreement, "the Company" shall mean the Company,
as hereinbefore defined and any successor to its business and/or assets that
assumes and agrees to perform this Agreement by executing and delivering the
agreement provided for in this paragraph 5, by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees. If you
should die while any amount would still be payable to you hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or if there
is no such designee, to your estate.
6. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by registered mail,
return receipt requested, postage prepaid, addressed (i) if to the Company, to
Orbital Sciences Corporation, 21700 Atlantic Boulevard, Dulles,
<PAGE> 8
Page 8
Virginia 20166, Attn: Secretary of the Company, and (ii) if to you, to the
address set forth on the first page of this Agreement, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
7. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be specifically designated by
the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement, and this Agreement
supersedes all prior agreements between the Company and you with respect to the
subject matter herein. The validity, interpretation construction and performance
of this Agreement shall be governed by the local laws of the Commonwealth of
Virginia (regardless of the laws that might otherwise govern under principles of
conflicts of law).
8. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Washington, D.C. in accordance with the domestic rules of the American
Arbitration Association then in effect. Pending the resolution of such dispute
or controversy, the Company will continue to pay you your full base salary in
effect when the notice giving rise to the dispute was given and you will
continue as a participant in all incentive compensation, stock option,
retirement, deferred compensation, pension, life, disability, health and
accident plans in which you were participating when the notice giving rise to
dispute was given, unless you have already received all benefits payable under
Section 4(iii) of this Agreement. Judgment may be entered on the arbitrator's
award in any court having jurisdiction; provided, however, that you shall be
entitled to seek specific performance of your right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
<PAGE> 9
Page 9
If this Agreement correctly sets forth our agreement on the subject
matter hereof, kindly sign both of the enclosed copies, keeping one for your
files and returning the other to the Company.
Sincerely,
ORBITAL SCIENCES CORPORATION
- - -----------------------------
By: David W. Thompson
President and Chief Executive Officer
Agreed to:
- - -----------------------------
Name:
Date:
<PAGE> 1
EXHIBIT 11.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED DECEMBER 31, 1998
ASSUMING
BASIC DILUTION (2)
----------------------- ------------------
<S> <C> <C>
Weighted average of outstanding shares 36,885,745 36,885,745
Common equivalent shares:
Outstanding stock options N/A 1,094,486
Other potentially dilutive securities:
Convertible Notes (1) N/A 3,571,429
----------------------- ------------------
Shares used in computing
net income per common share 36,885,745 41,551,660
======================= ==================
Net income $ (19,551,000) $(19,551,000)
Adjustments assuming dilution:
Interest expense adjustment, net of applicable taxes N/A 1,198,000
----------------------- ------------------
Net income $ (19,551,000) $(18,353,000)
======================= ==================
Net income per common share ($0.53) ($0.53)
======================= ==================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
ASSUMING
BASIC DILUTION (2)
------------------ ------------------
<S> <C> <C>
Weighted average of outstanding shares 35,624,888 35,624,888
Common equivalent shares:
Outstanding stock options N/A 1,140,270
Other potentially dilutive securities:
Convertible Notes (1) N/A 3,571,429
------------------ ------------------
Shares used in computing
net income per common share 35,624,888 40,336,587
================== ==================
Net income $ (6,372,000) $ (6,372,000)
Adjustments assuming dilution:
Interest expense adjustment, net of applicable taxes N/A 2,682,000
------------------ ------------------
Net income $ (6,372,000) $ (3,690,000)
================== ==================
Net income per common share $ (0.18) $ (0.18)
================== ==================
</TABLE>
Notes:
(1)- On September 16, 1997, the company sold $100 million of 5% convertible
subordinated notes due October 2002. The notes are convertible at the
option of the holders into Orbital common stock at a conversion price of
$28.00 per share.
(2)- Subsidiary stock options that enable holders to obtain subsidiary's
common stock pursuant to effective stock option plans are included in
computing the subsidiary's earnings per share, to the extent dilutive.
Those earnings per share data are included in the company's per share
computations based on the company's holdings of the subsidiary's stock.
For the three months and year ended December 31, 1998, all such
subsidiary stock options were anti-dilutive.
<PAGE> 1
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ORBCOMM GLOBAL, L.P.
Independent Auditors' Report.............................. 41
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... 42
Consolidated Statements of Operations and Comprehensive
Loss for the Years Ended December 31, 1998, 1997 and
1996 and Total Accumulated During Development Stage
through December 31, 1998.............................. 43
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 and Total Cash Flows
During Development Stage through December 31, 1998..... 44
Consolidated Statements of Partners' Capital for the
period June 30, 1993 (date of inception) to December
31, 1998............................................... 45
Notes to Consolidated Financial Statements................ 46
ORBCOMM USA, L.P.
Independent Auditors' Report.............................. 54
Balance Sheets as of December 31, 1998 and 1997........... 55
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996 and Total Accumulated During
Development Stage through December 31, 1998............ 56
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996 and Total Cash Flows During
Development Stage through December 31, 1998............ 57
Statements of Partners' Capital for the period June 30,
1993 (date of inception) to December 31, 1998.......... 58
Notes to Financial Statements............................. 59
ORBCOMM INTERNATIONAL PARTNERS, L.P.
Independent Auditors' Report.............................. 62
Balance Sheets as of December 31, 1998 and 1997........... 63
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996 and Total Accumulated During
Development Stage through December 31, 1998............ 64
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996 and Total Cash Flows During
Development Stage through December 31, 1998............ 65
Statements of Partners' Capital for the period June 30,
1993 (date of inception) to December 31, 1998.......... 66
Notes to Financial Statements............................. 67
ORBITAL COMMUNICATIONS CORPORATION
Independent Auditors' Report.............................. 70
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... 71
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996....................... 72
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996....................... 73
Consolidated Statements of Stockholders' Deficit for the
Years Ended December 31, 1998, 1997, 1996 and 1995..... 74
Notes to Consolidated Financial Statements................ 75
TELEGLOBE MOBILE PARTNERS
Independent Auditors' Report.............................. 81
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... 82
Consolidated Statements of Operations and Comprehensive
Loss for the Years Ended December 31, 1998, 1997 and
1996 and Total Accumulated During Development Stage
Through December 31, 1998.............................. 83
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 and Total Cash Flows
During Development Stage Through December 31, 1998..... 84
Consolidated Statement of Partners' Capital for the period
July 21, 1993 (date of inception) to December 31,
1998................................................... 85
Notes to Consolidated Financial Statements................ 86
ORBCOMM CORPORATION
Independent Auditors' Report.............................. 91
Balance Sheet as of December 31, 1998..................... 92
Note to Financial Statement............................... 93
</TABLE>
40
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Partners
ORBCOMM Global, L.P.:
We have audited the accompanying consolidated balance sheets of ORBCOMM
Global, L.P. and subsidiaries (a development stage enterprise) as of December
31, 1998 and 1997, and the related consolidated statements of operations and
comprehensive loss, partners' capital, and cash flows for each of the years in
the three-year period ended December 31, 1998 and for the period from June 30,
1993 (date of inception) to December 31, 1998. These consolidated financial
statements are the responsibility of the Partnership'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 ORBCOMM
Global, L.P. and subsidiaries (a development stage enterprise) as of December
31, 1998 and 1997, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1998 and for the
period June 30, 1993 (date of inception) to December 31, 1998, in conformity
with generally accepted accounting principles.
KPMG LLP
Washington, DC
March 30, 1999
41
<PAGE> 3
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,799 $ 16,106
Investments............................................... 390 22,756
Other receivables......................................... 248 1,931
Inventory................................................. 6,688 2,160
-------- --------
Total Current Assets................................... 11,125 42,953
Mobile Communications Satellite System, net................. 327,946 263,379
Other assets, net........................................... 4,690 5,527
Investments in and advances to affiliates................... 2,150 4,777
Investment in ORBCOMM Japan, Ltd............................ 333 333
Goodwill.................................................... 390 0
-------- --------
TOTAL ASSETS...................................... $346,634 $316,969
======== ========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Current portion of long-term debt......................... $ 1,190 $ 1,087
Accounts payable -- Orbital Sciences Corporation.......... 50,800 21,100
Accounts payable and accrued liabilities.................. 19,255 17,160
-------- --------
Total Current Liabilities.............................. 71,245 39,347
Revenue participation accrued interest...................... 599 14
Long-term debt.............................................. 170,000 171,190
-------- --------
Total Liabilities...................................... 241,844 210,551
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile Partners................................. 56,520 57,834
Orbital Communications Corporation........................ 48,270 48,584
-------- --------
Total Partners' Capital................................ 104,790 106,418
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL........... $346,634 $316,969
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
42
<PAGE> 4
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
------------------------------ DECEMBER 31,
1998 1997 1996 1998
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales................................... $ 1,262 $ 517 $ 268 $ 2,047
Distribution fees............................... 0 0 100 1,000
Other........................................... 0 10 52 62
-------- -------- -------- ---------
Total revenues............................... 1,262 527 420 3,109
EXPENSES:
Cost of product sales........................... 1,242 517 268 2,027
Depreciation.................................... 11,048 7,348 6,198 24,594
Engineering expenses............................ 17,007 8,160 5,453 30,620
Marketing, administrative and other expenses.... 34,961 12,070 6,933 54,023
-------- -------- -------- ---------
Total expenses............................... 64,258 28,095 18,852 111,264
-------- -------- -------- ---------
Losses from operations....................... (62,996) (27,568) (18,432) (108,155)
OTHER INCOME AND EXPENSES:
Interest income................................. 914 5,378 3,861 10,212
Interest expense and other financial charges.... (2,814) (833) (307) (3,954)
Equity in net losses of affiliates.............. (4,732) (8,413) (4,602) (18,601)
-------- -------- -------- ---------
NET LOSS.......................................... (69,628) (31,436) (19,480) (120,498)
OTHER COMPREHENSIVE INCOME:
Unrealized holding gains on investments, net.... 0 0 88 88
Less: reclassification adjustments for net
holding gains on sales of investments included
in net loss..................................... 0 (88) 0 (88)
-------- -------- -------- ---------
COMPREHENSIVE LOSS................................ $(69,628) $(31,524) $(19,392) $(120,498)
======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
43
<PAGE> 5
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
-------------------------------- DECEMBER 31,
1998 1997 1996 1998
-------- --------- --------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................... $(69,628) $ (31,436) $ (19,480) $(120,498)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Depreciation.................................. 11,048 7,348 6,198 24,594
Amortization of financing fees................ 837 833 307 1,977
Equity in net losses of affiliates............ 4,732 8,413 4,602 18,601
Decrease (increase) in other receivables...... 1,683 (661) (1,270) (248)
Increase in inventory......................... (4,528) (409) (1,304) (6,688)
Increase in accounts payable -- Orbital
Sciences Corporation....................... 0 0 573 4,648
Increase in accounts payable and accrued
liabilities................................ 2,095 3,510 7,471 19,255
Increase in revenue participation accrued
interest................................... 585 14 0 599
-------- --------- --------- ---------
NET CASH USED IN OPERATING
ACTIVITIES.......................... (53,176) (12,388) (2,903) (57,760)
-------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (45,915) (84,241) (69,242) (306,388)
Increase in amount due from affiliates........ (2,105) (16,356) (1,608) (20,730)
Investment in ORBCOMM Japan, Ltd.............. 0 (333) 0 (333)
Purchase of investments....................... (7,228) (47,125) (136,532) (190,885)
Proceeds from sale of investments............. 29,594 120,893 40,007 190,494
Other......................................... (390) 0 0 (390)
-------- --------- --------- ---------
NET CASH USED IN INVESTING
ACTIVITIES.......................... (26,044) (27,162) (167,375) (328,232)
-------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term
debt....................................... 0 0 164,475 169,475
Repayment of long-term debt................... (1,087) (992) (905) (3,809)
Partners' contributions....................... 68,000 0 62,733 227,800
Financing fees paid........................... 0 (222) (940) (3,675)
-------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES................ 66,913 (1,214) 225,363 389,791
-------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (12,307) (40,764) 55,085 3,799
CASH AND CASH EQUIVALENTS:
Beginning of period........................... 16,106 56,870 1,785 0
-------- --------- --------- ---------
CASH AND CASH EQUIVALENTS:
End of period................................. $ 3,799 $ 16,106 $ 56,870 $ 3,799
======== ========= ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid................................. $ 23,965 $ 24,060 $ 347 $ 48,797
======== ========= ========= =========
Non-cash capital expenditures................. 29,700 16,452 0 46,152
======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
44
<PAGE> 6
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
TELEGLOBE ORBITAL
MOBILE COMMUNICATIONS
PARTNERS CORPORATION
------------------------------------ ------------------------------------
ACCUMULATED ACCUMULATED
OTHER OTHER
PARTNERS COMPREHENSIVE PARTNERS COMPREHENSIVE
CAPITAL INCOME TOTAL CAPITAL INCOME TOTAL TOTAL
-------- -------------- -------- -------- -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital contributions.................. $ 10,000 $ 0 $ 10,000 $ 38,149 $ 0 $ 38,149 $ 48,149
Net loss............................... 0 0 0 0 0 0 0
Financing fees......................... (242) 0 (242) (242) 0 (242) (484)
-------- ---- -------- -------- ---- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1993..... 9,758 0 9,758 37,907 0 37,907 47,665
Capital contributions.................. 0 0 0 10,853 0 10,853 10,853
Net loss............................... (4) 0 (4) (5) 0 (5) (9)
-------- ---- -------- -------- ---- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1994..... 9,754 0 9,754 48,755 0 48,755 58,509
Capital contributions.................. 24,750 0 24,750 13,315 0 13,315 38,065
Net income............................. 27 0 27 28 0 28 55
Financing fees......................... (1,014) 0 (1,014) (1,014) 0 (1,014) (2,028)
-------- ---- -------- -------- ---- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1995..... 33,517 0 33,517 61,084 0 61,084 94,601
Capital contributions.................. 49,775 0 49,775 12,958 0 12,958 62,733
Net loss............................... (9,740) 0 (9,740) (9,740) 0 (9,740) (19,480)
Unrealized holding gains on
investments, net..................... 0 44 44 0 44 44 88
-------- ---- -------- -------- ---- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1996..... 73,552 44 73,596 64,302 44 64,346 137,942
Net loss............................... (15,718) 0 (15,718) (15,718) 0 (15,718) (31,436)
Reclassification adjustments for net
holding gains on sales of investments
included in net loss................. 0 (44) (44) 0 (44) (44) (88)
-------- ---- -------- -------- ---- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1997..... 57,834 0 57,834 48,584 0 48,584 106,418
Capital contributions.................. 33,500 0 33,500 34,500 0 34,500 68,000
Net loss............................... (34,814) 0 (34,814) (34,814) 0 (34,814) (69,628)
-------- ---- -------- -------- ---- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1998..... $ 56,520 $ 0 $ 56,520 $ 48,270 $ 0 $ 48,270 $104,790
======== ==== ======== ======== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
45
<PAGE> 7
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Organization
In 1993, Orbital Communications Corporation ("OCC"), a majority-owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. ("ORBCOMM" or the
"Company"), a Delaware limited partnership. Each of OCC and Teleglobe Mobile
holds a 50% partnership interest in the Company, with the result that the
approval of both OCC and Teleglobe Mobile is generally necessary for the Company
to act.
OCC and Teleglobe Mobile also formed two marketing partnerships, ORBCOMM
USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM
International"), to market services using the ORBCOMM low-Earth orbit satellite
communications system (the "ORBCOMM System") in the United States and
internationally, respectively. In 1995, the Company became a 98% general partner
in ORBCOMM USA, reducing OCC's direct partnership interest to 2% and eliminating
Teleglobe Mobile's direct partnership interest entirely. Simultaneously, the
Company became a 98% general partner in ORBCOMM International, reducing
Teleglobe Mobile's direct partnership interest to 2% and eliminating OCC's
direct partnership interest entirely.
In October 1998, the Company purchased the assets of Dolphin Software
Systems Inc. and established two wholly owned subsidiaries. Dolphin Information
Services Inc. ("Dolphin") distributes outside Canada software products that
enable our customers to better access and manage information obtained from or
regarding their remote or mobile assets (collectively, the "Dolphin Software").
Dolphin Software Services, ULC ("Dolphin ULC") develops, and distributes within
Canada, the Dolphin Software. The value attributed to assets acquired from
Dolphin Software Systems Inc. is not material to the Company's total assets.
The ORBCOMM System Description
ORBCOMM was created for the design, development, construction, integration,
testing and operation of the ORBCOMM System. The space assets currently consist
of a constellation of 28 on-orbit satellites. The ground and control assets
consist of gateways strategically located throughout the world and the
facilities to monitor and manage all network elements to ensure continuous,
consistent operations in the provision of quality service. In addition, ORBCOMM
operates a network control center, which is designed to support the full
constellation of ORBCOMM System satellites. The subscriber assets consist of
various models of subscriber units, some of which are intended for general use,
while others are designed to support specific applications.
The System Charge
OCC is obligated to pay to the Company a system charge that is equal to 23%
of ORBCOMM USA's total service revenues (the "Output Capacity Charge") minus
1.15% of total aggregate revenues, defined as the aggregate of ORBCOMM USA's and
ORBCOMM International's total service revenues ("Total Aggregate Revenues"), for
a calendar quarter in consideration of the construction and financing of the
ORBCOMM System assets by the Company. Teleglobe Mobile is obligated to pay to
the Company a system charge that is equal to 23% of ORBCOMM International's
total service revenues (the "International Output Capacity Charge") minus 1.15%
of Total Aggregate Revenues for a calendar quarter in consideration of the
Company's grant to Teleglobe Mobile of the right to market, sell, lease and
franchise all ORBCOMM System output capacity outside the United States. If the
Output Capacity Charge as described above is less than
46
<PAGE> 8
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) NATURE OF OPERATIONS -- (CONTINUED)
1.15% of Total Aggregate Revenues, then OCC is not required to pay and does not
owe any portion of the system charge to ORBCOMM. If the International Output
Capacity Charge as described above is less than 1.15% of Total Aggregate
Revenues, then Teleglobe Mobile is not required to pay and does not owe any
portion of the system charge to ORBCOMM.
Regulatory Status
Construction and operation of communications satellites in the United
States requires licenses from the Federal Communications Commission (the "FCC").
OCC has been granted full operational authority for the ORBCOMM System by the
FCC. Similar licenses are required from foreign regulatory authorities to permit
ORBCOMM System services to be offered outside the United States. Primary
responsibility for obtaining licenses outside the United States will reside with
entities who become international licensees.
Risks and Uncertainties
The Company's operations are subject to certain risks and uncertainties
that are inherent in satellite communication companies and development stage
enterprises. The Company expects to have continuing losses for the next several
quarters and is dependent upon additional financing to fund operations, complete
construction of additional system capacity and to further develop its marketing
infrastructure. Although they are not required to do so, the Partners are
continuing to fund the financing needs of the Company.
Given the inherent technical, commercial, regulatory and financial risks
within the space communications industry, it is possible that the recoverability
of the ORBCOMM system could be adversely affected.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company expects to emerge from its development stage by the first half
of 1999. The accompanying consolidated financial statements have been prepared
on the accrual basis of accounting in conformity with generally accepted
accounting principles in the United States. They include the accounts of the
Company and two of its subsidiaries, Dolphin and Dolphin ULC. All significant
intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
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 as
well as 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.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Investments
The Company maintains two investment portfolios characterized by
management's intentions as to future investment activity. Investments classified
as "held-to-maturity" are not intended to be sold prior to maturity
47
<PAGE> 9
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
and are carried at cost. Investments not intended to be held until maturity or
traded to capitalize on market gains are classified as "available-for-sale" and
are carried at fair value with temporary unrealized gains (losses) charged
directly to partners' capital. Investments maturing after one year are
classified as long-term investments. The Company uses the average cost method in
determining the basis of investments sold when computing realized gains
(losses).
Inventory
Inventory is stated at the lower of cost, determined on the specific
identification basis, or market and primarily represents subscriber
communicators available for sale to customers.
Depreciation and Recoverability of Long-Lived Assets
The Company depreciates its operational assets over the estimated economic
useful life using the straight-line method as follows:
<TABLE>
<S> <C>
Space Segment Assets: generally 8 years
Ground Segment Assets: 3 to 10 years
</TABLE>
The Company's policy is to review its long-lived assets, including its
Mobile Communications Satellite System, for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company recognizes impairment losses when the sum of the
expected future cash flows is less than the carrying amount of the assets. With
regard to satellites, the Company recognizes impairment losses on a
satellite-by-satellite basis. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Given the inherent
technical and commercial risks within the space communications industry, it is
possible that the Company's current estimate for recovery of the carrying amount
of its assets may change.
Other Assets, net
Other assets principally consist of deferred debt issuance costs. These
costs are amortized as a component of interest expense and other financial
charges over the term of the related debt.
Investments in Affiliates
The Company uses the equity method of accounting for its investments in and
earnings of affiliates in which the Company has the ability to exercise
significant influence over, but not control, such affiliates' operations. In
accordance with the equity method of accounting, the Company's carrying amount
of an investment in affiliates is initially recorded at cost, and is increased
to reflect its share of the affiliates' income and reduced to reflect its share
of the affiliates' losses. The Company's investment is also increased to reflect
contributions to, and decreased to reflect distributions received from,
affiliates. Investments in which the Company does not have the ability to
exercise significant influence over operating and financial policies are
accounted for under the cost method of accounting.
Pursuant to the terms of the relevant partnership agreements: (i) Teleglobe
Mobile and OCC share equal responsibility for the operational and financial
affairs of ORBCOMM; (ii) Teleglobe Mobile controls the operational and financial
affairs of ORBCOMM International; and (iii) OCC controls the operational and
financial affairs of ORBCOMM USA. Since the Company is unable to control, but is
able to exercise significant influence over ORBCOMM International's and ORBCOMM
USA's operating and financial
48
<PAGE> 10
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
policies, the Company is accounting for its investments in OBCOMM International
and ORBCOMM USA using the equity method of accounting. However, since the
Company is unable either to control or to exercise significant influence over
ORBCOMM Japan's operating and financial policies, the Company is accounting for
its investment in ORBCOMM Japan using the cost method of accounting.
Each year, the Company reviews the underlying value of its investments by
comparing their carrying amount to their net recoverable amount. The
determination of the net recoverable amount consists of evaluating forecasted
income and cash flows. Any permanent impairment of such value would be written
off to expense.
Goodwill
Goodwill, which represents the excess costs over the fair value of
identifiable assets acquired from Dolphin Software Systems Inc. at the date of
acquisition, will be amortized on a straight-line basis over 10 years, starting
January 1, 1999.
Each year, the Company reviews the underlying value of its goodwill by
comparing its carrying amount to its net recoverable amount. The determination
of the net recoverable amount consists of evaluating forecasted income and cash
flows. Any permanent impairment of such value would be written off to expense.
Partners' Capital
In accordance with the Partnership Agreement, Teleglobe Mobile and OCC are
both general and limited partners in the Company. Therefore, limited and general
partner accounts are combined into one single capital account and presented as
such in the consolidated balance sheets and consolidated statements of partners'
capital.
Revenue Recognition
Revenues are generally recognized when products are shipped or when
customers have accepted the products, depending on contractual terms. Service
revenues are generally recognized as such services are rendered. Distributions
fees and license fees from service license or similar agreements are recognized
ratably over the term of the agreements.
Foreign Currency Translation
The Company has determined the functional currency of its Canadian
subsidiary, Dolphin ULC, to be the U.S. dollar. Consequently, Dolphin ULC's
financial statements are remeasured into U.S. dollars on the following basis:
-- monetary assets and liabilities are remeasured at the current exchange
rate;
-- all non-monetary items that reflect prices from past transactions are
remeasured using historical exchange rates, while all non-monetary items
that reflect prices from current transactions are remeasured using the
current exchange rate; and
-- revenues and expenses are remeasured at the average exchange rates
prevailing at the time the transactions occurred, except those expenses
related to non-monetary items, which are remeasured at historical
exchange rates.
Translation gains/losses resulting from the remeasurement process are
reported on the consolidated statements of operations under "Other Income and
Expenses".
49
<PAGE> 11
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Income Taxes
As a partnership, Federal and state income taxes are the direct
responsibility of each partner. Accordingly, no income taxes have been recorded
within the accompanying consolidated financial statements.
Segment Information
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segment of an Enterprise and Related Information",
establishes standards for reporting financial information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company's operations for 1998 are a
single segment, and further segmentation under SFAS No. 131 is not required.
Comprehensive Income
As of January 1, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive loss consists of net loss and net unrealized
gains on securities and is presented in the consolidated statements of
operations and comprehensive loss. The Statement requires only additional
disclosures in the consolidated financial statements; it does not affect the
Company's financial position or results of operations. Prior years' consolidated
financial statements have been reclassified to conform with the requirements of
SFAS No. 130.
Recent Accounting Pronouncements
Computer Software -- In March 1998, the American Institute of Certified
Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Development or Obtained for
Internal Use". SOP 98-1 must be adopted no later than January 1, 1999, and
defines internal-use software and requires that the cost of such software be
capitalized and amortized over its useful life. Presently, the Company's policy
is to capitalize the costs of computer software developed or obtained for
internal use. Based on the Company's current policy, SOP 98-1 is not expected to
have an impact on the Company's consolidated results of operations or financial
condition.
Cost of Start-Up Activities -- In April 1998, the AICPA also issued SOP
98-5, "Reporting on the Costs of Start-Up Activities", to provide guidance to
all non-governmental entities on financial reporting of costs of start-up
activities. SOP 98-5 must be adopted no later than January 1, 1999, and requires
that costs of start-up activities be expensed as incurred. Based on the
Company's current policy for costs of start-up activities, SOP 98-5 is not
expected to have an impact on the Company's consolidated results of operations
or financial condition.
Reclassification of Prior Years' Balances
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the current year presentation.
(3) INVESTMENTS
Included in cash and cash equivalents is $5,420,000 of commercial paper as
of December 31, 1997 (none as of December 31, 1998). The fair value of the
commercial paper approximated carrying value.
50
<PAGE> 12
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENTS -- (CONTINUED)
The following table sets forth the aggregate costs and fair values and
gross unrealized gains of available-for-sale and held-to-maturity short-term
investments as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
(IN THOUSANDS) (IN THOUSANDS)
------------------------------ ---------------------------------
UNREALIZED UNREALIZED
COST GAINS FAIR VALUE COST GAINS FAIR VALUE
---- ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
- - ----------------------------------------------
Commercial Paper.............................. $ 0 $0 $ 0 $ 1,278 $ 0 $ 1,278
---- -- ---- ------- ------ -------
Total available-for-sale investments........ 0 0 0 1,278 0 1,278
---- -- ---- ------- ------ -------
HELD-TO-MATURITY
- - ----------------------------------------------
U.S. Treasury Notes........................... 390 5 395 21,478 1,841 23,319
---- -- ---- ------- ------ -------
Total held-to-maturity investments.......... 390 5 395 21,478 1,841 23,319
---- -- ---- ------- ------ -------
TOTAL INVESTMENTS........................... $390 $5 $395 $22,756 $1,841 $24,597
==== == ==== ======= ====== =======
</TABLE>
Unrealized gains on held-to-maturity investments represent accrued interest
income as of December 31, 1998 and 1997, respectively. As of December 31, 1998,
all Treasury Notes held mature within one year.
(4) MOBILE COMMUNICATIONS SATELLITE SYSTEM
The Mobile Communications Satellite System comprises the following assets:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS)
--------------------
1998 1997
-------- --------
<S> <C> <C>
Space assets......................................... $288,648 $225,942
Ground assets........................................ 63,892 50,983
-------- --------
Total................................................ 352,540 276,925
Less accumulated depreciation........................ (24,594) (13,546)
-------- --------
Total, net........................................... $327,946 $263,379
======== ========
</TABLE>
During construction of the Mobile Communications Satellite System, the
Company is capitalizing substantially all construction costs. The Company also
is capitalizing the portion of the engineering direct labor costs that relates
to hardware and system design development and coding of the software products
that enhance the operation of the Mobile Communications Satellite System. For
the years ended December 31, 1998, 1997, and 1996, $5,041,000, $4,641,000 and
$1,244,000, respectively, of such costs have been capitalized. For the years
ended December 31, 1998, 1997 and 1996, total interest expenses were
$24,550,000, $24,060,000 and $10,030,000, respectively, of which $22,573,000,
$24,060,000 and $10,030,000 have been capitalized as a part of the historical
cost of the Mobile Communications Satellite System.
(5) LONG-TERM DEBT
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with
Revenue Participation Interest (the "Old Notes"). All the Old Notes were
exchanged for an equal principal amount of registered 14% Series B Senior Notes
due 2004 with Revenue Participation Interest (the "Notes"). Revenue
Participation Interest represents an aggregate amount equal to 5% of the ORBCOMM
System revenues generated from August 1996 and is payable on the Old Notes and
the Notes on each interest payment date subject to certain covenant
51
<PAGE> 13
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM DEBT -- (CONTINUED)
restrictions. The Notes are fully and unconditionally guaranteed on a joint and
several basis by OCC, Teleglobe Mobile, ORBCOMM USA and ORBCOMM International,
except that the guarantees are non-recourse to the shareholders and/or partners
of the guarantors, limited only to the extent necessary for each such guarantee
not to constitute a fraudulent conveyance under applicable law.
On the closing of the Old Notes, the Company used $44,800,000 of the net
proceeds from the sale of the Old Notes to purchase a portfolio of U.S.
Government securities to provide for payment in full of interest on the Old
Notes and Notes through August 15, 1998. All of this investment portfolio was
used to pay semi-annual interest that was due on the Notes in 1997 and 1998.
The Company also has a $5,000,000 secured note with a financial institution
of which $1,190,000 was outstanding as of December 31, 1998 as the current
portion of long-term debt. As of December 31, 1997 $2,277,000 was outstanding of
which $1,087,000 and $1,190,000 were due in 1998 and 1999, respectively. The
note bears interest at 9.2% per annum and is secured by equipment located at
certain of the U.S. gateway Earth stations and the network control center, and
is guaranteed by Orbital.
(6) RELATED PARTY TRANSACTIONS
The Company paid Orbital $5,641,000, $41,843,000 and $56,177,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. Payments were made
for work performed pursuant to the ORBCOMM System Design, Development, and
Operations Agreement, the ORBCOMM System Procurement Agreement (the "Procurement
Agreement") and the Administrative Services Agreement (for provision of ongoing
administrative support to the Company). Additionally, Orbital has deferred
$50,800,000 and $21,100,000 as of December 31, 1998 and 1997, respectively, and
has indicated that it will continue to defer invoicing of certain amounts under
the Procurement Agreement until other funding arrangements for the Company are
secured.
The Company paid ORBCOMM Canada Inc., a majority owned subsidiary of
Teleglobe, $208,000 pursuant to a consulting agreement dated March 18, 1998, in
consideration for services provided by an employee of ORBCOMM Canada.
The Company sold $1,008,000, $487,000 and $268,000 of product to ORBCOMM
USA and ORBCOMM International for the years ended December 31, 1998, 1997 and
1996, respectively (none in 1995).
Certain provisions of the Partnership Agreement require ORBCOMM to
reimburse OCC for OCC's repurchase of shares of OCC common stock acquired
pursuant to the OCC 1998 Stock Option Plan ("Stock Option Plan"). During 1997
and 1996, ORBCOMM reimbursed OCC approximately $598,000 and $1,100,000,
respectively, under the Stock Option Plan (none during 1998). In 1996, Orbital
contributed approximately $100,000 to OCC to repurchase such shares (none in
1998 and 1997).
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, receivables,
accounts payable and current portion of long term debt approximates fair value
since all such instruments are short-term in nature.
52
<PAGE> 14
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
Fair value for the Company's long-term debt is determined based on quoted market
rates. The table set below compares the carrying and the fair value of the
Company's long-term debt as of December 31, 1998 and 1997.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
(IN THOUSANDS) (IN THOUSANDS)
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Long-term debt.............................. $170,000 $175,100 $170,000 $183,600
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
System Procurement Agreement
Pursuant to the System Procurement Agreement with Orbital, the Company's
remaining obligation to purchase satellites, launch services and ground system
is approximately $31,500,000.
Lease Commitments
In 1998, ORBCOMM entered into a six-year operating lease agreement for
approximately 21,500 square feet of office space. ORBCOMM has an option to renew
the lease for another five-year period immediately upon the expiration of the
original operating lease. Rental expense for 1998, 1997 and 1996 amounted to
$2,074,000, $951,000 and $393,000, respectively, of which $939,000, $825,000 and
$393,000, respectively, were paid to Orbital as part of the Administrative
Services Agreement. The future minimum rental payments under non-cancelable
operating leases are as follows:
<TABLE>
<CAPTION>
PERIODS IN THOUSANDS
------- ------------
<S> <C>
1999........................................................ $1,769
2000........................................................ 1,852
2001........................................................ 1,866
2002........................................................ 1,916
2003........................................................ 842
Thereafter.................................................. 624
------
Total minimum lease commitments........................... $8,869
======
</TABLE>
(9) SUBSEQUENT EVENTS
From January 1, 1999 to March 30, 1999, OCC and Teleglobe Mobile paid to
the Company an additional $20,950,000 and $21,950,000 in capital contributions,
respectively.
The Company has negotiated a new procurement agreement with Orbital under
which it will procure, at a minimum, eight additional satellites and two
separate Pegasus launch vehicles, at a total cost of approximately $70,000,000.
In addition, the Company has the option under this agreement to procure up to 22
additional satellites and associated launch services using the Pegasus launch
vehicle. Amounts due under this agreement are payable by the Company as work is
performed by Orbital.
In late February 1999, the Company consummated the purchase of additional
shares of ORBCOMM Japan, Ltd., our International Licensee for Japan, increasing
our equity interest in ORBCOMM Japan, Ltd. to approximately 32%.
53
<PAGE> 15
INDEPENDENT AUDITORS' REPORT
The Partners
ORBCOMM USA. L.P.:
We have audited the accompanying balance sheets of ORBCOMM USA. L.P. (a
development stage enterprise) as of December 31, 1998 and 1997, and the related
statements of operations, partners' capital, and cash flows for each of the
years in the three-year period ended December 31, 1998 and for the period from
June 30, 1993 (date of inception) to December 31, 1998. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ORBCOMM USA. L.P. (a
development stage enterprise) as of December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 1998 and for the period June 30, 1993 (date of
inception) to December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Washington, D.C.
March 30, 1999
54
<PAGE> 16
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
-------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable....................................... $ 220 $ 65
Prepaid contract costs.................................... 991 123
-------- -------
TOTAL ASSETS...................................... $ 1,211 $ 188
======== =======
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities.................. $ 717 $ 803
-------- -------
Total Current Liabilities.............................. 717 803
Amount due to affiliates.................................. 13,342 8,635
-------- -------
Total Liabilities...................................... 14,059 9,438
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
ORBCOMM Global, L.P....................................... (12,591) (9,065)
Orbital Communications Corporation........................ (257) (185)
-------- -------
Total Partners' Capital................................ (12,848) (9,250)
-------- -------
TOTAL LIABILITIES AND PARTNERS' CAPITAL........... $ 1,211 $ 188
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
55
<PAGE> 17
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
-------------------------------------- DECEMBER 31,
1998 1997 1996 1998
------------ ------- ------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales................................ $ 580 $ 127 $ 229 $ 936
Contract revenues............................ 0 0 0 4,203
Service revenues............................. 179 45 11 235
------- ------- ------- --------
Total revenues....................... 759 172 240 5,374
EXPENSES:
Cost of sales................................ 798 383 262 1,443
Marketing expenses........................... 3,559 5,173 2,984 16,789
------- ------- ------- --------
Total expenses....................... 4,357 5,556 3,246 18,232
------- ------- ------- --------
NET LOSS....................................... $(3,598) $(5,384) $(3,006) $(12,858)
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE> 18
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
-------------------------------- DECEMBER 31,
1998 1997 1996 1998
------------ ------- ------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $(3,598) $(5,384) $(3,006) $(12,858)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Increase in accounts receivable................. (155) (11) (54) (220)
Increase in prepaid contract costs.............. (868) (123) 0 (991)
Increase (decrease) in accounts payable and
accrued liabilities.......................... (86) 461 133 717
------- ------- ------- --------
NET CASH USED IN OPERATING ACTIVITIES... (4,707) (5,057) (2,927) (13,352)
------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in amount due to affiliates............ 4,707 5,057 2,917 13,342
Partners' contributions......................... 0 0 0 10
------- ------- ------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................ 4,707 5,057 2,917 13,352
------- ------- ------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS......... 0 0 (10) 0
CASH AND CASH EQUIVALENTS:
Beginning of period............................. 0 0 10 0
------- ------- ------- --------
CASH AND CASH EQUIVALENTS:
End of period................................... $ 0 $ 0 $ 0 $ 0
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
57
<PAGE> 19
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
TELEGLOBE ORBITAL ORBCOMM
MOBILE COMMUNICATIONS GLOBAL,
PARTNERS CORPORATION L.P. TOTAL
--------- -------------- -------- --------
<S> <C> <C> <C> <C>
Capital contributions......................... $2 $ 8 $ 0 $ 10
Net loss...................................... 0 0 0 0
-- ----- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1993............ 2 8 0 10
Net loss...................................... 0 0 0 0
-- ----- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1994............ 2 8 0 10
Capital transfer.............................. (2) (8) 10 0
Net loss...................................... 0 (17) (853) (870)
-- ----- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1995............ 0 (17) (843) (860)
Net loss...................................... 0 (60) (2,946) (3,006)
-- ----- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1996............ 0 (77) (3,789) (3,866)
Net loss................................... 0 (108) (5,276) (5,384)
-- ----- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1997............ 0 (185) (9,065) (9,250)
Net loss................................... 0 (72) (3,526) (3,598)
-- ----- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1998............ $0 $(257) $(12,591) $(12,848)
== ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
58
<PAGE> 20
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Organization
In 1993, Orbital Communications Corporation ("OCC"), a majority-owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. ("ORBCOMM" or the
"Company"), a Delaware limited partnership. Each of OCC and Teleglobe Mobile
holds a 50% partnership interest in the Company, with the result that the
approval of both OCC and Teleglobe Mobile is generally necessary for the Company
to act.
OCC and Teleglobe Mobile also formed two marketing partnerships, ORBCOMM
USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM
International"), to market services using the ORBCOMM low-Earth orbit satellite
communications system (the "ORBCOMM System") in the United States and
internationally, respectively. In 1995, the Company became a 98% general partner
in ORBCOMM USA, reducing OCC's direct partnership interest to 2% and eliminating
Teleglobe Mobile's direct partnership interest entirely. Simultaneously, the
Company became a 98% general partner in ORBCOMM International, reducing
Teleglobe Mobile's direct partnership interest to 2% and eliminating OCC's
direct partnership interest entirely.
The ORBCOMM System Description
ORBCOMM was created for the design, development, construction, integration,
testing and operation of the ORBCOMM System. The space assets currently consist
of a constellation of 28 on-orbit satellites. The ground and control assets
consist of gateways strategically located throughout the world and the
facilities to monitor and manage all network elements to ensure continuous,
consistent operations in the provision of quality service. In addition, ORBCOMM
operates a network control center, which is designed to support the full
constellation of ORBCOMM System satellites. The subscriber assets consist of
various models of subscriber units, some of which are intended for general use,
while others are designed to support specific applications.
The System Charge
Pursuant to the terms of the system charge agreement between OCC and
ORBCOMM USA, ORBCOMM USA has agreed to pay OCC an output capacity charge that is
a quarterly fee equal to 23% of its total service revenues for such calendar
quarter in exchange for the exclusive right to market, sell, lease and franchise
all ORBCOMM System output capacity in the United States and for the exclusive
use of the system assets in the United States. For the year ended December 31,
1998, the output capacity charge was $41,000 and is included as part of cost of
sales (none in 1997 and 1996).
Regulatory Status
Construction and operation of communications satellites in the United
States requires licenses from the Federal Communications Commission (the "FCC").
OCC has been granted full operational authority for the ORBCOMM System by the
FCC. Similar licenses are required from foreign regulatory authorities to permit
ORBCOMM System services to be offered outside the United States. Primary
responsibility for obtaining licenses outside the United States will reside with
entities who become international licensees.
59
<PAGE> 21
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company and ORBCOMM USA expect to emerge from their development stage
by the first half of 1999. The accompanying financial statements have been
prepared on the accrual basis of accounting in conformity with generally
accepted accounting principles in the United States.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as well
as disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Pursuant to banking arrangements, ORBCOMM USA has no cash or cash
equivalents in accordance with the zero balance agreement with ORBCOMM. However,
ORBCOMM considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Prepaid Contract Costs
Prepaid contract costs consist primarily of advance payments to
manufacturers for assembling asset monitoring subscriber communicators.
Income Taxes
As a partnership, Federal and state income taxes are the direct
responsibility of each partner. Accordingly, no income taxes have been recorded
within the accompanying financial statements.
Revenue Recognition
ORBCOMM USA provides subscriber communicator hardware to commercial
customers. Revenues are recognized when products are shipped or when customers
have accepted the products, depending on contractual terms. Service revenues are
recognized as such services are rendered.
Segment Information
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segment of an Enterprise and Related Information",
establishes standards for reporting financial information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. ORBCOMM USA's operations for 1998 are a
single segment, and further segmentation under SFAS No. 131 is not required.
(3) RELATED PARTY TRANSACTIONS
As of December 31, 1998 and 1997, ORBCOMM USA had a payable of $13,660,000
and $8,635,000, respectively, to ORBCOMM for amounts advanced to support ORBCOMM
USA's efforts to establish commercial and government markets in the United
States. ORBCOMM USA is currently in development stage, and still obtains funds
to support operations through non-interest bearing advances from ORBCOMM.
60
<PAGE> 22
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) RELATED PARTY TRANSACTIONS -- (CONTINUED)
As of December 31, 1998, ORBCOMM USA had a receivable of $318,000 from
ORBCOMM International (none as of December 31, 1997).
ORBCOMM USA purchased $757,000, $383,000 and $262,000 of product from
ORBCOMM for the years ended December 31, 1998, 1997 and 1996, respectively (none
in 1995).
(4) COMMITMENTS AND CONTINGENCIES
Long-Term Debt
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with
Revenue Participation Interest (the "Old Notes"). All of the Old Notes were
exchanged for an equal principal amount of registered 14% Series B Senior Notes
due 2004 with Revenue Participation Interest (the "Notes"). Revenue
Participation Interest represents an aggregate amount equal to 5% of the ORBCOMM
System revenues generated from August 1996 and is payable on the Old Notes and
the Notes on each interest payment date subject to certain covenant
restrictions. The Notes are fully and unconditionally guaranteed on a joint and
several basis by OCC, Teleglobe Mobile, ORBCOMM USA and ORBCOMM International,
except that the guarantees are non-recourse to the shareholders and/or partners
of the guarantors, limited only to the extent necessary for each such guarantee
not to constitute a fraudulent conveyance under applicable law.
On the closing of the Old Notes, the Company used $44,800,000 of the net
proceeds from the sale of the Old Notes to purchase a portfolio of U.S.
Government securities to provide for payment in full of interest on the Old
Notes and Notes through August 15, 1998. All of this investment portfolio was
used to pay semi-annual interest that was due on the Notes in 1997 and 1998.
61
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
The Partners
ORBCOMM International Partners, L.P.:
We have audited the accompanying balance sheets of ORBCOMM International
Partners, L.P. (a development stage enterprise) as of December 31, 1998 and
1997, and the related statements of operations, partners' capital, and cash
flows for each of the years in the three-year period ended December 31, 1998 and
for the period from June 30, 1993 (date of inception) to December 31, 1998.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ORBCOMM International
Partners, L.P. (a development stage enterprise) as of December 31, 1998 and
1997, and the results of its operations and its cash flows for each of the years
in the three-year period ended December 31, 1998 and for the period June 30,
1993 (date of inception) to December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
Washington, DC
March 30, 1999
62
<PAGE> 24
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable....................................... $ 1,023 $ 0
Deferred and prepaid contract costs....................... 20,879 19,580
------- -------
TOTAL ASSETS...................................... $21,902 $19,580
======= =======
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities.................. $ 530 $ 1,200
Deferred revenue.......................................... 20,094 13,270
------- -------
Total Current Liabilities.............................. 20,624 14,470
Amount due to affiliates.................................. 7,389 9,990
------- -------
Total Liabilities...................................... 28,013 24,460
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile Partners................................. (122) (98)
ORBCOMM Global, L.P....................................... (5,989) (4,782)
------- -------
Total Partners' Capital................................ (6,111) (4,880)
------- -------
TOTAL LIABILITIES AND PARTNERS' CAPITAL........... $21,902 $19,580
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
63
<PAGE> 25
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
----------------------------------- DECEMBER 31,
1998 1997 1996 1998
------- ------- ------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales............................. $10,943 $ 56 $ 8 $11,007
EXPENSES:
Cost of product sales..................... 10,943 104 6 11,053
Marketing expenses........................ 1,231 3,152 1,692 6,075
------- ------- ------- -------
Total expenses......................... 12,174 3,256 1,698 17,128
------- ------- ------- -------
NET LOSS.................................... $(1,231) $(3,200) $(1,690) $(6,121)
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
64
<PAGE> 26
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
---------------------------- DECEMBER 31,
1998 1997 1996 1998
------- -------- ------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................... $(1,231) $ (3,200) $(1,690) $ (6,121)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Decrease (increase) in accounts receivable....... (1,023) 15 (15) (1,023)
Increase in deferred and prepaid contract
costs......................................... (1,299) (15,709) (3,871) (20,879)
Increase (decrease) in accounts payable and
accrued liabilities........................... (670) 472 728 530
Increase in deferred revenue..................... 6,824 7,123 6,147 20,094
------- -------- ------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................. 2,601 (11,299) 1,299 (7,399)
------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in amount due from an
affiliate..................................... 0 1,309 (1,309) 0
------- -------- ------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES............................. 0 1,309 (1,309) 0
------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in amount due to
affiliates.................................... (2,601) 9,990 0 7,389
Partners' contributions.......................... 0 0 0 10
------- -------- ------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES............................. (2,601) 9,990 0 7,399
------- -------- ------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS.......... 0 0 (10) 0
CASH AND CASH EQUIVALENTS:
Beginning of period.............................. 0 0 10 0
------- -------- ------- --------
CASH AND CASH EQUIVALENTS:
End of period.................................... $ 0 $ 0 $ 0 $ 0
======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
65
<PAGE> 27
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
ORBITAL TELEGLOBE ORBCOMM
COMMUNICATIONS MOBILE GLOBAL,
CORPORATION PARTNERS L.P. TOTAL
-------------- --------- ------- -------
<S> <C> <C> <C> <C>
Capital transfer............................... $ 8 $ 2 $ 0 $ 10
Net loss....................................... 0 0 0 0
--- ----- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1993............. 8 2 0 10
Net loss....................................... 0 0 0 0
--- ----- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1994............. 8 2 0 10
Net loss....................................... 0 0 0 0
Capital transfer............................... (8) (2) 10 0
--- ----- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1995............. 0 0 10 10
Net loss....................................... 0 (34) (1,656) (1,690)
--- ----- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1996............. 0 (34) (1,646) (1,680)
Net loss....................................... 0 (64) (3,136) (3,200)
--- ----- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1997............. 0 (98) (4,782) (4,880)
Net loss....................................... 0 (24) (1,207) (1,231)
--- ----- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1998............. $ 0 $(122) $(5,989) $(6,111)
=== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
66
<PAGE> 28
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Organization
In 1993, Orbital Communications Corporation ("OCC"), a majority-owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. ("ORBCOMM" or the
"Company"), a Delaware limited partnership. Each of OCC and Teleglobe Mobile
holds a 50% partnership interest in the Company, with the result that the
approval of both OCC and Teleglobe Mobile is generally necessary for the Company
to act.
OCC and Teleglobe Mobile also formed two marketing partnerships, ORBCOMM
USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM
International"), to market services using the ORBCOMM low-Earth orbit satellite
communications system (the "ORBCOMM System") in the United States and
internationally, respectively. In 1995, the Company became a 98% general partner
in ORBCOMM USA, reducing OCC's direct partnership interest to 2% and eliminating
Teleglobe Mobile's direct partnership interest entirely. Simultaneously, the
Company became a 98% general partner in ORBCOMM International, reducing
Teleglobe Mobile's direct partnership interest to 2% and eliminating OCC's
direct partnership interest entirely.
The ORBCOMM System Description
ORBCOMM was created for the design, development, construction, integration,
testing and operation of the ORBCOMM System. The space assets currently consist
of a constellation of 28 on-orbit satellites. The ground and control assets
consist of gateways strategically located throughout the world and the
facilities to monitor and manage all network elements to ensure continuous,
consistent operations in the provision of quality service. In addition, ORBCOMM
operates a network control center, which is designed to support the full
constellation of ORBCOMM System satellites. The subscriber assets consist of
various models of subscriber units, some of which are intended for general use,
while others are designed to support specific applications.
The System Charge
Pursuant to the terms of the international system charge agreement between
ORBCOMM, Teleglobe Mobile and ORBCOMM International, ORBCOMM International has
agreed to pay Teleglobe Mobile an international output capacity charge that is a
quarterly fee equal to 23% of its total service revenues for such calendar
quarter in exchange for the exclusive right to market, sell, lease and franchise
all ORBCOMM System output capacity outside the United States and for the
exclusive use of the system assets outside the United States. No such charge has
been incurred.
Regulatory Status
Construction and operation of communications satellites in the United
States requires licenses from the Federal Communications Commission (the "FCC").
OCC has been granted full operational authority for the ORBCOMM System by the
FCC. Similar licenses are required from foreign regulatory authorities to permit
ORBCOMM System services to be offered outside the United States. Primary
responsibility for obtaining licenses outside the United States will reside with
entities who become international licensees.
67
<PAGE> 29
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company and ORBCOMM International expect to emerge from their
development stage by the first half of 1999. The accompanying financial
statements have been prepared on the accrual basis of accounting in conformity
with generally accepted accounting principles in the United States.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as well
as disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Pursuant to banking arrangements, ORBCOMM International has no cash and
cash equivalents in accordance with the zero balance agreement with ORBCOMM.
However, ORBCOMM considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Deferred and Prepaid Contract Costs
Deferred and prepaid contract costs consist primarily of work-in-process
for construction of gateway Earth stations for sale to international licensees.
Revenue Recognition
Revenues under the gateway procurement contracts with international
licensees or the sale of subscriber communicator hardware are generally
recognized when contracts are completed, products are shipped or when customers
have accepted the products or services, depending on contractual terms. License
fees from service license or similar agreements are recognized ratably over the
term of the agreements.
Income Taxes
As a partnership, Federal and state income taxes are the direct
responsibility of each partner. Accordingly, no income taxes have been recorded
within the accompanying financial statements.
Segment Information
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segment of an Enterprise and Related Information",
establishes standards for reporting financial information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. ORBCOMM International's operations for
1998 are a single segment, and further segmentation under SFAS No. 131 is not
required.
(3) RELATED PARTY TRANSACTIONS
As of December 31, 1998 and 1997, ORBCOMM International had a payable of
$7,071,000 and $9,990,000, respectively, to ORBCOMM for amounts advanced to
support ORBCOMM International's efforts to establish commercial markets outside
the United States. ORBCOMM International is currently in development stage, and
still obtains funds to support operations through non-interest bearing advances
from ORBCOMM.
68
<PAGE> 30
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) RELATED PARTY TRANSACTIONS -- (CONTINUED)
As of December 31, 1998, ORBCOMM International had a payable of $318,000 to
ORBCOMM USA (none as of December 31, 1997).
ORBCOMM International purchased $251,000, $104,000 and $6,000 of product
from ORBCOMM for the years ended December 31, 1998, 1997 and 1996, respectively
(none in 1995).
As of December 31, 1997, ORBCOMM International had a payable of $87,000 to
Teleglobe Canada Inc., an affiliate of Teleglobe Mobile, for a contracted
employee to provide international marketing services (none as of December 31,
1998).
(4) COMMITMENTS AND CONTINGENCIES
Long-Term Debt
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with
Revenue Participation Interest (the "Old Notes"). All of the Old Notes were
exchanged for an equal principal amount of registered 14% Series B Senior Notes
due 2004 with Revenue Participation Interest (the "Notes"). Revenue
Participation Interest represents an aggregate amount equal to 5% of the ORBCOMM
System revenues generated from August 1996 and is payable on the Old Notes and
the Notes on each interest payment date subject to certain covenant
restrictions. The Notes are fully and unconditionally guaranteed on a joint and
several basis by OCC, Teleglobe Mobile, ORBCOMM USA and ORBCOMM International,
except that the guarantees are non-recourse to the shareholders and/or partners
of the guarantors, limited only to the extent necessary for each such guarantee
not to constitute a fraudulent conveyance under applicable law.
On the closing of the Old Notes, the Company used $44,800,000 of the net
proceeds from the sale of the Old Notes to purchase a portfolio of U.S.
Government securities to provide for payment in full of interest on the Old
Notes and Notes through August 15, 1998. All of this investment portfolio was
used to pay semi-annual interest that was due on the Notes in 1997 and 1998.
Construction of Gateways
In October 1996, ORBCOMM International entered into agreements with certain
manufacturers for the construction of twenty gateway Earth stations around the
globe. During 1998, installation and final acceptance of gateways in South
Korea, Japan and Italy occurred. Additionally, as of December 31, 1998 and 1997,
ORBCOMM International had $20,879,000 and $19,580,000, respectively, of deferred
and prepaid contract costs of which $12,718,000 and $11,016,000, respectively,
represent advance payments to those manufacturers. Total commitments under these
manufacturing agreements approximate $22,000,000. Included in deferred and
prepaid contract costs is the portion of engineering direct labor costs that
relates to the construction of gateways. As of December 31, 1998 and 1997,
$1,114,000 and $1,609,000, respectively, of such costs had been included in
deferred and prepaid contract costs.
(5) SERVICE LICENSE OR SIMILAR AGREEMENTS
As of December 31, 1998, ORBCOMM International had signed 12 service
license or similar agreements ("SLAs") with international licensees, eight of
which had associated gateway procurement contracts and software license
agreements. The SLAs authorize the international licensees to use the ORBCOMM
System to provide two-way data and messaging communications services. As of
December 31, 1998 and 1997, $30,868,000 and $13,270,000, respectively, had been
received under these agreements and the associated gateway procurement
agreements, of which $20,094,000 and $13,270,000, respectively, were recorded as
deferred revenue. ORBCOMM International is obligated to construct and deliver
eight gateways to certain international licensees under certain of these
agreements (see note 4).
69
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Orbital Communications Corporation:
We have audited the accompanying consolidated balance sheets of Orbital
Communications Corporation and subsidiary as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' deficit, and
cash flows for each of the years in the three-year period ended December 31,
1998. 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
Communications Corporation and subsidiary as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Washington, D.C.
February 16, 1999, except as to note 9
which is as of March 15, 1999
70
<PAGE> 32
ORBITAL COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 10 $ 34
Accounts receivable....................................... 269 65
Other current assets...................................... 978 123
-------- -------
Total current assets................................... 1,257 222
Investments in affiliates................................... 56,111 54,663
-------- -------
TOTAL ASSETS...................................... $ 57,368 $54,885
======== =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Accounts payable and accrued expenses..................... $ 724 $ 806
Promissory notes.......................................... 0 331
-------- -------
Total current liabilities.............................. 724 1,137
Due to affiliates......................................... 123,677 84,160
-------- -------
Total liabilities...................................... 124,401 85,297
Non-controlling interest in net assets of consolidated
subsidiary................................................ (6,296) (4,533)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, par value $0.01; 8,000,000 shares
authorized; 4,783,892 and 4,751,292 shares issued;
4,688,320 and 4,656,720 shares outstanding,
respectively........................................... 48 48
Additional paid-in capital................................ 452 350
Treasury stock, at cost, 95,572 and 94,572 shares,
respectively........................................... (770) (730)
Accumulated deficit....................................... (60,467) (25,547)
-------- -------
Total stockholders' deficit............................ (60,737) (25,879)
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT....... $ 57,368 $54,885
======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
71
<PAGE> 33
ORBITAL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
SERVICE REVENUES............................................ $ 759 $ 172 $ 240
EXPENSES:
Costs of product sales.................................... 775 383 265
Marketing, administrative and other expenses.............. 3,617 5,202 2,959
-------- -------- -------
Total expenses......................................... 4,392 5,585 3,224
-------- -------- -------
Loss from operations................................... (3,633) (5,413) (2,984)
OTHER INCOME AND (EXPENSES):
Equity in net losses of affiliates........................ (33,050) (13,004) (8,268)
Non-controlling interest in net losses of consolidated
subsidiary............................................. 1,763 2,639 1,473
-------- -------- -------
Loss before provision for income taxes.................... (34,920) (15,778) (9,779)
Provision for income taxes................................ 0 0 0
-------- -------- -------
NET LOSS.................................................... $(34,920) $(15,778) $(9,779)
======== ======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
72
<PAGE> 34
ORBITAL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(34,920) $(15,778) $ (9,779)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES:
Equity in net losses of affiliates........................ 33,050 13,004 8,268
Non-controlling interest in net losses of consolidated
subsidiary............................................. (1,763) (2,639) (1,473)
Decrease (increase) in accounts receivable................ (204) (36) 873
Decrease (increase) in other current assets............... (855) (123) 0
Increase (decrease) in accounts payable and accrued
liabilities............................................ (82) 301 (18)
-------- -------- --------
NET CASH USED IN OPERATING ACTIVITIES............. (4,774) (5,271) (2,129)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates................................. (34,498) 0 (12,958)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES............. (34,498) 0 (12,958)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock to employees........... 102 141 124
Purchases of treasury stock, net of reimbursement from
ORBCOMM Global, L.P.................................... (40) (575) (104)
Repayments of promissory notes............................ (331) (166) 0
Net borrowings from affiliates............................ 39,517 5,763 15,209
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 39,248 5,163 15,229
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (24) (108) 142
CASH AND CASH EQUIVALENTS:
Beginning of year......................................... 34 142 0
-------- -------- --------
CASH AND CASH EQUIVALENTS:
End of year............................................... $ 10 $ 34 $ 142
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
73
<PAGE> 35
ORBITAL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK ACCUMULATED
------------------ PAID-IN --------------- EARNINGS
SHARES AMOUNT CAPITAL SHARES AMOUNT (DEFICIT) TOTAL
--------- ------ ---------- ------ ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995............ 4,663,122 $47 $ 86 3,012 $ (51) $ 10 $ 92
Shares issued to employees............ 67,270 0 124 0 0 0 124
Treasury stock purchased............ 0 0 0 47,760 (104) 0 (104)
Net loss............................ 0 0 0 0 0 (9,779) (9,779)
--------- --- ---- ------ ----- -------- --------
BALANCE, DECEMBER 31, 1996............ 4,730,392 47 210 50,772 (155) (9,769) (9,667)
Shares issued to employees.......... 20,900 1 140 0 0 0 141
Treasury stock purchased............ 0 0 0 43,800 (575) 0 (575)
Net loss............................ 0 0 0 0 0 (15,778) (15,778)
--------- --- ---- ------ ----- -------- --------
BALANCE, DECEMBER 31, 1997............ 4,751,292 48 350 94,572 (730) (25,547) (25,879)
Shares issued to employees.......... 32,600 0 102 0 0 0 102
Treasury stock purchased............ 0 0 0 1,000 (40) 0 (40)
Net loss............................ 0 0 0 0 0 (34,920) (34,920)
--------- --- ---- ------ ----- -------- --------
BALANCE, DECEMBER 31, 1998............ 4,783,892 $48 $452 95,572 $(770) $(60,467) $(60,737)
========= === ==== ====== ===== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
74
<PAGE> 36
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Organization
Orbital Communications Corporation ("OCC") is a majority owned and
controlled subsidiary of Orbital Sciences Corporation ("Orbital") and is
included in Orbital's consolidated financial statements. In 1993, OCC and
Teleglobe Mobile Partners ("Teleglobe Mobile"), a partnership established by
affiliates of Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P.
("ORBCOMM"), a Delaware limited partnership, and two marketing partnerships,
ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P.
("ORBCOMM International"). Each of OCC and Teleglobe Mobile is a 50% general
partner in ORBCOMM, and ORBCOMM is a 98% general partner in each of the two
marketing partnerships. Additionally, OCC is a 2% general partner in ORBCOMM
USA, and Teleglobe Mobile is a 2% general partner in ORBCOMM International.
Directly and indirectly, OCC currently holds and controls 51% and 49% of ORBCOMM
USA and ORBCOMM International, respectively.
Pursuant to the terms of the relevant partnership agreements: (i) OCC and
Teleglobe Mobile share equal responsibility for the operational and financial
affairs of ORBCOMM; (ii) OCC controls and consolidates 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, OCC is accounting for
its investments in ORBCOMM and ORBCOMM International using the equity method of
accounting.
The ORBCOMM System Description
ORBCOMM was formed for the design, development, construction, integration,
testing and operation of the ORBCOMM low-Earth orbit satellite communications
system (the "ORBCOMM System"). The ORBCOMM System comprises three operational
segments: (i) a space segment consisting of a constellation of 28 LEO
satellites; (ii) a ground and control segment consisting of a network control
center which serves as the global control for the satellites' gateway Earth
stations which send signals to and receive signals from the satellites, and
(iii) a subscriber segment consisting of gateway control centers which serve as
message switching systems that process the message traffic. ORBCOMM USA has been
granted the exclusive right to market, sell, lease and franchise the ORBCOMM
System output capacity in the U.S. and the exclusive use of the ORBCOMM System
assets in the U.S.
The System Charge
In consideration for the construction and financing of the ORBCOMM System
assets by ORBCOMM, OCC is obligated to pay ORBCOMM a system charge equal to a
contracted percentage of ORBCOMM USA's total service revenues (the "Output
Capacity Charge") minus a percentage of aggregate system service revenues,
defined as the total of ORBCOMM USA and ORBCOMM International total system
service revenues. If the Output Capacity Charge is less than 1.15% of the
aggregate system service revenues as described above, OCC is not required to pay
any portion of the system charge to ORBCOMM.
Regulatory Status
Construction and operation of communications satellites in the United
States requires licenses from the Federal Communications Commission (the "FCC").
OCC has been granted full operational authority for the ORBCOMM System by the
FCC. Similar licenses are required from foreign regulatory authorities to permit
ORBCOMM System services to be offered outside the United States. Primary
responsibility for obtaining licenses outside the United States will reside with
the entities that become international licensees.
75
<PAGE> 37
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 these estimates. Certain
reclassifications have been made to the 1997 and 1996 consolidated financial
statements to conform to the 1998 consolidated financial statement presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of OCC and
ORBCOMM USA. All material transactions and accounts between consolidated
entities have been eliminated.
Revenue Recognition
ORBCOMM USA provides subscriber communicator hardware to commercial
customers. Revenues are recognized when products are shipped or when customers
have accepted the products, depending on contractual terms. Service revenues are
recognized when rendered.
Income Taxes
OCC is included in Orbital's consolidated Federal income tax returns. OCC
determines its provision for income taxes as if it were filing on a separate
return basis. OCC recognizes income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Cash and Cash Equivalents
OCC considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Investments in Affiliates
OCC uses the equity method of accounting for its investments in and equity
in earnings (losses) of affiliates in which OCC has the ability to significantly
influence, but not control such affiliate's operations. In accordance with the
equity method of accounting, OCC's carrying amount of such investments is
initially recorded at cost and is increased to reflect its share of the
affiliates' income and is reduced to reflect its share of the affiliates'
losses. OCC's investments are also increased to reflect contributions to, and
decreased to reflect distributions from, each affiliate. Any excess of the
amount of OCC's investment and the amount of OCC's underlying equity in each
affiliate's net assets is amortized over a period of twenty years.
OCC's policy is to review its long-lived assets, including investments in
affiliates, for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. OCC recognizes an
impairment loss when the sum of expected future cash flows is less than the
carrying amount of the asset.
76
<PAGE> 38
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Fair Value of Financial Instruments
The carrying value of OCC's current assets and current liabilities
approximate fair value since all such instruments are short-term in nature.
Stock Based Compensation
OCC accounts for stock-based compensation in accordance with Statement of
Financial Accounting Standards 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), which requires companies to (i) recognize as expense the fair
value of all stock-based awards on the date of grant, or (ii) continue to apply
the provisions of Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees" ("APB 25") and provide pro forma net income (loss)
data for employee stock option grants as if the fair-value-based method defined
in SFAS 123 had been applied. OCC has elected to continue to apply the
provisions of APB 25 and provide the pro forma disclosure provisions of SFAS
123.
(3) INVESTMENTS IN AFFILIATES
At December 31, 1998 and 1997, OCC had approximately $56,111,000 and
$54,663,000, respectively in investments in affiliates relating to ORBCOMM. At
December 31, 1998 and 1997, ORBCOMM had $346,634,000 and $316,969,000 in total
assets, $241,844,000 and $210,551,000 in total liabilities and $104,790,000 and
$106,418,000 of total partners' capital, respectively. The difference between
OCC's investment in ORBCOMM and the amount of OCC's underlying equity in ORBCOMM
is primarily due to ORBCOMM accounting for its interests in ORBCOMM USA using
the equity method of accounting, while OCC consolidates its interests in ORBCOMM
USA. ORBCOMM recorded $1,262,000 and $527,000 in revenues and $69,628,000 and
$31,436,000 in net losses for the years ended December 31, 1998 and 1997,
respectively. Based on its current assessment of the overall business prospects
of the ORBCOMM partnerships and the ORBCOMM System, OCC currently believes its
investments in ORBCOMM and ORBCOMM International are fully recoverable. If in
the future, the ORBCOMM business is not successful, OCC may be required to
expense part or all of its investments.
(4) RELATED PARTY TRANSACTIONS
OCC obtains virtually all of its funding for its operations and for its
capital investments in ORBCOMM from Orbital via a non-interest bearing
intercompany borrowing arrangement. As of December 31, 1998 and 1997, OCC owed
Orbital $110,287,000 and $75,513,000, respectively, none of which is currently
payable. As of December 31, 1998 and 1997 OCC owed ORBCOMM $48,000 and $12,000,
respectively.
ORBCOMM USA currently obtains all of its funding from ORBCOMM via a
non-interest bearing intercompany borrowing arrangement. As of December 31, 1998
and 1997, ORBCOMM USA owed ORBCOMM $13,342,000 and $8,635,000, respectively,
none of which is currently payable.
(5) INCOME TAXES
OCC had no current or deferred provision for income taxes for the years
ended December 31, 1998, 1997, and 1996.
77
<PAGE> 39
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INCOME TAXES -- (CONTINUED)
The differences between the actual taxes and taxes computed at the U.S.
Federal income tax rate of 35% are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory rate............................ (35%) (34%) (34%)
Change in valuation allowance.......................... 35% 34% 34%
---- ---- ----
Effective rate......................................... 0% 0% 0%
==== ==== ====
</TABLE>
The tax effects of significant temporary differences at December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS)
-------------------
1998 1997
-------- --------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforward and other............. $ 35,994 $ 12,127
Valuation allowance................................... (21,283) (8,119)
-------- --------
Tax assets net................................ 14,711 4,008
Deferred Tax Liabilities:
Book/Tax difference attributable to partnership
items.............................................. (14,711) (4,008)
-------- --------
Net deferred tax assets....................... $ 0 $ 0
======== ========
</TABLE>
OCC provides a valuation allowance against its net deferred tax assets
given the trend of taxable losses in prior years.
(6) COMMITMENTS AND CONTINGENCIES
In August 1996, ORBCOMM and ORBCOMM Global Capital Corp. issued
$170,000,000 senior unsecured notes due in 2004 (the "Notes") to institutional
investors. The Notes bear interest at a fixed rate of 14% and provide for
noteholder participation in future ORBCOMM service revenues. The Notes are fully
and unconditionally guaranteed on a joint and several basis by OCC, Teleglobe
Mobile, ORBCOMM USA and ORBCOMM International. The guarantees are non-recourse
to OCC's shareholders (including Orbital) and Teleglobe Mobile's partners
(including Teleglobe and Technology Resources Industries Bhd.).
(7) STOCK OPTION PLAN
OCC adopted a stock option plan in 1992 (the "OCC Plan"). The OCC Plan
provides for grants of incentive and non-qualified stock options to purchase OCC
common stock to officers and employees of OCC, ORBCOMM, ORBCOMM USA, ORBCOMM
International and Orbital. Under the terms of the ORBCOMM Plan, incentive stock
options may not be granted at less than 100% of the fair market value at the
date of grant and non-qualified options may not be granted at less than 85% of
the fair market value of OCC common stock at the date of grant as determined by
a committee consisting of two OCC Board members and two members appointed by
Teleglobe Mobile. 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 OCC Plan require OCC to repurchase, with cash or
promissory notes, the common stock acquired pursuant to the options. The total
amount of cash for stock repurchases and promissory note repayments is
restricted to $1,000,000 per year, in accordance with the terms of the Notes
78
<PAGE> 40
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) STOCK OPTION PLAN -- (CONTINUED)
(See Note 6). During 1998 and 1997, OCC repurchased 1,000 and 43,800 common
shares by paying $41,000 and $829,000 in cash, respectively. Promissory notes
totaling $331,000 were also issued in 1997. The 1997 promissory notes were
repaid in 1998. These repurchases were funded by (i) reimbursements from ORBCOMM
pursuant to the terms of the Restated Agreement of Limited Partnership of
ORBCOMM Global, L.P. and (ii) contributions from Orbital.
The following two tables summarize information regarding options under the
OCC Plan for the last three years:
<TABLE>
<CAPTION>
WEIGHTED OUTSTANDING
NUMBER OPTION PRICE AVERAGE AND
OF SHARES PER SHARE EXERCISE PRICE EXERCISABLE
--------- --------------- -------------- -----------
<S> <C> <C> <C> <C>
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
Granted......................... 305,300 $26.50 -- $39.75 $32.37
Exercised....................... (32,600) $ 1.50 -- $13.00 $ 3.15
Canceled or Expired............. (17,700) $ 1.50 -- $26.50 $23.94
--------- --------------- ------
OUTSTANDING AT DECEMBER 31,
1998............................ 1,004,830 $ 1.50 -- $39.75 $20.40 520,864
========= =============== ======
</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, 1998 CONTRACTUAL LIFE EXERCISE PRICE AT DEC. 31, 1998 EXERCISE PRICE
- - --------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 1.50 -- $13.00.. 345,530 4.10 $ 4.96 345,530 $ 4.96
$17.00 -- $25.00.. 77,500 7.19 $20.35 43,750 $19.97
$26.50 -- $39.75.. 581,800 8.83 $29.58 131,584 $26.50
- - --------------- --------- ---- ------ ------- ------
$ 1.50 -- $39.75.. 1,004,830 7.08 $20.40 520,864 $11.66
=============== ========= ==== ====== ======= ======
</TABLE>
(8) STOCK BASED COMPENSATION
OCC uses the Black-Scholes option-pricing model to determine the pro forma
impact of stock option grants under SFAS 123 on OCC's net loss. The model
utilizes certain information, such as the interest rate on a risk-free security
maturing generally at the same time as the option being valued, and requires
certain assumptions, such as the expected amount of time an option will be
outstanding until it is exercised or it expires, to calculate the
weighted-average fair value per share of stock options granted. This information
and the assumptions used in the option pricing model for 1998, 1997 and 1996
respectively, are as follows: volatility 30%; dividend yield, zero percent;
average expected life, 4.5 years; risk free interest rate, 5.4%, 6.1% and 5.6%;
additional shares available, 56,925, 48,878 and 20,778; and weighted-average
exercise price per option grant, $32.37, $26.50 and $20.50.
79
<PAGE> 41
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) STOCK BASED COMPENSATION -- (CONTINUED)
Had the company determined compensation cost based on the fair value at the
grant date for its stock options in accordance with the fair value method
prescribed by SFAS 123, OCC's net loss would have been $36,666,000, $16,460,000
and $10,200,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
(9) SUBSEQUENT EVENTS
For the period from January 1, 1999 through March 15, 1999, OCC paid
$18,450,000 in additional capital contributions to ORBCOMM.
80
<PAGE> 1
Exhibit 21
================================================================================
SUBSIDIARIES
================================================================================
ORBITAL SCIENCES CORPORATION
ORBITAL COMMUNICATIONS CORPORATION
ORBITAL SERVICES CORPORATION
ORBITAL COMMERCIAL SYSTEMS, INC.
ORBITAL INTERNATIONAL, INC.
ORBITAL INTERNATIONAL SERVICES, INC.
ORBITAL SPACE SYSTEMS, INC.
ORBLINK LLC
ENGINEERING TECHNOLOGIES, INC
ORBITAL IMAGING CORPORATION
MACDONALD, DETTWILER AND ASSOCIATES, LTD.
ACCESS BC INFORMATION SERVICES, LTD.
MACDONALD DETTWILER INFORMATION SERVICES, LTD.
MACDONALD DETTWILER SERVICES, LTD.
MACDONALD DETTWILER HOLDINGS, INC.
MACDONALD DETTWILER TECHNOLOGIES LTD.
MACDONALD DETTWILER PTY. LTD.
MACDONALD DETTWILER TECHNOLOGIES INC.
MACDONALD DETTWILER LIMITED
TRIATHLON MAPPING CORP.
NIES MAPPING GROUP, INC.
EARTH OBSERVATION SCIENCES LIMITED
IOTEK INCORPORATED
MAGELLAN CORPORATION
MAGELLAN DIS, INC.
MAGELLAN SISTEMAS DE MEXICO
MAGELLAN FOREIGN SALES CORPORATION
ASHTECH USVI
ASHTECH EUROPE LTD
ASHTECH A/O
<PAGE> 2
================================================================================
SUBSIDIARIES
(CONTINUED)
================================================================================
ORBCOMM GLOBAL, L.P.
ORBCOMM USA L.P.
ORBCOMM INTERNATIONAL PARTNERS, L.P.
DOLPHIN INFORMATION SERVICES, INC
DOLPHIN SOFTWARE SERVICES ULC
ORBCOMM CORPORATION
ORBCOMM GLOBAL CAPITAL CORP
<PAGE> 1
Exhibit 23.1
Accountants' Consent
The Board of Directors
Orbital Sciences Corporation:
We consent to the incorporation by reference in the registration statements on
Form S-8 (Nos. 33-84296, 33-62277, 33-64517, 333-53585, 333-69887, 333-69885,
and 333-27999) and Form S-3 (No. 33-42271) of Orbital Sciences Corporation of
our reports dated February 16, 1999, except as to note 12, which is as of March
18, 1999, relating to the consolidated balance sheets of Orbital Sciences
Corporation and subsidiaries as of December 31, 1998 and 1997, 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, 1998, and the
related consolidated financial statement schedule, and our report dated March
30, 1999 relating to the balance sheets of ORBCOMM Global, L.P. (a development
stage enterprise) as of December 31, 1998 and 1997, and the related statements
of income and expenses, partners' capital, and cash flows for each of the years
in the three-year period ended December 31, 1998, and for the period from June
30, 1993 (inception) to December 31, 1998, which reports appear in the December
31, 1998, annual report on Form 10-K of Orbital Sciences Corporation.
KPMG LLP
McLean, Virginia
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS AT AND FOR
THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> ORBITAL SCIENCES CORP /DE/
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