<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
ANNUAL REPORT ON
FORM 10-K
For the fiscal year ended December 31, 1999
COMMISSION FILE NUMBER 0-18287
------------------------
ORBITAL SCIENCES CORPORATION
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C>
DELAWARE 06-1209561
(State of Incorporation of Registrant) (I.R.S. Employer I.D. No.)
</TABLE>
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)
------------------------
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 [ ] No [X]
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 April 10, 2000 was approximately $504,043,250.
As of April 10, 2000, 37,417,245 shares of the registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement dated April 24,
2000 are incorporated by reference in Part III of this Report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C> <C>
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........................ 13
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 15
ITEM 6. Selected Financial Data..................................... 16
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 25
ITEM 8. Financial Statements and Supplementary Data................. 26
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 67
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 69
ITEM 11. Executive Compensation...................................... 69
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 69
ITEM 13. Certain Relationships and Related Transactions.............. 69
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 70
</TABLE>
- ------------------------
Pegasus is a registered trademark and service mark of Orbital Sciences
Corporation; Taurus is a registered trademark of Orbital Sciences Corporation;
Orbital and ORBNAV are trademarks and service marks of Orbital Sciences
Corporation; OrbView and ORBIMAGE are registered service marks of Orbital
Imaging Corporation; and ORBCOMM is a registered service mark of ORBCOMM Global
L.P.
<PAGE> 3
PART I
ITEM 1. BUSINESS
BACKGROUND
Orbital Sciences Corporation, together with its subsidiaries and affiliates
("Orbital" or the "company"), 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 and advanced programs, satellites and related space systems,
electronics and sensor systems and transportation management systems, satellite
ground systems, space robotics, and mapping and land information services.
Satellite access products include satellite-based navigation, positioning and
communications products. Satellite services include satellite-based mobile data
communications services, satellite-based remote imaging services,
satellite-based automotive information services and satellite-based voice
communications.
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 the last ten
years, our innovations have included the world's first privately-developed space
launch vehicle, the first commercial orbit transfer vehicle, the first
operational low-Earth orbit commercial communications network, and 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 and the 1999 purchase of Harris Corporation's transit management
systems product line. 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 1999, we expanded our infrastructure product line with
MDA's acquisition of the space robotics division of Spar Aerospace Limited
("Spar"). Through several acquisitions and strategic partnerships, MDA has also
expanded its product lines to include mapping and business-to-business
e-commerce-based land information services. In December 1999, we sold one-third
of our equity interest in MDA to an investor group consisting primarily of
Canadian entities.
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. ("Teleglobe"), 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 were each 50%
general partners in ORBCOMM through December 31, 1999. Additionally, through
December 31, 1999, OCC was a 2% general partner in ORBCOMM USA, L.P. ("ORBCOMM
USA") and Teleglobe Mobile was a 2% general partner in
1
<PAGE> 4
ORBCOMM International Partners, L.P. ("ORBCOMM International"), two partnerships
formed to market the ORBCOMM System. ORBCOMM was a 98% general partner in each
of the two marketing partnerships. We controlled and, therefore, consolidated
ORBCOMM USA's results of operations. We did not control ORBCOMM's or ORBCOMM
International's operational or financial affairs and, therefore, did not
consolidate their results of operations. Effective January 1, 2000, Teleglobe,
through Teleglobe Mobile, became the majority owner and sole general partner of
ORBCOMM. OCC converted its general partner interest into a limited partner
interest. As of March 15, 2000, OCC held an approximate 34% interest in ORBCOMM.
In January, ORBCOMM USA and ORBCOMM International were merged into ORBCOMM.
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. We own
approximately 100% of ORBIMAGE's outstanding common stock and approximately 58%
of the total voting interest in ORBIMAGE (after giving effect to the conversion
of ORBIMAGE's outstanding convertible preferred stock). Based on certain rights
granted to ORBIMAGE's preferred equity investors, we do not control ORBIMAGE's
operational or financial affairs and, therefore, do not consolidate its results
of operations.
In 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 60% owned joint venture, Navigation Solutions,
LLC ("Navigation Solutions"), with The Hertz Corporation ("Hertz").
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 and advanced programs, satellites and related space systems,
electronics and sensor systems and transportation management systems, and
satellite ground systems, space robotics, and mapping and land information
services, and is described more fully below.
Launch Vehicles and Advanced Programs. We developed and produce the
Pegasus and Taurus space launch vehicles that place small satellites into Earth
orbit, and in January 2000, we successfully carried out the first launch of the
new Minotaur space launch vehicle for the U.S. Air Force. 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. The ground-launched
Minotaur launch vehicle combines Minuteman II rocket motors with our Pegasus
technology to launch payloads of up to 1,500 pounds into low-Earth orbit.
The Pegasus has performed a total of 28 missions, including three
successful launches in 1999. The Taurus has performed a total of five launches,
including one successful mission in 1999 for South Korea's space agency, and
most recently a successful mission in March 2000 for the Department of Energy.
Customers for Pegasus launch services currently include the National Aeronautics
and Space Administration ("NASA"), the U.S. Air Force, ORBCOMM and ORBIMAGE.
Customers for Taurus missions currently include ORBIMAGE and NASA. We perform
Minotaur missions under a contract with the U.S. Air Force.
2
<PAGE> 5
Under a research and development contract with NASA, we are designing and
constructing three unmanned reusable X-34 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 a NASA program
focused on the development of next-generation, lower cost launch vehicles. In
1999, we delivered the first vehicle and commenced the captive flight test phase
of the X-34. NASA has contracted with us to conduct 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
applications such as target signature and interceptor experiments. Our primary
customers for suborbital launch vehicles include NASA and various branches of
the U.S. military. Since 1982, we (including a predecessor company) have
performed 101 suborbital missions.
Orbital's space launch technology is also the basis for several other space
and suborbital programs, including supporting efforts to develop technologies
that could be applied to hypersonic aircraft, crew transport vehicles and space
planes.
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. 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 86 satellites, including 44
commercial satellites, 33 military/national security satellites and nine
scientific satellites.
Ten Orbital-built satellites were deployed during 1999. Customers for our
LEO satellites include NASA, the U.S. Air Force, ORBCOMM and ORBIMAGE. Customers
for our GEO communications satellites include Japan's Broadcast Satellite
Systems Corporation and Japan's NTT Mobile Communications Network, Inc.
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, including 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 and Transportation Management
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, and high-speed solid state
recorders. 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. Since 1982, we (including a predecessor company) have delivered more
than 31,000 defense electronics systems to customers in over a dozen countries.
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
3
<PAGE> 6
for U.S. and British 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 petrochemical, pharmaceutical and steel industries.
During the last 18 years, we (including a predecessor company) have produced
over 3,400 sensors and instruments for these markets.
Orbital also produces satellite-aided vehicle location and fleet management
systems that have been used primarily for metropolitan mass transit operators.
Our 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. We also provide
fleet management software for utilities and other companies. The 1999 purchase
of Harris Corporation's transit management systems product line expanded our
existing satellite-based transit system capabilities. Major customers for our
transportation management systems include the metropolitan mass transit
authorities in Chicago, New York, Houston, Denver, Oakland, Philadelphia,
Baltimore, Atlanta, Santa Clara and San Mateo (California) and Las Vegas, as
well as a number of smaller state and municipal transit systems and vehicle
fleets. To date, we (including predecessor companies) have installed more than
14,000 transportation management systems in the United States.
Satellite Ground Systems, Space Robotics, and Mapping and Land Information
Services. 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, and command and control.
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 20 countries. We have also carried out
subsequent substantial upgrades on over 40 ground stations that we and other
companies originally built. 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. MDA is also the prime
contractor for Canada's RadarSat-2 commercial radar imaging satellite system.
In May 1999, we purchased the space robotics division of Toronto-based
Spar, which engages in the design, manufacture, marketing and support of
robotics systems primarily for space applications. Our robotics products are
used on Space Shuttle missions and will be used in the International Space
Station. Since 1982, our principal robotics product, the Shuttle Remote
Manipulator Systems, or Canadarm, has performed successfully on 53 Space Shuttle
missions involving satellite deployment and retrieval, International Space
Station assembly and other tasks.
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 1999, we entered into a
license agreement with the British Columbia provincial government to operate and
enhance the provincial government'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. We intend to provide Internet-based services using these databases.
In addition, we have expanded our product line to include digital mapping and
business-to-business e-commerce-based land information services.
4
<PAGE> 7
In December 1999, we sold one-third of our equity interest in MDA to an
investor group consisting primarily of Canadian entities for gross proceeds of
$75 million. In connection with the transaction, MDA's new shareholders were
granted certain rights, including, among others, an option to purchase
additional MDA shares, or to cause a sale of MDA, in certain circumstances,
including (1) if an initial public offering of MDA does not occur on or before
June 22, 2002, or (2) if certain bankruptcy events involving Orbital occur. In
addition, under certain circumstances, including clause (1) above, MDA's new
shareholders will have the right to exchange their MDA stock for common stock of
Orbital pursuant to a specified formula as set forth in an Exchange and
Registration Rights Agreement. Orbital and the other MDA shareholders are
currently exploring an initial public offering by MDA in Canada.
SATELLITE ACCESS PRODUCTS
Our satellite access products include the satellite-based navigation,
positioning and communications products of our Magellan subsidiary as described
more fully below. Over the last 10 years, Magellan has produced and shipped over
1,800,000 access products in its major product lines.
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.
Magellan's satellite communications devices combine GPS and wireless data
communications functions. The first generation of Magellan products are used
primarily 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. In 1999, Orbital and Hertz
entered into an exclusive joint venture whereby 50,000 of Magellan's automotive
navigation systems are now being delivered and installed in Hertz' NeverLost(TM)
rental car service in the United States and Canada. Magellan's automotive
navigation system is currently in use in approximately 25,000 Hertz rental cars.
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 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 (1) 180 days after an initial public
offering of the common stock of Magellan or (2) December 31, 1999. Because an
initial public offering of common stock was not completed by December 31, 1999,
we are evaluating strategic alternatives relating to Magellan.
Orbital and former Ashtech stockholders own approximately 66% and 34%,
respectively, of Magellan.
SATELLITE SERVICES
In Orbital's satellite services sector, ORBCOMM, our ORBIMAGE affiliate and
our Radarsat International Inc. ("RSI") subsidiary 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
5
<PAGE> 8
our ORBNAV subsidiary. Our satellite services sector also includes an investment
in a development stage voice-based satellite communications company.
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 network currently has 33 small LEO satellites in
commercial service, 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.
In 1999, Orbital launched a fourth plane of seven satellites aboard a
Pegasus vehicle for ORBCOMM. Orbital and ORBCOMM have also entered into a
procurement agreement under which, as amended, we have agreed to build and
launch a minimum of 11 satellites on a fixed-price basis, with an option to
build and launch up to an additional 3 satellites.
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. As of
December 31, 1999, Orbital's investments in and advances to ORBCOMM were
approximately $107,989,000. Effective January 1, 2000, we restructured the
partnership agreement with Teleglobe governing financing and ownership of
ORBCOMM. Teleglobe, through Teleglobe Mobile, is now the majority owner and sole
general partner of ORBCOMM with an interest of approximately 66% as of March 15,
2000. We are a limited partner holding a minority ownership interest of
approximately 34% with certain voting rights and no future funding obligations.
As part of the restructuring, we also arranged to settle deferred invoiced
amounts owed to us by ORBCOMM, which amounts totaled approximately $91,000,000
as of December 31, 1999. ORBCOMM paid us approximately $41,000,000 in January
2000, which was funded from an equity contribution made in ORBCOMM by Teleglobe.
Of the $41,000,000, we then reimbursed Teleglobe approximately $33,000,000 for
amounts it previously had advanced to us. In March 2000, we converted an invoice
for approximately $33,000,000 into a contribution to partnership interests in
ORBCOMM. The remaining amount of approximately $17,000,000 that ORBCOMM owes us
is due by June 2001. In addition, we agreed to file an application with the U.S.
Federal Communications Commission ("FCC") to transfer to ORBCOMM the licenses
held by OCC with respect to the ORBCOMM System when an aggregate amount of
$75,000,000 in additional capital contributions or similar equity investments is
made to ORBCOMM after January 1, 2000.
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 based on our percentage of partnership
interest. However, as ORBCOMM is currently capitalizing all system construction
costs, including amounts paid to Orbital, until December 31, 1999, we eliminated
as equity in earnings (losses) of affiliates approximately 50%, our then-current
equity ownership in ORBCOMM, of our profits from sales to ORBCOMM.
6
<PAGE> 9
We believe that ORBCOMM will require significant additional funding in
2000. While it is not contractually obligated to do so, Teleglobe Mobile is
currently funding ORBCOMM's operations. Orbital has no future funding
obligations. We understand that ORBCOMM is currently in the process of exploring
financing alternatives to fund future capital expenditures and to fund operating
costs. Such alternatives include, but are not limited to, an initial public
offering of equity, additional capital contributions from its partners or other
strategic investors, other equity or debt transactions and other strategic
alternatives. There can be no assurance that any financing will be completed or
available on terms acceptable to ORBCOMM.
Orbital anticipates that the ORBCOMM System will continue to produce
substantial operating losses through 2000. 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 investment in ORBCOMM.
ORBIMAGE Digital Imagery Services. ORBIMAGE operates, and is further
developing, a fleet of satellites that collect, process and distribute digital
imagery of the Earth's surface, atmosphere and weather conditions. ORBIMAGE's
imaging products and services are designed to provide customers with timely and
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 its first
one-meter high-resolution satellite, OrbView-4, in the first quarter of 2001,
with its second one-meter high-resolution satellite, OrbView-3, expected to be
launched in the second quarter of 2001. We believe that OrbView-4 will be the
world's first satellite with commercially available hyperspectral imaging
capability. During 1999, ORBIMAGE entered into agreements with commercial
distributors in Japan, Europe and Latin America to distribute high-resolution
imagery from the OrbView-3 and OrbView-4 satellites. Pursuant to a license
agreement between ORBIMAGE and MDA, ORBIMAGE has acquired 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.
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.
We own approximately 100% of ORBIMAGE's outstanding common stock and
approximately 58% of the total voting interest in ORBIMAGE (after giving effect
to the conversion of ORBIMAGE's convertible preferred stock), 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 (based on our current common equity ownership) of ORBIMAGE's
net income available to common stockholders. To the extent ORBIMAGE capitalizes
its purchases from Orbital, we eliminate as equity in earnings (losses) of
affiliates our proportionate share (based on our current common equity
ownership) of profits from sales to ORBIMAGE.
As of December 31, 1999, our investments in and advances to ORBIMAGE were
$8,094,000. We have committed to make up to an additional $12,500,000 equity
investment in ORBIMAGE based on ORBIMAGE's cash requirements, which commitment
may increase up to $25,000,000 if there are significant delays in the launch of
the OrbView-4 or OrbView-3 satellites. We believe that ORBIMAGE will require
additional funding in 2000 beyond our committed amount. ORBIMAGE is also
currently in the process of exploring financing alternatives to fund future
capital expenditures and to fund operating costs. There can be
7
<PAGE> 10
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.
Radarsat International. Our Canadian subsidiary, RSI, has the exclusive
license to market radar imagery from the Canadian Space Agency's RadarSat-1
satellite. RSI sells radar imagery to commercial, scientific and government
customers around the world.
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 joint venture with Hertz, Navigation
Solutions, is delivering and installing 50,000 satellite-based car navigation
systems that form the basis for the Hertz NeverLost rental car service. We have
agreed to invest up to $30,000,000 in Navigation Solutions in exchange for a 60%
non-controlling 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. Through December 31, 1999, Orbital and Hertz had invested $22,200,000
and $14,800,000, respectively.
CCI Voice Communications. We made a strategic equity investment in CCI
International, N.V. ("CCI"), a development stage company formed to develop,
construct and operate a constellation of satellites offering satellite-based
voice communications services in the world's equatorial regions. In connection
with our investment, we also entered into a satellite and launch vehicle
procurement contract. CCI needs a significant infusion of capital to complete
its contemplated constellation of satellites. In the third quarter of 1999, two
other start-up companies that had also been developing similar satellite
communications systems announced that they were experiencing significant
financial difficulties and filed for bankruptcy protection (and one such company
has since commenced liquidation). We believe that CCI's ability to raise the
needed capital is doubtful, and accordingly, in the third quarter of 1999, we
concluded that our investment in CCI was impaired. We recorded in the third
quarter a non-cash charge of $11,128,000 to write-off our remaining investment
in CCI.
* * *
Financial information about the company's products and services, domestic
and foreign operations and export sales is included in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the notes to
our consolidated financial statements, and is incorporated herein by reference.
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 in the future 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. Competition for Taurus could come from surplus Titan II
launch vehicles, although a very limited inventory remains, and from various
Russian launch vehicles.
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 primary competitors in the suborbital
launch vehicle product line are Lockheed Martin, Coleman Research Corporation
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, Boeing Corporation, Spectrum Astro, Inc., Matra Marconi Space,
Alenia Aerospazio and Alcatel. Our airborne and ground-based electronics, data
management systems, defense-
8
<PAGE> 11
oriented avionics products and software systems, aviation systems and space
sensors and instruments face competition from several established manufacturers,
including Smiths Industries, Lockheed Martin and Honeywell Inc. Our main
competitors in the area of satellite ground stations include Datron Systems
Inc., Matra Marconi Space and Raytheon Company. Our satellite access products
primarily face competition from Trimble Navigation Ltd., Garmin International,
Lowrance Electronics, Inc., Philips Automotive Electronics, Alpine Electronics
and Clarion Co., Ltd.
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, Inc., 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 $43,013,000, $49,384,000 and $33,140,000, respectively, for the
fiscal years ended December 31, 1999, 1998 and 1997.
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 advanced launch vehicle. 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.
U.S. GOVERNMENT CONTRACTS
During 1999, 1998 and 1997, approximately 34%, 46% and 42%, 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
9
<PAGE> 12
materially adversely affect our financial condition or results of operations.
Customers that accounted for 10% or more of our consolidated 1999 revenues were
NASA, DoD and the Canadian Space Agency.
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 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 ("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 potential business, require licenses from 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 system. ORBCOMM's international licensees have obtained
or are responsible for obtaining the necessary international regulatory
licenses.
In addition, U.S.-based commercial remote imagery satellite systems such as
those developed by ORBIMAGE, require licenses from the U.S. Department of
Commerce ("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
10
<PAGE> 13
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. The DoC has also informed us
that we will need to obtain a DoC license for the RadarSat-2 satellite, which
will be owned and operated by our Canadian subsidiary, MDA. The U.S. and
Canadian governments also have been negotiating the policy to govern RadarSat-2
operations and data use. If DoC were to impose restrictions on the commercial
uses of RadarSat-2, such restrictions could have an adverse effect on ORBIMAGE's
financial condition and results of operations. 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 or ORBIMAGE 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, 1999 and 1998
was approximately $2,048,000,000 and $1,826,000,000, respectively. As of
December 31, 1999, approximately 20% 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 $1,262,000,000
and $1,300,000,000 as of December 31, 1999 and 1998, respectively. Approximately
60% of total firm backlog is currently scheduled to be performed beyond 2000.
Firm backlog excludes unexercised contract options and undefinitized new
contracts having an aggregate potential contract value at December 31, 1999 of
approximately $2,712,000,000.
EMPLOYEES
As of December 31, 1999, Orbital had approximately 5,300 full-time
permanent employees, including a total of approximately 500 employees at ORBCOMM
and ORBIMAGE. Employees of MDA's space robotics division in Brampton, Ontario
are subject to collective bargaining agreements with the Canadian Auto Workers
Union and Spar Professional and Allied Technical Association. None of our other
employees are subject to collective bargaining agreements. We believe our
employee relations are good.
ITEM 2. PROPERTIES
Orbital owns or leases over 2,000,000 square feet of office, engineering
and manufacturing space in various locations throughout the world. In 1999, we
purchased approximately 21 acres of land adjacent to our Northern Virginia
corporate headquarters for future expansion of our space-related engineering,
manufacturing and operations facilities. We also conveyed approximately 28 acres
of land adjacent to our corporate headquarters in Northern Virginia to a third
party developer and we have entered into three lease agreements; two to commence
in 2000 and one to commence in 2001. In 2000, as leases on the current
facilities expire, we expect to relocate our satellite systems groups from
facilities in McLean, Virginia and Germantown, Maryland described below, to our
expanded Northern Virginia campus, currently under construction.
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. This facility is being expanded by
approximately 64,000 square feet in connection with the consolidation of our
satellite systems group in Northern Virginia with construction scheduled for
completion in mid 2000. Orbital also leases approximately 76,000 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; 292,000 square feet of office, engineering and manufacturing space in
Brampton, Ontario; 182,000
11
<PAGE> 14
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 manufacturing space around the United States, in Canada
and in Russia. 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 connection with our announcement in February 1999 of the restatement of
our financial reports for the first three fiscal quarters of 1998, during the
first quarter of 1999, a number of class action lawsuits were filed in the U.S.
District Court for the Eastern District of Virginia (the "District Court")
against us, an officer and an officer/director, alleging violations of the
federal securities laws, on behalf of purchasers of our common stock during the
period from April 21, 1998 through February 16, 1999 and seeking monetary
damages. In the second quarter of 1999, the class action lawsuits were
consolidated into a single class action and an amended consolidated class action
was filed with the District Court. An additional class action complaint was
filed on behalf of purchasers of call options in the third quarter of 1999,
which was consolidated with the previous action. In connection with our
announcement in October 1999 of the restatement of the Company's financial
reports for fiscal years 1997, 1998 and the first two quarters of 1999, a class
action lawsuit was filed in the District Court on November 10, 1999 against the
company, an officer and an officer/director alleging violations of the federal
securities laws, on behalf of purchasers of our common stock and call options
during the period from April 22, 1997 through October 29, 1999. The District
Court granted the plaintiffs leave to file an amended complaint consolidating
the new action with the previously consolidated pending cases. The class has
been certified and the case is currently in the discovery process. While the
amounts to be claimed may be substantial, we believe that the allegations are
without merit and intend to defend vigorously against such allegations.
In July 1999, a class action complaint was filed by Veston W. Bush, Jr., on
behalf of a class comprised of purchasers and lessees of a high precision GPS
product manufactured by Magellan (as a successor to Ashtech), against Sokkia
Corporation and certain of its affiliates, Magellan and others in the Circuit
Court of Henry County, Alabama. The complaint alleges breach of contract and
warranty claims and seeks unspecified compensatory and punitive damages. We
believe that the allegations are without merit and intend to defend vigorously
against such allegations
In the first quarter of 2000, PT Media Citra Indostar ("PT-MCI"), an
Indonesian company, commenced arbitration proceedings against us seeking a
refund of $163,000,000 that PT-MCI asserts it paid in connection with its
purchase of the Indostar satellite constructed by CTA under a contract that was
assigned to us in connection with our CTA acquisition. Our claims against PT-MCI
for unpaid invoices in the approximate amount of $14,000,000 are also part of
the arbitration proceedings. We believe that PT-MCI's allegations 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
PT-MCI litigation and that CTA retains liability for certain fraud claims being
made by PT-MCI.
We are currently arbitrating a claim by Thomas van der Heyden alleging that
Orbital is in actual or anticipatory breach of obligations allegedly imposed on
Orbital in a decision in a previous arbitration proceeding brought by Mr. van
der Heyden against CTA. Mr. van der Heyden claims that he is entitled to a sum
exceeding $30,000,000 from Orbital, as successor-in-interest to CTA. We believe
that the allegations in these proceedings 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 this 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 1999.
12
<PAGE> 15
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, 2000. 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.................... 45 Chairman of the Board and Chief Executive Officer
James R. Thompson.................... 63 Director, President and Chief Operating Officer
Jeffrey V. Pirone.................... 39 Executive Vice President and Chief Financial Officer
Michael D. Griffin................... 50 Executive Vice President and Chief Technical Officer
Leslie C. Seeman..................... 47 Executive Vice President, General Counsel and Secretary
Robert R. Lovell..................... 63 Executive Vice President and General Manager/Space
Systems Group
Ronald J. Grabe...................... 54 Executive Vice President and General Manager/Launch
Systems Group
Robert D. Strain..................... 43 Executive Vice President and General Manager/Electronics
and Sensor Systems Group
Daniel E. Friedmann.................. 43 Executive Vice President and General Manager/Systems
Integration and Software Group
John P. Huyett....................... 46 Executive Vice President and General Manager/Satellite
Access Products Group
Antonio L. Elias..................... 50 Senior Vice President/Advanced Programs Group
</TABLE>
- ------------------------
David W. Thompson is a co-founder of Orbital and has been Chairman of the
Board and Chief Executive Officer of Orbital since 1982. From 1982 until October
1999, he also served as our President. 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 ORBIMAGE and as a director of ORBCOMM. Mr. Thompson is a Fellow of
the American Institute of Aeronautics and Astronautics, the American
Astronautical Society and the Royal Aeronautical Society.
James R. Thompson (who is not related to David W. Thompson) has been
President and Chief Operating Officer since October 1999 and a director of the
company since 1992. From 1993 until October 1999, Mr. Thompson served as
Executive Vice President and General Manager/Launch Systems Group. 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. Mr.
Thompson 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.
Jeffrey V. Pirone has been Executive Vice President and Chief Financial
Officer since 1998. From 1996 to 1998, Mr. Pirone served as Senior Vice
President and Chief Financial Officer, and 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. He is
also a director of ORBCOMM.
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.
13
<PAGE> 16
Leslie C. Seeman has been Executive Vice President and General Counsel of
Orbital since January 2000 and served as Senior Vice President and General
Counsel from 1993 to January 2000. From 1989 to 1993, she was Vice President and
General Counsel of Orbital, and from 1987 to 1989, Ms. Seeman was Assistant
General Counsel of Orbital. From 1984 to 1987, she was General Counsel of Source
Telecomputing Corporation, a telecommunications company. Prior to that, she was
an attorney at the law firm of Wilmer, Cutler and Pickering.
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.
Ronald J. Grabe has been Executive Vice President and General
Manager/Launch Systems Group since October 1999. From 1996 to 1999, he was
Senior Vice President and Assistant General Manager of the Launch Systems Group,
and Senior Vice President of the Launch Systems Group since 1995. From 1994 to
1995, Mr. Grabe served as Vice President for Business Development in the Launch
Systems Group. From 1980 to 1993, Mr. Grabe was a NASA astronaut during which
time he commanded four Space Shuttle missions and was lead astronaut for
development of the International Space Station.
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.
John P. Huyett has been Executive Vice President and General
Manager/Satellite Access Products since January 1, 1999. Mr. Huyett also serves
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.
Antonio L. Elias has been Senior Vice President/Advanced Programs Group
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.
14
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On March 31, 2000, there were 1,329 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 1997 through 1999, as reported on
Nasdaq or the NYSE, as applicable, was as follows:
<TABLE>
<CAPTION>
1999 HIGH LOW
- ---- ---- ---
<S> <C> <C>
4th Quarter................................................. $19 1/4 $10 3/5
3rd Quarter................................................. $26 1/4 $16 1/4
2nd Quarter................................................. $29 3/4 $19 1/2
1st Quarter................................................. $45 1/3 $19 1/3
</TABLE>
<TABLE>
<CAPTION>
1998 HIGH LOW
- ---- ---- ---
<S> <C> <C>
4th Quarter................................................. $44 $19 1/2
3rd Quarter................................................. $39 $17
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>
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 our credit facility.
The transfer agent for our Common Stock is:
BankBoston, N.A.
c/o Equiserve
P.O. Box 8040
Boston, MA 02266-8040
Telephone: (781) 575-3170
www.Equiserve.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
15
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
Management has determined to restate its previously issued consolidated
financial statements as of and for the years ended December 31, 1998, 1997, 1996
and 1995 with respect to certain matters described in Note 2A to our
consolidated financial statements. The following selected consolidated financial
data should be read in conjunction with the consolidated financial statements
and notes thereto included in this Annual Report. The consolidated operating
data and balance sheet data for the three-year period ended December 31, 1999
and the consolidated balance sheet data at December 31, 1999 and 1998 are
derived from and should be read in conjunction with our consolidated financial
statements and notes thereto included in this Annual Report. The consolidated
operating data and balance sheet data for the years ended December 31, 1996 and
1995 and the consolidated balance sheet data at December 31, 1997, 1996 and 1995
are derived from our consolidated financial statements not included or
incorporated by reference herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues................................................... $ 874,911 $ 730,662 $ 546,008 $ 449,787 $ 359,840
Costs of goods sold........................................ 738,526 549,628 413,361 332,581 271,146
----------- ----------- ----------- ----------- -----------
Gross profit............................................... 136,385 181,034 132,647 117,206 88,694
Research and development expenses.......................... 43,013 49,384 33,140 23,068 28,558
Selling, general and administrative expenses............... 121,720 106,812 88,148 77,247 64,170
Amortization of goodwill................................... 13,274 9,713 3,852 3,134 3,221
Asset impairment charges................................... 17,027 2,479 -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) from operations.............................. (58,649) 12,646 7,507 13,757 (7,255)
Net investment income (expense)............................ (22,914) (1,279) (990) (49) 1,131
Equity in earnings (losses) of affiliates.................. (99,550) (76,815) (25,094) (7,008) (644)
Non-controlling interests in earnings (losses) of
consolidated subsidiaries................................ 9,559 14,112 2,638 1,473 427
Gain on issuance of subsidiary equity...................... 62,282 -- 21,810 -- --
Acquisition expenses....................................... (1,561) -- (4,343) -- (3,441)
----------- ----------- ----------- ----------- -----------
Income (loss) before provision (benefit) for income taxes,
extraordinary items and cumulative effect of accounting
change................................................... (110,833) (51,336) 1,528 8,173 (9,782)
Provision (benefit) for income taxes....................... 11,104 5,216 12,933 211 (6,569)
----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary item and cumulative
effect of accounting change.............................. (121,937) (56,552) (11,405) 7,962 (3,213)
Extraordinary item -- gain on sale of assets, net of
taxes.................................................... -- -- -- 1,980 --
Cumulative effect of accounting change, net of taxes....... -- -- -- -- (2,377)
----------- ----------- ----------- ----------- -----------
Net income (loss).......................................... $ (121,937) $ (56,552) $ (11,405) $ 9,942 $ (5,590)
=========== =========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE(1):
Income (loss) before extraordinary items and cumulative
effect of accounting change.............................. $ (3.27) $ (1.59) $ (0.35) $ 0.27 $ (0.12)
Extraordinary item -- gain on sale of assets, net of
taxes.................................................... -- -- -- 0.07 --
Cumulative effect of accounting change..................... -- -- -- -- (0.09)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) PER COMMON SHARE.......................... $ (3.27) $ (1.59) $ (0.35) $ 0.34 $ (0.21)
=========== =========== =========== =========== ===========
Shares used in computing net income (loss) per common
share.................................................... 37,281,065 35,624,888 32,283,138 29,137,361 26,207,746
=========== =========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING DILUTION(2):
Income (loss) before extraordinary items and cumulative
effect of accounting change.............................. $ (3.27) $ (1.59) $ (0.35) $ 0.30 $ (0.12)
Extraordinary item -- gain on sale of assets, net of
taxes.................................................... -- -- -- 0.04 --
Cumulative effect of accounting change..................... -- -- -- -- (0.09)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING DILUTION....... $ (3.27) $ (1.59) $ (0.35) $ 0.34 $ (0.21)
=========== =========== =========== =========== ===========
Shares used in computing net income (loss) per common
share, assuming dilution................................. 37,281,065 35,624,888 32,283,138 31,616,119 26,207,746
=========== =========== =========== =========== ===========
BALANCE SHEET DATA:
Cash and investments....................................... $ 109,154 $ 23,190 $ 15,126 $ 33,750 $ 35,030
Net working capital........................................ (39,030) 53,052 53,201 71,055 78,778
Total assets............................................... 1,092,912 895,192 777,885 509,613 472,900
Short-term borrowings...................................... 131,073 26,814 29,767 38,969 11,907
Long-term obligations, net................................. 239,672 181,281 200,194 35,326 96,990
Stockholders' equity....................................... 306,792 419,352 313,984 323,795 238,116
</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 dilutive effect of an assumed
conversion of our convertible subordinated notes.
16
<PAGE> 19
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 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 anticipated or expected in any forward-looking
statement.
Our products and services are grouped into three business sectors: space
and ground infrastructure systems, satellite access products and satellite
services. Space and ground infrastructure systems include launch vehicles and
advanced programs, satellites and related space systems, electronics and sensor
systems and transportation management systems, and satellite ground systems,
space robotics, and mapping and land information services. Our satellite access
products sector consists of satellite-based navigation, positioning and
communications products. The satellite services sector includes satellite-based
mobile data communications services, satellite-based remote imaging services,
satellite-based automotive information services and an investment in a
development stage satellite-based voice communications company. This sector
includes our share of the income or losses of our unconsolidated affiliates,
ORBCOMM, ORBIMAGE, Navigation Solutions and CCI.
We are accounting for our investments in ORBCOMM, ORBIMAGE and Navigation
Solutions 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 their profits and losses based on our percentage of
common equity ownership or partnership interest. We also recognize as equity in
losses of affiliates our proportionate share of preferred dividends to other
investors in such entities. 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 all system construction costs,
including amounts paid to Orbital, we eliminate as equity in earnings (losses)
of affiliates our share of profits from these sales based on our percentage of
common equity ownership or partnership interest.
We are accounting for our investment in CCI using a modified equity method
of accounting whereby we recognize as equity in earnings (losses) of affiliates
all of CCI's losses even though we own less than 10% of CCI's common stock. We
do not recognize any revenues or related profits on sales of products and
services to CCI since we have provided substantially all CCI's funding. In the
third quarter of 1999, we wrote-off our remaining investment in CCI and,
accordingly, have ceased recognizing any losses attributable to CCI.
Certain of the 1998, 1997, 1996 and 1995 financial information has been
restated. See Notes 2A and 13 to the consolidated financial statements.
RECENT DEVELOPMENTS
During the fourth quarter of 1999, we recorded the following non-recurring
gains and charges:
Gain on Issuance of Subsidiary Stock. In December 1999, our wholly owned
subsidiary, MDA issued common stock to a group of minority investors, and
immediately provided a dividend to us for the gross amount of the proceeds from
the sale of $75,000,000. We recorded a gain on the issuance of such stock in the
fourth quarter of approximately $62,282,000 ($58,610,000 net of taxes, fees and
expenses).
Asset Impairments and Write Downs. In December 1999, we determined that
the carrying value of a specialized voice communication satellite system would
no longer be recoverable through the expected future sales of the related
products or services. In addition, a commercial airline navigation and
communication system experienced cancellation of the sole customer sales
contract in the fourth quarter of 1999. This cancellation reduced the
probability of recovering the cost of the related capitalized software and
inventory through future sales. The total amount of asset impairment charges and
write downs that we recognized in
17
<PAGE> 20
1999 with respect to all assets, including our investment in CCI, was
approximately $42,975,000 (and approximately $30,037,000 in the fourth quarter).
Costs of Proposed Acquisition. In 1999, we and Magellan entered into a
merger agreement with Lowrance Electronics, Inc., in which Magellan was to
acquire all the issued and outstanding capital stock of Lowrance. This proposed
transaction did not close and was terminated in December 1999. In connection
with this and other transactions, we expensed $1,561,000 of transaction-related
costs.
ORBCOMM. In January 2000, we and Teleglobe agreed to restructure the
ORBCOMM partnerships and to realign our respective ongoing ownership interests
for the purpose of governing and financing ORBCOMM's business, as follows:
- Teleglobe, through Teleglobe Mobile, is now the sole general partner with
exclusive responsibility for managing ORBCOMM's business. Orbital remains
a limited partner with limited protective rights and no future funding
obligations.
- ORBCOMM USA (which was previously controlled and consolidated by us) and
ORBCOMM International (which was previously controlled by Teleglobe) were
contributed to and merged into ORBCOMM.
- Our ownership interest in ORBCOMM was reset at approximately 36% on
January 1, 2000, with further adjustment based on our and Teleglobe's
continuing capital contributions to ORBCOMM pursuant to a prescribed
formula. At March 15, 2000, Orbital's ownership interest in ORBCOMM was
approximately 34%.
- ORBCOMM agreed to settle all deferred invoicing under its satellite
procurement contract with us, totaling approximately $91,000,000 at
December 31, 1999. Approximately $74,000,000 has been paid or otherwise
settled, with the remainder due by June 30, 2001.
- We agreed to file an application with the FCC to transfer to ORBCOMM the
licenses held by OCC with respect to the ORBCOMM System if an aggregate
amount of $75,000,000 in additional capital contributions or similar
equity investments is made to ORBCOMM after January 1, 2000.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
As noted above, certain of the 1998 and 1997 financial information
presented below has been restated. See Note 2A to the consolidated financial
statements.
REVENUES
Our consolidated revenues for the year ended December 31, 1999 were
$874,911,000 as compared to $730,662,000 for 1998 and $546,008,000 for 1997.
Consolidated revenues in 1999, 1998 and 1997 included approximately $97,069,000,
$125,602,000 and $88,067,000, respectively, from sales to our noncontrolled and
unconsolidated affiliates ORBCOMM, ORBIMAGE and Navigation Solutions.
Space and Ground Infrastructure Systems. Revenues from our space and
ground infrastructure systems sector totaled $750,945,000 in 1999, and
$628,236,000 and $490,961,000 in 1998 and 1997, respectively.
Revenues from launch vehicles and advanced programs decreased to
$157,032,000 in 1999, as compared to 1998 revenues of $179,591,000. Revenues in
1997 were $120,202,000. The decrease in 1999, after a large increase from 1997
to 1998 and in spite of increasing firm backlog for government-market satellite
launches, is due primarily to customer-induced launch schedule changes by our
government customers and slowed demand from our commercial customers. The
increase in revenues from 1997 to 1998 related primarily to revenues generated
on new Pegasus and Taurus contracts awarded in 1997.
Satellite and related space systems revenues increased to $257,431,000 in
1999, as compared to $227,042,000 in 1998 and $175,450,000 in 1997. The increase
in 1999 satellite and related space systems revenues is due, in part, to
revenues realized from a new commercial geosynchronous satellite contract
received in late 1998, offset, in part, by reduced revenues resulting from
estimated contract cost increases
18
<PAGE> 21
experienced on certain satellite contracts in the fourth quarter of 1999. The
increase in satellite revenues from 1997 to 1998 was primarily attributable to
the July 1997 acquisition of the space and communications businesses of CTA.
Revenues from electronics and sensor systems and transportation management
systems increased to $149,991,000 in 1999, from $125,758,000 in 1998. Revenues
were $117,064,000 in 1997. The increase in revenues in 1999 was primarily due to
new defense electronics contract awards in early 1999 as well as to an increase
in transportation management systems revenues. The 1999 increase in
transportation management systems revenues is primarily attributable to our
December 1998 acquisition of Raytheon Company's transportation management
systems business. The increase in revenues from 1997 to 1998 is due to delays
experienced in 1997 in certain deliveries in our transportation management
systems business.
Revenues from our satellite ground systems, space robotics, mapping and
land information services were $186,491,000 in 1999, as compared to $95,845,000
and $78,245,000 in 1998 and 1997, respectively. As discussed in the accompanying
consolidated financial statements, in May 1999, we acquired the space robotics
division of Spar ("Robotics"). The increase in 1999 is attributable to Robotics'
revenues, which are now consolidated in our financial statements and were
approximately $92,111,000 in 1999. The increase from 1997 to 1998 is primarily
attributable to revenues recognized for a new remote imaging system and for
international satellite ground systems and system upgrades. In addition, through
MDA, in 1999 we began providing land information through business-to-business
e-commerce products and services after acquiring a database operating license
from the Province of British Columbia. Our e-commerce initiatives contributed
approximately $21,293,000 in revenues in 1999.
Satellite Access Products. Revenues from sales of satellite-based
navigation, positioning and communications products increased slightly to
$108,539,000 in 1999, as compared to $101,667,000 in 1998 and $54,875,000 in
1997. The increase in 1999 is largely due to increased shipments of consumer
navigation products. The increase from 1997 to 1998 is largely a result of our
December 1997 acquisition of Ashtech. Revenues attributable to Ashtech products
were $44,433,000 in 1999 and $44,636,000 in 1998.
Satellite Services. Revenues for this sector totaled $15,427,000, $759,000
and $172,000 in 1999, 1998 and 1997, respectively. The increase in revenues this
year is primarily attributable to the acquisition of a controlling interest in
RSI in the first quarter of 1999. Our other businesses in this sector, such as
ORBCOMM and ORBIMAGE, are generally accounted for using the equity method of
accounting.
GROSS MARGINS
Gross profit margin depends on a number of factors, including the mix of
contract types and costs incurred thereon in relation to revenues recognized.
Costs of goods sold include the costs of personnel, materials, subcontracts and
overhead related to sales of products and to costs incurred under various
development and production contracts. Our consolidated gross profit for 1999 was
$136,385,000, as compared to $181,034,000 and $132,647,000 in 1998 and 1997,
respectively. Consolidated gross profit margins as a percentage of revenues were
approximately 16%, 25% and 24%, respectively, for the three years ended December
31, 1999, 1998 and 1997. Changes in gross margins are explained by business
sector below.
Space and Ground Infrastructure Systems. Gross margins from our space and
ground infrastructure systems sector were $93,250,000 (or 12% of sector
revenues), $153,320,000 (or 24% of sector revenues) and
19
<PAGE> 22
$117,820,000 (or 24% of sector revenues) in 1999, 1998 and 1997, respectively.
Revenues and gross profits by major product lines within this sector were as
follows:
<TABLE>
<CAPTION>
REVENUES GROSS PROFIT
---------------------------------- ---------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------------- ---------------------------------
1998 1997 1998 1997
1999 (RESTATED) (RESTATED) 1999 (RESTATED) (RESTATED)
-------- ---------- ---------- ------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Launch vehicles and advanced programs.... $157,032 $179,591 $120,202 $ 8,572 $43,591 $25,115
Satellites and related space systems..... 257,431 227,042 175,450 9,557 50,052 43,928
Electronics and sensor systems and
transportation management systems...... 149,991 125,758 117,064 36,206 36,620 29,375
Satellite ground systems, space robotics,
mapping and land information
services............................... 186,491 95,845 78,245 38,915 23,057 19,402
</TABLE>
The significant decrease in gross profits for this sector during 1999
relates primarily to (1) profit decreases resulting from estimated cost
increases on certain satellite and advanced space launch vehicle contracts
principally occurring in the fourth quarter of 1999, (2) a change in the mix of
satellite products sold (with an increasing contribution from lower margin
geosynchronous satellites that contain a significant amount of lower margin,
external subcontract effort) beginning in late 1998, (3) the write-down in 1999
of capitalized software costs and inventory relating to a commercial airline
navigation and communication system, and (4) lower margins for work performed on
contracts acquired in the Robotics acquisition in early 1999. Gross margins in
this sector were relatively level from 1997 to 1998. During the fourth quarter
of 1997, the company recognized contract costs of approximately $5,000,000
related to increases in estimates to complete certain space launch vehicle and
satellite contracts.
Gross margins for satellite ground systems, space robotics, mapping and
land information services generally decreased throughout the period, primarily
as a result of sales of lower margin land information e-commerce products and
services and an increase in the amount of lower margin, subcontract work on
several ground systems contracts. During 1998 and 1997, the company recognized
increases in gross margin of $1,902,000 and $2,647,000, respectively, related to
the write-off or expiration of certain Canadian development loans no longer
required or not expected to be repaid.
Satellite Access Products. Gross profit margins for satellite access
products were $37,984,000 (or 35% of sector revenues), $27,712,000 (or 27% of
sector revenues), and $15,038,000 (or 27% of sector revenues) for 1999, 1998 and
1997, respectively. The increase in gross margins in 1999 is primarily due to
increased inventory obsolescence charges taken in 1998, offset in part by higher
margins on precision products acquired from Ashtech. Gross margins in this
sector included only lower margin Magellan consumer product sales in 1997.
During 1998 and 1997, our Magellan subsidiary recognized approximately
$12,500,000 and $500,000, respectively, of charges for inventory obsolescence
relating to consumer navigation products.
Satellite Services. This sector had gross margins (losses) of $5,151,000
(or 33% of sector revenues), $2,000 (or less than 1% of sector revenues) and
$(211,000) in 1999, 1998 and 1997, respectively. The improvement in 1999 gross
margins is primarily attributable to consolidation of RSI's operations in 1999
as discussed above.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses represent Orbital's self-funded product
development activities, and exclude direct customer-funded development. Research
and development expenses for 1999, 1998 and 1997 were $43,013,000 (or 5% of
revenues), $49,384,000 (or 7% of revenues) and $33,140,000 (or 6% of revenues),
respectively. Research and development expenses relate primarily to the
development of new or improved satellite access products, improved launch
vehicles and new satellite initiatives. The significant increase in research and
development in 1998 is primarily attributable to research and development
spending in that year for satellite navigation products that were released in
1999 and transportation management systems.
20
<PAGE> 23
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include the costs of marketing, advertising, promotional
and other selling expenses as well as the costs of our finance, legal,
administrative and general management functions. Selling, general and
administrative expenses were $121,720,000 (or 14% of revenues), $106,812,000 (or
15% of revenues) and $88,148,000 (or 16% of revenues) in 1999, 1998 and 1997,
respectively. In the fourth quarter of 1997, we recognized increases in
allowances for receivables related to a certain satellite construction contract
of approximately $3,000,000. The increase in the dollar amounts of selling,
general and administrative expenses throughout the period is due to significant
expansion of our business as a result of acquisitions of various product lines
and businesses.
ASSET IMPAIRMENTS AND WRITE DOWNS
In December 1999, we determined that the carrying value of a specialized
voice communication satellite system would no longer be recoverable through the
expected future sales of the related products or services. We recorded an asset
impairment charge with respect to this asset in the amount of $15,217,000 in the
fourth quarter of 1999.
In addition, a commercial airline navigation and communication system
experienced cancellation of the sole customer sales contract in the fourth
quarter of 1999. This cancellation reduced the probability of recovering the
cost of the related capitalized software and inventory through future sales. The
total carrying value of the software and inventory in the amount of $14,820,000
was recognized as a component of cost of goods sold in the fourth quarter of
1999.
GAIN ON ISSUANCE OF SUBSIDIARY STOCK
In December 1999, MDA issued common stock in a private placement, and
immediately provided a dividend to us of the $75,000,000 in gross proceeds,
resulting in a one-time gain of approximately $62,282,000 ($58,610,000 net of
taxes, fees and expenses).
NET INVESTMENT INCOME (EXPENSE)
Net investment income (expense) was ($22,914,000), ($1,279,000) and
($990,000) for 1999, 1998 and 1997, respectively. Investment income (expense)
includes interest earnings on short-term investments and realized gains and
losses on investments, net of interest expense. Interest expense, net of
interest capitalized, was $27,843,000 in 1999 and $8,886,000 and $2,894,000 in
1998 and 1997, respectively. Capitalized interest was $3,083,000, $11,638,000
and $7,257,000 in 1999, 1998 and 1997, respectively. Interest expense increased
in 1999 primarily due to an increase in debt outstanding and because we stopped
capitalizing interest on our investment in ORBCOMM as that affiliate began its
planned commercial operations.
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES
Equity in earnings (losses) of affiliates was ($99,550,000) in 1999 and was
($76,815,000) and ($25,094,000) in 1998 and 1997, respectively. These amounts
primarily include our proportionate share of the current period earnings and
losses of our noncontrolled and unconsolidated affiliates (ORBCOMM, ORBIMAGE,
CCI and Navigation Solutions), preferred dividends and beneficial conversion
rights to other investors in ORBIMAGE and the elimination of our proportionate
share of profits, when appropriate, on sales to these affiliates.
Equity losses increased in 1999 and 1998 as compared to 1997 primarily due
to an increase in ORBCOMM's and ORBIMAGE's losses. ORBCOMM's losses increased
due to (i) higher operating expenses relating to the rollout of global
commercial services, (ii) increased interest expense, and (iii) increased system
depreciation expense. ORBCOMM stopped capitalizing interest and began
depreciating its full satellite constellation in the fourth quarter of 1998.
ORBIMAGE's losses also increased during the period as a result of the
commencement of commercial services in 1997 and the subsequent increase in
operating costs in anticipation of the planned introduction of new services in
2001.
21
<PAGE> 24
NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES OF CONSOLIDATED SUBSIDIARIES
Non-controlling interests in (earnings) losses of consolidated subsidiaries
were $9,559,000, $14,112,000 and $2,638,000 in 1999, 1998 and 1997,
respectively. These amounts represent the non-controlling stockholders'
proportionate share of ORBCOMM USA's and Magellan's and, beginning in December
1999, MDA's, current period earnings and losses.
PROVISION FOR INCOME TAXES
We recorded an income tax provision of $11,104,000, $5,216,000 and
$12,933,000 in 1999, 1998 and 1997, respectively, primarily as a result of
foreign taxes attributable to our Canadian operations. The 1999 tax provision
included a one-time charge of $3,672,000 related to the sale of MDA's common
stock. The 1997 tax provision includes a deferred tax provision of approximately
$10,898,000 relating to the ORBIMAGE preferred stock transaction in 1997. At
December 31, 1999, we had provided a valuation allowance against our net
deferred tax assets of approximately $150,844,000. Valuation allowances are used
to reduce net deferred tax assets to the amount considered more likely than not
to be realized. Changes in estimates of future taxable income can materially
change the amount of such valuation allowances.
NET LOSS
Our consolidated net loss in 1999, 1998 and 1997 was $121,937,000,
$56,552,000 and $11,405,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Our growth has required, and continues to require, substantial capital to
fund investments in affiliates, business acquisitions, expanding working capital
needs, new business initiatives, research and development and capital
expenditures. We have funded these requirements to date through cash generated
by operations, working capital, loan facilities, asset-based financings, joint
venture arrangements and private and public equity and debt offerings of Orbital
and its subsidiaries. Our liquidity has been constrained primarily as a result
of our inability to access capital markets pending completion of the restatement
of our financial statements. (See Note 2A to the consolidated financial
statements.) In addition, we agreed to a permanent reduction in the outstanding
amount under our primary credit facility in the fourth quarter of 1999 and we
cannot borrow additional funds under such facility.
We expect that our capital requirements for our operations for 2000 will be
provided by cash from operations combined with cash on hand. To satisfy our
additional capital requirements, including potential investments in ORBIMAGE and
required repayment of debt, management's plans include the possibility of
raising additional equity and/or debt capital, sales of certain assets and
restructuring or refinancing of our credit facility. Management expects that
such plans will generate sufficient additional liquidity to satisfy these
required obligations.
We also expect to pursue certain additional investments and/or acquisitions
during 2000. Such plans would likely require that we raise additional capital or
otherwise generate sufficient capital by sale of certain assets. No assurance
can be given that we will be successful in completing additional investments or
acquisitions or new equity or debt financings or asset sales.
Cash and investments were $109,154,000 and total debt obligations were
$370,745,000 at December 31, 1999. The outstanding debt is comprised primarily
of our $100,000,000 convertible 5% subordinated notes due in 2002, advances
under several credit facilities, secured and unsecured notes, and asset-based
financings. Cash and investments at December 31, 1999 included approximately
$17,041,000 restricted to support bank covenants and outstanding letters of
credit. Our current ratio was 0.9 and 1.2 at December 31, 1999 and 1998,
respectively. Our ratio of total debt less cash and investments to total debt
plus total stockholders' equity was approximately 38% at December 31, 1999 as
compared to 29% at December 31, 1998.
Our primary credit facility provides for total borrowings from an
international syndicate of banks of up to $165,000,000, all of which was drawn
and outstanding as of December 31, 1999 at a weighted average interest
22
<PAGE> 25
rate of 9.96%. These borrowings are collateralized by accounts receivable,
intellectual property and certain other assets, including the stock of our
wholly owned subsidiaries and MDA. The facility 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. We amended this facility several times in 1999 to waive
noncompliance with certain financial covenants and to amend other covenants
(including with respect to net worth, leverage and fixed charges). We also
permanently reduced the total amount available under the facility from an
original $200,000,000 to the current level of $165,000,000. In April 2000, we
signed an amendment that waived noncompliance with certain covenants for all
periods prior to the amendment date, and established new covenant levels for
2000 for net worth, leverage (including senior leverage), fixed charges, capital
expenditures, and subsidiary debt. We also agreed with our banks to further
reduce the total amount that is available under the facility on August 1, 2000
by either (i) an additional $40,000,000 if we and the banks restructure the
facility by May 31, 2000 or (ii) by an additional $60,000,000 if we are
unsuccessful in restructuring the facility by that date. We are required to
apply toward this reduction 50% of the net cash proceeds that we receive from
any equity offering, asset sale or debt issuance by us or our domestic wholly
owned subsidiaries. In addition, we agreed to further reduce the facility to
$85,000,000 by July 2001.
We issued $46,000,000 of new debt in 1999 related to various business
acquisitions (See Note 6 to the consolidated financial statements). We also
issued additional equity at MDA for net proceeds of $73,432,000.
During 1999, we provided $44,500,000 in capital to ORBCOMM. Based on our
January agreement with Teleglobe, we are no longer obligated to provide
additional capital to ORBCOMM. (See Recent Developments). ORBCOMM will require
additional funding in 2000, and we understand that ORBCOMM and Teleglobe are
currently analyzing different capital raising and funding alternatives,
including continued capital contributions from Teleglobe and/or obtaining
additional equity participants.
In addition to our investment in ORBCOMM, in 1999 we invested approximately
$22,000,000 in Navigation Solutions, $47,866,000 in business and other asset
acquisitions and $55,648,000 in capital expenditures for various satellite,
launch vehicle and other infrastructure production, manufacturing and test
equipment, leasehold improvements and office equipment. Our operations provided
net cash of approximately $30,058,000 during 1999.
Finally, we had a contingent commitment to provide additional equity
financing to ORBIMAGE in the amount of up to $25,000,000 (which amount was
reduced in March 2000 to $12,500,000) based on ORBIMAGE's cash requirements. In
addition to our committed amount, ORBIMAGE will require additional funding in
2000 and is currently analyzing different capital raising and funding
alternatives, including drawing on Orbital's contingent commitment and/or
obtaining additional equity and debt capital.
We are expanding our offices and satellite-related engineering,
manufacturing and operations facilities adjacent to our Northern Virginia
corporate headquarters in order to consolidate certain operational facilities
and office space and provide for future growth. Construction has commenced and
is expected to continue into 2001. To finance the majority of this expansion, we
have negotiated a built-to-suit agreement with a developer for the office
expansion. We are actively pursuing third-party financing for the engineering,
manufacturing and operating facilities.
OUTLOOK: ISSUES AND UNCERTAINTIES
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor, in certain circumstances, for certain 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 Securities and Exchange Commission 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 liquidity and future financing plans and statements relating to our
belief about the outcome of pending litigation are forward-looking statements.
The forward-looking statements
23
<PAGE> 26
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 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 and ORBIMAGE 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. In 1999, we wrote off our investment in CCI.
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, potential exposure to claims
and liabilities relating to the acquired company, 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 and/or other investors.
We have recently entered into certain transactions in which we have reduced
our ability to control the management and operations of certain subsidiaries and
affiliates. Our diminished ability to control such entities could result in
financial or operating decisions regarding such entities being made that are
contrary to Orbital's interests.
Our growth has required, and continues to require, substantial capital to
fund investments in affiliates, business acquisitions, expanding working capital
needs, new business initiatives, research and development and capital
expenditures. Recently, our liquidity has been constrained primarily as a result
of our inability to raise capital due to the pending completion of the
restatement of our financial statements. In addition, we agreed to a permanent
reduction in the outstanding amount under our primary credit facility in the
fourth quarter of 1999, and we cannot borrow additional funds under such
facility. To satisfy our capital requirements beyond our operations, including
required repayments under the credit facility, we will need to raise additional
equity and/or debt capital and we are considering sales of non-core assets. Our
inability to raise additional capital or to restructure our credit facility
could have a material adverse effect on our business.
At December 31, 1999, approximately 20% 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.
24
<PAGE> 27
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 fluctuation, or similar market risks,
although we do enter into forward exchange contracts to hedge against specific
foreign currency fluctuations, principally with respect to the Canadian dollar
and Japanese yen. At December 31, 1999, the majority of the company's long-term
debt consisted of its $100,000,000 convertible 5% subordinated notes due 2002.
The fair market value of these convertible securities fluctuates with the
company's stock price, and was $85,265,000 at December 31, 1999.
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, 1999, outstanding foreign exchange contracts to
sell (purchase) foreign currencies, along with current market values:
<TABLE>
<CAPTION>
CURRENCIES CURRENT UNREALIZED
FOREIGN CURRENCY HEDGED HEDGED CONTRACT MARKET GAIN
(U.S. DOLLARS, IN THOUSANDS) AGAINST AMOUNT VALUE (LOSS)
---------------------------- ------------- -------- ------- ----------
<S> <C> <C> <C> <C>
Australian Dollars......................................... CD $ 155 $ 156 $ 1
European Currency Units.................................... PS 37 40 3
EURO....................................................... CD 1,070 1,154 84
Pounds Sterling............................................ CD (275) (284) (9)
Norwegian Kroner........................................... CD 687 713 26
U.S. Dollars............................................... CD 10,921 10,975 54
Japanese Yen............................................... US 41,177 38,412 (2,765)
</TABLE>
- ---------------
CD -- Canadian Dollars
PS -- Pounds Sterling
US -- US Dollars
25
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Accountants.......................... 27
Consolidated Statements of Operations....................... 30
Consolidated Balance Sheets................................. 31
Consolidated Statements of Stockholders' Equity............. 32
Consolidated Statements of Cash Flows....................... 33
Notes to Consolidated Financial Statements.................. 34
</TABLE>
26
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of Orbital Sciences Corporation:
In our opinion, based on our audit and the report of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of operations, changes in stockholders' equity and cash flows present fairly, in
all material respects, the financial position of Orbital Sciences Corporation
and its subsidiaries at December 31, 1999, and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We did not
audit the financial statements of Orbital Communications Corporation, a majority
owned subsidiary, which statements reflect total assets of $31,539,000 as of
December 31, 1999, and equity in net losses of affiliates of $69,914,000 and
total revenues of $2,126,000 for the year ended December 31, 1999. Those
statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for Orbital Communications Corporation, is based solely on the
report of the other auditors. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit and the report of
other auditors provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
April 17, 2000
27
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Orbital Communications
Corporation:
We have audited the consolidated balance sheet of Orbital Communications
Corporation (the "Company") as of December 31, 1999, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the year then ended (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of the Company as of December 31, 1998 and
for each of the two years in the period then ended, were audited by other
auditors whose report dated February 16, 1999, expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above (not
presented separately herein) present fairly, in all material respects, the
financial position of Orbital Communications Corporation as of December 31,
1999, and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States.
Arthur Andersen LLP
Vienna, Virginia
February 3, 2000
28
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Orbital Sciences Corporation:
We have audited the accompanying consolidated balance sheet of Orbital Sciences
Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the two-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 the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
As discussed in note 2A, the accompanying consolidated balance sheet as of
December 31, 1998, and the consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the two-year period ended
December 31, 1998 have been restated.
KPMG LLP
Washington, D.C.
February 16, 1999, except as to note 2A
which is as of April 17, 2000
29
<PAGE> 32
ORBITAL SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997
----------- ----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Revenues.............................................. $ 874,911 $ 730,662 $ 546,008
Costs of goods sold................................... 738,526 549,628 413,361
----------- ----------- -----------
Gross profit.......................................... 136,385 181,034 132,647
Research and development expenses..................... 43,013 49,384 33,140
Selling, general and administrative expenses.......... 121,720 106,812 88,148
Amortization of goodwill.............................. 13,274 9,713 3,852
Asset impairment charges.............................. 17,027 2,479 --
----------- ----------- -----------
Income (loss) from operations......................... (58,649) 12,646 7,507
Net investment income (expense), (net of interest
expense of $27,843, $8,886 and $2,894,
respectively)....................................... (22,914) (1,279) (990)
Equity in earnings (losses) of affiliates............. (99,550) (76,815) (25,094)
Non-controlling interests in (earnings) losses of
consolidated subsidiaries........................... 9,559 14,112 2,638
Gain on issuance of subsidiary equity................. 62,282 -- 21,810
Acquisition expenses.................................. (1,561) -- (4,343)
----------- ----------- -----------
Income (loss) before provision for income taxes....... (110,833) (51,336) 1,528
Provision for income taxes............................ 11,104 5,216 12,933
----------- ----------- -----------
Net loss.............................................. $ (121,937) $ (56,552) $ (11,405)
=========== =========== ===========
Net loss per common and dilutive share................ $ (3.27) $ (1.59) $ (0.35)
=========== =========== ===========
Shares used in computing net loss per common and
dilutive share...................................... 37,281,065 35,624,888 32,283,138
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 33
ORBITAL SCIENCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(RESTATED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 74,524 $ 15,268
Restricted cash and short-term investments, at
market................................................ 34,630 7,922
Receivables, net....................................... 295,315 215,110
Inventories, net....................................... 54,483 58,141
Deferred income taxes and other current assets......... 17,187 7,686
---------- ---------
Total current assets.............................. 476,139 304,127
---------- ---------
Property, plant and equipment, at cost, less accumulated
depreciation and amortization of $122,129 and $99,839,
respectively.............................................. 137,622 139,401
Investments in and advances to affiliates, net.............. 141,273 199,267
Goodwill, less accumulated amortization of $42,515 and
$28,744, respectively..................................... 278,309 227,351
Deferred income taxes and other assets, less accumulated
amortization of $2,520 in 1999............................ 59,569 25,046
---------- ---------
TOTAL ASSETS...................................... $1,092,912 $ 895,192
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and current portion of long-term
obligations........................................... $ 131,073 $ 26,814
Accounts payable....................................... 83,566 39,095
Accrued expenses....................................... 138,613 108,488
Due to joint venture partner........................... 28,418 --
Deferred revenues...................................... 133,499 76,678
---------- ---------
Total current liabilities......................... 515,169 251,075
---------- ---------
Due to joint venture partner................................ -- 26,829
Long-term obligations, net of current portion............... 239,672 181,281
Other liabilities........................................... 16,208 3,007
---------- ---------
Total liabilities................................. 771,049 462,192
---------- ---------
Non-controlling interests in net assets of consolidated
subsidiaries.............................................. 15,071 13,648
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, 37,400,814 and 37,018,256 shares
outstanding, respectively............................. 374 370
Additional paid-in capital............................. 497,923 490,540
Accumulated other comprehensive loss................... (5,159) (7,149)
Accumulated deficit.................................... (186,346) (64,409)
---------- ---------
Total stockholders' equity........................ 306,792 419,352
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $1,092,912 $ 895,192
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 34
ORBITAL SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER RETAINED
------------------- PAID-IN- COMPREHENSIVE EARNINGS
SHARES AMOUNT CAPITAL LOSS (DEFICIT) TOTAL
---------- ------ ---------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996
(restated)............... 32,160,598 $322 $323,592 $(3,667) $ 3,548 $ 323,795
Shares issued to
employees and
directors............. 321,121 3 2,595 -- -- 2,598
Comprehensive income:
Net loss.............. -- -- -- -- (11,405) (11,405)
Translation
adjustment.......... -- -- -- (1,262) -- (1,262)
Unrealized gains on
short-term
investments......... -- -- -- 258 -- 258
---------
Total comprehensive
income (loss)......... (12,409)
---------- ---- -------- ------- ---------- ---------
Balance, December 31, 1997
(restated)............... 32,481,719 325 326,187 (4,671) (7,857) 313,984
Shares issued in equity
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:
Net loss.............. -- -- -- -- (56,552) (56,552)
Translation
adjustment.......... -- -- -- (2,282) -- (2,282)
Unrealized losses on
short-term
investments......... -- -- -- (196) -- (196)
---------
Total comprehensive
income (loss)......... (59,030)
---------- ---- -------- ------- ---------- ---------
Balance, December 31, 1998
(restated)............... 37,018,256 $370 490,540 (7,149) (64,409) 419,352
Shares issued to
employees and
directors............. 382,558 4 7,383 7,387
Comprehensive income:
Net loss.............. (121,937) (121,937)
Translation
adjustment.......... 1,990 1,990
---------
Total comprehensive
income (loss)......... (119,947)
---------- ---- -------- ------- ---------- ---------
Balance, December 31,
1999..................... 37,400,814 $374 $497,923 $(5,159) $ (186,346) $ 306,792
========== ==== ======== ======= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 35
ORBITAL SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $ (121,937) $ (56,552) $ (11,405)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization expenses........... 51,432 31,006 24,286
Amortization of prepaid financing costs.......... 2,227 265 267
Equity in losses of affiliates................... 99,550 76,815 25,094
Non-controlling interests in losses of
consolidated subsidiaries...................... (9,559) (14,112) (2,638)
Loss (gain) on sale of fixed assets and
investments and issuances of subsidiary
equity......................................... (32,221) (576) (21,810)
Deferred income taxes............................ (8,936) 3,822 11,650
Changes in assets and liabilities net of businesses
acquired:
(Increase) decrease in receivables............... 1,153 (27,014) (16,863)
(Increase) decrease in inventories............... 3,763 3,362 (26,602)
(Increase) decrease in other assets.............. (25,363) (9,002) (7,903)
Decrease in accounts payable and accrued
expenses....................................... 55,941 8,946 (17,144)
Increase (decrease) in deferred revenue.......... 14,928 (15,347) 35,338
Increase (decrease) in other liabilities......... (920) (1,305) (13,151)
----------- ----------- -----------
Net cash provided by (used in) operating
activities................................ 30,058 308 (20,881)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................ (55,648) (36,294) (37,200)
Payments for business combinations, net of cash
acquired......................................... (33,860) (22,751) (66,558)
Purchase of other assets............................ (14,006) -- --
Proceeds from sales of assets....................... -- -- 34,682
Net proceeds from sale of subsidiary equity......... 73,432 -- --
Purchases of available-for-sale investment
securities....................................... (10,912) (2,500) (25,328)
Sales of available-for-sale investment securities... -- -- 22,209
Maturities of available-for-sale investment
securities....................................... 9,025 2,409 6,631
Investments in and advances to affiliates........... (65,060) (101,700) (75,564)
----------- ----------- -----------
Net cash used in investing activities....... (97,029) (160,836) (141,128)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net of (repayments).......... 338 1,940 (3,700)
Principal payments on long-term obligations......... (125,813) (79,556) (20,237)
Net proceeds from issuances of long-term
obligations...................................... 241,342 63,000 163,078
Net proceeds from issuances of common stock......... 7,387 164,398 2,598
Advances from joint venture partner................. -- 21,829 --
----------- ----------- -----------
Net cash provided by financing activities... 123,254 171,611 141,739
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS......................................... 2,973 (2,206) (1,262)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... 59,256 8,877 (21,532)
CASH AND CASH EQUIVALENTS, beginning of period........ 15,268 6,391 27,923
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period.............. $ 74,524 $ 15,268 $ 6,391
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 36
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 space and information systems
company that designs, manufactures, operates and markets a broad range of
affordable space infrastructure systems, satellite access products and satellite
services, including satellites and other space systems, launch vehicles,
electronics and sensors, satellite ground systems and software, satellite-based
navigation and communications products, and satellite-delivered communications,
earth imaging and other information services.
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.
The consolidated financial statements do not include the accounts of affiliates
that the company does not control, including ORBCOMM, ORBIMAGE, Navigation
Solutions and CCI. 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 1998 and 1997 financial
statements to conform to the 1999 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. Fees under
certain long-term contracts may be increased or decreased in accordance with
cost or performance incentive provisions which measure actual performance
against established targets or other criteria. Such incentive fee awards or
penalties are included in revenues at the time the amounts can be determined
reasonably.
Revenues from sales of satellite access products and satellite services are
generally recognized when the product is shipped or the service is performed.
Revenues from the sale of satellite access products under agreements that
provide the customer with certain post-contract support or other services are
recorded in accordance with Statement of Position No. 97-2, "Software Revenue
Recognition," as amended ("SOP 97-2"). Revenues are recognized upon shipment of
the product when evidence of an arrangement exists, delivery has occurred, the
fee is fixed and determinable and collectibility is probable. When unspecified
and undelivered post-contract support obligations exist and the fair value of
such element cannot be determined, revenue is deferred and recognized over the
life of the agreement.
34
<PAGE> 37
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
COMPREHENSIVE INCOME (LOSS)
The company's comprehensive income (loss) is presented in the consolidated
statements of stockholders' equity. Other comprehensive income (loss) consists
primarily of foreign currency translation adjustments and unrealized gains and
losses on available-for-sale securities.
FOREIGN CURRENCY TRANSACTIONS
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.
Gains and losses arising from the translation of the functional currency to
the U.S. dollar relating to foreign operations that are self-contained and
integrated within a particular country or economic environment are recognized as
a component of accumulated other comprehensive income (loss) in stockholders'
equity until there is a realized reduction in Orbital's net investment in the
foreign operation. 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 (loss).
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.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. 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 12 years
Satellite systems........................ 5 to 7 years
Shorter of estimated useful life or lease
Leasehold improvements................... term
</TABLE>
RECOVERABILITY OF LONG-LIVED ASSETS
Orbital's policy is to review its long-lived assets, including goodwill,
investments in and advances to affiliates, self-constructed assets, internally
developed software 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
undiscounted future cash flows is less than the carrying amount of the asset;
the amount of the impairment is measured as the difference between the asset's
estimated fair value and its book value. The Company recognized approximately
$17,027,000 and $2,479,000 of impairment charges in 1999 and 1998,
35
<PAGE> 38
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
respectively. 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, foreign and domestic, 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. Valuation allowances are used to reduce net deferred tax assets to the
amount considered more likely than not to be realized. Changes in estimates of
future taxable income can materially change the amount of such valuation
allowances.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), 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 (loss) and pro forma earnings (loss) per share disclosures for employee
stock option grants as if the fair-value-based method defined in SFAS 123 had
been applied. The company 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
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 if dilutive, after giving effect to all net income (loss) adjustments that
would result from the assumed conversion.
In periods of net loss, the assumed conversion of convertible notes and
stock options are anti-dilutive. Assuming conversion of convertible notes and
the dilutive impact of outstanding stock options, diluted shares would have been
41,599,939 for 1999, 40,336,587 for 1998 and 33,980,747 for 1997.
CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM INVESTMENTS
Orbital considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Restricted cash consists of
compensating cash balances for contractual obligations. Investments in
securities that do not meet the definition of cash equivalents are classified as
short-term investments. Orbital classifies investments in debt and equity
securities as either available-for-sale or trading securities and, accordingly,
records such investments at fair value. Any temporary excess (deficiency) of
fair value over (under) the underlying cost of the available-for-sale securities
is excluded from current period earnings and is reported as a component of
accumulated other comprehensive income (loss) in stockholders' equity. Temporary
excess (deficiency) of fair value over (under) the underlying cost of trading
securities is included in net investment income.
36
<PAGE> 39
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 capitalizes certain costs incurred
in constructing ground and airborne support and special test equipment 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.
Orbital, pursuant to the requirements of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 86, "Accounting for the
Cost of Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"),
capitalizes certain costs of developing product software once technological
feasibility has been established. Capitalized costs generally include direct
software coding costs and certain allocated indirect costs, and exclude general
and administrative and research and development costs.
INVESTMENTS IN AND ADVANCES TO AFFILIATES
The company uses the equity method of accounting for its investments in and
advances to 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 based on the company's common
stock or partnership interest, including all preferred dividends to other
investors in such entities. For those investments for which Orbital has provided
substantially all of the investee's funding, the company uses a modified equity
method of accounting whereby 100% of the investee's current period losses are
recognized. Further, Orbital does not recognize revenues on sales to investees
for which Orbital has provided substantially all such investees' funding.
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 in a manner similar to goodwill. The
company capitalizes interest costs on equity method investments when an
affiliate has significant assets under construction and has not yet commenced
planned principal operations. During 1999, 1998 and 1997, the company
capitalized interest on investments in and advances to affiliates of
approximately $372,000, $9,555,000 and $6,828,000, respectively. The company
uses the cost method of accounting for investments in which it has no
significant influence.
GOODWILL
The company amortizes goodwill related to business combinations on a
straight-line basis over its estimated useful life, generally 10 to 40 years.
Orbital periodically assesses and evaluates the recoverability of
37
<PAGE> 40
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
such goodwill based on current facts and circumstances and the operational
performance of the related acquired businesses.
ISSUANCES OF SUBSIDIARY EQUITY
At times, the company may divest a portion or all of its ownership in its
subsidiaries 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 gains on issuances of subsidiary
equity of $62,282,000 in 1999 and $21,810,000 in 1997. The 1999 gain related to
the sale of one-third of its equity interests in MacDonald, Dettwiler and
Associates Ltd. ("MDA"), a controlled and consolidated subsidiary. The 1997 gain
related to the issuance of additional equity by the company's controlled and
consolidated subsidiary, Magellan Corporation ("Magellan"), in connection with
its acquisition of Ashtech, Inc.
DEFERRED REVENUE
The company receives advances and program payments from customers in excess
of costs incurred on certain contracts, including contracts with the U.S.
government. These advances or program payments are classified as deferred
revenues. The company also defers revenues, as appropriate, in accordance with
SOP 97-2.
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 estimated warranty claims when it determines that a
specific liability exists. The company at times provides limited warranties on
certain commercial products and accrues an estimate of expected warranty costs
based on historical experience.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission (the "Commission")
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 provides guidance on applying generally
accepted accounting principles to revenue recognition issues in financial
statements. The company will adopt SAB 101 in 2000 and is currently evaluating
the effect such adoption will have on its results of operations.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 which delays the effective date of
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires the
recognition of all derivatives as either assets or liabilities measured at fair
value and the disclosure of additional information regarding hedging activities.
The company will adopt SFAS 133 in 2001 and is currently evaluating the effect
such adoption will have on its results of operations.
2. RESTATEMENT MATTERS AND SPECIAL GAINS AND CHARGES
A. RESTATEMENT MATTERS
Management has determined to restate its previously issued consolidated
financial statements as of and for the years ended December 31, 1998, 1997, 1996
and 1995 with respect to its accounting treatment for the matters described
below. The following table summarizes the various adjustments by financial
statement line
38
<PAGE> 41
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2A. RESTATEMENT MATTERS -- (CONTINUED)
items for 1998 and 1997. The net effect of the restatement of the 1996 and 1995
consolidated financial statements is presented in this table as an adjustment to
retained earnings in 1997. The impact of these and other matters on the
unaudited interim financial results for 1999 and 1998 are summarized in Note 13.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1998 1997
------------------------------------------------- ---------------------------------------------------
AS PREVIOUSLY AS PREVIOUSLY
REPORTED ADJUSTMENTS RESTATED REPORTED ADJUSTMENTS RESTATED
------------- ----------- -------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues............... $734,277 $ (3,615)(c)(g) $730,662 $605,975 $(59,967)(c)(g) $546,008
Costs of goods sold.... 546,721 2,907(c)(g)(h)(j) 549,628 456,772 (43,411)(c)(g) 413,361
Research and
development
expenses............. 44,597 4,787(g) 49,384 26,355 6,785(g) 33,140
Selling, general and
administrative
expenses............. 109,727 (2,915)(g)(h) 106,812 89,502 (1,354)(c) 88,148
Goodwill
amortization......... 7,939 1,774(i) 9,713 3,852 -- 3,852
Asset impairment
charges.............. -- 2,479(k) 2,479 -- -- --
Net investment income
(expense)............ 2,567 (3,846)(d)(k) (1,279) 1,475 (2,465)(d) (990)
Equity in earnings
(losses) of
affiliates........... (45,092) (31,723)(a)(c)(e)(f)(g) (76,815) (26,034) (940)(a)(c)(e)(f) (25,094)
Non-controlling
interests in
(earnings) losses of
consolidated
subsidiaries......... 10,610 3,502(h)(i) 14,112 2,638 2,638
Gain on issuance of
subsidiary equity.... 4,793 (4,793)(b) -- 21,810 21,810
Acquisition expenses... -- -- -- (4,343) -- (4,343)
Provision for income
taxes................ 4,543 673(j) 5,216 2,035 10,898(c) 12,933
Net income (loss)...... (6,372) (56,552) 23,005 (11,405)
Net income (loss) per
common share, basic
and assuming
dilution............. (0.18) (1.59) 0.71 (0.35)
</TABLE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1998
AS PREVIOUSLY REPORTED ADJUSTMENTS AS RESTATED
---------------------- ------------- -----------------
<S> <C> <C> <C>
Receivables, net............................. $205,409 $ 9,701(c) $215,110
Inventories, net............................. 64,710 (6,569)(h) 58,141
Deferred income taxes and other current
assets..................................... 8,252 (566)(j) 7,686
Property, plant and equipment................ 157,075 (17,674)(d)(g) 139,401
Investments in and advances to affiliates.... 237,589 (38,322)(a)(b)(c)(d)(e)(f)(k) 199,267
Goodwill..................................... 228,624 (1,273)(i) 227,351
Deferred taxes and other assets.............. 35,393 (10,347)(c)(j) 25,046
Deferred revenues............................ 73,987 2,691(c)(f) 76,678
Due to joint venture partner................. -- 26,829(k) 26,829
Non-controlling interests in consolidated
subsidiaries............................... 17,150 (3,502)(h)(i) 13,648
Accumulated (earnings) deficit............... 26,888 (91,297) (64,409)
</TABLE>
39
<PAGE> 42
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2A. RESTATEMENT MATTERS -- (CONTINUED)
EQUITY METHOD ACCOUNTING RESTATEMENT ADJUSTMENTS
The company uses the equity method of accounting for its investments in
affiliates in which the company has the ability to significantly influence, but
not control, such affiliates' operations. Accordingly, Orbital uses the equity
method of accounting for its investments in ORBIMAGE, ORBCOMM and CCI.
(a) As a result of certain participating rights granted to holders of
convertible preferred stock of ORBIMAGE, Orbital significantly influences,
but does not control, ORBIMAGE even though it owns substantially all of
ORBIMAGE's outstanding common stock. The company's prior consolidated
financial statements reflected the company's application of the equity
method of accounting as it pertained to ORBIMAGE based on Orbital's
percentage share of ownership of ORBIMAGE calculated to give effect to the
assumed conversion of ORBIMAGE's outstanding convertible preferred stock
into ORBIMAGE common stock. As reflected in its restated consolidated
financial statements presented herein, the company applies the equity method
of accounting as it pertains to ORBIMAGE based on its ownership of
outstanding common stock without giving effect to the assumed conversion of
ORBIMAGE's outstanding convertible preferred stock. The effect of these
revisions is to increase equity in losses of affiliates in 1998 and 1997 by
$8,519,000 and $698,000, respectively.
In the first quarter of 1998, pursuant to rights granted under a 1997 stock
purchase agreement, ORBIMAGE's minority investors acquired 227,295 shares of
ORBIMAGE's convertible preferred stock for total consideration of
$22,729,500. ORBIMAGE's convertible preferred stock is convertible into
ORBIMAGE's common stock based on a per common share price that was less than
the fair value of ORBIMAGE's common stock when the additional preferred
shares were acquired in 1998. Previously, the company's financial statements
did not give effect to any beneficial conversion discount as an additional
net loss allocable to the company pursuant to the equity method of
accounting. As reflected in the restated consolidated financial statements
presented herein, Orbital calculates its equity in losses of affiliates
including the impact of the beneficial conversion. The effect of these
revisions is to increase equity in losses of affiliates in 1998 by
$13,695,000.
ORBIMAGE's preferred stockholders are entitled to receive a cumulative
dividend, payable either in cash or in additional shares of convertible
preferred stock. To date all dividends have been paid in additional shares
of convertible preferred stock. Previously, the company's consolidated
financial statements did not reflect additional net losses allocable to
Orbital as a result of ORBIMAGE's declaration of such "in-kind" dividends on
its convertible preferred stock. As reflected in the restated consolidated
financial statements presented herein, Orbital calculates its equity in
losses of affiliates taking into account such non-cash dividends at their
fair value. The effect of these revisions is to increase equity in losses of
affiliates in 1998 and 1997 by $7,324,000 and $2,808,000, respectively.
(b) Previously, the company's consolidated financial statements reflected
recognition of a gain in the second quarter of 1998 arising from ORBIMAGE's
issuance of warrants to purchase common stock. As reflected in the restated
consolidated financial statements presented herein, since the warrants have
not been exercised, the company has revised its accounting for this equity
issuance, resulting in the elimination of its previously reported gain on
issuance of affiliate equity by $4,793,000 in 1998.
(c) Previously, the company's consolidated financial statements reflected the
recognition of revenue related to the initial transfer of certain assets to
ORBIMAGE in 1997 and sales under a procurement agreement with CCI in 1998.
Additionally, the company did not previously reflect an increase in its
deferred tax liabilities related to the ORBIMAGE transaction. As reflected
in the restated consolidated financial statements presented herein, the
company has revised its accounting for these transactions and the tax impact
thereto, eliminating its reported revenues related to these sales to CCI of
$6,556,000 in 1998, and to ORBIMAGE of $58,539,000 in 1997. Operating income
was also reduced in 1998 and 1997 by
40
<PAGE> 43
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2A. RESTATEMENT MATTERS -- (CONTINUED)
$596,000 and $14,469,000, respectively. The net impact of the adjustments on
equity in losses of affiliates was a decrease of $238,000 in 1998 and
$5,122,000 in 1997. Finally, the company's provision for income taxes was
increased as a result of this revision in 1997 by $10,898,000 to reflect
deferred tax liabilities related to the investment basis differences.
(d) Previously, the company's consolidated financial statements reflected the
company's capitalization of interest expense on various assets, including on
its equity investments in ORBIMAGE, ORBCOMM and CCI. As reflected in the
restated consolidated financial statements presented herein, Orbital has not
capitalized interest expense on its investment in ORBIMAGE and has revised
the capitalization of interest on certain other assets, including its equity
method investments in ORBCOMM and CCI. These revisions include the
compounding impact of interest, and the reduction of eligible investment
amounts for losses recognized for equity method investees. These revisions
had the effect of increasing interest expense in 1998 and 1997 by
$6,204,000, and $2,465,000, respectively.
(e) Previously, the company's consolidated financial statements did not reflect
amortization of the excess of the company's investment in ORBIMAGE over the
underlying share of the company's equity in ORBIMAGE. As reflected in the
restated consolidated financial statements presented herein, Orbital is
amortizing such excess over eight years. This revision had the effect of
increasing the company's equity in losses of affiliates by approximately
$355,000 and $237,000 in 1998 and 1997, respectively.
(f) Previously, the company's consolidated financial statements did not reflect
the amortization of previously deferred profits in connection with its sales
of both satellites and ground stations to ORBCOMM. As reflected in the
restated consolidated financial statements presented herein, Orbital is
amortizing a portion of such deferred profits over the estimated lives of
both the satellites and the ground stations. This revision had the effect of
increasing the company's equity in losses of affiliates by approximately
$1,298,000 and $439,000 in 1998 and 1997, respectively. This adjustment had
the impact of increasing accumulated deficit at January 1, 1997 by $439,000.
ASSET RESTATEMENT ADJUSTMENTS
(g) The company has historically capitalized certain costs associated with
certain product enhancements, internally developed software and certain
other costs. Previously, the company's consolidated financial statements
reflected such costs as capitalized assets. As reflected in the restated
consolidated financial statements presented herein, the company has expensed
all previously capitalized enhancement costs and certain other
non-capitalizable costs. These revisions resulted in an increase in research
and development expenses and costs of goods sold and an increase (decrease)
in revenues for 1998 of $4,787,000, $1,708,000 and $2,477,000, respectively,
and for 1997 of $6,785,000, $660,000 and ($1,428,000), respectively. These
adjustments also had the impact of decreasing selling, general and
administrative expenses by $2,631,000 and increasing equity in losses of
affiliates by $770,000 in 1998.
This adjustment had the impact of increasing accumulated deficit at January
1, 1997 by $5,740,000.
OTHER RESTATEMENT AND RECLASSIFICATION ADJUSTMENTS
(h) Previously, the company's consolidated financial statements did not reflect
a write-down in the book value of inventory at the company's Magellan
subsidiary related to certain obsolete consumer products. The adjustment to
record the write-down in inventory as reflected in the restated consolidated
financial statements presented herein, resulted in an increase to costs of
goods sold of approximately $4,670,000, an increase in selling, general and
administrative expenses of $324,000 and an increase in non-controlling
interests in (earnings) losses of consolidated subsidiaries of approximately
$2,988,000 in 1998.
41
<PAGE> 44
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2A. RESTATEMENT MATTERS -- (CONTINUED)
(i) The company had previously amortized a portion of the goodwill arising from
the acquisition of Ashtech Inc. as a direct charge against non-controlling
interests. As reflected in the restated consolidated financial statements
presented herein, the company is amortizing such goodwill as a charge to
operations, resulting in an increase in goodwill amortization expense for
1998 of $1,202,000 and an increase in non-controlling interests of
$408,000.
(j) The company's consolidated balance sheet at December 31, 1998 includes a
net deferred tax asset of approximately $3,400,000 relating primarily to
Canadian investment tax credits carryforwards. The restated consolidated
financial statements include a revised calculation of this deferred tax
asset in 1998, resulting in an increase of costs of goods sold and
provision for income taxes in 1998 of $2,166,000 and $1,222,000,
respectively.
(k) The company's consolidated balance sheet as of December 31, 1998 reflected
$26,829,000 due to a joint venture partner as a reduction of advances to the
joint venture. The restated consolidated balance sheet as of December 31,
1998 has classified this amount as a long-term liability. During 1998, the
company reclassified a permanent impairment of $2,479,000 on a certain
investment from costs of goods sold to asset impairment charges.
As reflected in the restated consolidated financial statements, the company
has recorded certain other adjustments, the net effect of which is presented in
the table. None of these entries is significant individually or in the
aggregate.
B. SPECIAL GAINS AND CHARGES
During the fourth quarter of 1999, the company recorded the following,
non-recurring gains and charges:
Gain on Issuance of Subsidiary Equity. In December 1999, the company's
then wholly-owned subsidiary, MDA, issued common stock to a group of minority
investors, and immediately provided a dividend to the company for the gross
amount of the proceeds from the sale of $75,000,000. Pursuant to its policy with
respect to issuances of subsidiary equity, the company recorded a $62,282,000
gain on the sale of such stock in the fourth quarter (approximately $58,610,000
net of taxes). In connection with the transaction, MDA's new shareholders were
granted certain rights, including, among others, an option to purchase
additional MDA shares, or to cause a sale of MDA, in certain circumstances,
including (i) if an initial public offering of MDA does not occur on or before
June 22, 2002, or (ii) if certain bankruptcy events involving Orbital occur. In
addition, under certain circumstances, including clause (i) above, MDA's new
shareholders will have the right to exchange their MDA stock for common stock of
Orbital pursuant to a specified formula as set forth in an Exchange and
Registration Rights Agreement.
Asset Impairments and Write-downs. In December 1999, we determined that
the carrying value of a specialized voice communication satellite system would
no longer be recoverable through the expected future sales of the related
products or services. We recorded an asset impairment charge with respect to
this asset in the amount of $15,217,000 in the fourth quarter of 1999.
In addition, a commercial airline navigation and communication system
experienced cancellation of the sole customer sales contract in the fourth
quarter of 1999. This cancellation reduced the probability of recovering the
cost of the related capitalized software and inventory through future sales. The
total carrying value of the software and inventory in the amount of $14,820,000
was recognized as a component of cost of goods sold in the fourth quarter of
1999.
Acquisition Expenses. In March 1999, Orbital and Magellan Corporation, a
majority-owned and controlled subsidiary, entered into a merger agreement with a
consumer electronics company. This proposed
42
<PAGE> 45
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2B. RESTATEMENT MATTERS -- (CONTINUED)
transaction did not close and was terminated in December 1999. In connection
with this and other planned acquisitions, the company incurred $1,561,000 of
acquisition expenses during 1999.
3. INDUSTRY SECTOR INFORMATION
Orbital 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 and
advanced programs, satellites and related space systems, electronics and sensor
and transportation management systems, satellite ground systems and software and
mapping and land information services. Satellite access products include
satellite-based navigation, positioning and communications products. Satellite
services include satellite-based mobile data communications, satellite-based
remote imaging services, satellite-based automotive information systems and
satellite-based voice communications services.
Orbital reports industry sector information in conformance with Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 established standards
for reporting information about operating segments in financial statements and
requires selected information about operating segments. It also established
standards for disclosures about products, services and geographic areas.
Reportable segments within the space and ground infrastructure systems
sector have been determined generally based upon product lines. Certain
operating business units within this sector have been aggregated as they exhibit
similar long-term financial performance characteristics and do not meet the
quantitative thresholds. In 1999, the company recast the composition of its
reportable segments as a result of new reporting mechanisms and operating
decision making procedures. The corresponding segment information for the prior
years has been revised to conform to the 1999 presentation.
The following table presents operating information and identifiable assets
by reportable segment. Intersegment and intersector sales are accounted for
based on prices negotiated by the parties; there were no significant sales or
transfers between segments.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(RESTATED) (RESTATED)
(In thousands)
<S> <C> <C> <C>
Launch Vehicles and Advanced Programs
Revenues............................................... $ 157,032 $179,591 $120,202
Operating income (loss)................................ (8,452) 23,476 (1,251)
Identifiable assets.................................... 125,157 96,190 87,106
Capital expenditures................................... 13,665 8,270 7,670
Depreciation and amortization.......................... 7,130 5,370 2,755
Satellites and Related Space Systems
Revenues............................................... $ 257,431 $227,042 $175,450
Operating income (loss)................................ (13,517) 17,388 31,667
Identifiable assets.................................... 58,153 109,922 90,338
Capital expenditures................................... 7,481 4,499 4,408
Depreciation and amortization.......................... 5,066 4,835 4,980
</TABLE>
43
<PAGE> 46
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INDUSTRY SECTOR INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(RESTATED) (RESTATED)
(In thousands)
<S> <C> <C> <C>
Electronics and Sensor Systems and Transportation Management
Systems
Revenues............................................... $ 149,991 $125,758 $117,064
Operating income (loss)................................ (248) 11,312 8,814
Identifiable assets.................................... 114,765 109,907 72,211
Capital expenditures................................... 3,373 5,563 5,544
Depreciation and amortization.......................... 4,689 3,125 3,233
Satellite Ground Systems and Space Robotics, Mapping and
Land Information Services
Revenues............................................... $ 186,491 $ 95,845 $ 78,245
Operating income (loss)................................ 14,623 5,232 5,057
Equity in earnings (losses of affiliates).............. (182) -- --
Non-controlling interest in (earnings) losses of
consolidated subsidiaries............................ (171) -- --
Identifiable assets.................................... 213,301 67,422 56,727
Capital expenditures................................... 13,949 2,524 6,365
Depreciation and amortization.......................... 9,554 2,339 4,740
TOTAL SPACE AND GROUND INFRASTRUCTURE SYSTEMS:
Revenues............................................... $ 750,945 $628,236 $490,961
Operating income (loss)................................ (7,594) 57,408 44,287
Equity in earnings (losses of affiliates).............. (182) -- --
Non-controlling interest in (earnings) losses of
consolidated subsidiaries............................ (171) -- --
Identifiable assets.................................... 511,376 383,441 306,382
Capital expenditures................................... 38,468 20,856 23,987
Depreciation and amortization.......................... 26,439 15,669 15,708
SATELLITE ACCESS PRODUCTS:
Revenues............................................... $ 108,539 $101,667 $ 54,875
Operating income (loss)................................ (14,275) (29,703) (10,246)
Identifiable assets.................................... 92,939 112,584 143,800
Capital expenditures................................... 2,803 5,450 3,106
Depreciation and amortization.......................... 7,553 6,481 2,014
SATELLITE SERVICES:
Revenues............................................... $ 15,427 $ 759 $ 172
Operating income (loss)................................ (22,885) (3,839) (5,124)
Equity in earnings (losses) of affiliates.............. (99,368) (76,815) (25,094)
Non-controlling interest in (earnings) losses of
consolidated subsidiaries............................ 2,463 1,763 2,638
Identifiable assets.................................... 147,072 198,410 132,847
Capital expenditures................................... 4,157 4,493 5,002
Depreciation and amortization.......................... 96 -- 401
</TABLE>
44
<PAGE> 47
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INDUSTRY SECTOR INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(RESTATED) (RESTATED)
(In thousands)
<S> <C> <C> <C>
CORPORATE AND OTHER:
Operating income (loss)................................ $ (13,895) $(11,220) $(21,410)
Non-controlling interest in (earnings) losses of
consolidated subsidiaries............................ 7,267 12,349 --
Gain on issuance of subsidiary equity.................. 62,282 -- 21,810
Identifiable assets.................................... 341,525 200,757 194,856
Capital expenditures................................... 10,220 5,495 5,105
Depreciation and amortization.......................... 17,344 8,856 6,163
CONSOLIDATED:
Revenues............................................... $ 874,911 $730,662 $546,008
Operating income (loss)................................ (58,649) 12,646 7,507
Equity in earnings (losses) of affiliates.............. (99,550) (76,815) (25,094)
Non-controlling interest in earnings (losses) of
consolidated subsidiaries............................ 9,559 14,112 2,638
Gain on issuance of subsidiary equity.................. 62,282 -- 21,810
Identifiable assets.................................... 1,092,912 895,192 777,885
Capital expenditures................................... 55,648 36,294 37,200
Depreciation and amortization.......................... 51,432 31,006 24,286
</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,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(RESTATED) (RESTATED)
(In thousands)
<S> <C> <C> <C>
REVENUES:
United States.......................................... $ 690,987 $644,448 $465,177
Canada and Mexico...................................... 175,923 72,642 75,584
Other.................................................. 8,001 13,572 5,247
---------- -------- --------
Total............................................. $ 874,911 $730,662 $546,008
========== ======== ========
OPERATING INCOME (LOSS):
United States.......................................... $ (74,753) $ 11,939 $ 5,972
Canada and Mexico...................................... 15,725 2,277 1,465
Other.................................................. 379 (1,570) 70
---------- -------- --------
Total............................................. $ (58,649) $ 12,646 $ 7,507
========== ======== ========
IDENTIFIABLE ASSETS:
United States.......................................... $ 886,276 $833,054
Canada and Mexico...................................... 205,369 57,121
Other.................................................. 1,267 5,017
---------- --------
Total............................................. $1,092,912 $895,192
========== ========
</TABLE>
45
<PAGE> 48
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INDUSTRY SECTOR INFORMATION -- (CONTINUED)
EXPORT SALES AND MAJOR CUSTOMERS
Orbital's sales to geographic areas were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- ---------- ----------
(RESTATED) (RESTATED)
(In thousands)
<S> <C> <C> <C>
United States............................................... $558,606 $551,976 $387,074
Canada...................................................... 159,229 48,330 39,274
Southeast Asia.............................................. 69,983 28,976 35,688
Middle East and other....................................... 30,243 34,486 24,326
Far East.................................................... 30,003 39,196 32,875
Europe...................................................... 26,847 27,698 26,771
-------- -------- --------
Total............................................. $874,911 $730,662 $546,008
======== ======== ========
</TABLE>
Approximately 34%, 46% and 42% of the company's revenues in 1999, 1998 and
1997, respectively, were generated under contracts with the U.S. government and
its agencies or under subcontracts with the U.S. government's prime contractors.
4. 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, for the design,
development, construction, integration, testing and operation of a low-Earth
orbit satellite communications system (the "ORBCOMM System"). Through December
31, 1999, OCC and Teleglobe Mobile were both 50% general partners in ORBCOMM.
Additionally, through December 31, 1999, OCC was a 2% general partner in ORBCOMM
USA, L.P. ("ORBCOMM USA") and Teleglobe Mobile was a 2% general partner in
ORBCOMM International Partners, L.P. ("ORBCOMM International"), two partnerships
formed to market the ORBCOMM System. ORBCOMM was a 98% general partner in each
of the two marketing partnerships through December 31, 1999. These partnership
agreements were amended as of January 1, 2000, as discussed below.
Pursuant to the terms of the partnership agreements, until December 31,
1999, (i) OCC and Teleglobe Mobile shared equal responsibility for the
operational and financial affairs of ORBCOMM, (ii) OCC controlled and
consolidated the operational and financial affairs of ORBCOMM USA, and (iii)
Teleglobe Mobile controlled the operational and financial affairs of ORBCOMM
International. Since OCC was unable to control, but was able to exercise
significant influence over ORBCOMM's and ORBCOMM International's operational and
financial affairs, the company accounted for its investments in ORBCOMM and
ORBCOMM International using the equity method of accounting.
In January 2000, Orbital entered into an agreement with ORBCOMM, Teleglobe,
OCC, and Teleglobe Mobile pursuant to which:
- Teleglobe Mobile became ORBCOMM's sole general partner and majority
owner, with an interest of approximately 66% as of March 15, 2000;
- OCC remained as a limited partner to ORBCOMM, with a minority ownership
interest of approximately 34% as of March 15, 2000; and
46
<PAGE> 49
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS IN AND ADVANCES TO AFFILIATES -- (CONTINUED)
- Orbital received a payment plan from ORBCOMM to settle deferred invoice
amounts.
On January 26, 2000, each of OCC and Teleglobe Mobile contributed to
ORBCOMM its 2% direct participation interest in ORBCOMM USA and ORBCOMM
International, respectively. As a result of this contribution, these companies
ceased doing business as separate entities and ORBCOMM assumed their business
operations.
Orbital is the primary supplier to ORBCOMM of its communications
satellites, launch vehicles and certain of its satellite ground systems and
software. During 1999, 1998 and 1997, Orbital recorded sales to ORBCOMM of
approximately $44,302,000, $36,596,000 and $57,988,000, respectively.
During 1999, 1998 and 1997, Orbital deferred invoicing ORBCOMM for work
performed under satellite and launch procurement agreements. During 1999, 1998
and 1997, the company deferred invoicing ORBCOMM for approximately $37,000,000,
$33,000,000 and $21,000,000, respectively. During this period, approximately
$33,000,000 (including interest) of these amounts was advanced from an affiliate
of Teleglobe to Orbital. In January 2000, Orbital, Teleglobe and ORBCOMM entered
into an agreement to, among other things, settle the deferred invoicing and
related cash advances. ORBCOMM paid the company approximately $33,000,000 in
cash which was then used by the company to repay the advances from Teleglobe. In
addition, the company converted approximately $33,000,000 of its deferred
invoices into partnership interests of ORBCOMM. Finally, of the remaining
$25,000,000 owed to Orbital, one-third was paid in 2000 with the balance due by
June 2001.
At December 31, 1999 and 1998, Orbital's investments in and advances to
ORBCOMM was approximately $107,989,000 and $157,725,000, respectively. In
addition, ORBCOMM owes the company a total of $48,711,000, which is included in
receivables at December 31, 1999 (none at December 31, 1998). All 1998 invoices
were deferred and included in investments and advances to affiliates. In
addition, Orbital has provided certain administrative services to ORBCOMM on a
cost-reimbursable basis. During 1998 and 1997, Orbital was reimbursed
approximately $3,183,000 and $2,298,000, respectively, for such services.
At December 31, 1999 and 1998, ORBCOMM had approximately $389,812,000 and
$346,634,000 in total assets, $299,063,000 and $241,844,000 in total liabilities
and $90,749,000 and $104,790,000 of total partners' capital, respectively. The
difference between Orbital's investments in and advances to ORBCOMM and
Orbital's share of ORBCOMM's total partners' capital, is primarily attributable
to interest capitalized by Orbital with respect to its investment in ORBCOMM.
ORBCOMM recorded approximately $2,772,000, $1,262,000 and $527,000 in revenues
and $144,548,000, $69,628,000 and $31,436,000 in net losses for the years ended
December 31, 1999, 1998 and 1997, respectively.
ORBIMAGE
In 1997, the company's subsidiary, ORBIMAGE, completed a private placement
of preferred equity. Although Orbital owns substantially all of the common stock
of ORBIMAGE, 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 ownership interest in ORBIMAGE. As of
December 31, 1999 and 1998, the company's investments in and advances to
ORBIMAGE were $8,094,000 and $27,891,000, respectively.
The company has an agreement with ORBIMAGE to purchase up to an additional
1,250,000 shares of ORBIMAGE's common stock for up to $12,500,000, which amount
may be increased up to $25,000,000 in the event of certain delays beyond January
2001 under the procurement agreement. This investment may be required over time
in $2,500,000 minimum increments if ORBIMAGE's cash balance falls below
$10,000,000.
47
<PAGE> 50
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS IN AND ADVANCES TO AFFILIATES -- (CONTINUED)
Orbital is the primary supplier to ORBIMAGE of imaging satellites, launch
services and satellite ground systems and software. During the years ended
December 31, 1999, 1998 and 1997, Orbital recorded sales to ORBIMAGE of
approximately $50,100,000, $89,006,000 and $30,079,000, respectively.
Additionally, Orbital provides certain administrative services to ORBIMAGE on a
cost-reimbursable basis. During 1999, 1998 and 1997, Orbital was reimbursed
approximately $1,513,000, $1,985,000 and $1,444,000, respectively, for such
administrative services. At December 31, 1999 and 1998, the company had total
receivables due from ORBIMAGE of approximately $10,899,000 and $18,725,000,
respectively.
At December 31, 1999 and 1998, ORBIMAGE had approximately $359,838,000 and
$308,078,000 in total assets, $253,604,000 and $195,625,000 in total liabilities
and $14,671,000 and $33,964,000 of total stockholders' equity, respectively.
ORBIMAGE recorded approximately $18,587,000, $11,663,000 and $2,062,000 in
revenues and $19,796,000, $26,538,000 and $6,890,000 in net losses available to
common shareholders for the years ended December 31, 1999, 1998 and 1997,
respectively.
NAVIGATION SOLUTIONS, LLC
During the second quarter of 1999, the company, through its wholly owned
subsidiary, Orbital Navigation Corporation, along with The Hertz Corporation
("Hertz") formed a joint venture, Navigation Solutions, L.L.C. ("Navigation
Solutions"). The company, through its Magellan subsidiary, sells automotive
navigation products to Navigation Solutions, which in turn collects fees from
Hertz' customers for use of these products. The company recognized revenues from
sales of products to Navigation Solutions of approximately $2,667,000, and
deferred approximately $37,085,000 of revenues pursuant to SOP 97-2 (which
revenues will be recognized ratably through 2004), and contributed capital to
Navigation Solutions of approximately $22,200,000 during 1999. As of December
31, 1999, the company had a 60% non-controlling interest in Navigation
Solutions, and currently accounts for its investment using the equity method of
accounting. At December 31, 1999, the company's investment in Navigation
Solutions was approximately $19,991,000. The company is committed to contribute
capital up to an aggregate of $30,000,000, to be contributed through the end of
2000.
CCI INTERNATIONAL, N.V.
In 1998, the company acquired an equity interest in, and entered into a
satellite procurement contract with, CCI, a start-up satellite voice
communications provider. The company had an investment in CCI of $9,942,000 at
December 31, 1998. The company currently owns 40% of CCI on a fully diluted
basis and uses the modified equity method of accounting to account for its
investment in CCI. However, the company has provided substantially all CCI's
funding, and accordingly, the company did not recognize any revenue in
connection with its satellite contract in 1999 or 1998.
CCI needs a significant infusion of capital to complete its contemplated
constellation of satellites. Two other unrelated start-up companies that had
also been developing similar satellite communications systems announced during
1999 that they were experiencing significant financial difficulties and filed
for bankruptcy protection in the third quarter of 1999. Orbital concluded in the
third quarter of 1999 that its investment in CCI was impaired and recorded a
non-cash charge of $11,128,000 during the third quarter to write off its
investment in CCI. This loss is included in equity in losses of affiliates in
the accompany statements of earnings.
OTHER INVESTMENTS
The company owns equity interests in several emerging companies. The
carrying value of these investments was approximately $5,198,000 and $2,609,000,
respectively, at December 31, 1999 and 1998.
48
<PAGE> 51
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS
ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED
In May 1999, the company, through its MDA subsidiary, acquired all the
assets and certain liabilities of the space robotics division of Toronto-based
Spar Aerospace Limited ("Robotics") for approximately $43,000,000. MDA paid half
of the purchase price in cash at closing and issued an unsecured 8% note, due
May 2000, for the remainder. The company has accounted for the acquisition using
the purchase method of accounting. The liabilities recorded exceeded the fair
value of tangible and identifiable intangible assets acquired resulting in
goodwill of approximately $56,000,000 which is being amortized on a
straight-line basis over 30 years.
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 tangible and identifiable intangible assets acquired by approximately
$20,000,000, 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 provided consideration of
approximately $80,000,000 to former Ashtech stockholders consisting of
$25,000,000 in cash and approximately 23,954,000 shares of Magellan common
stock. Since the merger, Orbital has owned a controlling interest of
approximately two-thirds of Magellan. The merger was accounted for using the
purchase method of accounting. The purchase price exceeded the fair value of the
net tangible and identifiable intangible assets acquired by approximately
$73,000,000, which is being amortized on a straight-line basis over 20 years. In
connection with the merger, Orbital entered into a stockholders' agreement with
certain 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.
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"). 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 fair value of the net
tangible and identifiable intangible assets acquired by approximately
$70,000,000, which is being amortized on a straight-line basis over 30 years.
During the five years following the closing, CTA will also be entitled to
receive (i) royalties from $500,000 to $3,000,000 for sales by the company of
certain geostationary satellites in excess of certain threshold sales, and (ii)
3% of cumulative revenues in excess of $50,000,000 earned during such period
from the acquired transportation management business of CTA. The company has not
been required to pay CTA any additional consideration under these provisions.
ROCKWELL INTERNATIONAL CORPORATION
In July 1997, Orbital acquired the assets and certain liabilities
associated with Rockwell International Corporation's ("Rockwell") automotive
navigation product line. Orbital paid approximately $3,550,000 in cash and
issued Rockwell a $4,350,000 unsecured note payable. The company accounted for
the acquisition
49
<PAGE> 52
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS -- (CONTINUED)
using the purchase method of accounting. The purchase price exceeded the fair
value of the net tangible and identifiable intangible 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 above
acquisitions were consummated on January 1, 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ----------- -----------
(RESTATED) (RESTATED)
(In thousands except per share data)
<S> <C> <C> <C>
Revenues............................................. $ 885,947 $836,344 $685,687
Net income (loss).................................... $(121,488) $(55,407) $(11,096)
Net income (loss) per common and dilutive share...... $ (3.26) $ (1.56) $ (0.34)
</TABLE>
LICENSE AGREEMENT
In May 1999, MDA entered into a $37,000,000 long-term license agreement
with the British Columbia provincial government whereby MDA obtained the
exclusive rights to use certain government information databases (the "License
Agreement"). MDA intends to provide Internet-based services pursuant to the
License Agreement. MDA paid approximately $13,000,000 in cash and borrowed
approximately $7,000,000 under an existing line of credit and $17,000,000
pursuant to a loan due May 2000 to acquire the license. The cost of this license
is classified as an other long-term asset and is being amortized on a straight
line basis over its 10 year term.
6. BALANCE SHEET ACCOUNTS
RESTRICTED CASH AND SHORT-TERM INVESTMENTS
At December 31, 1999 and 1998, the company had approximately $17,041,000
and $5,257,000, respectively, of cash restricted to support bank covenants and
outstanding letters of credit.
Short-term investments consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------- ------
(In thousands)
<S> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
Canadian mortgage bonds................................... $10,912 $ --
Certificate of deposit.................................... -- 2,665
TRADING SECURITIES:
Mutual funds at fair value................................ 6,677 --
------- ------
Total............................................. $17,589 $2,665
======= ======
</TABLE>
At December 31, 1999, the gross unrealized gains and losses on short-term
trading securities were $1,087,000 and none, respectively. Amortized cost
approximated fair value for available-for-sale securities at December 31, 1999
and 1998. At December 31, 1998, $2,500,000 of short-term investments was
restricted for outstanding letters of credit.
50
<PAGE> 53
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. BALANCE SHEET ACCOUNTS -- (CONTINUED)
INVENTORY
Inventories, net of allowances for obsolescence, consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
-------- ----------
(RESTATED)
(In thousands)
<S> <C> <C>
Components and raw materials................................ $ 19,883 $14,488
Work-in-process............................................. 38,429 45,178
Finished goods.............................................. 10,651 6,690
Allowance for inventory obsolescence........................ (14,480) (8,215)
-------- -------
Total............................................. $ 54,483 $58,141
======== =======
</TABLE>
Work-in-process inventory was reduced by contractual progress payments
received of $208,000 and $5,624,000 at December 31, 1999 and 1998, respectively.
RECEIVABLES
The components of receivables were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
-------- ----------
(RESTATED)
(In thousands)
<S> <C> <C>
Billed and billable......................................... $196,426 $111,322
Recoverable costs and accrued profit not billed............. 104,102 120,371
Retainages due upon contract completion..................... 13,707 4,987
Allowance for doubtful accounts............................. (18,920) (21,570)
-------- --------
Total............................................. $295,315 $215,110
======== ========
</TABLE>
Approximately 71% of recoverable costs and accrued profit not billed and
retainages due upon contract completion at December 31, 1999 is due within one
year and will be billed on the basis of contract terms and delivery schedules.
At December 31, 1999 and 1998, $58,213,000 and $50,165,000, respectively, were
receivable from non-U.S. customers.
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
Defense Contract Audit Agency or by other appropriate agencies of the U.S.
government. These agencies have the right to challenge Orbital's cost estimates
or allocations with respect to any such contract. Additionally, a substantial
portion of 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.
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
51
<PAGE> 54
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. BALANCE SHEET ACCOUNTS -- (CONTINUED)
forward exchange contracts less valuable. The following table summarizes at
December 31, 1999, 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 $ 155 $ 156 $ 1
European Currency Units....................... PS 37 40 3
EURO.......................................... CD 1,070 1,154 84
Pounds Sterling............................... CD (275) (284) (9)
Norwegian Kroner.............................. CD 687 713 26
U.S. Dollars.................................. CD 10,921 10,975 54
Japanese Yen.................................. US 41,177 38,412 (2,765)
</TABLE>
- ------------------------
CD -- Canadian Dollars
PS -- Pounds Sterling
US -- US Dollars
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ----------
(RESTATED)
(In thousands)
<S> <C> <C>
Land........................................................ $ 4,061 $ 4,123
Buildings and leasehold improvements........................ 33,355 21,557
Machinery and equipment..................................... 182,755 167,722
Assets under construction................................... 22,518 18,616
Software, intellectual property and technical drawings...... 17,062 27,222
Accumulated depreciation and amortization................... (122,129) (99,839)
--------- --------
Total............................................. $ 137,622 $139,401
========= ========
</TABLE>
Interest expense of approximately $2,711,000, $1,705,000, and $429,000 was
capitalized during 1999, 1998 and 1997, respectively, as part of the historical
cost of land, buildings and equipment under construction.
52
<PAGE> 55
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. BALANCE SHEET ACCOUNTS -- (CONTINUED)
ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
-------- ----------
(RESTATED)
(In thousands)
<S> <C> <C>
Payroll, payroll taxes and fringe benefits.................. $ 45,278 $ 39,289
Payable to subcontractors................................... 5,970 18,703
Accrued contract costs...................................... 40,106 32,118
Accrued financing and acquisition costs..................... 13,973 --
Accrued income taxes........................................ 12,493 --
Other accrued expenses...................................... 20,793 18,378
-------- --------
Total............................................. $138,613 $108,488
======== ========
</TABLE>
7. DEBT OBLIGATIONS
The following table sets forth long-term obligations, excluding capital
lease obligations (See note 8):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
DESCRIPTION: 1999 1998
- ------------ ------------ --------
(In thousands)
<S> <C> <C>
7.09% - 9.35% notes, principal and interest due monthly
1998-1999................................................. $ -- $ 3,098
8.25% bank note, principal and interest due monthly through
2001...................................................... -- 1,142
7.10% - 8.88% notes, principal and interest due monthly
through 2002.............................................. 27,326 24,428
8.41% note, principal and interest due monthly through
2004...................................................... 7,385 8,439
Non-interest bearing notes, principal and interest due
semi-annually through 2000................................ 2,100
6% note, principal and interest due semi-annually through
2000...................................................... 1,450 2,900
6.22% - 7.75% bank notes, principal and interest due monthly
through 2002.............................................. 21,569 1,823
8% note, due in 2000........................................ 22,976 --
12% note, interest due semi-annually, principal due through
2001...................................................... 13,333 20,000
9.96% credit facility, interest and principal due quarterly
through 2002.............................................. 165,000 36,000
5% convertible subordinated notes, interest due
semi-annually, principal due 2002......................... 100,000 100,000
--------- --------
361,139 197,830
LESS CURRENT PORTION........................................ (123,361) (19,236)
--------- --------
LONG-TERM PORTION........................................... $ 237,778 $178,594
========= ========
</TABLE>
The 7.10% - 8.88% notes are collateralized 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 collateralized by the
company's L-1011 aircraft. The 6% note due 2000 is unsecured.
The 6.22% - 7.125% bank notes due 2002 are collateralized by MDA's assets.
The related credit agreements for these and the 8% note due 2000 prohibit the
payment of cash dividends and contain certain covenants with respect to MDA's
leverage ratio, interest coverage and tangible net worth. MDA also has an unused
line of credit of $18,700,000 with an interest rate of 6.5% at December 31,
1999.
53
<PAGE> 56
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. DEBT OBLIGATIONS -- (CONTINUED)
The company's 12% 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. This note was
unsecured at December 31, 1999, however, in January 2000 a portion of the
collateral for the primary credit facility was pledged for this note. In April
2000, Orbital and the noteholder signed an amendment that waived noncompliance
with certain financial covenants for all periods prior to the amendment date and
for 2000.
Orbital's primary credit facility from an international syndicate of nine
banks was amended in 1999, among other things, to decrease maximum borrowings to
$165,000,000 and require $10,000,000 be maintained in a segregated account until
the company's total liquidity drops below $10,000,000. The interest rate charged
under the facility is variable based on the prime rate or LIBOR. The
weighted-average interest rate on borrowings outstanding under this facility at
December 31, 1999 was 9.96%. Outstanding borrowings are collateralized by the
company's accounts receivable and certain other assets, including stock of
subsidiaries. The facility prohibits the payment of cash dividends and imposes
limits on capital expenditures. The facility also 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. The company amended
this facility several times in 1999 to waive noncompliance with certain
financial covenants and to amend others (including with respect to net worth,
leverage and fixed charges). In April 2000, Orbital and the banks signed an
amendment that waived Orbital's noncompliance with certain covenants for all
periods prior to the amendment date and established new covenant levels for 2000
net worth, leverage (including senior leverage), fixed charges, capital
expenditures and subsidiary debt. Orbital also agreed with its banks to further
reduce the total amount that is available under the facility on August 1, 2000
by either (i) an additional $40,000,000 if Orbital and the banks restructure the
facility by May 31, 2000 or (ii) by an additional $60,000,000 if Orbital is
unsuccessful in restructuring the facility by that date. Orbital is required to
apply toward this reduction 50% of the net cash proceeds that Orbital receives
from any equity offering, asset sale or debt issuance by Orbital or its domestic
wholly owned subsidiaries. In addition, Orbital agreed to further reduce the
facility to $85,000,000 by July 2001.
In September 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, 1999 and
1998 is estimated at approximately $85,625,000 and $127,830,000, 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,
2004 and thereafter are $123,361,000, $19,089,000, $213,999,000, $1,961,000,
$2,545,000 and $184,000, respectively.
Magellan maintains its own short-term credit facility. At December 31, 1999
and 1998, approximately $6,345,000 and $6,008,000 was outstanding on this
facility at an average borrowing rate of 10.25% and 9.25%, respectively. These
borrowings are collateralized 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.
54
<PAGE> 57
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
LEASES
Aggregate minimum rental commitments under non-cancelable operating and
capital leases (primarily for office space and equipment) at December 31, 1999
were as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
(In thousands)
<S> <C> <C>
2000........................................................ $ 20,257 $1,536
2001........................................................ 22,541 1,494
2002........................................................ 22,191 336
2003........................................................ 21,121 248
2004........................................................ 20,599 --
2005 and thereafter......................................... 169,760 --
-------- ------
$276,469 3,614
========
Less interest at 10%........................................ (353)
Less current portion........................................ (1,367)
------
Long-term portion........................................... $1,894
======
</TABLE>
Rent expense for 1999, 1998 and 1997 was approximately $18,385,000,
$14,124,000 and $10,870,000, respectively.
OFF-BALANCE SHEET RISK
MDA is subject to off-balance sheet risk for a letter of credit facility of
$53,125,000 to cover commitments under letters of credit of which $27,865,000
remained available at December 31, 1999. MDA is also subject to off-balance
sheet risk for a letter-of-credit facility to cover foreign exchange
commitments. At December 31, 1999, $6,236,000 of letters of credit was secured
by this facility and $2,973,000 remained available. Management does not expect
any material losses as a result of these off-balance sheet agreements.
LITIGATION
In the first quarter of 1999, a number of class action lawsuits were filed
against the company alleging violations of the federal securities laws on behalf
of purchasers of the company's stock during the period from April 21, 1998
through February 16, 1999, and seeking monetary damages. An additional class
action complaint was filed in 1999 on behalf of purchasers of call options.
In the fourth quarter of 1999, in connection with the company's
announcement of the restatement of its financial statements for fiscal years
1997, 1998 and the first two quarters of 1999, a class action lawsuit was filed
against the company alleging violations of the federal securities laws, on
behalf of purchasers of the company's stock and call options during the period
from April 22, 1997 through October 29, 1999. While the amounts to be claimed
may be substantial, the company believes that the allegations are without merit
and intends to defend vigorously against such allegations.
In July 1999, a class action complaint was filed on behalf of a class
comprised of purchasers and lessees of a high precision GPS product manufactured
by Magellan (as a successor to Ashtech Inc.) against Sokkia Corporation and
certain of its affiliates, Magellan and others in the Circuit Court of Henry
County, Alabama. The complaint alleges breach of contract and warranty claims
and seeks unspecified compensatory and punitive damages. The company believes
that the allegations are without merit and intends to defend vigorously against
such allegations.
55
<PAGE> 58
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
In the first quarter of 2000, PT Media Citra Indostar, an Indonesian
company ("PT-MCI"), commenced arbitration seeking a refund of $163,000,000 MCI
asserts it paid in connection with a communications satellite constructed by CTA
under a contract that was assigned to Orbital in connection with its acquisition
of CTA. MCI's allegations include fraud and multiple breaches of contract. The
company's claims against PT-MCI for unpaid invoices in the approximate amount of
$14,000,000 are also part of the arbitration proceedings. Orbital believes that
PT-MCI's allegations are without merit and intends to vigorously defend against
the allegations. In addition, under the terms of the CTA acquisition, Orbital
believes it is entitled to indemnification from CTA for all or a part of any
damages arising from the PT-MCI litigation and that CTA retains liability for
certain fraud claims being made by PT-MCI.
The company is currently arbitrating a claim brought by a claimant alleging
that the company is in actual or anticipatory breach of obligations allegedly
imposed on the company in a decision in a previous arbitration proceeding
brought by the claimant against CTA. The claimant claims that he is entitled to
a sum exceeding $30,000,000 from the company, as successor-in-interest to CTA.
Management believes that the allegations in these proceedings are without merit
and intends to vigorously defend against the allegations. In addition, under the
terms of the CTA acquisition, Orbital believes it is entitled to indemnification
from CTA for all or a part of any damages arising from this litigation.
The eventual outcome of the foregoing matters is uncertain and could have a
material adverse impact on the company's results of operations and financial
condition.
In addition, the company and its subsidiaries are parties to certain other
litigation or proceedings arising in the ordinary course of business. In the
opinion of management, the probability is remote that the outcome of any such
litigation or other proceedings will have a material adverse effect on our
results of operations or financial position.
9. INCOME TAXES
The provisions for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997
1999 (RESTATED) (RESTATED)
------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
CURRENT PROVISION:
U.S. Federal......................................... $ -- $ -- $ --
Foreign.............................................. 20,040 1,394 1,283
State................................................ -- -- --
DEFERRED PROVISION (BENEFIT):
U.S. Federal......................................... -- 10,898
Foreign.............................................. (8,936) 3,822 752
State................................................ -- -- --
------- ------ -------
Total........................................ $11,104 $5,216 $12,933
======= ====== =======
</TABLE>
56
<PAGE> 59
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. 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
1999 (RESTATED) (RESTATED)
----- ---------- ----------
<S> <C> <C> <C>
U.S. Federal statutory rate............................ (35.0)% (35.0)% 35.0%
Changes in valuation allowance......................... 51.1 53.4 815.2
Investments in affiliates and noncontrolling interests
in net assets of consolidated subsidiaries........... (2.2) 2.0 582.2
Intangible amortization................................ 3.3 4.7 91.4
Foreign income taxes in excess of statutory rate....... 3.7 2.2 60.3
Other, net............................................. (10.9) (17.1) (737.7)
----- ----- --------
Effective rate............................... 10.0% 10.2% 846.4%
===== ===== ========
</TABLE>
The tax effects of significant temporary differences were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998
1999 (RESTATED)
--------- ----------
(In thousands)
<S> <C> <C>
TAX ASSETS:
U.S. Federal and state net operating loss carryforward.... $ 152,205 $106,390
Non-deductible financial statement accruals............... 88,141 49,384
U.S. Federal and foreign tax credit carryforward.......... 4,499 8,771
Intangible assets......................................... 6,315 8,364
--------- --------
251,160 172,909
Valuation allowance....................................... (150,844) (94,185)
--------- --------
Tax assets, net........................................ $ 100,316 $ 78,724
========= ========
TAX LIABILITIES:
Excess deductions for tax reporting purposes.............. $ 54,107 $ 36,760
Excess tax depreciation................................... 19,959 27,216
Investments in subsidiaries/affiliates.................... 4,913 --
Percentage-of-completion accounting....................... 2,702 5,049
--------- --------
Tax liabilities........................................ $ 81,681 $ 69,025
========= ========
</TABLE>
In 1999, 1998 and 1997 approximately $16,213,000, $8,300,000 and
$5,200,000, respectively, of income (loss) before provision for income taxes was
generated from foreign sources. At December 31, 1999, the company had U.S.
Federal net operating loss carryforwards (portions of which expire beginning in
2004) of approximately $390,500,000, and U.S. research and experimental tax
credit carryforwards of approximately $4,499,000. Such net operating loss
carryforwards and tax credits are subject to certain limitations and other
restrictions. Additionally, at December 31, 1999, approximately $43,000,000 of
net deferred tax assets will reduce goodwill and approximately $10,700,000 of
net deferred tax assets will increase equity to the extent such assets reduce
future taxable income. The increase in the valuation allowance of $56,659,000 is
primarily due to current year operating losses. There is a potential for
near-term reversal of the valuation allowance dependent on the future operating
results. Management currently believes that it is more likely than not that its
existing net deferred tax assets will be realized in the future.
57
<PAGE> 60
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. 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 an Employee Stock Purchase
Plan ("ESPP") for employees of the company (including its consolidated
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.
As of December 31, 1999, the company's 1997 Stock Option and Incentive
Plan, as amended in 1999 (the "1997 Plan"), provided for awards of up to
5,000,000 incentive or non-qualified stock options and shares of restricted
stock to employees, directors, consultants and advisors of the company and its
subsidiaries. Under the terms of the 1997 Plan, options may not be issued at
less than 100% of the fair market value of the company's common stock on the
date of grant. Options under the 1997 Plan vest at a rate set forth by the Board
of Directors in each individual option agreement, generally in one-third
increments over a three-year period following the date of grant. Options expire
no more than ten years following the grant date. The 1997 Plan provides for
automatic grants of non-qualified stock options to 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.
58
<PAGE> 61
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMON STOCK AND STOCK OPTION PLANS -- (CONTINUED)
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, 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) 3.51-36.50 35.07
----------
Outstanding at December 31, 1998............... 4,443,556 3.51-38.44 21.09 1,548,218
Granted...................................... 2,070,400 12.50-43.31 25.88
Exercised.................................... (218,346) 3.51-24.00 13.50
Cancelled or expired......................... (282,888) 3.51-38.44 23.17
----------
Outstanding at December 31, 1999............... 6,012,722 $ 3.51-43.31 $22.66 2,602,819
========== ============ ====== =========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ---------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT DEC. 31, 1999 CONTRACTUAL LIFE EXERCISE PRICE AT DEC. 31, 1999 EXERCISE PRICE
--------------- ---------------- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 3.51-$16.88 2,034,510 5.96 $14.49 1,622,801 $14.25
$17.00-$22.62 2,335,956 8.74 $21.43 521,448 $19.38
$24.00-$43.31 1,642,256 8.66 $34.53 458,570 $32.48
------------- --------- ---- ------ --------- ------
$ 3.51-$43.31 6,012,722 7.78 $22.66 2,602,819 $18.49
============= ========= ==== ====== ========= ======
</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 1999, 1998 and 1997, OCC
repurchased 9,700, 1,000 and 43,800 common shares, respectively, under this
provision.
59
<PAGE> 62
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMON STOCK AND STOCK OPTION PLANS -- (CONTINUED)
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, 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
Granted.............................. 36,000 39.75-43.67 43.34
Exercised............................ (35,000) 1.50-26.50 8.02
Cancelled or expired................. (287,825) 4.00-43.67 27.84
---------
Outstanding at December 31, 1999....... 718,005 $ 1.50-43.67 $19.18 531,739
========= ============= ====== =======
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT DEC. 31, 1999 CONTRACTUAL LIFE EXERCISE PRICE AT DEC. 31, 1999 EXERCISE PRICE
--------------- ---------------- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.50-$4.00 217,040 2.83 $ 2.41 217,040 $ 2.41
$ 5.25-$25.00 144,790 4.56 $14.44 139,165 $14.01
$ 26.50 235,500 7.83 $26.50 145,709 $26.50
$39.75-$43.67 120,675 8.48 $40.72 29,825 $39.75
------------- --------- ---- ------ --------- ------
$ 1.50-$43.67 718,005 5.77 $19.18 531,739 $14.14
============= ========= ==== ====== ========= ======
</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. Additionally, Magellan
options that were issued pursuant to an option plan adopted in 1996 are still
outstanding.
60
<PAGE> 63
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMON STOCK AND STOCK OPTION PLANS -- (CONTINUED)
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, 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
----------
Granted............................. 2,253,025 0.40-0.50 0.45
Exercised........................... (52,737) 0.40-1.10 0.46
Cancelled or expired................ (4,558,786) 0.40-1.10 0.45
----------
Outstanding at December 31, 1999...... 14,613,856 $0.40-1.10 $0.46 8,044,552
========== ========== ===== =========
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT DEC. 31, 1999 CONTRACTUAL LIFE EXERCISE PRICE AT DEC., 31, 1999 EXERCISE PRICE
--------------- ---------------- ---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.40-$0.40 12,527,529 6.92 $0.40 7,047,180 $0.40
$ 0.50-$1.10 2,086,327 8.10 $0.80 997,372 $1.10
------------ ---------- ---- ----- --------- -----
$ 0.40-$1.10 14,613,856 7.09 $0.46 8,044,552 $0.49
============ ========== ==== ===== ========= =====
</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, 1999, 580,780
non-qualified replacement options were outstanding, 530,202 of which were
exercisable, at prices ranging from $0.82 to $1.72. The weighted average
remaining contractual life on these outstanding options is 5.99 years.
MDA adopted a stock option plan in 1999 (the "1999 MDA Plan"). The 1999 MDA
Plan authorizes the issuance of options to purchase up to 6,000,000 shares of
MDA common stock to MDA and Orbital employees, consultants or advisors. Stock
options may not be granted with an exercise price less than the fair market
value of the common stock at the date of grant as determined by MDA's Board of
Directors. Options under the 1999 MDA 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. At December
31, 1999, 960,000 non-qualified options were outstanding, none of which were
exercisable, with an exercise price per share of $7.50. The weighted average
remaining contractual life is 6.92 years.
11. 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
61
<PAGE> 64
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCK-BASED COMPENSATION -- (CONTINUED)
exercised or it expires, to calculate the weighted average fair value per share
of stock options granted. This information and the assumptions used for 1999,
1998 and 1997 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
------------------------------- ------------------ ------------------ ------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997 1999 1998 1997
--------- --------- ------- ---- ---- ---- ---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Orbital Plans........ 277,085 271,619 218,868 58% 55% 54% 5.4% 5.8% 6.1% $25.88 $32.49 $17.29
OCC Plan............. 308,750 56,925 48,878 30% 30% 30% 5.6% 5.4% 6.1% $43.34 $32.37 $26.50
Magellan Plans....... 6,808,198 9,892,346 116,431 30% 30% 30% 5.1% 5.5% 5.9% $ 0.45 $ 0.40 $ 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.
Options granted under the MDA Plan in December 1999 are excluded because they
had no material impact on the pro forma calculation for 1999.
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 loss and net loss per common and dilutive
share would have been ($141,428,000) and ($3.78), respectively, for the year
ended December 31, 1999; ($76,176,000) and ($2.14), respectively, for the year
ended December 31, 1998; and ($21,657,000) and ($0.67), respectively, for the
year ended December 31, 1997. Pro forma net income (loss) reflects only options
granted in 1999, 1998 and 1997 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 (none in 1999) with respect to these rights. Additional awards for 200,000
stock appreciation rights were granted in 1999 that did not result in any
additional compensation expense.
12. SUPPLEMENTAL DISCLOSURES
DEFINED CONTRIBUTION PLANS
At December 31, 1999, the company had several defined contribution plans
(the "Plans") generally covering all full-time employees in the U.S. and Canada.
Company contributions to the Plans are made based on certain plan provisions and
at the discretion of the Board of Directors, and were approximately $9,363,000,
$10,370,000, and $9,108,000 during 1999, 1998 and 1997, respectively.
CASH FLOWS
Cash payments for interest and income taxes were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Interest paid............................................ $18,458 $16,032 $10,059
Income taxes paid, net of refunds........................ 2,257 1,624 544
</TABLE>
62
<PAGE> 65
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUMMARY SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Management has determined to restate its previously issued consolidated
financial statements for each of the quarters in 1998 and for the first three
quarters of 1999 with respect to its accounting treatment for the matters
described below. The following is a summary of selected quarterly financial data
for the previous two years:
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(In thousands, except share data)
<S> <C> <C> <C> <C>
1999, RESTATED
Revenues............................................ $200,171 $226,484 $228,994 $219,262
Gross profit........................................ 41,050 49,254 44,516 1,565
Income (loss) from operations....................... (439) 6,508 (1,773) (62,945)
Net loss............................................ (26,163) (26,071) (39,566) (30,137)
Net loss per common and dilutive share.............. (.70) (.70) (1.06) (.81)
1998, RESTATED
Revenues............................................ 186,027 181,926 187,028 175,681
Gross profit........................................ 50,970 43,547 46,089 40,428
Income (loss) from operations....................... 10,853 1,323 9,296 (8,826)
Net loss............................................ (19,331) (9,373) (2,226) (25,622)
Net loss per common and dilutive share.............. (.59) (.26) (.06) (.69)
1999, AS PREVIOUSLY REPORTED
Revenues............................................ 204,338 232,286 248,914 N/A
Gross profit........................................ 46,311 54,832 54,727 N/A
Income (loss) from operations....................... 3,636 12,504 11,182 N/A
Net loss............................................ (15,871) (10,149) (32,649) N/A
Net loss per common and dilutive share.............. (.43) (.27) (.87) N/A
1998, AS PREVIOUSLY REPORTED
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)
</TABLE>
EQUITY METHOD ACCOUNTING RESTATEMENT ADJUSTMENTS
(a) As a result of certain participating rights granted to holders of
convertible preferred stock of ORBIMAGE, Orbital significantly influences,
but does not control, ORBIMAGE even though it owns substantially all of
ORBIMAGE's outstanding common stock. Prior to the third quarter of 1999, the
company's consolidated financial statements reflected the company's
application of the equity method of accounting as it pertained to ORBIMAGE
based on Orbital's percentage share of ownership of ORBIMAGE calculated to
give the effect to the assumed conversion of ORBIMAGE's outstanding
convertible preferred stock into ORBIMAGE common stock. As reflected in its
restated consolidated financial statements presented herein, the company
applies the equity method of accounting as it pertains to ORBIMAGE based on
its ownership of outstanding common stock without giving effect to the
assumed conversion of ORBIMAGE's outstanding convertible preferred stock.
The company has also
63
<PAGE> 66
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUMMARY SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) -- (CONTINUED)
adjusted the application of the equity method of accounting with respect to
its investment in CCI. The effect of these revisions is to increase
(decrease) equity in losses of affiliates as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 30
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1999......................................... $2,386 $2,286 $ -- N/A
1998......................................... $6,429 $3,376 $325 $(1,611)
</TABLE>
(b) In the first quarter of 1998, pursuant to rights granted under a 1997 stock
purchase agreement, ORBIMAGE's minority investors acquired 227,295 shares of
ORBIMAGE's convertible preferred stock for total consideration of
$22,729,500. ORBIMAGE's convertible preferred stock is convertible into
ORBIMAGE's common stock based on a per common share price of $4.17 that was
less than the fair value of ORBIMAGE's common stock when the additional
preferred shares were acquired in 1998. Previously, the company's
consolidated financial statements did not give effect to any beneficial
conversion discount as an additional net loss allocable to the company
pursuant to the equity method of accounting. As reflected in the restated
consolidated financial statements presented herein, Orbital calculates its
equity in losses of affiliates including the impact of the beneficial
conversion. The effect of these revisions is to increase equity in losses of
affiliates as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 30
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1999......................................... $ 965 $1,329 $1,139 N/A
1998......................................... $10,989 $ 875 $ 898 $933
</TABLE>
(c) ORBIMAGE's preferred stockholders are entitled to receive a cumulative
dividend, payable either in cash or in additional shares of convertible
preferred stock. To date, all dividends have been paid in additional shares
of convertible preferred stock. Prior to the third quarter of 1999, the
company's consolidated financial statements did not reflect additional net
losses allocable to Orbital as a result of ORBIMAGE's declaration of such
"in-kind" dividends on its convertible preferred stock. As reflected in its
restated consolidated financial statements presented herein, Orbital
calculates its equity in losses of affiliates taking into account such
non-cash dividends at their fair value. The effect of these revisions is to
increase equity in losses of affiliates as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 30
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1999......................................... $2,063 $2,146 -- N/A
1998......................................... $1,438 $1,916 $1,957 $2,013
</TABLE>
(d) Prior to the third quarter of 1999, the company's consolidated financial
statements reflected recognition of a gain in the second quarter of 1998
related to ORBIMAGE's issuance of warrants to purchase common stock. As
reflected in the restated consolidated financial statements presented
herein, since the warrants have not been exercised, the company has revised
its accounting for this equity issuance, resulting in the elimination of its
previously reported gain on issuance of affiliate equity by $4,793,000 in
the second quarter of 1998.
(e) Previously, the company's consolidated financial statements reflected the
recognition of revenue related to sales under a procurement agreement with
CCI in 1999 and 1998. As reflected in the restated consolidated financial
statements presented herein, the company has revised its accounting for
these sales,
64
<PAGE> 67
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUMMARY SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) -- (CONTINUED)
eliminating its reported revenues. The effect in the 1999 and 1998 quarters
was to decrease revenues and operating income as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues
1999....................................... $2,051 $ 616 $5,333 N/A
1998....................................... -- $3,031 $1,032 $2,493
Operating Income
1999....................................... $1,125 $ 124 $5,197 N/A
1998....................................... -- -- -- $ 596
</TABLE>
(f) In the third quarter of 1999, the company transferred certain incurred
direct and indirect contract costs to its satellite contract with CCI
pursuant to a negotiated settlement with CCI. The company's restated 1999
quarterly consolidated financial statements do not reflect the transfer of
these costs to the CCI contract. The effect of this revision is to increase
revenues and decrease operating income and equity in losses of affiliates
by $3,351,000, $3,080,000 and 8,044,000, respectively, in the third quarter
of 1999.
(g) Prior to the third quarter of 1999, the company's consolidated financial
statements reflected the company's capitalization of interest expense on
various assets, including on its equity investments in ORBIMAGE, ORBCOMM and
CCI. As reflected in the restated consolidated financial statements
presented herein, Orbital has not capitalized interest expense on its
investment in ORBIMAGE and has revised the capitalization of interest on
certain other assets, including its equity method investments in ORBCOMM and
CCI. These revisions include the compounding impact of interest, and the
reduction of eligible investment amounts for losses recognized for equity
method investees. These revisions had the effect of increasing interest
expense as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 30
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1999......................................... $2,310 $2,230 -- N/A
1998......................................... $2,324 $ 956 $1,220 $1,704
</TABLE>
(h) Prior to the third quarter of 1999, the company's consolidated financial
statements did not reflect amortization of the excess of the company's
investment in ORBIMAGE over the underlying share of the company's equity in
that affiliate. As reflected in the restated consolidated financial
statements, Orbital is amortizing such excess over eight years. The effect
of this revision is to increase the company's equity in losses from
affiliates by $89,000 for each of the quarters in 1999 and 1998.
(i) Prior to the third quarter of 1999, the company's consolidated financial
statements did not reflect the amortization of previously deferred profits
in connection with its sales of both satellite and ground stations to
ORBCOMM. As reflected in the restated consolidated financial statements
presented herein, Orbital is amortizing a portion of such deferred profits
over the estimated lives of both the satellites and the ground stations.
This revision had the effect of increasing the company's equity in losses
of affiliates by $969,000 in the fourth quarter of 1998 and approximately
$110,000 for all remaining 1999 and 1998 quarters.
ASSET RESTATEMENT ADJUSTMENTS
(j) The company has historically capitalized and depreciated certain product
enhancements and costs associated with internally developed software and
certain other costs. Previously, the company's consolidated financial
statements reflected such costs as capitalized assets. As reflected in the
company's restated consolidated financial statements presented herein, the
company expensed all previously
65
<PAGE> 68
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUMMARY SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) -- (CONTINUED)
capitalized enhancement costs and certain non-capitalizable costs. These
revisions resulted in an increase (decrease) in operating income as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 30
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1999....................................... $3,421 $4,292 $3,868 N/A
1998....................................... $1,738 $ (774) $ (468) $3,373
</TABLE>
This also resulted in an increase in equity in losses of affiliates of
$770,000 in the third quarter of 1998.
OTHER RESTATEMENT AND RECLASSIFICATION ADJUSTMENTS
(k) Previously, the company's consolidated financial statements did not reflect
a write-down in the book value of inventory at the company's Magellan
subsidiary related to certain obsolete consumer products. The adjustment to
record the write-down in inventory as reflected in the restated
consolidated financial statements presented herein resulted in an increase
to costs of goods sold of approximately $4,670,000, an increase in selling,
general and administrative expenses of $324,000 and an increase in
non-controlling interests of approximately $2,988,000 in the second quarter
of 1998.
(l) The company had previously amortized a portion of the goodwill arising from
the acquisition of Ashtech as a direct charge against non-controlling
interests. As reflected in the company's restated consolidated financial
statements, the company is amortizing such goodwill as a charge to
operations, resulting in an increase (decrease) in goodwill amortization
expense and an increase (decrease) in non-controlling interests as follows
(in thousands):
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 30
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1999
Goodwill amortization..................... $ (16) $ (16) $ (15) N/A
Non-controlling interests................. $(217) $(211) $(214) N/A
1998
Goodwill amortization..................... $ 300 $ 301 $ 300 $301
Non-controlling interests................. $ 102 $ 102 $ 102 $102
</TABLE>
(m) In the second and third quarters of 1999, Magellan recognized revenues on
sales of automotive navigation products to Navigation Solutions when the
products were shipped and accepted by the customer. As reflected in the
company's restated consolidated financial statements, the company recognizes
revenues associated with these sales ratably over the term of the contract
because of the presence of certain undelivered and unspecified post-contract
support services. The effect of this revision is to decrease revenues,
operating profits and related non-controlling interests by $5,636,000,
$379,000 and $129,000, respectively, in the second quarter of 1999 and by
$18,055,000, $1,686,000 and $573,000, respectively, in the third quarter of
1999.
(n) The company's consolidated balance sheet at December 31, 1998 reflected a
net deferred tax asset of approximately $3,400,000 relating primarily to
Canadian investment tax credit carryforwards. The restated consolidated
financial statements include a revised calculation of this deferred tax
asset in 1998 by increasing costs of goods sold and provision for income
taxes by $542,000 and $306,000 in each of the four quarters of 1998.
(o) During the fourth quarter of 1998, the company reclassified a permanent
impairment of $2,479,000 on a certain investment from costs of goods sold
to asset impairment charges.
66
<PAGE> 69
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUMMARY SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) -- (CONTINUED)
The company has recorded certain other adjustments, the net effect of which
is not significant individually or in the aggregate.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") has served as our
independent auditors since May 10, 1999. Previously, KPMG LLP ("KPMG") served as
our independent auditors since 1989. On April 22, 1999, we, at the direction of
the Audit and Finance Committee of the Board of Directors, notified KPMG that we
had determined to change auditors. PricewaterhouseCoopers has been given full
authorization by us to speak with KPMG, and has done so. We have not restricted
KPMG from responding fully to such inquiries with respect to any matters.
KPMG issued an audit report, dated February 16, 1999 except as to Note 12
which was as of March 18, 1999, (the "Audit Report"), on the consolidated
financial statements of Orbital as of and for the fiscal years ended December
31, 1998 and December 31, 1997. The Audit Report did not contain any adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. As discussed below, however,
in a letter dated October 28, 1999, KPMG informed Orbital that such Audit
Report, together with its audit report for the fiscal year ended December 31,
1997, should no longer be relied upon.
As was reported in Orbital's Report on Form 8-K dated April 22, 1999 (the
"Form 8-K"), in connection with the audit of our 1998 consolidated financial
statements, KPMG proposed adjustments to our previously issued 1998 quarterly
financial statements and to the results for the 1998 fourth quarter as initially
prepared by us. The proposed adjustments were based on KPMG's interpretation of
specific accounting standards. While we believed that our own interpretation and
application of accounting standards had been reasonable under the circumstances,
after discussion with KPMG and the Audit and Finance Committee, we determined to
restate the previously issued 1998 unaudited quarterly financial statements in
the manner recommended by KPMG. We also agreed to adjust the results for the
fourth quarter of 1998 in the manner recommended by KPMG. Except as described
herein, for the year ended December 31, 1998, there were no disagreements with
KPMG on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of KPMG, would have caused KPMG to make reference to the
subject matter of the disagreements in connection with its report.
On April 14, 1999, KPMG advised us by letter that KPMG believed that there
were material weaknesses in our systems of internal controls relating to the
manner of recording adjustments to financial information submitted by
subsidiaries and operating divisions of Orbital. In particular, KPMG cited:
- adjustments made in the first and second quarters of 1998 to capitalize
certain product enhancement costs at our subsidiary, Magellan
Corporation, which appeared to KPMG to have been made outside Magellan's
system of internal accounting controls and which were not recorded in its
general ledger and were not included in closing consolidating entries for
such quarters;
- an adjustment made in the third quarter of 1998 to increase revenue
recognized pursuant to a contract at our subsidiary, MacDonald, Dettwiler
and Associates Ltd which was not reflected in its general ledger and
which was not included in closing consolidating entries in the third
quarter; and
- corporate adjustments made in closing consolidating entries to certain
long-term contract accounting at our operating divisions, which had the
effect of increasing revenues and profits on some of these contracts and
which KPMG believed did not properly consider all the information used by
the operating divisions.
67
<PAGE> 70
In its letter, KPMG further advised us that KPMG's Audit Report was not
affected by the material weakness conditions that it believed existed, and that
KPMG considered such material weaknesses in determining the nature, timing and
extent of its audit tests. Prior to the receipt of KPMG's letter, Orbital and
the Audit and Finance Committee had discussions with KPMG indicating
disagreement with KPMG's conclusions and had expressed to KPMG our view that the
adjustments in question were properly recorded by us after appropriate
consultation with the subsidiaries and operating divisions involved.
On May 13, 1999, we received a response from KPMG to our Form 8-K. In its
response, KPMG disagreed with our characterization of the nature of adjustments
that had been made to the 1998 unaudited quarterly financial statements, stating
that "KPMG believe(d) that the adjustments were not based solely on 'KPMG's
interpretation of the specific accounting standards."' KPMG further indicated
that, in its view, "the adjustments included: (a) adjustments required to
correct errors by the Company in recording certain transactions, which errors
caused the Company to record those transactions in a manner that was
inconsistent with generally accepted accounting principles; and (b) adjustments
required to correct the Company's incorrect application or incorrect
interpretation of specific generally accepted accounting principles."
KPMG also described the matters which led to these adjustments as follows:
"- During each of the four quarters of 1998, the Company capitalized an
aggregate of approximately $6.6 million of product enhancement costs at
its Magellan subsidiary based on an incorrect application of generally
accepted accounting principles.
- During the third quarter of 1998, the Company recognized approximately
$5.8 million in revenue on a contract at the Company's MacDonald
Dettwiler & Associates subsidiary based on an incorrect application of
generally accepted accounting principles.
- During the fourth quarter of 1998, the Company recognized approximately
$1.5 million of revenue with respect to a contract, the terms of which
was not finalized with the customer until after the conclusion of the
quarter.
- During the fourth quarter of 1998, the Company recognized approximately
$5.4 million of revenue with respect to certain of its long-term
contracts through incorrect reductions to cost estimates to complete
those contracts.
- During the fourth quarter of 1998, the Company recognized approximately
$3.8 million of revenue with respect to a certain contract based on an
incorrect application of generally accepted accounting principles.
- During the fourth quarter of 1998, the Company recognized approximately
$5.1 million of revenue relating to sales to an equity method investee
based on an incorrect application of generally accepted accounting
principles."
For each of the matters described above, KPMG proposed adjustments, all of
which were recorded by the Company, to reverse the amounts originally recorded
by the Company.
In addition, KPMG asserted that (i) the items referred to in KPMG's
material weakness letter had caused KPMG to expand significantly the scope of
its audit procedures, (ii) it had advised Orbital that it would stand for
reappointment as the company's principal accountants only if Orbital hired an
experienced chief accounting officer who would have the ultimate authority to
make accounting decisions at the company, (iii) it wished to discuss this
condition with Orbital's Audit and Finance Committee and (iv) its appointment
was terminated by Orbital prior to KPMG having such discussions with the full
Audit and Finance Committee.
On our Form 8-K dated May 14, 1999, we reported that we disagreed with a
number of the statements made by KPMG in its response letter. We reiterated our
belief that (i) our interpretation and application of accounting standards in
our quarterly financial statements as originally filed were reasonable, however,
we accepted KPMG's interpretation of complex accounting standards and agreed to
the restatement proposed by KPMG and (ii) KPMG's characterizations and
enumerations of fourth quarter adjustments in the course of
68
<PAGE> 71
the audit were unnecessary. We further stated, "Any audit involves adjustments
proposed by an auditor that are then discussed with its client. Based on
additional analyses of facts by the client and the auditor, the auditor may then
modify its proposed adjustments or not. That was the process engaged in by
Orbital and KPMG. What is significant is that (1) in Orbital's audited financial
statements, all adjustments finally proposed by KPMG were recorded by the
Company and (2) as indicated in KPMG's unqualified opinion, the Company's
financial statements for the year ended December 31, 1998 complied with GAAP and
contained all appropriate disclosures." We also reported that we continued to
disagree with KPMG's assertions with respect to alleged material weaknesses.
In October 1999, after questions were raised pertaining primarily to our
previous accounting for certain transactions related to our investments in
ORBIMAGE and CCI, the valuation of our subsidiary, Magellan, and certain other
matters, KPMG informed Orbital that KPMG's 1998 and 1997 audit reports should no
longer be relied upon. We announced that we would restate our financial
statements for the foregoing periods. In addition, we will restate our interim
financial statements for 1999.
KPMG has audited Orbital's restated consolidated financial statements as of
and for the years ended December 31, 1998 and 1997 and issued its report dated
February 16, 1999, except as to note 13 which is as of March 18, 1999, and Note
1A which is as of April 17, 2000. KPMG's opinion on the restated consolidated
financial statements of Orbital for the fiscal years ended December 31, 1998 and
1997 does not contain any adverse opinion or disclaimer of opinion and is not
qualified or modified as to uncertainty, audit scope or accounting principles.
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 2000
Annual Meeting, -- Directors Whose Terms Expire in 2001 and -- Directors Whose
Terms Expire in 2002" and "Section 16(a) Beneficial Ownership Reporting
Compliance" of the Proxy Statement to be filed pursuant to Regulation 14A on or
about April 20, 2000 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 to be filed
pursuant to Regulation 14A on or about April 20, 2000 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 to be filed pursuant to
Regulation 14A on or about April 20, 2000 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 to be filed pursuant to Regulation
14A on or about April 20, 2000 and is incorporated herein by reference.
69
<PAGE> 72
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 reports of PricewaterhouseCoopers LLP, KPMG LLP and Arthur Andersen LLP
are filed as a part of this report:
A. Reports of Independent Accountants
B. Consolidated Statements of Operations
C. Consolidated Balance Sheets
D. Consolidated Statements of Changes in Stockholders' Equity
E. Consolidated Statements of Cash Flows
F. Notes to Consolidated Financial Statements
2. Financial Statements of 50% Owned Subsidiary and Financial Statement
Schedules.
The financial statements of ORBCOMM Global, L.P. and Orbital Imaging
Corporation 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.
Reports of Independent Accountants on Financial Statement Schedule
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 November 1, 1999, we filed a Current Report on Form 8-K, dated
October 29, 1999, disclosing, under Item 5, that our previous independent
auditors, KPMG LLP, had informed the Corporation in a letter dated October
28, 1999 that KPMG's previously issued audit report dated February 16,
1999, except as to Note 12 which is as of March 18, 1999, should no longer
be relied upon.
(c) See Item 14(a)(3) of this report.
(d) See Item 14(a)(2) of this report.
70
<PAGE> 73
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: April 17, 2000 ORBITAL SCIENCES CORPORATION
By: /s/ DAVID W. THOMPSON
------------------------------------
David W. Thompson
Chairman of the Board 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: April 17, 2000
<TABLE>
<CAPTION>
SIGNATURE: TITLE:
---------- ------
<S> <C>
/s/ David W. Thompson Chairman of the Board, Principal Executive
- ------------------------------------------------ Officer and Director
DAVID W. THOMPSON
/s/ James R. Thompson President and Chief Operating Officer,
- ------------------------------------------------ Director
JAMES R. THOMPSON
/s/ Jeffrey V. Pirone Executive Vice President and Chief Financial
- ------------------------------------------------ Officer
JEFFREY V. PIRONE
/s/ Hollis M. Thompson Vice President and Controller
- ------------------------------------------------
HOLLIS M. THOMPSON
/s/ Fred C. Alcorn 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
/s/ John L. McLucas Director
- ------------------------------------------------
JOHN L. MCLUCAS
</TABLE>
71
<PAGE> 74
<TABLE>
<CAPTION>
SIGNATURE: TITLE:
---------- ------
<S> <C>
/s/ Janice I. Obuchowski Director
- ------------------------------------------------
JANICE I. OBUCHOWSKI
/s/ Frank L. Salizzoni Director
- ------------------------------------------------
FRANK L. SALIZZONI
/s/ Harrison H. Schmitt Director
- ------------------------------------------------
HARRISON H. SCHMITT
Director
- ------------------------------------------------
SCOTT L. WEBSTER
</TABLE>
72
<PAGE> 75
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
ORBCOMM Global, L.P.:
We have audited the accompanying consolidated balance sheet of ORBCOMM
Global, L.P. (the "Company") as of December 31, 1999, and the related
consolidated statements of operations and comprehensive loss, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of the Company as of December 31, 1998 and for each of the two years
in the period then ended, were audited by other auditors whose report dated
March 30, 1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides 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. as of December 31, 1999, and the results of its operations and its
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States.
Arthur Andersen LLP
Vienna, VA
February 3, 2000
73
<PAGE> 76
INDEPENDENT AUDITORS' REPORT
The Partners
ORBCOMM Global, L.P.:
We have audited the accompanying consolidated balance sheets of ORBCOMM
Global, L.P. and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations and comprehensive loss, partners' capital,
and cash flows for each of the years in the two-year period ended 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 as of December 31, 1998, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Washington, DC
March 30, 1999
74
<PAGE> 77
ORBCOMM GLOBAL, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 8,722 $ 3,799
Investments............................................... 0 390
Accounts receivable....................................... 1,264 0
Inventory................................................. 15,964 6,688
Prepaid expenses and other current assets................. 5,171 248
-------- --------
Total Current Assets.............................. 31,121 11,125
Mobile Communications Satellite System and other property,
plant and equipment, net.................................. 346,042 327,946
Other assets, net........................................... 5,543 4,690
Investments in and advances to affiliates................... 6,722 2,483
Goodwill, net............................................... 384 390
-------- --------
TOTAL ASSETS...................................... $389,812 $346,634
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 0 $ 1,190
Accounts payable and accrued liabilities.................. 20,030 19,255
Accounts payable and accrued liabilities -- Orbital
Sciences Corporation................................... 107,513 50,800
-------- --------
Total Current Liabilities......................... 127,543 71,245
Revenue participation accrued interest...................... 1,520 599
Long-term debt.............................................. 170,000 170,000
-------- --------
Total Liabilities................................. 299,063 241,844
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile Partners................................. 70,079 56,520
Orbital Communications Corporation........................ 20,670 48,270
-------- --------
Total Partners' Capital........................... 90,749 104,790
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL........... $389,812 $346,634
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
75
<PAGE> 78
ORBCOMM GLOBAL, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
REVENUES:
Service and product sales............................... $ 2,772 $ 1,262 $ 527
EXPENSES:
Cost of product sales................................... 3,186 1,242 517
Engineering expenses.................................... 25,492 17,007 8,160
Marketing, administrative and other expenses............ 43,051 34,961 12,070
--------- -------- --------
Total expenses.................................. 71,729 53,210 20,747
--------- -------- --------
LOSS FROM OPERATIONS BEFORE DEPRECIATION AND
AMORTIZATION............................................ (68,957) (51,948) (20,220)
Depreciation............................................ 47,035 11,048 7,348
Goodwill amortization................................... 42 0 0
--------- -------- --------
LOSS FROM OPERATIONS...................................... (116,034) (62,996) (27,568)
OTHER INCOME AND EXPENSES:
Interest income......................................... 335 914 5,378
Interest expense and other financial charges............ (25,866) (2,814) (833)
Equity in net losses of affiliates...................... (2,983) (4,732) (8,413)
--------- -------- --------
NET LOSS.................................................. (144,548) (69,628) (31,436)
OTHER COMPREHENSIVE INCOME (LOSS):
Reclassification adjustments for net holding gains on
sales of investments................................. 0 0 (88)
Currency translation adjustments........................ 348 0 0
--------- -------- --------
COMPREHENSIVE LOSS........................................ $(144,200) $(69,628) $(31,524)
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
76
<PAGE> 79
ORBCOMM GLOBAL, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $(144,548) $(69,628) $(31,436)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES:
Items not affecting cash:
Depreciation......................................... 47,035 11,048 7,348
Goodwill amortization................................ 42 0 0
Amortization of financing fees....................... 1,042 837 833
Equity in net losses of affiliates................... 2,983 4,732 8,413
--------- -------- --------
SUB-TOTAL............................................... (93,446) (53,011) (14,842)
Net changes in non-cash working capital items:
Increase in accounts receivable...................... (1,264) 0 0
Increase in inventory................................ (9,276) (4,528) (409)
Increase (decrease) in prepaid expenses and other
current assets..................................... (4,923) 1,683 (661)
Increase in accounts payable and accrued
liabilities........................................ 4,224 2,095 3,510
Increase in revenue participation accrued interest... 921 585 14
--------- -------- --------
NET CASH USED IN OPERATING ACTIVITIES.............. (103,764) (53,176) (12,388)
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (11,867) (45,915) (84,241)
Increase in investments in and advances to affiliates... (6,874) (2,105) (16,689)
Purchase of investments................................. 0 (7,228) (47,125)
Proceeds from sale of investments....................... 390 29,594 120,893
Other................................................... (36) (390) 0
--------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES.............. (18,387) (26,044) (27,162)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt............................. (1,190) (1,087) (992)
Partners' contributions................................. 130,159 68,000 0
Financing fees paid and other........................... (1,895) 0 (222)
--------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES...................................... 127,074 66,913 (1,214)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 4,923 (12,307) (40,764)
CASH AND CASH EQUIVALENTS:
Beginning of period..................................... 3,799 16,106 56,870
--------- -------- --------
CASH AND CASH EQUIVALENTS:
End of period........................................... $ 8,722 $ 3,799 $ 16,106
========= ======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid........................................... $ 23,860 $ 23,965 $ 24,060
========= ======== ========
Non-cash capital expenditures and increase in accounts
payable and accrued liabilities -- Orbital Sciences
Corporation.......................................... $ 53,264 $ 29,700 $ 16,452
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
77
<PAGE> 80
ORBCOMM GLOBAL, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
TELEGLOBE MOBILE PARTNERS ORBITAL COMMUNICATIONS CORPORATION
------------------------------------ ------------------------------------
ACCUMULATED ACCUMULATED
OTHER OTHER
PARTNER'S COMPREHENSIVE PARTNER'S COMPREHENSIVE
CAPITAL INCOME TOTAL CAPITAL INCOME TOTAL TOTAL
--------- ------------- -------- --------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Capital contributions................. 85,659 0 85,659 44,500 0 44,500 130,159
Net loss.............................. (72,274) 0 (72,274) (72,274) 0 (72,274) (144,548)
Share of ORBCOMM Japan Ltd.'s currency
translation adjustment.............. 0 174 174 0 174 174 348
-------- ---- -------- -------- ---- -------- ---------
PARTNERS' CAPITAL, DECEMBER 31, 1999.... $ 69,905 $174 $ 70,079 $ 20,496 $174 $ 20,670 $ 90,749
======== ==== ======== ======== ==== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
78
<PAGE> 81
ORBCOMM GLOBAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Organization
In 1993, Teleglobe Mobile Partners ("Teleglobe Mobile"), a partnership
established by affiliates of Teleglobe Inc. ("Teleglobe"), and Orbital
Communications Corporation ("Orbital Communications"), a majority owned
subsidiary of Orbital Sciences Corporation ("Orbital"), formed ORBCOMM Global,
L.P. ("ORBCOMM" or the "Company"), a Delaware limited partnership. Orbital
Communications 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-based data communication system (the "ORBCOMM System") in the United
States and internationally, respectively. In 1995, the Company became a general
and limited partner in ORBCOMM USA with a 98% participation interest and Orbital
Communications' direct partnership interest was reduced to 2% and Teleglobe
Mobile's direct partnership interest was eliminated entirely. Simultaneously,
the Company became a general and limited partner in ORBCOMM International with a
98% participation interest and Teleglobe Mobile's direct partnership interest
was reduced to 2% and Orbital Communications' direct partnership interest was
eliminated entirely. In January 2000, ORBCOMM USA and ORBCOMM International
ceased doing business as separate entities and ORBCOMM assumed their business
operations (see note 13).
In February 1999, the Company formed ORBCOMM Investment Corporation, a
Delaware corporation, as an unrestricted subsidiary for the purpose of making
strategic investments in existing and prospective international service
licensees, other service distributors and various third parties. In April 1999,
the Company and ORBCOMM Enterprises Corporation, a Delaware corporation and
wholly owned subsidiary of the Company, formed ORBCOMM Enterprises, L.P., a
Delaware limited partnership ("ORBCOMM Enterprises"), as an unrestricted
subsidiary of the Company for the purpose of marketing and distributing the
Company's monitoring, tracking and messaging services to customers and
developing applications with respect thereto.
The ORBCOMM System Description
ORBCOMM was formed to develop, construct, operate and market the ORBCOMM
System. The space assets currently consist of a constellation of 35 in-orbit
satellites, 26 of which were in commercial service at December 31, 1999. The
ground and control assets consist of gateways strategically located throughout
the world and the facilities to monitor and manage all network elements. 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.
Regulatory Status
Construction and operation of communications satellites in the United
States requires licenses from the Federal Communications Commission (the "FCC").
Orbital Communications 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
resides with entities who become international licensees. In January 2000,
Orbital Communications agreed to transfer to ORBCOMM the FCC licenses held by
Orbital Communications with respect to the ORBCOMM System upon the occurrence of
certain events (see note 13).
79
<PAGE> 82
ORBCOMM GLOBAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) NATURE OF OPERATIONS -- (CONTINUED)
Risks and Uncertainties
The Company's operations are subject to certain risks and uncertainties
that are inherent in satellite communication companies. 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. While it is
not contractually required to do so, Teleglobe, through Teleglobe Mobile, is
currently funding the Company's operations. The Company expects to fund its
capital requirements through, among other sources, additional contributions or
loans from Teleglobe or another partner, other equity or debt financings in the
public or private markets or operating lease arrangements, or some combination
thereof.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company emerged from its development stage in the fourth quarter of
1999. The accompanying consolidated financial statements have been prepared on
the accrual basis of accounting in conformity with accounting principles
generally accepted in the United States. These statements include the accounts
of the Company and its wholly owned subsidiaries. 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.
Inventory
Inventory is stated at the lower of cost, determined on the specific
identification basis, or market and primarily represents subscriber units
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
Other Property, Plant and Equipment: generally 5 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
80
<PAGE> 83
ORBCOMM GLOBAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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
Other assets principally consist of deferred debt issuance costs. These
costs are amortized over the term of the related debt and such amortization is
reported as a component of interest expense and other financial charges.
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 does not control, such affiliates' operations.
In accordance with the equity method of accounting, the Company's carrying
amount of an investment in an affiliate is initially recorded at cost, and is
increased to reflect its share of the affiliate's income and reduced to reflect
its share of the affiliate's losses. The Company's investment is also increased
to reflect contributions to, and decreased to reflect distributions received
from, the affiliate. 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.
Prior to the merger in January 2000 described in note 13 and pursuant to
the terms of the relevant partnership agreements: (i) Teleglobe Mobile
controlled the operational and financial affairs of ORBCOMM International; and
(ii) Orbital Communications controlled the operational and financial affairs of
ORBCOMM USA. Since the Company was unable to control, but was able to exercise
significant influence over, ORBCOMM International's and ORBCOMM USA's operating
and financial policies, the Company accounted for its investments in ORBCOMM
International and ORBCOMM USA using the equity 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
In 1998, the Company acquired the assets of Dolphin Software Systems, Inc.
("Dolphin"). Goodwill, which represents the excess of costs over the fair value
of identifiable assets acquired from Dolphin, is amortized on a straight-line
basis over 10 years.
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
As of December 31, 1999, Teleglobe Mobile and Orbital Communications were
both general and limited partners in the Company and each partner's limited and
general partner accounts were combined into one
81
<PAGE> 84
ORBCOMM GLOBAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
single capital account and presented as such in the consolidated balance sheets
and consolidated statements of partners' capital. Subsequent to year end, the
Company's partnership agreement was amended (see note 13).
Revenue Recognition
Revenues from product sales are generally recognized when products are
shipped or when customers have accepted the products, depending on contractual
terms. Service revenues are generally recognized when services are rendered.
License fees from service license or similar agreements are generally accounted
for as deferred revenues and recognized ratably over the term of the agreements.
Foreign Currency Translation
The Company has determined the functional currency of its Canadian
subsidiary, Dolphin Software Services ULC ("DSS"), to be the U.S. dollar.
Consequently, DSS'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.
Exchange gains/losses resulting from the remeasurement process are reported
on the consolidated statements of operations under "Interest expense and other
financial charges."
Income Taxes
As a partnership, Federal and state income taxes are the direct
responsibility of each partner. Accordingly, no income taxes have been recorded
by the Company within the accompanying consolidated financial statements.
Stock Based Compensation
ORBCOMM and its subsidiary, Dolphin Information Services, Inc. ("DIS"),
account for stock-based compensation in accordance with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 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 as defined in
SFAS No. 123 had been applied. ORBCOMM and DIS elected to continue to apply the
provisions of APB 25 and to provide the pro forma disclosure in accordance with
the provisions of SFAS No. 123.
Segment Information
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), 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
82
<PAGE> 85
ORBCOMM GLOBAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
products and services, geographic areas and major customers. The Company's
revenues are primarily derived from customers in the United States. The
Company's operations for 1999 and 1998 constitute a single segment.
Comprehensive Income
As of January 1, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for
reporting and presentation of comprehensive income and its components.
Comprehensive loss consists of net loss, net holding gains on sale of
investments and currency translation adjustments and is presented in the
consolidated statements of operations and comprehensive loss. SFAS No. 130
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.
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
As of December 31, 1998, the Company had $390,000 of investments classified
as "held-to-maturity" U.S. Treasury notes that matured within one year (none as
of December 31, 1999). The fair value of these investments approximated carrying
value.
(4) MOBILE COMMUNICATIONS SATELLITE SYSTEM AND OTHER PROPERTY, PLANT AND
EQUIPMENT
The Mobile Communications Satellite System and other Property, Plant and
Equipment consist of the following assets:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS)
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Space Segment Assets................................. $350,771 $289,414
Ground Segment Assets................................ 50,064 51,141
Other Property, Plant and Equipment.................. 16,841 11,985
-------- --------
Total................................................ 417,676 352,540
Less accumulated depreciation........................ (71,634) (24,594)
-------- --------
Total, net........................................... $346,042 $327,946
======== ========
</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 and development and coding of the software
products that enhance the operation of the Mobile Communications Satellite
System. For the years ended December 31, 1999, 1998, and 1997, $559,000,
$5,041,000 and $4,641,000, respectively, of such costs have been capitalized.
For the years ended December 31, 1998 and 1997, total interest costs were
$24,550,000 and $24,060,000, respectively, of which $22,573,000 and $24,060,000
have been capitalized as a part of the historical cost of the Mobile
Communications Satellite System. For the year ended December 31, 1999, total
interest costs were $24,784,000, none of which was capitalized. Capitalization
of engineering expenses was
83
<PAGE> 86
ORBCOMM GLOBAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) MOBILE COMMUNICATIONS SATELLITE SYSTEM AND OTHER PROPERTY, PLANT AND
EQUIPMENT -- (CONTINUED)
lower in 1999 versus 1998 and 1997 as a result of the November 1998 launch of
full commercial service of the ORBCOMM System in the United States and Canada,
at which time the Company also stopped capitalizing interest costs related to
the ORBCOMM 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 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 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 Teleglobe Mobile and Orbital Communications, and were
guaranteed by ORBCOMM USA and ORBCOMM International prior to the merger
described in note 13. 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. The
Indenture governing the Notes contains certain financial covenants providing
for, among other things, limitations on payments and cash transfers between the
credit parties and Teleglobe and Orbital, limitations on transactions between
ORBCOMM and its affiliates, limitations on the incurrence of additional
indebtedness and restrictions on the sale of ORBCOMM's assets. The Indenture
also imposes limitations governing the conduct of ORBCOMM's business and creates
restrictions relating to ORBCOMM's investment activities. In management's
opinion, there have been no events which would cause ORBCOMM to be out of
compliance with any of the covenants set forth in the Indenture.
On the closing of the Old Notes, ORBCOMM 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 the 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 had a $5,000,000 secured note with a financial institution
of which $1,190,000 was outstanding as the current portion of long-term debt as
of December 31, 1998 (none as of December 31, 1999). The note bore interest at a
rate of 9.2% per annum, was secured by equipment located at certain of the U.S.
gateway Earth stations and the network control center and was guaranteed by
Orbital.
(6) RELATED PARTY TRANSACTIONS
The Company paid Orbital $537,000, $5,641,000 and $41,843,000 for the years
ended December 31, 1999, 1998 and 1997, 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, as of December 31, 1999,
Orbital had deferred invoicing $91,300,000 under the Company's 1995 and 1999
procurement agreements with Orbital ($50,800,000 was deferred under the 1995
procurement agreement as of December 31, 1998). As of December 31, 1999, the
Company also accrued an additional $16,213,000 under the 1995 procurement
agreement. In January 2000, the Company agreed to repayment terms for the
deferred invoicing amounts (see note 13).
In May 1999, ORBCOMM USA transferred approximately $700,000 of its product
development assets associated with the marketing and distribution of the
Company's monitoring, tracking and messaging services
84
<PAGE> 87
ORBCOMM GLOBAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) RELATED PARTY TRANSACTIONS -- (CONTINUED)
and associated applications to ORBCOMM Enterprises, an entity formed by the
Company to distribute value-added products and services using the ORBCOMM
System.
The Company paid ORBCOMM Canada Inc., a majority owned subsidiary of
Teleglobe, $494,000 and $216,300 for the years ended December 31, 1999 and 1998,
respectively, pursuant to a consulting agreement dated March 18, 1998, in
consideration for services provided by employees of ORBCOMM Canada.
The Company sold an aggregate of $1,212,000, $1,008,000 and $487,000 of
products to ORBCOMM USA and ORBCOMM International for the years ended December
31, 1999, 1998 and 1997, respectively.
Effective January 1, 1999, the Company commenced allocating to ORBCOMM USA
and ORBCOMM International their respective share of expenses incurred by the
Company on behalf of ORBCOMM USA and ORBCOMM International. For the year ended
December 31, 1999, the Company allocated to ORBCOMM USA and ORBCOMM
International $8,944,000 of expenses (none for the years ended December 31, 1998
and 1997).
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, investments,
receivables, prepaid expenses and accounts payable and accrued liabilities
approximates fair value since all such instruments are short-term in nature.
Fair value for the Company's long-term debt is determined based on quoted market
rates. The table below compares the carrying and the fair value of the Company's
long-term debt as of December 31, 1999 and 1998.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
(IN THOUSANDS) (IN THOUSANDS)
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Long-term debt.............................. $170,000 $115,600 $170,000 $175,100
</TABLE>
(8) STOCK OPTION PLAN
During the second quarter of 1999, the Company and ORBCOMM Corporation, a
Delaware corporation and wholly owned subsidiary of the Company (the
"Corporation"), adopted The Amended and Restated 1999 Equity Plan of ORBCOMM
Corporation and ORBCOMM Global, L.P. (the "Equity Plan"). The Equity Plan
provides for grants of incentive or non-qualified stock options to purchase
common stock of the Corporation to officers, employees, consultants and
independent directors of the Corporation and its affiliates and to officers,
employees and consultants of the Company. Under the terms of the Equity Plan,
incentive or non-qualified stock options may not be granted at less than 100% of
the fair market value at the date of grant. The options vest at a rate set forth
in each individual option agreement, generally in full three years from the date
of grant, subject to acceleration under certain conditions.
In 1999, options to acquire 709,325 shares of the Corporation's common
stock were granted under the Equity Plan, of which 65,375 were subsequently
cancelled as of December 31, 1999. All of these options have been granted at an
exercise price of $14.97, which price represented the fair market value of the
Corporation's common stock on the date of grant. As of December 31, 1999, none
of these options were exercisable and the weighted average remaining contractual
life of these options was 9.67 years.
In 1998, DIS adopted the Dolphin Information Services, Inc. 1998 Stock
Option Plan (the "DIS Plan"). The DIS Plan provides for grants of incentive or
non-qualified stock options to purchase DIS common stock to officers, employees
and outside directors of DIS, the Company and their respective affiliates. Under
the terms of the DIS Plan, incentive stock options may not be granted at less
than 100% of the fair market value of DIS
85
<PAGE> 88
ORBCOMM GLOBAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) STOCK OPTION PLAN -- (CONTINUED)
common stock at the date of grant and non-qualified stock options may not be
granted at less than 85% of the fair market value of DIS common stock at the
date of grant. The options vest at a rate set forth in each individual option
agreement, generally in full three years from the date of grant, subject to
acceleration under certain conditions.
The following table summarizes information regarding options under the DIS
Plan:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE
--------- ------------
<S> <C> <C>
Granted..................................................... 1,372,500 $0.08
Cancelled................................................... (135,000) $0.08
---------
Outstanding as of December 31, 1998......................... 1,237,500 $0.08
Granted..................................................... 278,000 $1.00
---------
Outstanding as of December 31, 1999......................... 1,515,500 $0.08-$1.00
=========
</TABLE>
As of December 31, 1999 and 1998, all stock options had been granted at the
fair market value of DIS's common stock on the date of grant and none were
exercisable. The weighted average remaining contractual life of the outstanding
stock options was 8.98 years and 9.75 years as of December 31, 1999 and 1998,
respectively.
(9) STOCK BASED COMPENSATION
The Company uses the Black-Scholes option-pricing model to determine the
pro forma impact of stock option grants under SFAS No. 123 on the Company's net
loss. The model uses 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 1999 and 1998 for the Equity
Plan and the DIS Plan are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
FAIR VALUE
ADDITIONAL SHARES PER SHARE AT GRANT RISK-FREE
AVAILABLE AS OF DECEMBER 31, DATE INTEREST RATE
----------------------------- ------------------ ---------------
1999 1998 1999 1998 1999 1998
----------- ----------- ------ ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ORBCOMM............................. 856,050 N/A $14.97 N/A 5.61% N/A
DIS................................. 1,484,500 1,762,500 $ 0.25 $0.08 5.61% 4.22%
</TABLE>
The assumed volatility, dividend yield and average expected life was 30%,
zero percent and 4.5 years, respectively, for both plans for the year ended
December 31, 1999 and was 30%, zero percent and 4.5 years, respectively, for the
DIS Plan for the year ended December 31, 1998.
Had the Company determined compensation cost based on the fair value at the
grant date for the stock options in accordance with the fair value method
prescribed by SFAS No. 123, the Company's net loss would have been $144,795,000
and $69,628,000 for the years ended December 31, 1999 and 1998, respectively.
(10) EMPLOYEE SAVINGS PLAN
The Company maintains the ORBCOMM Retirement Savings Plan (the "Plan"),
which is a 401(k) profit sharing plan. All U.S. employees who are scheduled to
work 1,000 hours in a consecutive 12-month
86
<PAGE> 89
ORBCOMM GLOBAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) EMPLOYEE SAVINGS PLAN -- (CONTINUED)
period are eligible to participate in the Plan on their dates of employment.
Employees may contribute 15% of eligible compensation to the Plan and the
Company matches 100% of the amount contributed by each employee up to 4% of such
compensation. In addition, the Plan contains a discretionary contribution
component, pursuant to which the Company may make an additional annual
contribution to the Plan. As of December 31, 1999, Company contributions vested
over a five-year period from the employee's date of employment. Subsequent to
year end 1999, the vesting period was shortened to three years.
Company contributions (both the Company match and the annual discretionary
contribution) for the years ended December 31, 1999, 1998 and 1997 were
$1,227,000, $1,127,000 and $765,000, respectively.
(11) COMMITMENTS AND CONTINGENCIES
1999 Procurement Agreement
In 1999, the Company entered into a procurement agreement with Orbital, as
amended, under which the Company will purchase, among other things, 11
additional satellites, two satellite propulsion rings and two separate Pegasus
launch vehicles at a total cost not to exceed $93,000,000. The Company's
remaining obligation under this agreement is approximately $77,000,000.
Lease Commitments
The Company leases facilities and equipment under agreements classified as
operating leases. Rental expense for 1999, 1998 and 1997 amounted to $2,227,000,
$2,074,000 and $951,000, respectively, of which $815,000, $939,000 and $825,000,
respectively, represents rental expense charged to the Company by 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>
2000........................................................ $2,179
2001........................................................ 2,202
2002........................................................ 2,096
2003........................................................ 919
2004........................................................ 526
Thereafter.................................................. 0
------
Total minimum lease commitments........................... $7,922
======
</TABLE>
Contingencies
From time to time, the Company is involved in claims from licensees or
potential licensees. In management's opinion, there will be no material adverse
impact on the financial condition or results of operations of the Company as a
result of such claims.
87
<PAGE> 90
ORBCOMM GLOBAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
1999
Total revenues........................... $ 514 $ 550 $ 719 $ 989 $ 2,772
Operating expenses (including
depreciation).......................... 25,030 30,588 30,044 33,144 118,806
-------- -------- -------- -------- ---------
Loss from operations..................... (24,516) (30,038) (29,325) (32,155) (116,034)
Interest income (expense), net........... (6,403) (6,580) (6,331) (6,217) (25,531)
Equity in net income (losses) of
affiliates............................. (2,857) 2,348 (1,388) (1,086) (2,983)
-------- -------- -------- -------- ---------
Net loss................................. $(33,776) $(34,270) $(37,044) $(39,458) $(144,548)
======== ======== ======== ======== =========
1998
Total revenues........................... $ 220 $ 507 $ 197 $ 338 $ 1,262
Operating expenses (including
depreciation).......................... 9,076 16,507 18,739 19,936 64,258
-------- -------- -------- -------- ---------
Loss from operations..................... (8,856) (16,000) (18,542) (19,598) (62,996)
Interest income (expense), net........... 218 143 120 (2,381) (1,900)
Equity in net losses of affiliates....... (2,008) (1,225) (818) (681) (4,732)
-------- -------- -------- -------- ---------
Net loss................................. $(10,646) $(17,082) $(19,240) $(22,660) $ (69,628)
======== ======== ======== ======== =========
</TABLE>
(13) SUBSEQUENT EVENTS
Effective as of January 1, 2000, ORBCOMM entered into an agreement with
Teleglobe, Orbital, Teleglobe Mobile and Orbital Communications pursuant to
which:
- Teleglobe Mobile became the Company's sole general partner and majority
owner, with an interest of approximately 64% as of January 1, 2000;
- Orbital Communications remained a limited partner, with a minority
ownership interest of approximately 36% as of January 1, 2000;
- the Company made arrangements to settle $91,300,000 of deferred invoiced
amounts owed to Orbital; and
- Teleglobe agreed to sell to the Company the business of ORBCOMM Canada,
ORBCOMM's international licensee for Canada, and Orbital agreed to sell
to the Company the assets of its GEMtrac division, which ORBCOMM has
operated since March 1999.
Additionally, Orbital Communications agreed to file an application with the
FCC to transfer to the Company the FCC licenses held by Orbital Communications
with respect to the ORBCOMM System if an aggregate of $75,000,000 in additional
capital contributions or similar equity investments has been made to the Company
by any entity after January 1, 2000.
On January 26, 2000, each of Orbital Communications and Teleglobe Mobile
contributed to the Company its 2% direct participation interest in ORBCOMM USA
and ORBCOMM International, respectively (the "Merger"). As a result of the
Merger, these companies ceased doing business as separate entities and the
Company assumed their business operations.
The $91,300,000 of deferred invoiced amounts have been or will be settled
as follows:
- On January 26, 2000, ORBCOMM paid $41,460,000 to Orbital. The funds for
this payment came from an equity contribution made in ORBCOMM on that
date by Teleglobe Mobile.
88
<PAGE> 91
ORBCOMM GLOBAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) SUBSEQUENT EVENTS -- (CONTINUED)
- In March 2000, Orbital is to invoice ORBCOMM $33,082,000 and
simultaneously assign such invoice to Orbital Communications. Orbital
Communications will request ORBCOMM to convert the full amount of this
invoice into a contribution to Orbital Communications' partnership
interests in ORBCOMM.
- The remaining $16,758,000, together with accrued interest, is to be paid
by ORBCOMM to Orbital 50% on each of March 31, 2001 and June 30, 2001.
89
<PAGE> 92
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Stockholders
Orbital Imaging Corporation
In our opinion, the accompanying balance sheet as of December 31, 1999 and
the related statements of operations, stockholders' equity, and cash flows
present fairly, in all material respects, the financial position of Orbital
Imaging Corporation and its subsidiary at December 31, 1999, and the results of
their operations and their cash flows for the year then ended conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
March 24, 2000
McLean, Virginia
90
<PAGE> 93
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Orbital Imaging Corporation:
We have audited the accompanying balance sheet of Orbital Imaging
Corporation ("ORBIMAGE") as of December 31, 1998, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 1998. These financial statements are the
responsibility of ORBIMAGE's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Orbital Imaging Corporation
as of December 31, 1998, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
As discussed in Note 3, the accompanying balance sheet as of December 31,
1998 and the consolidated statements of operations, stockholders' equity and
cash flows for the year then ended have been restated.
KPMG LLP
Washington, D.C.
January 22, 1999, except for the second paragraph of
Note 3 which is as of March 23, 2000
91
<PAGE> 94
ORBITAL IMAGING CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
---------- --------
(RESTATED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 25,082 $ 4,855
Available-for-sale securities, at fair value.............. 34,401 32,407
Restricted held-to-maturity securities, at amortized
cost................................................... 16,724 12,932
Receivables and other current assets, net of allowances of
$165 and $80, respectively............................. 2,291 5,525
-------- --------
Total current assets.............................. 78,498 55,719
Restricted held-to-maturity securities, at amortized cost... 8,201 --
Property, plant and equipment, at cost, less accumulated
depreciation of $7,630 and $10,841, respectively.......... 15,956 31,937
Satellites and related rights, at cost, less accumulated
depreciation and amortization of $22,367 and $30,973,
respectively.............................................. 196,709 261,622
Other assets................................................ 8,714 10,560
-------- --------
TOTAL ASSETS...................................... $308,078 $359,838
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 16,879 $ 14,341
Current portion of deferred revenue....................... 8,522 9,277
Deferred tax liabilities.................................. 580 --
-------- --------
Total current liabilities......................... 25,981 23,618
Senior notes................................................ 142,622 214,575
Deferred revenue, net of current portion.................... 23,698 15,334
Deferred tax liabilities.................................... 3,216 77
Capitalized lease obligation, net of current portion........ 108 --
-------- --------
TOTAL LIABILITIES................................. 195,625 253,604
Preferred stock subject to repurchase, par value $0.01;
10,000,000 shares authorized; Series A 12% cumulative
convertible, 2,000,000 shares authorized, 687,576 and
772,561 shares issued and outstanding, respectively
(liquidation value of $70,133 and $78,801,
respectively)............................................. 78,489 91,563
STOCKHOLDERS' EQUITY:
Common stock, par value $0.01; 75,000,000 shares
authorized; 25,214,000 shares issued and outstanding... 252 252
Additional paid-in-capital................................ 86,782 87,285
Accumulated deficit....................................... (53,070) (72,866)
-------- --------
Total stockholders' equity........................ 33,964 14,671
-------- --------
TOTAL............................................. $308,078 $359,838
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
92
<PAGE> 95
ORBITAL IMAGING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
(RESTATED)
<S> <C> <C> <C>
Revenues.............................................. $ 2,062 $ 11,663 $ 18,587
Direct expenses....................................... 6,312 15,215 21,212
----------- ----------- -----------
Gross loss............................................ (4,250) (3,552) (2,625)
Selling, general and administrative expenses.......... 2,845 7,328 10,362
----------- ----------- -----------
Loss from operations.................................. (7,095) (10,880) (12,987)
Interest income, net of interest expense of $4,790 and
$1,684 in 1998 and 1999, respectively............... 1,261 1,915 2,636
----------- ----------- -----------
Loss before benefit for income taxes.................. (5,834) (8,965) (10,351)
Benefit for income taxes.............................. (1,752) (3,286) (3,629)
----------- ----------- -----------
Net loss.............................................. $ (4,082) $ (5,679) $ (6,722)
=========== =========== ===========
Loss per common share -- basic and diluted(1)......... $ (0.42) $ (1.05) $ (0.79)
Loss available to common stockholders................. $ (6,890) $ (26,538) $ (19,796)
Weighted average shares outstanding -- basic and
diluted(1).......................................... 16,431,854 25,214,000 25,214,000
</TABLE>
- ---------------
(1) All potentially dilutive securities, such as preferred stock subject to
repurchase, warrants and stock options, are antidilutive for each year
presented.
See accompanying notes to consolidated financial statements.
93
<PAGE> 96
ORBITAL IMAGING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1996............ -- $ -- $45,921 $(19,642) $26,279
Shares issued to Orbital................... 25,200,000 252 31,066 -- 31,318
Shares issued to director.................. 14,000 -- 50 -- 50
Preferred stock dividends.................. -- -- -- (2,808) (2,808)
Tax-sharing charge......................... -- -- (1,752) -- (1,752)
Net loss................................... -- -- -- (4,082) (4,082)
---------- ---- ------- -------- -------
BALANCE AS OF DECEMBER 31, 1997............ 25,214,000 252 75,285 (26,532) 49,005
Common stock warrants issued, net.......... -- -- 7,594 -- 7,594
Deemed dividends on issuance of preferred
stock subject to repurchase.............. -- -- -- (9,975) (9,975)
Issuance of compensatory stock options..... -- -- 323 -- 323
Preferred stock dividends.................. -- -- -- (10,884) (10,884)
Capital contributed........................ -- -- 3,580 -- 3,580
Net loss................................... -- -- -- (5,679) (5,679)
---------- ---- ------- -------- -------
BALANCE AS OF DECEMBER 31, 1998
(RESTATED)............................... 25,214,000 252 86,782 (53,070) 33,964
Issuance of stock options.................. -- -- 413 -- 413
Capital contributed........................ -- -- 90 -- 90
Preferred stock dividends.................. -- -- -- (13,074) (13,074)
Net loss................................... -- -- -- (6,722) (6,722)
---------- ---- ------- -------- -------
BALANCE AS OF DECEMBER 31, 1999............ 25,214,000 $252 $87,285 $(72,866) $14,671
========== ==== ======= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
94
<PAGE> 97
ORBITAL IMAGING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- ---------- --------
(RESTATED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (4,082) $ (5,679) $ (6,722)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES:
Depreciation, amortization and other................... 5,541 12,857 14,258
Deferred tax benefit................................... (1,752) (3,286) (3,629)
CHANGES IN ASSETS AND LIABILITIES:
Increase in receivables and other current assets....... (84) (700) (4,502)
(Increase) decrease in other assets.................... 371 (532) 357
Increase (decrease) in accounts payable and accrued
expenses............................................. 4,335 12,370 (2,686)
Increase (decrease) in deferred revenue................ 2,005 (5,172) (7,609)
--------- --------- --------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES...................................... 6,334 9,858 (10,533)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (49,029) (108,533) (92,388)
Purchases of restricted held-to-maturity securities....... -- (32,185) (7,306)
Purchases of available-for-sale securities................ (115,751) (119,783) (53,698)
Maturities of restricted held-to-maturity securities...... -- 7,568 19,691
Maturities of available-for-sale securities............... 102,442 60,905 38,362
Sales of available-for-sale securities.................... 1,972 35,818 17,671
Payment for business acquisition.......................... -- (5,000) --
--------- --------- --------
NET CASH USED IN INVESTING ACTIVITIES............. (60,366) (161,210) (77,668)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term obligations....... -- 136,682 68,082
Repayment of capitalized lease obligation................. -- -- (108)
Net proceeds from issuance of common stock warrants....... -- 7,594 --
Net proceeds from issuance of preferred stock subject to
repurchase............................................. 33,547 21,275 --
Net proceeds from issuance of common stock................ 31,368 -- --
--------- --------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 64,915 165,551 67,974
--------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 10,883 14,199 (20,227)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ -- 10,883 25,082
--------- --------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 10,883 $ 25,082 $ 4,855
========= ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ -- $ 9,009 $ 20,582
========= ========= ========
NON-CASH ITEMS:
Preferred stock dividends................................. $ 2,808 $ 10,884 $ 13,074
Deemed dividend on issuance of preferred stock subject to
repurchase............................................. -- 9,975 --
Capital contributed -- tax basis adjustment............... -- 3,580 90
Capitalized compensatory stock options.................... -- 119 174
Capitalized lease obligation.............................. -- 223 --
</TABLE>
See accompanying notes to consolidated financial statements.
95
<PAGE> 98
ORBITAL IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) RELATIONSHIP WITH ORBITAL
In 1991, the ORBIMAGE operating division of Orbital Sciences Corporation
("Orbital") was established to manage the development of remote imaging
satellites which would collect, process and distribute digital imagery of land
areas, oceans and the atmosphere. In 1992, Orbital Imaging Corporation
("ORBIMAGE") was incorporated in Delaware as a wholly owned subsidiary of
Orbital. On May 8, 1997 and July 3, 1997, ORBIMAGE issued preferred stock to
private investors to fund a significant portion of the remaining costs of
existing projects (the "Private Placement"). Orbital also purchased additional
common stock, bringing its total common equity investment to approximately $91.5
million. Also on May 8, 1997, ORBIMAGE executed certain contracts with Orbital
whereby all assets and liabilities of Orbital's operating division, ORBIMAGE,
were sold to ORBIMAGE at the historical cost. Accordingly, the accompanying
financial statements incorporate the historical accounts and operations of the
operating division prior to May 8, 1997, as predecessor financial statements of
ORBIMAGE.
ORBIMAGE has four contracts with Orbital: (i) the ORBIMAGE System
Procurement Agreement dated November 18, 1996, as amended (the "System
Procurement Agreement"), (ii) the OrbView-2 License Agreement dated May 8, 1997
(the "OrbView-2 License"), (iii) the Amended and Restated Administrative
Services Agreement dated May 8, 1997 (the "Administrative Services Agreement"),
and (iv) the Stock Purchase Agreement dated October 26, 1999, as amended (the
"Stock Purchase Agreement").
Under the System Procurement Agreement, ORBIMAGE purchased (i) the
OrbView-1 satellite, (ii) an exclusive license entitling ORBIMAGE to all of the
economic rights and benefits of the OrbView-2 satellite, (iii) the OrbView-3
satellite and launch service, (iv) the OrbView-4 satellite and launch service
and (v) the ground system assets used to command and control the satellites as
well as receive and process imagery. Pursuant to the System Procurement
Agreement through December 31, 1999, ORBIMAGE has committed to purchase various
satellites, rights and ground systems for approximately $279.9 million, net of
$31.0 million which will be funded by the U.S. Air Force through a contract with
Orbital. ORBIMAGE incurred costs of approximately $47.6 million, $94.3 million
and $33.0 million for the years ended December 31, 1997, 1998 and 1999,
respectively, under the System Procurement Agreement. As of December 31, 1999,
ORBIMAGE has remaining commitments under the System Procurement Agreement of
$22.4 million, net of $31.0 million, which will be funded by the U.S. Air Force
through a contract with Orbital. In March 2000, the System Procurement Agreement
was amended to increase the cost of the OrbView-3 and OrbView-4 satellites by
$14 million. In exchange for permitting ORBIMAGE to pay this cost increase in
the form of post-launch, on-orbit incentives, the Stock Purchase Agreement was
amended to reduce Orbital's stock purchase commitment to $12.5 million from
$25.0 million.
Under the OrbView-2 License Agreement, Orbital has granted an exclusive
worldwide license to ORBIMAGE to use and sell OrbView-2 imagery. Pursuant to the
terms of the OrbView-2 License Agreement, Orbital has assigned to ORBIMAGE all
amounts that are due or become due to Orbital under a contract Orbital has with
NASA to deliver OrbView-2 imagery, and ORBIMAGE has sole responsibility for
operating and controlling the satellite.
Under the Administrative Services Agreement, ORBIMAGE is reimbursing
Orbital for management, accounting, legal, financial services, office space and
other administrative services, as well as certain direct and indirect operating
services provided by Orbital. ORBIMAGE incurred costs of approximately $3.2
million, $2.7 million and $2.1 million for the years ended December 31, 1997,
1998 and 1999, respectively, under the Administrative Services Agreement. The
term of the Administrative Services Agreement is expected to terminate on or
before December 31, 2001.
Under the Stock Purchase Agreement, Orbital was originally required to
purchase up to 2,500,000 shares of common stock for a price of $10 per share in
minimum $5.0 million increments whenever ORBIMAGE's aggregate balance of cash,
cash equivalents and available-for-sale securities falls below $10.0 million. In
96
<PAGE> 99
ORBITAL IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) RELATIONSHIP WITH ORBITAL -- (CONTINUED)
March 2000, in connection with the March 2000 amendment to the System
Procurement Agreement, the Stock Purchase Agreement was amended to reduce the
number of shares required to be purchased by Orbital to 1,250,000 from 2,500,000
shares, although that number may increase in the event of certain delays in the
launch of OrbView-4.
ORBIMAGE has also entered into an agreement with Orbital and MacDonald,
Dettwiler and Associates Ltd. ("MDA"), a Canadian subsidiary of Orbital, under
which ORBIMAGE has acquired the exclusive worldwide distribution rights for the
RadarSat-2 satellite imagery (the "RadarSat-2 License"). Under the RadarSat-2
License, MDA will own and operate the RadarSat-2 satellite, and MDA will provide
operations, data reception, processing, archiving and distribution services to
ORBIMAGE. ORBIMAGE's acquisition of the RadarSat-2 License will cost $60.0
million, of which $30.0 million was paid in 1999. Approximately $140.0 million
of RadarSat-2's $200 million estimated total cost will be funded by the Canadian
Space Agency through a contract with Orbital and MDA. The remaining payments
will not exceed $15.0 million in 2001; $10.0 million in 2002; and $5.0 million
upon the successful on-orbit checkout of RadarSat-2.
Amounts due to Orbital of $9.2 million and $0.6 million as of December 31,
1998 and 1999, respectively, were included in accounts payable and accrued
expenses.
For the year ended December 31, 1999, ORBIMAGE recorded revenue of $0.5
million on contracts with Orbital.
Two ORBIMAGE directors are also directors of Orbital, and one of ORBIMAGE's
officers is also an employee of Orbital.
(2) NATURE OF OPERATIONS
The OrbView-1 satellite was launched in 1995 and provides severe weather
and atmospheric images, including global lightning information and measurements
used in analyzing atmospheric temperature information. The OrbView-2 satellite
was launched on August 1, 1997, and completed its on-orbit checkout in October
1997. ORBIMAGE recognized revenues related to the OrbView-2 satellite of $1.3
million, $9.1 million and $10.5 million for the years ended December 31, 1997,
1998 and 1999, respectively. The OrbView-4 satellite is currently scheduled to
be launched in the first quarter of 2001 and will provide one-meter panchromatic
and four-meter multispectral imagery of the Earth. The OrbView-3 satellite will
provide one-meter panchromatic, four-meter multispectral and eight-meter
hyperspectral imagery of the Earth and is currently expected to be launched in
the second quarter of 2001. The imagery provided by both OrbView-3 and OrbView-4
will have a broad range of applications for U.S. and foreign national security
and many commercial and scientific markets. In 1998, ORBIMAGE acquired the
RadarSat License. RadarSat-2 will provide high-resolution commercial radar
imaging and is currently expected to be launched in the fourth quarter of 2002.
(3) SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
In consultation with its new independent auditors retained in July 1999,
the valuation of the warrants issued on February 25, 1998 in connection with the
senior notes (Note 12) was restated from $9.0 million to $7.9 million based on
an independent third party valuation, which resulted in reducing the debt
discount and additional paid in capital. The Series A Preferred Stock sold on
February 25, 1998 was deemed to have a
97
<PAGE> 100
ORBITAL IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
beneficial conversion feature totaling $10.0 million as a result of the
difference between the common stock fair value based on an independent third
party valuation and the conversion price of the preferred stock. This difference
is a deemed dividend to the holders of the preferred stock. The preferred stock
dividends paid in shares during 1998 were also deemed to have a beneficial
conversion feature as a result of the difference between the conversion price of
the preferred stock and the underlying value of the common stock. Additionally,
the stock options issued to employees during 1998 were deemed to be compensatory
based on the difference between the exercise price and the common stock fair
value based on an independent third party valuation. As a result of these
changes, ORBIMAGE's loss before income taxes, benefit for income taxes, net
loss, preferred stock dividends, loss available to common stockholders and loss
per common share basic and diluted were restated as follows for the year ended
December 31, 1998 (in thousands, except per share data):
<TABLE>
<S> <C>
ORIGINALLY REPORTED:
Loss before income taxes.................................. $ (8,831)
Benefit for income taxes.................................. (3,312)
--------
Net loss.................................................. (5,519)
Preferred stock dividends................................. (7,324)
--------
Loss available to common stockholders..................... $(12,843)
========
Loss per common share -- basic and diluted (1)............ $ (0.51)
========
RESTATED:
Loss before income taxes.................................. $ (8,965)
Benefit for income taxes.................................. (3,286)
--------
Net loss.................................................. (5,679)
Preferred stock dividends................................. (20,859)
--------
Loss available to common stockholders..................... $(26,538)
========
Loss per common share -- basic and diluted (1)............ $ (1.05)
========
</TABLE>
-------------------------------
(1) All potentially dilutive securities, such as preferred stock
subject to repurchase, warrants and stock options, are
antidilutive for each year presented.
Principles of Consolidation
The consolidated financial statements include the accounts of ORBIMAGE and,
in 1999, its wholly owned subsidiary. All material intercompany transactions and
accounts have been eliminated in consolidation.
Revenue Recognition
ORBIMAGE's principal source of revenue is the sale of satellite imagery to
customers, value-added resellers and distributors. Such sales often require
ORBIMAGE to provide imagery over the term of a multi-year sales contract.
Accordingly, ORBIMAGE recognizes revenues on imagery contracts on a
straight-line basis over the delivery term of the contract. Deferred revenue
represents receipts in advance of the delivery of imagery.
ORBIMAGE recognizes revenue on the contracts to construct OrbView-3 and
OrbView-4 distributor ground stations using the percentage-of-completion method
of accounting. Revenue on these contracts is recognized based on costs incurred
in relation to total estimated costs. To the extent that estimated costs of
98
<PAGE> 101
ORBITAL IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
Services Provided by Orbital
A substantial part of ORBIMAGE's administrative services, including legal,
accounting, human resources and purchasing is provided to ORBIMAGE at cost by
Orbital. Such costs include both specifically identifiable services and certain
pooled costs allocated by Orbital based on ORBIMAGE's proportional use. ORBIMAGE
believes that the cost of these services, as provided for in the accompanying
statements of operations, approximates the cost of similar services if obtained
directly by ORBIMAGE.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123") requires companies to recognize as expense
the fair value of all stock-based awards on the date of grant, or (ii) continue
to apply the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and provide pro forma net
income (loss) disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS 123 had been
applied.
ORBIMAGE has elected to continue to apply the provision of APB 25 and
provide the pro forma disclosure provisions of SFAS 123 (see Note 16).
Compensation expense is recognized over the vesting period for stock option
grants to employees that have market values in excess of the strike price. To
the extent that ORBIMAGE grants stock options to non-employee consultants or
advisors, ORBIMAGE records costs equal to the fair value of the options granted
as of the measurement date as determined using a Black-Scholes model.
Cash and Cash Equivalents
ORBIMAGE considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Securities
Management determines the appropriate classification of securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when ORBIMAGE has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost, adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization and accretion are
included in interest income. The held-to-maturity securities are restricted by
provisions of the senior notes. (See Note 12.)
Securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of stockholders' equity. The amortized cost of available-for-sale
securities is adjusted for amortization of premiums and accretion of discounts
to maturity. Amortization, accretion, and realized gains and losses are included
in interest income. The cost of securities sold is based on the specific
identification method.
Securities with original maturities of more than three months, but not more
than one year, are classified as current assets. Securities with original
maturities of more than one year are classified as long-term assets.
99
<PAGE> 102
ORBITAL IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Financial Instruments
The carrying amounts for ORBIMAGE's cash and cash equivalents, receivables,
accounts payable and accrued expenses approximate fair value. The fair values
for securities (see Note 8) and senior notes (see Note 12) are based on quoted
market prices.
Two foreign distributors have issued letters of credit to ORBIMAGE as
credit enhancements for the construction of regional distributor ground
stations. One letter of credit has a face value of $13.5 million and expires on
January 31, 2001 and the other letter of credit has a face value of $4.0 million
and expires on May 4, 2001. The face values for the letters of credit
approximate fair value.
ORBIMAGE does not have any derivative financial instruments as of December
31, 1999, and believes that the interest rate risk associated with its senior
notes and the market risk associated with its securities are not material to the
results of operations of ORBIMAGE. The available-for-sale securities subject
ORBIMAGE's financial position to interest rate risk.
Satellites and Related Rights and Property, Plant and Equipment
ORBIMAGE is purchasing the OrbView-1, OrbView-3 and OrbView-4 satellites,
the OrbView-2 License and the ground system assets pursuant to the System
Procurement Agreement. ORBIMAGE is purchasing the RadarSat-2 License pursuant to
a separate agreement with Orbital and MDA. ORBIMAGE is constructing the ORBIMAGE
digital catalogue, a digital imagery catalogue and processing system, to support
OrbView-2, OrbView-3 and OrbView-4 imagery processing and distribution. ORBIMAGE
capitalizes certain direct and indirect costs incurred in the construction of
the ORBIMAGE digital catalogue. Amortization of the capitalized costs begins
when the assets are placed in service.
ORBIMAGE capitalizes interest costs in connection with the construction of
satellites, related ground system assets, and the ORBIMAGE digital catalogue.
The capitalized interest is recorded as part of the historical cost of the asset
to which it relates and will be amortized over the asset's useful life when
placed in service. For the years ended December 31, 1998 and 1999, capitalized
interest totaled $10.9 million and $23.7 million, respectively. No interest was
capitalized for the year ended December 31, 1997.
Depreciation and amortization are provided using the straight-line method
as follows:
<TABLE>
<S> <C>
Ground system assets 8 years
Furniture and equipment 3 to 5 years
OrbView-1 3 years
OrbView-2 7 1/2 years
Leasehold improvements Shorter of estimated useful life of
lease or lease term
</TABLE>
Income Taxes
ORBIMAGE recognizes income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
100
<PAGE> 103
ORBITAL IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) BUSINESS ACQUISITION
In 1998, ORBIMAGE acquired substantially all of the assets of TRIFID
Corporation ("TRIFID") for $5.0 million. The acquisition was accounted for using
the purchase method of accounting and resulted in excess of purchase price over
net assets acquired of approximately $3.0 million, which is being amortized on a
straight-line basis over ten years. The financial results of TRIFID have been
included in ORBIMAGE's results since April 30, 1998.
The following unaudited supplemental financial information presents
ORBIMAGE's results of operations for the years ended December 31, 1997 and 1998,
on a pro forma basis, as though the TRIFID acquisition were consummated on
January 1, 1997 (in thousands, except share data):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1997 1998
------- ----------
(RESTATED)
<S> <C> <C>
Revenues................................................. $ 5,531 $12,486
Net loss................................................. (4,213) (5,681)
Loss per common share -- basic and diluted (1)........... $ (0.43) $ (1.05)
</TABLE>
-------------------------------
(1) All potentially dilutive securities, such as preferred stock
subject to repurchase, warrants and stock options, are
antidilutive for each year presented.
(5) EMPLOYEE BENEFIT PLAN
In February 1998, the FASB issued Statement No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits, that supersedes the disclosure
requirements of Statement No. 87, Employers' Accounting for Pensions, and
Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions. ORBIMAGE adopted Statement No. 132 effective January 1, 1998. Adoption
of the new benefits disclosure rules did not impact ORBIMAGE's financial
position, results of operations or cash flows.
ORBIMAGE's employees participate in the Orbital Imaging Corporation
Retirement Savings Plan, as amended, a defined contribution plan (the "Plan") in
accordance with Section 401(k) of the Internal Revenue Code of 1986, as amended.
ORBIMAGE's contributions to the Plan are made based on certain plan provisions
and at the discretion of the Board of Directors. For the years ended December
31, 1997, 1998 and 1999, ORBIMAGE's contribution expense was $44,000, $0.3
million and $0.5 million, respectively. ORBIMAGE's contribution to the Plan for
the years ended December 31, 1998 and 1999 includes contributions to accounts of
employees who joined ORBIMAGE as part of the TRIFID acquisition. (See Note 4.)
(6) COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, ORBIMAGE adopted Statement of Financial Accounting
Standard ("SFAS") No. 130, Reporting Comprehensive Income. SFAS No. 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of SFAS No. 130 had no impact on
ORBIMAGE's net loss or stockholders' equity. For the years ended December 31,
1997, 1998 and 1999, there were no material differences between net loss as
reported and comprehensive income (loss).
101
<PAGE> 104
ORBITAL IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) LOSS PER COMMON SHARE
The computations of basic and diluted loss per common share for the years
ended December 31, 1997, 1998 and 1999 were as follows (in thousands, except
share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
(RESTATED)
<S> <C> <C> <C>
Numerator for basic and diluted loss per
common share:
Net loss.................................... $ (4,082) $ (5,679) $ (6,722)
Preferred stock dividends................... (2,808) (20,859) (13,074)
----------- ----------- -----------
Loss available to common stockholders......... $ (6,890) $ (26,538) $ (19,796)
=========== =========== ===========
Denominator for basic and diluted loss per
common share -- weighted average shares
(1)......................................... 16,431,854 25,214,000 25,214,000
Loss per common share -- basic and diluted
(1)...................................... $ (0.42) $ (1.05) $ (0.79)
=========== =========== ===========
</TABLE>
-------------------------
(1) All potentially dilutive securities, such as preferred stock
subject to repurchase, warrants and stock options, are
antidilutive for each year presented.
(8) SECURITIES
As of December 31, 1998 and 1999, ORBIMAGE had available-for-sale
securities invested primarily in commercial paper with an amortized cost basis
of $34.4 million and $32.4 million, respectively. There were no differences
between the amortized cost basis of the available-for-sale securities and their
fair values. As of December 31, 1999, the available-for-sale securities had
maturities less than one year.
As of December 31, 1998 and 1999, ORBIMAGE had held-to-maturity securities
invested in U.S. Treasury securities with fair values of $25.1 million and $12.9
million, respectively and amortized cost bases of $24.9 million and $12.9
million, respectively, resulting in unrealized gains of $0.2 million and $0,
respectively. These securities are pledged as security for repayment of interest
on the senior notes. As of December 31, 1999, the held-to-maturity securities
had maturities less than one year.
Included in cash and cash equivalents was $24.0 million and $2.4 million of
commercial paper as of December 31, 1998 and 1999, respectively.
(9) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1998 and 1999 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- --------
<S> <C> <C>
Land..................................................... $ 213 $ 213
Ground system assets..................................... 21,450 38,189
Furniture and equipment.................................. 1,293 2,569
Leasehold improvements................................... 630 1,807
Accumulated depreciation and amortization................ (7,630) (10,841)
------- --------
Total.......................................... $15,956 $ 31,937
======= ========
</TABLE>
102
<PAGE> 105
ORBITAL IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) PROPERTY, PLANT AND EQUIPMENT -- (CONTINUED)
Depreciation and amortization totaled $1.7 million, $2.5 million and $3.2
million for the years ended December 31, 1997, 1998 and 1999, respectively.
(10) SATELLITES AND RELATED RIGHTS
Satellites and related rights as of December 31, 1998 and 1999 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
In service:
OrbView-1............................................. $ 12,327 $ 12,327
Accumulated depreciation.............................. (12,327) (12,327)
-------- --------
OrbView-2 License..................................... 64,543 64,543
Accumulated amortization.............................. (10,040) (18,646)
-------- --------
54,503 45,897
Satellites and rights in process........................ 142,206 215,725
-------- --------
Total......................................... $196,709 $261,622
======== ========
</TABLE>
Satellite depreciation and amortization totaled $3.9 million, $9.4 million
and $8.6 million for the years ended December 31, 1997, 1998 and 1999,
respectively.
(11) INCOME TAXES
ORBIMAGE's losses for income tax purposes for the period from January 1,
1997 through May 7, 1997 (during which ORBIMAGE was an operating division, and
was included in the consolidated tax return, of Orbital) were significantly
greater than pre-tax financial statement losses, primarily due to expense
associated with satellites and related rights deducted currently for income tax
purposes. Prior to May 8, 1997, ORBIMAGE had a tax-sharing arrangement with
Orbital under which tax deductions for satellites and related rights, and the
associated net operating loss carryforwards, remained with Orbital. As a result,
ORBIMAGE recorded a tax-sharing charge of $1.8 million for the year ended
December 31, 1997, as a direct charge to additional paid-in capital.
103
<PAGE> 106
ORBITAL IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) INCOME TAXES -- (CONTINUED)
The benefit for income taxes for the years ended December 31, 1997, 1998
and 1999 consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1998 1999
------ ------ ------
(RESTATED)
<S> <C> <C> <C>
Current benefit:
U.S. Federal.............................................. $ -- $ -- $ --
State..................................................... -- -- --
------ ------ ------
Total current benefit............................. -- -- --
Deferred benefit:
U.S. Federal.............................................. 1,533 2,979 3,460
State..................................................... 219 307 169
------ ------ ------
Total deferred benefit............................ 1,752 3,286 3,629
------ ------ ------
Total benefit for income taxes.................... $1,752 $3,286 $3,629
====== ====== ======
</TABLE>
The income tax benefit for the years ended December 31, 1997, 1998 and 1999
were different from those computed using the statutory U.S. Federal income tax
rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ----- -----
(RESTATED)
<S> <C> <C> <C>
U.S. Federal statutory rate................................. (34.0)% (34.0)% (34.0)%
State income taxes.......................................... -- (2.3) (1.7)
Other....................................................... 4.0 (0.4) 0.6
----- ----- -----
Effective rate.............................................. (30.0)% (36.7)% (35.1)%
===== ===== =====
</TABLE>
The tax effects of significant temporary differences as of December 31,
1998 and 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
---------- -------
(RESTATED)
<S> <C> <C>
Deferred tax assets:
Differences in revenue recognition........................ $12,162 $ 8,866
Net operating loss carryforward........................... 5,878 9,726
Other..................................................... 172 830
------- -------
Deferred tax assets......................................... 18,212 19,422
Deferred tax liabilities:
Differences in the tax treatment of satellites and related
rights................................................. 22,008 19,499
------- -------
Net deferred tax liability.................................. $ 3,796 $ 77
======= =======
</TABLE>
As of December 31, 1999, ORBIMAGE had net operating loss carryforwards
totaling $27.3 million, which expire beginning the year ending December 31,
2012.
104
<PAGE> 107
ORBITAL IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) SENIOR NOTES
General
On February 25, 1998, ORBIMAGE issued 150,000 units consisting of senior
notes and 1,312,746 warrants for common stock, raising net proceeds of
approximately $144.6 million. The gross proceeds of the units offering of $150.0
million were allocated: $142.1 million to the senior notes and $7.9 million to
the value of the warrants recorded as a debt discount. On April 22, 1999,
ORBIMAGE completed an add-on debt offering raising net proceeds of approximately
$68.1 million. The debt discount and issuance costs are amortized using the
interest method as an adjustment to interest expense over the term of the senior
notes resulting in an effective yield of approximately 13.4%. As of December 31,
1999, the senior notes had a fair value of $155.3 million as estimated by quoted
market prices.
Interest
Interest on the senior notes accrues at a rate of 11 5/8% per annum and is
payable semi-annually in arrears on March 1 and September 1. ORBIMAGE purchased
U.S. Treasury securities in an amount sufficient to pay the interest on the
senior notes through March 1, 2000. As of December 31, 1999, held- to-maturity
securities restricted for the payment of interest on the senior notes totaled
$12.9 million. On March 1, 2000, restricted held-to-maturity securities and the
related accrued interest were used to pay the semi-annual interest due on the
senior notes of $13.0 million.
Mandatory Redemption
The senior notes mature on March 1, 2005. ORBIMAGE will not be required to
make mandatory redemption or sinking fund payments with respect to the senior
notes. However, ORBIMAGE may be obligated, under certain circumstances, to make
an offer to purchase: (i) all outstanding senior notes at a redemption price of
101% of the principal amount thereof, plus accrued and unpaid interest and
liquidated damages (if any) to the date of purchase, upon a change of control,
and (ii) outstanding senior notes with a portion of the net proceeds of certain
asset sales at a redemption price of 100% of the principal amount thereof, plus
accrued and unpaid interest and liquidated damages (if any) to the date of the
purchase.
Covenants
The indenture for the senior notes restricts, among other things,
ORBIMAGE's ability to pay dividends.
105
<PAGE> 108
ORBITAL IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) LEASE COMMITMENTS
Aggregate minimum rental commitments under non-cancelable operating and
capital leases (primarily for office space and equipment) as of December 31,
1999 were as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
<S> <C> <C>
2000........................................................ $ 223 $ 115
2001........................................................ 212 --
2002........................................................ 211 --
2003........................................................ 199 --
2004........................................................ 211 --
Thereafter.................................................. 952 --
------ -----
$2,008 115
======
Less: interest at 12%....................................... (7)
Less: current portion....................................... (108)
-----
Total....................................................... $ --
=====
</TABLE>
(14) PREFERRED STOCK SUBJECT TO REPURCHASE
ORBIMAGE has authorized 10,000,000 shares of $0.01 par value preferred
stock, of which: (a) 2,000,000 shares of the Series A preferred stock have been
authorized, of which 772,561 shares were issued and outstanding as of December
31, 1999; (b) 2,000,000 shares of the Series B preferred stock have been
authorized, none of which have been issued and (c) 2,000,000 shares of the
Series C preferred stock have been authorized, none of which have been issued.
Dividends
The Series A preferred stock is assigned a stated value of $100 per share
and is entitled to a cumulative dividend of 12% per annum payable semi-annually
on May 1 and November 1 of each year, in cash or, in lieu thereof, payable
in-kind in shares of Series A preferred stock on the basis of 120 shares of
Series A preferred stock for each 1,000 shares of Series A preferred stock
outstanding. To date, all dividends have been paid in-kind. As of December 31,
1999, cumulative preferred stock dividends in arrears totaled 15,451 shares.
Upon mandatory conversion prior to the fourth anniversary of the issuance of any
Series A preferred stock, a Series A holder shall also receive the dividends
with respect to the Series A preferred stock that would have accrued from the
date of the mandatory conversion to the fourth anniversary of the initial
issuance of the Series A preferred stock.
Ranking
Series A holders have certain preferences upon dividend distributions,
distributions upon liquidation or distributions upon merger, consolidation or
sale of assets over the holders of Series B preferred stock (if and when
issued), Series C preferred stock (if and when issued), the common holders and
any other class of stock ranking junior to the Series A preferred stock.
Voting Rights
Each Series A holder is entitled to such number (rounded to the nearest
whole number) of votes as such Series A holder would be entitled if such Series
A holder had converted its Series A preferred stock into shares of common stock.
106
<PAGE> 109
ORBITAL IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) PREFERRED STOCK SUBJECT TO REPURCHASE -- (CONTINUED)
Conversion Rights
The Series A holders have the option, at any time, or from time to time, to
convert their Series A preferred stock into fully paid and non-assessable shares
of common stock. The number of shares of common stock issued upon such
conversion will be determined by multiplying each Series A holder's number of
Series A preferred stock by a fraction, the numerator of which is the Series A
preferred stock Stated Value and the denominator of which is a conversion price,
subject to anti-dilutive adjustments. The per share conversion price is
currently $4.17. The Series A preferred stock shall be automatically converted
into shares of common stock upon the earliest to occur of any one of the
following events:
-- the closing, under certain circumstances, of a public offering of the
common stock;
-- the culmination of a 180-day period in which the average price of the
common stock exceeds a certain level relative to the conversion price or
-- the proposed sale of no less than 70% of the common stock on a fully
diluted basis.
Change of Control
Although not redeemable at the option of the holders, ORBIMAGE has certain
obligations to our Series A holders upon a "change of control" as deemed in the
stock purchase agreement. If a change of control occurs before the latest of:
-- the successful on-orbit checkout of OrbView-3,
-- the closing of an initial public offering that meets certain criteria,
or
-- the end of a 180-day period in which the average price of the common
stock exceeds a certain level relative to the conversion price of the
Series A preferred stock,
then ORBIMAGE must offer to purchase, subject to the rights of the holders of
the senior notes, all outstanding shares of Series A preferred stock for a
purchase price of 101% of the liquidation amount of the stock. If the change of
control occurs before the fourth anniversary of the initial 1997 sale of the
Series A preferred stock, then ORBIMAGE must also pay each Series A holder an
amount equal to the dividends that would have accrued on such holder's shares of
Series A preferred stock from the date of the change of control through the
fourth anniversary of the initial 1997 sale of the Series A preferred stock.
107
<PAGE> 110
ORBITAL IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) PREFERRED STOCK SUBJECT TO REPURCHASE -- (CONTINUED)
The activity in the preferred stock subject to repurchase was as follows
for the years ended December 31, 1997, 1998 and 1999 (dollars in thousands):
<TABLE>
<CAPTION>
SHARES AMOUNT
------- -------
<S> <C> <C>
BALANCE AS OF DECEMBER 31, 1996............................. -- $ --
Shares issued in private offering, net.................... 372,705 33,547
Preferred stock dividends paid in shares.................. 20,182 2,018
Accrual of preferred stock dividends...................... -- 790
------- -------
BALANCE AS OF DECEMBER 31, 1997............................. 392,887 36,355
Shares issued in private offerings, net................... 227,295 21,275
Deemed dividend on issuance of preferred stock subject to
repurchase............................................. -- 9,975
Preferred stock dividends paid in shares.................. 67,394 8,906
Accrual of preferred stock dividends...................... -- 1,978
------- -------
BALANCE AS OF DECEMBER 31, 1998 (RESTATED).................. 687,576 78,489
Preferred stock dividends paid in shares.................. 84,985 10,758
Accrual of preferred stock dividends...................... -- 2,316
------- -------
BALANCE AS OF DECEMBER 31, 1999............................. 772,561 $91,563
======= =======
</TABLE>
(15) COMMON STOCK WARRANTS
In connection with the units offering on February 25, 1998, ORBIMAGE issued
150,000 warrants, which entitle the holders to acquire 1,312,746 shares of
ORBIMAGE's common stock. The exercise price is $0.01 per share and as of
December 31, 1999, the warrants are exercisable. Each warrant entitles the
holder to buy 8.75164 shares of common stock. The warrants expire on March 1,
2005.
(16) STOCK OPTION PLAN
Through ORBIMAGE's stock option plan, as amended (the "Plan"), ORBIMAGE may
issue to its employees, Orbital's employees, consultants or advisors incentive
or non-qualified options to purchase up to 4,800,000 shares of ORBIMAGE's common
stock. Under the Plan, stock options may not be granted with an exercise price
less than 85% of the stock's fair market value at the date of the grant as
determined by the Board of Directors. ORBIMAGE's options generally vest in
one-third increments over a three-year period.
108
<PAGE> 111
ORBITAL IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) STOCK OPTION PLAN -- (CONTINUED)
The following table summarizes the activity relating to the Plan for the
years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
WEIGHTED OUTSTANDING
NUMBER OF OPTION PRICE AVERAGE AND
SHARES PER SHARE EXERCISE PRICE EXERCISABLE
--------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
OUTSTANDING AS OF DECEMBER 31, 1996........... 1,408,000 $ 3.60 $3.60 352,000
Granted..................................... 498,000 4.17 4.17
Exercised................................... (14,000) 3.60 3.60
Canceled or expired......................... (8,000) 3.60 3.60
--------- ------------ ----- ---------
OUTSTANDING AS OF DECEMBER 31, 1997........... 1,884,000 3.60 - 4.17 3.75 707,250
Granted..................................... 761,500 4.17 - 5.10 4.55
Exercised................................... -- -- --
Canceled or expired......................... (9,000) 4.17 - 5.10 4.69
--------- ------------ ----- ---------
OUTSTANDING AS OF DECEMBER 31, 1998........... 2,636,500 3.60 - 5.10 3.98 1,181,451
Granted..................................... 786,323 6.25 6.25
Exercised................................... -- -- --
Canceled or expired......................... (129,251) 4.17 - 6.25 4.92
--------- ------------ ----- ---------
OUTSTANDING AS OF DECEMBER 31, 1999........... 3,293,572 $3.60 - 6.25 $4.48 1,916,611
========= ============ ===== =========
</TABLE>
As of December 31, 1999, the weighted average remaining contractual life of
the options outstanding was 7.8 years.
Had ORBIMAGE determined compensation expense based on the fair value at the
grant date for its stock options in accordance with the fair value method
prescribed by SFAS 123, ORBIMAGE's pro forma net loss and pro forma basic loss
per common share would have been approximately $4.4 million and $0.44,
respectively, for the year ended December 31, 1997; $6.3 million (restated) and
$1.08 (restated), respectively, for the year ended December 31, 1998; and $7.7
million and $0.82, respectively, for the year ended December 31, 1999. Pro forma
diluted loss per common share for the years ended December 31, 1997, 1998 and
1999 would be the same as the pro forma basic loss per share shown above since
all potentially dilutive securities are antidilutive. Pro forma net loss as
stated above is not necessarily representative of the effects of reported net
income (loss) for future years due to, among other things, the vesting period of
the stock options and the fair value of the additional stock options in future
years.
ORBIMAGE used the Black-Scholes options pricing model for the year ended
December 31, 1999 for options issued to employees and directors to determine the
pro forma impact to its net loss. For the years ended December 31, 1997 and
1998, ORBIMAGE used the minimum value method, which does not consider
volatility. Both models utilize 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-
109
<PAGE> 112
ORBITAL IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) STOCK OPTION PLAN -- (CONTINUED)
average fair value per share of stock options granted. The assumptions used to
determine the pro forma impact for the years ended December 31, 1997, 1998 and
1999 were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Volatility......................................... 0.0% 0.0% 30.0%
Dividend yield..................................... 0.0% 0.0% 0.0%
Risk-free interest rate............................ 6.0% 5.5% 6.6%
Expected average life.............................. 4.5 years 6.0 years 6.0 years
Weighted average exercise price per share.......... $3.75 $3.98 $4.48
</TABLE>
The fair value of the options granted to employees and directors during the
years ended December 31, 1997, 1998 and 1999 were estimated at $0.97 per share,
$1.26 per share and $2.69 per share, respectively. Compensation expense
recognized during each of the years ended December 31, 1998 and 1999 on stock
options granted to employees and directors was $0.2 million. There was no
compensation expense recognized during the year ended December 31, 1997 on stock
options granted to employees and directors.
On February 14, 2000, ORBIMAGE granted 412,347 options to purchase shares
of common stock to employees, directors and consultants. The stock options were
granted with an exercise price of $7.25 and generally vest in one-third
increments over a three-year period. ORBIMAGE will expense the value of the
2,000 compensatory options that were issued to consultants over the three-year
vesting period of the options.
(17) SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which
establishes reporting standards for a company's operating segments and related
disclosures about its products, services, geographic areas and major customers.
ORBIMAGE adopted SFAS No. 131 effective January 1, 1998. SFAS No. 131 requires
comparative segment information; however, ORBIMAGE operated as a single segment
for the years ended December 31, 1997, 1998 and 1999.
ORBIMAGE recognized revenues related to contracts with the National
Aeronautics and Space Administration of approximately $2.0 million, $9.6 million
and $9.4 million for the years ended December 31, 1997, 1998 and 1999,
respectively, representing approximately 95%, 82% and 51%, respectively, of
total revenues recognized during those years.
110
<PAGE> 113
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Orbital Sciences Corporation:
Our audit of the consolidated financial statements referred to in our report
dated April 17, 2000 appearing in this Annual Report on Form 10-K also included
an audit of the financial statement schedule as of and for the year ended
December 31, 1999 as listed in Item 14(a)(2) of this Form 10-K. In our opinion,
this financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
April 17, 2000
111
<PAGE> 114
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Orbital Sciences Corporation:
Under date of February 16, 1999, except as to note 2A, which is as of April 17,
2000, we reported on the consolidated balance sheet of Orbital Sciences
Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the two-year period ended December 31, 1998, included in
the Company's 1999 annual report on Form 10-K. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule as of December 31, 1998 and
for each of the years in the two-year period then ended in the Company's 1999
Form 10-K. 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 as of December
31, 1998 and for each of the years in the two-year period then ended, 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.
The accompanying consolidated financial statement schedule as of December 31,
1998, and for each of the years in the two-year period ended December 31, 1998
has been restated.
KPMG LLP
Washington, DC
February 16, 1999, except as to note 2A,
which is as of April 17, 2000
112
<PAGE> 115
ORBITAL SCIENCES CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------- --------------- ------------------------------------ ------------- -------------
ADDITIONS
------------------------------------
CHARGED/
BALANCE AT CHARGED TO COSTS CREDITED TO BALANCE AT
DESCRIPTION START OF PERIOD AND EXPENSES OTHER ACCOUNTS(1) DEDUCTIONS(2) END OF PERIOD
- ----------- --------------- ---------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful
accounts................ $ 1,368 $ 709 $16,550 $ (550) $ 18,077
Allowance for obsolete
inventory............... 5,098 1,527 4,902 (627) 10,900
Allowance for unrecoverable
investments............. 1,100 729 3,057 -- 4,886
Deferred income tax
valuation reserve....... 54,432 12,457 -- -- 66,889
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful
accounts................ $18,077 $ 4,635 $ 794 $ (1,936) $ 21,570
Allowance for obsolete
inventory............... 10,900 6,023 4,161 (12,869) 8,215
Allowance for unrecoverable
investments............. 4,886 552 (1,100) -- 4,338
Deferred income tax
valuation reserve....... 66,889 27,296 -- -- 94,185
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful
accounts................ $21,570 $ 3,733 -- $ (6,383) $ 18,920
Allowance for obsolete
inventory............... 8,215 7,969 -- (1,704) 14,480
Allowance for unrecoverable
investments............. 4,338 -- -- (4,338) --
Deferred income tax
valuation reserve....... 94,185 56,659 -- -- 150,844
</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.
113
<PAGE> 116
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 the company, 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 (incorporated by
reference to Exhibit 3.3 to the company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).
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).
4.8 Registration Rights Agreement dated as of January 15, 2000
by and between the company and Morgan Guaranty Trust Company
of New York, as Administrative Agent (transmitted herewith).
4.9 Form of Warrant dated as of January 15, 2000 (transmitted
herewith).
10.1 Third Amended and Restated Credit Agreement (the "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 (incorporated by reference to
Exhibit 10.1 to the company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998).
</TABLE>
114
<PAGE> 117
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
10.1.1 Amendment No. 1, dated as of March 25, 1999, to the Credit
Agreement, dated as of December 21, 1998 among the company
and Morgan Guaranty Trust Company of New York, as
Administrative Agent (incorporated by reference to Exhibit
10.1.1 to the company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999).
10.1.2 Amendment No. 2, dated as of May 26, 1999, to the Credit
Agreement, dated as of December 21, 1998, among the company
and Morgan Guaranty Trust Company of New York as
Administrative Agent (incorporated by reference to Exhibit
10.1.2 to the company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999).
10.1.3 Amendment No. 3, dated as of July 26, 1999, to the Credit
Agreement, dated as of December 21, 1998, among the company
and Morgan Guaranty Trust Company of New York as
Administrative Agent (incorporated by reference to Exhibit
10.1.3 to the company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999.
10.1.4 Intentionally omitted.
10.1.5 Amendment No. 5, dated as of September 30, 1999, to the
Credit Agreement, dated as of December 21, 1998, among the
company and Morgan Guaranty Trust Company of New York as
Administrative Agent (incorporated by reference to Exhibit
10.26 to the company's Current Report on Form 8-K filed on
January 7, 2000).
10.1.6 Amendment No. 6, dated as of December 21, 1999, to the
Credit Agreement, dated as of December 21, 1998, among the
company and Morgan Guaranty Trust Company of New York as
Administrative Agent (incorporated by reference to Exhibit
10.27 to the company's Current Report on Form 8-K filed on
January 7, 2000).
10.1.7 Amendment No. 7, dated as of February 16, 2000, to the
Credit Agreement, dated as of December 21, 1998, among the
company and Morgan Guaranty Trust Company of New York as
Administrative Agent (transmitted herewith).
10.1.8 Amendment No. 8, dated as of April 13, 2000, to the Credit
Agreement, dated as of December 21, 1998, among the company
and Morgan Guaranty Trust Company of New York as
Administrative Agent (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).
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).
</TABLE>
115
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
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).
10.2.7 Seventh Amendment to NWML Note Agreement, dated as of May
27, 1999 (incorporated by reference to Exhibit 10.2.7 to the
company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999).
10.2.8 Eighth Amendment to NWML Note Agreement, dated as of
December 20, 1999 (incorporated by reference to Exhibit
10.30 to the company's Current Report on Form 8-K filed on
January 7, 2000).
10.2.9 Ninth Amendment to NWML Note Agreement, dated as of January
31, 2000 (transmitted herewith).
10.2.10 Tenth Amendment and Extension of Waiver to NWML Note
Agreement, dated as of February 22, 2000 (transmitted
herewith).
10.2.11 Eleventh Amendment to NWML Note Agreement, dated as of April
12, 2000 (transmitted herewith).
10.3 Subsidiary Guaranty Agreement, dated as of January 31, 2000
(transmitted herewith).
10.4 Second Amended and Restated Security Agreement, dated as of
November 30, 1999, among the company, Morgan Guaranty Trust
Company of New York, as Collateral Agent, and Bank of
America, N.A., as Designated Lockbox Bank (incorporated by
reference to Exhibit 10.28 to the company's Current Report
on Form 8-K filed on January 7, 2000).
10.5 MacDonald, Dettwiler and Associates Ltd. 1999 Stock Option
Plan (transmitted herewith)*
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).*
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 Performance Share Agreement dated July 21, 1999 between the
company and Mr. D. W. Thompson (incorporated by reference to
Exhibit 10.12.3 to the company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999).*
10.12.1 Performance Share Agreement between the company and James R.
Thompson dated July 21, 1999 (incorporated by reference to
Exhibit 10.12.4 to the company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999).*
</TABLE>
116
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
10.12.2 Performance Share Agreement between the company and Jeffrey
V. Pirone dated July 21, 1999 (incorporated by reference to
Exhibit 10.12.5 to the company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999).*
10.16 Amended and Restated Agreement of Limited Partnership of
ORBCOMM Global, L.P., dated as of January 1, 2000, between
OCC and Teleglobe Mobile Partners (incorporated by reference
to Exhibit 3.2 to ORBCOMM Global L.P.'s Current Report on
8-K, filed on February 2, 2000)
10.18 Orbital Sciences Corporation 1997 Stock Option and Incentive
Plan, as amended (transmitted herewith).*
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 (incorporated by reference
to Exhibit 10.21 to the company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998).*
10.22 Letter Agreement between the company and Robert Lovell dated
July 28, 1997 (incorporated by reference to Exhibit 10.22 to
the company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998).*
10.23 Form of 1998 Indemnification Agreement (incorporated by
reference to Exhibit 10.23 to the company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).*
10.24 Form of 1998 Executive Employment Agreement (incorporated by
reference to Exhibit 10.24 to the company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).*
10.25 Asset Acquisition Agreement dated as of March 18, 1999
between MacDonald, Dettwiler and Associates Ltd. and Spar
Aerospace Limited (incorporated by reference to Exhibit 10.1
to the company's Report on Form 8-K/A dated May 7, 1999).
10.26 Promissory Note dated May 7, 1999 from MacDonald, Dettwiler
Space and Advanced Robotics Ltd. in favor of Spar
(incorporated by reference to Exhibit 10.2 to the company's
Report on Form 8-K/A dated May 7, 1999).
10.27 Guaranty dated May 7, 1999 from Orbital Sciences Corporation
and MDA in favor of Spar (incorporated by reference to
Exhibit 10.3 to the company's Report on Form 8-K/A dated May
7, 1999).
10.28 Exchange and Registration Agreement, dated as of December
22, 1999, among the company and the investors identified
therein (incorporated by reference to Exhibit 10.25 to the
company's Current Report on Form 8-K filed on January 7,
2000).
10.29 Pledge Agreement, dated as of November 30, 1999, among the
company and Morgan Guaranty Trust Company of New York, as
Collateral Agent (incorporated by reference to Exhibit 10.29
to the company's Current Report on Form 8-K filed on January
7, 2000).
16 Letter from KPMG LLP (transmitted herewith).
21 Subsidiaries of the Company (transmitted herewith).
23.1 Consent of PricewaterhouseCoopers LLP (transmitted
herewith).
23.2.1 Consent of KPMG LLP (transmitted herewith).
23.2.2 Consent of KPMG LLP (transmitted herewith).
23.2.3 Consent of KPMG LLP (transmitted herewith).
23.3 Consent of Arthur Andersen LLP (transmitted herewith).
</TABLE>
117
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
27 Financial Data Schedule for year ended December 31, 1999
(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.
118
<PAGE> 1
EXHIBIT 4.8
[EXECUTION COPY]
REGISTRATION RIGHTS AGREEMENT
DATED AS OF JANUARY 15, 2000
By and Between
ORBITAL SCIENCES CORPORATION
and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Administrative Agent
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and entered
into as of January 15, 2000, by and between ORBITAL SCIENCES CORPORATION, a
Delaware corporation (the "COMPANY"), and MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as agent (the "ADMINISTRATIVE AGENT") for the Approving Banks (the
"APPROVING BANKS") referred to in Amendment No. 6 dated as of December 21, 1999
to the Third Amended and Restated Credit and Reimbursement Agreement dated as of
December 21, 1998 among Orbital, the Banks parties thereto and Morgan Guaranty
Trust Company of New York, as Administrative Agent and as Collateral Agent (as
amended from time to time, the "CREDIT AGREEMENT").
W I T N E S S E T H:
WHEREAS, the Company has agreed to issue to the Approving Banks warrants
(the "WARRANTS") to purchase an aggregate of 100,000 shares (the "WARRANT
SHARES") of the Company's Common Stock, par value $.01 per share (the "COMMON
STOCK"), in accordance with the terms thereof;
WHEREAS, in connection with the issuance of the Warrants, the Company has
agreed to provide to the holders of the Warrant and the Warrant Shares the
registration rights set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and subject to and on the terms
and conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I
Certain Definitions
As used in this Agreement, the following terms shall have the meanings
ascribed to them below:
<PAGE> 3
1.1 "Commission" shall mean the Securities and Exchange Commission or any
federal agency at the time administering the Securities Act.
1.2 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any federal statute then in effect which has replaced such statute.
1.3 "Group" shall mean two or more Persons that would be deemed a "group"
for purposes of Rule 13d-5 under the Exchange Act.
1.4 "Holder" means any Person who is a holder or beneficial owner of
Registrable Securities for so long as such Person owns any Registrable
Securities. For this purpose, the holder of any Warrant shall be deemed to be
the holder of the shares of Common Stock issuable upon exercise of such Warrant.
1.5 "Person" shall mean an individual, corporation, limited liability
company, joint venture, partnership, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity
that may be treated as a person under applicable law.
1.6 "Registrable Securities" shall mean the Common Stock issued or
issuable upon exercise of the Warrants.
As to any Registrable Securities, such securities shall cease to be
Registrable Securities when (i) a registration statement registering such
Registrable Securities under the Securities Act has been declared or becomes
effective and such Registrable Securities have been sold or otherwise
transferred by the Holder thereof pursuant to such effective registration
statement; (ii) such Registrable Securities are sold pursuant to Rule 144 under
circumstances in which any legend borne by such Registrable Securities relating
to restrictions on the transferability thereof, under the Securities Act or
otherwise, is removed by the Company or such Registrable Securities are
eligible to be sold pursuant to paragraph (k) of Rule 144; or (iii) such
Registrable Securities shall cease to be outstanding.
1.7 "Rule 144" shall mean Rule 144 promulgated under the Securities Act.
1.8 "Securities Act" shall mean Securities Act of 1933, as amended, or
any federal statute then in effect which has replaced such statute.
2
<PAGE> 4
ARTICLE II
Public Offering Pursuant to Registration Rights
2.1 Piggyback Registration.
(a) If the Company shall determine to register any equity
securities of the Company for its own account or for the account of other
holders of equity securities of the Company on any registration form (other than
Form S-4 or S- 8 or other successor forms) which permits the inclusion of
Registrable Securities held by any Holder (a "PIGGYBACK REGISTRATION"), the
Company will promptly give each Holder written notice thereof and, subject to
Section 2.1(c), shall include in such registration all Registrable Securities
requested to be included therein pursuant to the written requests of Holders
received within 10 business days after delivery of the Company's notice. Any
Piggyback Registeration may be withdrawn by the Company at any time.
(b) If the Piggyback Registration relates to an underwritten
public offering, the Company shall so advise the Holders as part of the written
notice given pursuant to Section 2.1(a). In such event, the right of any Holder
to participate in such registration shall be conditioned upon such Holder's
participation in such underwriting in accordance with the terms and conditions
thereof. The Board shall have the right to select the managing underwriter(s)
for any underwritten Piggyback Registration. All Holders proposing to distribute
their Registrable Securities through such underwriting shall (together with the
Company) enter into an underwriting agreement in customary form.
(c) If such proposed Piggyback Registration is an under written
offering and the managing underwriter for such offering advises the Company
that the securities requested to be included therein exceeds the amount of
securities that can be sold in such offering, any securities to be sold by the
Company or other holders of the Company's securities initiating such offering in
such offering shall have priority over any Registrable Securities held by
Holders, and the number of shares to be included by a Holder and other holders
of the Company's securities that did not initiate the offering in such
registration shall be reduced pro rata on the basis of the percentage of the
then outstanding Registrable Securities held by each such Holder and all other
holders exercising similar registration rights.
3
<PAGE> 5
2.2 Expenses of Registration. All expenses incurred in connection with
all Piggyback Registrations shall be borne by the Company, including without
limitation the reasonable cost of one counsel to all Holders reasonably
acceptable to the Company (the Company herein acknowledging that Davis Polk &
Wardwell is acceptable counsel). All underwriting discounts, selling commissions
and other similar fees relating to Registrable Securities included in any
Piggyback Registration shall be borne by the holders of such Registrable
Securities pro rata on the basis of the amount of Registrable Securities sold by
them.
2.3 Registration Procedures. In the case of each registration effected by
the Company pursuant to this Article II, the Company will keep each Holder
advised in writing as to the initiation of such registration and as to the
completion thereof. At its expense, the Company will use its reasonable best
efforts, subject to Section 2.1(a), to:
(a) cause such registration to be declared effective by the
Commission;
(b) as soon as reasonably possible, prepare and file with the
Commission such amendments and supplements to such registration statement and
the prospectus included therein (including post-effective amendments, prospectus
supplements and pricing supplements) as may be necessary to effect and maintain
the effectiveness of such registration statement;
(c) provide (A) the Holders of the Registrable Securities to be
included in such registration statement, (B) the underwriters (which term, for
purposes of this Agreement, shall include a person deemed to be an underwriter
within the meaning of Section 2(11) of the Securities Act) if any, thereof, (C)
the sales or placement agent therefor, if any, and (D) counsel for such
underwriters or agent, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment or supplement thereto;
(d) (A) register or qualify the Registrable Securities to be
included in such registration statement under such securities laws or blue sky
laws of such jurisdictions as any Holder of such Registrable Securities and each
placement or sales agent, if any, therefor and underwriter, if any, thereof
shall reasonably request, and (B) take any and all other actions as may be
reasonably necessary or advisable to
4
<PAGE> 6
enable each such Holder, agent, if any, and underwriter, if any, to consummate
the disposition in such jurisdictions of such Registrable Securities; provided,
however, that the Company shall not be required for any other purpose to (1)
qualify as a foreign corporation in any jurisdiction wherein it would not
otherwise be required to qualify but for the requirements of this Section
2.3(d) or (2) consent to general service of process or taxation in any such
jurisdiction;
(e) furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
any selling Holder from time to time may reasonably request;
(f) promptly notify the selling Holders of Registrable Securities,
the sales or placement agent, if any, therefor and the managing under writer or
underwriters, if any, thereof and confirm such advice in writing, (A) when such
registration statement or the prospectus included therein or any prospectus
amendment or supplement or post-effective amendment has been filed, and with
respect to such registration statement or any post-effective amendment, when the
same has become effective, (B) of any comments by the Commission, the Blue Sky
or securities commissioner or regulator of any state with respect thereto or any
request by the Commission for amendments or supplements to such registration
statement or prospectus or for additional information, (C) of the issuance by
the Commission of any stop order suspending the effectiveness of such
registration statement or the initiation or threatening of any proceedings for
that purpose, (D) if at any time the representations and warranties of the
Company contemplated by Section 2.3(m) or Section 3 cease to be true and correct
in all material respects, (E) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable
Securities for the sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose, or (F) at any time when a prospectus is
required to be delivered under the Securities Act, that such registration
statement, prospectus, prospectus amendment or supplement or post-effective
amendment, or any document incorporated by reference in any of the foregoing,
contains an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(g) obtain the withdrawal of any order suspending the
effectiveness of such registration statement or any post-effective amendment
thereto at the earliest practicable date;
5
<PAGE> 7
(h) if requested by any managing underwriter or underwriters, any
placement or sales agent or any selling Holder of Registrable Securities,
promptly incorporate in a prospectus supplement or post-effective amendment such
information as is required by the applicable rules and regulations of the
Commission and as such managing underwriter or underwriters, such agent or such
holder specifies should be included therein relating to the terms of the sale of
such Registrable Securities, including, without limitation, information with
respect to the principal amount of Registrable Securities being sold by such
Holder or agent or to any underwriters, the name and description of such Holder,
agent or underwriter, the offering price of such Registrable Securities and any
discount, commission or other compensation payable in respect thereof, the
purchase price being paid therefor by such underwriters and with respect to any
other terms of the offering of the Registrable Securities to be sold by such
Holder or agent or to such underwriters;
(i) furnish to each Holder of Registrable Securities included in
such registration statement, each placement or sales agent, if any, therefor,
each underwriter, if any, thereof an executed copy of such registration
statement, each such amendment and supplement thereto (in each case including
all exhibits thereto and documents incorporated by reference therein) and such
number of copies of such registration statement (excluding exhibits thereto and
documents incorporated by reference therein unless specifically and reasonably
so requested by such Holder, agent or underwriter, as the case may be) and of
the prospectus included in such registration statement (including each
preliminary prospectus and any summary prospectus), in conformity with the
requirements of the Securities Act; and the Company hereby consents to the use
of such prospectus (including such preliminary and summary prospectus) and any
amendment or supplement thereto by each such Holder and by any such agent and
underwriter, if any, in each case in the form most recently provided to such
party by the Company, in connection with the offering and sale of the
Registrable Securities covered by the prospectus (including such preliminary and
summary prospectus) or any supplement or amendment thereto;
(j) cause all Registrable Securities covered by such registration
to be listed on each securities exchange or inter-dealer quotation system on
which similar securities issued by the Company are then listed;
(k) provide a transfer agent and registrar for all Registrable
Securities covered by such registration and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration;
6
<PAGE> 8
(l) cooperate with the Holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends;
(m) in the event that any broker-dealer registered under the
Exchange Act shall underwrite any Registrable Securities or participate as a
member of an underwriting syndicate or selling group or "assist in the
distribution" (within the meaning of the Rules of Conduct (the "RULES OF
CONDUCT") of the National Association of Securities Dealers, Inc. ("NASD")
thereof, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise use its reasonable best efforts to assist such
broker-dealer in complying with the requirements of such Rules of Conduct,
including, without limitation, by providing such information to such
broker-dealer as may be required in order for such broker-dealer to comply with
the requirements of the Rules of Conduct;
(n) otherwise comply with all applicable rules and regulations of
the Commission and make available to its security holders, as soon as reasonably
practicable but in no event later than eighteen months after the effective date
of such registration statement, an earnings statement covering the period of at
least twelve months, but not more than 18 months, beginning with the first month
after the effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act (including,
at the option of the Company, Rule 158 thereunder); and
2.4 Delivery of Prospectus Supplement. In the event that the Company
would be required, pursuant to Section 2.3(f) above, to notify the selling
Holders of Registrable Securities, the placement or sales agent, if any,
therefor and the managing underwriters, if any, thereof, the Company shall as
soon as reasonably practicable prepare and furnish to each such Holder, to each
placement or sales agent, if any, and to each underwriter, if any, a reasonable
number of copies of a prospectus supplemented or amended so that, as thereafter
delivered to initial purchasers of Registrable Securities, such prospectus shall
not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing. Each Holder of
Registrable Securities agrees that upon receipt of any notice from the Company
pursuant to Section 2.3(f) hereof, such Holder shall forthwith discontinue the
disposition of Registrable Securities pursuant to the
7
<PAGE> 9
registration statement applicable to such Registrable Securities until such
Holder shall have received copies of such amended or supplemented prospectus,
and if so directed by the Company, such Holder shall deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such Holder's possession of the prospectus covering such Registrable Securities
at the time of receipt of such notice.
2.5 Furnishing Information by the Holders. The Company may require, as a
condition to the inclusion of any Registrable Securities of a Holder in any
registration statement, each Holder of Registrable Securities as to which any
registration is being effected to furnish to the Company such information
regarding such Holder and such Holder's intended method of distribution of such
Registrable Securities as the Company may from time to time reasonably request
in writing, but only to the extent that such information is required in order to
comply with the Securities Act. Each such Holder agrees to notify the Company as
promptly as practicable of any inaccuracy or change in information previously
furnished by such Holder to the Company or of the occurrence of any event in
either case as a result of which any prospectus relating to such registration
contains or would contain an untrue statement of a material fact regarding such
Holder or such Holder's intended method of distribution of such Registrable
Securities or omits to state any material fact regarding such Holder or such
Holder's intended method of distribution of such Registrable Securities required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing, and promptly to furnish information
so required so that such prospectus shall not contain, with respect to such
Holder or the distribution of such Registrable Securities, an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing.
8
<PAGE> 10
2.6 Indemnification.
(a) The Company will indemnify each Holder whose Registrable
Securities are to be included in a registration pursuant to this Article II,
each of such Holder's officers, directors, partners, agents, employees and
representatives and each person controlling such Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, against all
expenses, claims, losses, damages and liabilities (or actions, proceedings or
settlements in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any registration
statement, or document incorporated by reference therein, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each such indemnified person for any legal and any other expenses reasonably
incurred in connection with investigating and defending or settling any such
claim, loss, damage, liability or action, or arising out of any untrue statement
or alleged untrue statement of a material fact contained in any prospectus (or
any amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statement therein,
in the light of the circumstances under which they were made, not misleading;
provided, however, that the Company will not be liable in any such case to a
Holder to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by such Holder and provided for use in such
registration statement, prospectus, offering circular or other document or the
Holder delivered a registration or prospectus in violation of Section 2.4 hereof
after notice was provided by the Company as provided in Section 2.4. It is
agreed that the indemnity agreement contained in this Section 2.6(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld or delayed).
(b) Each Holder whose Registrable Securities are included in any
registration effected pursuant to this Article II shall indemnify the Company,
each of its directors, officers, agents, employees and representatives, and each
Person who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, each other such Holder and
each of their officers, directors, partners, agents, employees and
representatives and each person controlling such Holder, and each underwriter,
if any, of such Registrable Securities and each Person who controls any such
underwriter, against all expenses, claims, losses,
9
<PAGE> 11
damages and liabilities (or actions, proceedings or settlements in respect
thereof) arising out of the indemnity as described in Section 2.6(a), but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document based upon written information
furnished to the Company by such Holder and provided specifically for use
therein; provided, however, that (x) no Holder shall be liable hereunder for any
amounts in excess of the gross proceeds received by such Holder pursuant to such
registration, and (y) the obligations of such Holder hereunder shall not apply
to amounts paid in settlement of any such claims, losses, damages or liabilities
(or actions in respect thereof) if such settlement is effected without the
consent of such Holder (which consent shall not be unreasonably withheld).
(c) Each party entitled to indemnification under this Section 2.6
(the "INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld or delayed, the Company hereby approving Davis Polk &
Wardwell as counsel to the Holders for the purposes of this Section 2.6(c)), and
the Indemnified Party may participate in such defense with counsel reasonably
acceptable to and paid for by the Indemnifying Party but otherwise at the
Indemnified Party's expense, and provided, further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 2.6 to the extent such
failure is not materially prejudicial. No Indemnifying Party in the defense of
any such claim or litigation shall except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include an unconditional release of such Indemnified Party from all
liability in respect of such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 2.6 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder,
10
<PAGE> 12
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such loss, liability, claim, damage or expense in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party on the
one hand and of the Indemnified Party on the other in connection with the
statements or omissions which resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations. The relative
fault of the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. No person guilty of fraudulent
misrepresentation (within the meaning of section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in an underwriting
agreement entered into in connection with an underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
2.7 Other Obligations. With a view to making available the benefits of
certain rules and regulations of the Commission which may effectuate the
registration of Registrable Securities or permit the sale of Registrable
Securities to the public without registration, the Company agrees to:
(a) exercise reasonable efforts to cause the Company to be
eligible to utilize Form S-3 (or any similar form) for the registration of
securities;
(b) at such time as any Registrable Securities are eligible for
transfer under Rule 144(k), upon the request of the holder of such Registrable
Securities, remove any restrictive legend from the certificates evidencing such
Registrable Securities at no cost to such holder;
(c) exercise reasonable efforts to make and keep available public
information as defined in Rule 144 under the Securities Act at all times;
(d) exercise reasonable efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under
11
<PAGE> 13
the Securities Act and the Exchange Act at any time after it has become subject
to such reporting requirements; and
(e) furnish any Holder upon request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at any
time from and after 90 days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission (including Rule 144A) allowing a holder of
Registrable Securities to sell any such Registrable Securities without
registration.
2.8 Hold-Back Agreements. If requested by the Company or any underwriter
of securities of the Company, Holders shall not sell or otherwise transfer or
dispose of the Warrant or any Common Stock (other than pursuant to such
registration) during the period 15 days prior to and 90 days following the
effective date of registration statement relating to the offering of the
Company's securities for its own account or such longer period that the
underwriters may reasonably request. The obligations described in this Section
2.8 shall not apply to a registration on Form S-4 or Form S-8 or similar forms
which may be promulgated in the future and shall not apply to a Holder holding
less than 1% of the then-outstanding Common Stock (assuming exercise of the
Warrant for this purpose).
ARTICLE III
Representations and Warranties
The Company represents and warrants to, and agrees with, the
Administrative Agent and each of the Holders from time to time of Registrable
Securities that:
(a) The compliance by the Company with all of the provisions of
this Agreement and the consummation of the transactions herein contemplated will
not conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any
12
<PAGE> 14
subsidiary of the Company is a party or by which the Company or any subsidiary
of the Company is bound or to which any of the property or assets of the Company
or any subsidiary of the Company is subject nor will such action result in any
violation of the provisions of the certificate of incorporation or by-laws of
the Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any
subsidiary of the Company or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such court or
governmental agency or body is required for the consummation by the Company of
the transactions contemplated by this Agreement, except the registration under
the Securities Act of the Registrable Securities, and such consents, approvals,
authorizations, registrations or qualifications as may be required under State
securities or blue sky laws in connection with the offering and distribution of
the Registrable Securities.
(b) This Agreement has been duly authorized, executed and
delivered by the Company.
ARTICLE IV
Termination
This Agreement shall terminate immediately following the moment at
which there exist no securities of the Company that constitute Registrable
Securities; provided, however, that Section 2.6 hereof shall survive
indefinitely.
ARTICLE V
Miscellaneous
5.1 Recapitalization, Exchanges, etc. Affecting the Common Stock. The
provisions of this Agreement shall apply to the full extent set forth herein
with respect to (a) the Registrable Securities and (b) any and all shares of
capital stock of the Company or any successor or assign of the Company (whether
by merger, consolidation, sale of assets or otherwise) which may be issued in
respect of, in exchange for, or in substitution for the Registrable Securities,
by reason of any stock dividend, split, reverse split, combination,
recapitalization, reclassification, merger, consolidation or otherwise. In the
event of any change in the capitalization
13
<PAGE> 15
of the Company as a result of any stock split, stock dividend or stock
combination, the provisions of this Agreement shall be appropriately adjusted.
5.2 Injunctive Relief. It is hereby agreed and acknowledged that it will
be impossible to measure in money the damages that would be suffered if the
parties fail to comply with any of the obligations herein imposed on them and
that in the event of any such failure, an aggrieved Person will be irreparably
damaged and will not have an adequate remedy at law. Any such Person shall,
therefore, in addition to any other remedies available under applicable law, be
entitled to injunctive relief, including specific performance, to enforce such
obligations, without the posting of any bond, and if any action should be
brought in equity to enforce any of the provisions of this Agreement, none of
the parties hereto shall raise the defense that there is an adequate remedy at
law.
5.3 Parties in Interest. All the terms and provisions of this Agreement
shall be binding upon, shall inure to the benefit of and shall be enforce able
by the Company, the Administrative Agent, the Holders and their respective
successors and assigns. In the event that any transferee of any Holder of
Registrable Securities shall acquire Registrable Securities, in any manner,
whether by gift, bequest, purchase, operation of law or otherwise, such
transferee shall, without any further writing of any kind, be deemed a party
hereto for all purposes and such Registrable Securities shall be held subject to
all of the terms of this Agreement, and by taking and holding such Registrable
Securities such transferee shall be entitled to receive the benefits of and be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement.
5.4 Survival. The respective indemnities, agreements, representations,
warranties and each other provision set forth in this Agreement or made pursuant
hereto shall remain in full force and effect regardless of any investigation (or
statements as to the results thereto) made by or on behalf of any Holder of
Registrable Securities, any director, officer or partner of such Holder, any
agent or underwriter or any director, officer or partner thereof, or any
controlling person of any of the foregoing, and shall survive delivery of and
payment for the Registrable Securities pursuant to the Warrant and the transfer
of Registrable Securities by such Holder.
14
<PAGE> 16
5.5 Amendment; Waiver.
(a) This Agreement may be amended only by a written instrument
signed by the Company and by the Administrative Agent with the consent of
Holders holding more than 66% of the then outstanding Registrable Securities.
(b) No provision of this Agreement may be waived orally, but only
by a written instrument signed by the party against whom enforcement of such
waiver is sought. Holders shall be bound from and after the date of the receipt
of a written notice from the Company setting forth such amendment or waiver,
whether or not the Registrable Securities shall have been marked to indicate
such amendment or waiver.
5.6 Notices. Except as otherwise provided in this Agreement, notices and
other communications under this Agreement shall be in writing (including a
writing delivered by facsimile transmission) and shall be deemed to have been
duly given if delivered personally, or sent by either certified or registered
mail, return receipt requested, postage prepaid, or by overnight courier
guaranteeing next day delivery, or by telex or telecopier, at the following
addresses:
if to the Company:
21700 Atlantic Boulevard
Dulles, VA 20166
Attention: Legal Department
Telecopier: 703-406-5572
with a copy to
Hogan and Hartson, L.L.P.
555 13th Street NW
Washington, DC 20004
Attention: Eve N. Howard, Esq.
Telecopier: 202-637-5910
if to the Administrative Agent:
Morgan Guaranty Trust Company of New York
15
<PAGE> 17
60 Wall Street
New York, New York 10260
Attention: Robert Vecsler
Telecopier: (212) 648-5005
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Tiziana M. Tabucchi, Esq.
Telecopier: (212) 450-4800
if to any initial Holder, to it at its address
for notices under the Credit Agreement, with
a copy to the Administrative Agent
Any party may, by written notice given to the other parties in accordance with
this Section 5.6, change the address to which such notice or other
communications are to be sent to it. All such notices and communications shall
be deemed to have been given on the date of delivery thereof, if delivered by
hand, on receipt, if mailed, on the next day after the sending thereof, if by
overnight courier and when receipt is acknowledged, if telecopied.
5.7 Inspection. So long as this Agreement shall be in effect, this
Agreement and any amendments hereto shall be made available for inspection by
any Holder at the principal offices of the Company.
5.8 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.
5.9 Headings. Article, section and paragraph headings are inserted for
convenience only and do not constitute a part of this Agreement.
5.10 Integration. This Agreement and the documents referred to herein or
delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to the subject matter hereof. There
are no
16
<PAGE> 18
restrictions, agreements, promises, representations, warranties, covenants or
under takings with respect to the subject matter hereof other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and under standings between the parties with respect to this subject
matter.
5.11 Illegality. In case any provision in this Agreement shall be
declared or held invalid, illegal or unenforceable, in whole or in part, whether
generally or in any particular jurisdiction, such provision shall be deemed
amended to the extent, but only to the extent, necessary to cure such
invalidity, illegality or unenforceability, and the validity, legality and
enforceability of the remaining provisions, both generally and in every other
jurisdiction, shall not in any way be affected or impaired thereby.
5.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
17
<PAGE> 19
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
ORBITAL SCIENCES CORPORATION
By:
-----------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent
By:
-----------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4.9
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OFFERED FOR
SALE UNLESS REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. THIS WARRANT AND THE
SHARES OF COMMON STOCK PURCHASABLE HEREUNDER ARE SUBJECT TO AND HAVE THE BENEFIT
OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF JANUARY 15, 2000 BETWEEN ORBITAL
SCIENCES CORPORATION AND MORGAN GUARANTY TRUST COMPANY OF NEW YORK, AS
ADMINISTRATIVE AGENT, A COPY OF WHICH IS ON FILE WITH ORBITAL SCIENCES
CORPORATION.
Dated: January 15, 2000
WARRANT
TO PURCHASE ______SHARES OF COMMON STOCK OF
ORBITAL SCIENCES CORPORATION
EXPIRING JANUARY 15, 2005
THIS IS TO CERTIFY THAT, for value received, ___________________ or
registered assigns ("HOLDER") is entitled to purchase from ORBITAL SCIENCES
CORPORATION, a Delaware corporation ("COMPANY"), at any time or from time to
time after 9:00 a.m., New York City time, on the date hereof and prior to 5:00
p.m., New York City time, on January 15, 2005 at the place where the Warrant
Agency is located, at the Exercise Price, the number of shares of Common Stock
of Company, par value $.01 per share, shown above, all subject to adjustment and
upon the terms and conditions hereinafter provided.
This Warrant is one of a series of Warrants initially exercisable for an
aggregate of 100,000 shares of Common Stock, all issued pursuant to Amendment
No. 6 dated as of December 21, 1999 to the Credit Agreement.
Certain terms used in this Warrant are defined in Article 4.
<PAGE> 2
ARTICLE 1
EXERCISE OF WARRANTS
SECTION 1.01. Method of Exercise. To exercise this Warrant, in whole or
in part, the Holder shall deliver on any Business Day to Company, at the Warrant
Agency, (a) this Warrant, (b) a written notice of such Holder's election to
exercise this Warrant, which notice shall specify the number of shares of Common
Stock to be purchased (which shall be a whole number of shares if for less than
all the shares then issuable hereunder), the method of payment elected by the
holder pursuant to clause (c) below, the denominations of the share certificate
or certificates desired and the name or names in which such certificates are to
be registered, and (c) payment of the Exercise Price with respect to such
shares. Such payment may be made, at the option of the Holder, either (a) by
cash, certified or bank cashier's check or wire transfer in an amount equal to
the product of (i) the Exercise Price times (ii) the number of Warrant Shares
for which this Warrant is being exercised or (b) by receiving from Company the
number of Warrant Shares equal to (i) the number of Warrant Shares for which
this Warrant is being exercised minus (ii) the number of Warrant Shares having a
value, based on the average reported closing prices on the five Trading Days
immediately prior to the date of such exercise, equal to the product of (x) the
Exercise Price times (y) the number of Warrant Shares as to which this Warrant
is being exercised.
Company shall, as promptly as practicable and in any event within seven
days after receipt of such notice and payment, execute and deliver or cause to
be executed and delivered, in accordance with such notice, a certificate or
certificates representing the aggregate number of shares of Common Stock to be
issued pursuant to such notice together with cash in lieu of any fractions of a
share as provided in Section 1.03. The share certificate or certificates so
delivered shall be in such denominations as may be specified in such notice, and
shall be issued in the name of the Holder or such other name or names as shall
be designated in such notice. This Warrant shall be deemed to have been
exercised and such certificate or certificates shall be deemed to have been
issued, and such Holder or any other Person so designated to be named therein
shall be deemed for all purposes to have become a holder of record of shares, as
of the date the aforementioned notice and payment is received by Company. If
this Warrant shall have been exercised only in part, Company shall, at the time
of delivery of such certificate or certificates, deliver to the Holder a new
Warrant evidencing the rights to purchase the remaining shares of Common Stock
called for by this Warrant, which new Warrant shall in all other respects be
identical with this Warrant, or, at the request of the Holder specified in such
notice, appropriate notation may be made on this Warrant which shall then be
returned to the Holder. Company shall pay all expenses, taxes and other charges
payable in connection with the preparation, issuance and delivery of share
certificates and new Warrants, except that, if share certificates or new
Warrants shall be registered in a name or names other than the
2
<PAGE> 3
name of the Holder, funds sufficient to pay all transfer taxes payable as a
result of such transfer shall be paid by the Holder at the time of delivery of
the aforementioned notice of exercise or promptly upon receipt of a written
request of Company for payment.
SECTION 1.02. Shares to Be Fully Paid and Nonassessable. All shares of
Common Stock issued upon the exercise of this Warrant shall be validly issued,
fully paid and nonassessable and, if the Common Stock is then listed on any
national securities exchange or quoted on NASDAQ, shall be duly listed or quoted
thereon, as the case may be.
SECTION 1.03. No Fractional Shares Required to Be Issued. Company shall
not be required to issue fractions of shares of Common Stock upon exercise of
this Warrant. If any fraction of a share would, but for this Section, be
issuable upon final exercise of this Warrant, in lieu of such fractional share
Company shall pay to the Holder, in cash, an amount equal to the same fraction
of the closing price per share of the Common Stock on the Trading Day
immediately prior to the date of such exercise.
SECTION 1.04. Share Legend. Each certificate for shares of Common Stock
issued upon exercise of this Warrant, unless at the time of exercise such shares
are registered under the Securities Act, shall bear the following legend:
"This security has not been registered under the Securities Act of
1933 and may not be sold or offered for sale unless registered under said
Act and any applicable state securities laws or unless an exemption from
such registration is available. This security is also subject to and has
the benefit of a Registration Rights Agreement dated as of January 15,
2000 between Orbital Sciences Corporation and Morgan Guaranty Trust
Company of New York, AS ADMINISTRATIVE AGENT, copies of which are on file
with Orbital Sciences Corporation."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public offering pursuant to a registration statement under the Securities
Act) shall also bear such legend unless, in the opinion of counsel selected by
the holder of such certificate (who may be an employee of such holder) and
reasonably acceptable to Company, the securities represented thereby need no
longer be subject to restrictions on resale under the Securities Act.
SECTION 1.05. Reservation. Company has duly reserved and will keep
available for issuance upon exercise of the Warrants the total number of Warrant
Shares deliverable from time to time upon exercise of all Warrants from time to
time outstanding.
3
<PAGE> 4
ARTICLE 2
WARRANT AGENCY; TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS
SECTION 2.01. Restrictions on Transfer. Notwithstanding anything
contained in this Warrant, the Warrant may not be transferred except to a Bank
party to the Credit Agreement, or to an affiliate of the transferor or to an
affiliate of such a Bank.
SECTION 2.02. Warrant Agency. As long as this Warrant remains
outstanding, Company shall perform the obligations of and be the warrant agency
with respect to the Warrant (the "WARRANT AGENCY") at its address set forth on
the signature page or at such other address as Company shall specify by notice
to the Holder.
SECTION 2.03. Ownership of Warrant. Company may deem and treat the person
in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by any person
other than Company) for all purposes and shall not be affected by any notice to
the contrary, until due presentment of this Warrant for registration of transfer
as provided in this Article 2.
SECTION 2.04. Transfer of Warrant. Company agrees to maintain at the
Warrant Agency books for the registration of transfers of the Warrant, and
transfer of this Warrant and all rights hereunder shall be registered, in whole
or in part, on such books, upon surrender of this Warrant at the Warrant Agency,
together with a written assignment of this Warrant duly executed by the Holder
or its duly authorized agent or attorney, with (if the Holder is a natural
person) signatures guaranteed by a bank or trust company or a broker or dealer
registered with the NASD, and funds sufficient to pay any transfer taxes payable
upon such transfer. Upon surrender and, if required, such payment, Company shall
execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denominations specified in the instrument of assignment
(which shall be whole numbers of shares only) and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, if any, and
this Warrant shall promptly be canceled.
SECTION 2.05. Division or Combination of Warrants. This Warrant may be
divided or combined with other Warrants upon presentment hereof and of any
Warrant or Warrants with which this Warrant is to be combined at the Warrant
Agency, together with a written notice specifying the names and denominations
(which shall be whole numbers of shares only) in which the new Warrant or
Warrants are to be issued, signed by the Holder and the holders thereof or their
respective duly authorized agents or attorneys. Subject to compliance with
4
<PAGE> 5
Section 2.03 as to any transfer or assignment which may be involved in the
division or combination, Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
SECTION 2.06. Loss, Theft, Destruction of Warrant Certificates. Upon
receipt of evidence satisfactory to Company of the ownership of and the loss,
theft, destruction or mutilation of any Warrant and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security satisfactory
to Company (it being understood and agreed that if the holder of such Warrant is
A BANK PARTY TO THE CREDIT AGREEMENT, OR AN AFFILIATE OF SUCH A BANK, then a
written agreement of indemnity, reasonably satisfactory to the Company, given by
such holder alone shall be satisfactory to Company and no further security shall
be required) or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, Company will make and deliver, in lieu of such
lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and
representing the right to purchase the same aggregate number of shares of Common
Stock.
SECTION 2.07. Expenses of Delivery of Warrants. Company shall pay all
expenses, taxes (other than transfer taxes) and other charges payable in
connection with the preparation, issuance and delivery of Warrants hereunder.
ARTICLE 3
ANTIDULUTION PROVISIONS
SECTION 3.01. Adjustment Generally. The Warrant Share Amount shall be
subject to adjustment from time to time, as follows:
SECTION 3.02. Common Stock Dividends. In case at any time after the date
hereof, Company shall pay or make a dividend or other distribution on all of its
Common Stock or shall make a dividend or other distribution on any other class
of Capital Stock of Company which dividend or distribution includes Common
Stock, the Warrant Share Amount in effect at the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be increased by multiplying
such Warrant Share Amount by a fraction of which the denominator shall be the
number of shares of Common Stock outstanding at the close of business on the
date fixed for such determination and the numerator shall be the sum of such
number of shares and the total number of shares constituting such dividend or
other distribution, such increase to become effective immediately after the
opening of business on the day following the date fixed for such determination.
5
<PAGE> 6
For the purposes of this Section 3.02, the number of shares of Common Stock at
any time outstanding shall not include shares held in the treasury of Company
but shall include shares issuable in respect of scrip Common Stock. If any
dividend or distribution of the type described in this Section 3.02 is declared
but not so paid or made, the Warrant Share Amount shall again be adjusted to be
the Warrant Share Amount which would then be in effect if such dividend or
distribution had not been declared.
SECTION 3.03. Common Stock Rights. In case at any time after the date
hereof, Company shall pay or make a dividend or other distribution on all of its
Common Stock consisting of, or shall otherwise issue to all holders of its
Common Stock, rights, warrants or options (not being available on an equivalent
basis to the Holder of this Warrant upon exercise) entitling the holders of its
Common Stock to subscribe for or purchase Common Stock at a price per share less
than the current market price per share (determined as provided in Section 3.09)
of the shares of Common Stock on the date fixed for the determination of
stockholders entitled to receive such rights, warrants or options (other than
pursuant to a dividend reinvestment plan), the Warrant Share Amount in effect at
the opening of business on the day following the date fixed for such
determination shall be increased by multiplying such Warrant Share Amount by a
fraction of which the denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock which the aggregate of the offering
price of the total number of shares of Common Stock so offered for subscription
or purchase would purchase at such current market price and the numerator shall
be the number of shares of Common Stock outstanding at the close of business on
the date fixed for such determination plus the number of shares of Common Stock
so offered for subscription or purchase, such increase to become effective
immediately after the opening of business on the day following the date fixed
for such determination. For the purposes of this Section 3.03, the number of
shares of Common Stock at any time outstanding shall not include shares held in
the treasury of Company but will include shares issuable in respect of scrip
certificates, if any, issued in lieu of fractions of shares of Common Stock.
Company will not issue any rights or warrants in respect of Common Stock held in
the treasury of Company (or, if rights or warrants are issued in respect of all
of the Common Stock of Company, will not exercise any such rights or warrants in
respect of Common Stock held in the treasury of Company). In the event that such
rights or warrants are not so issued, the Warrant Share Amount shall again be
adjusted to be the Warrant Share Amount which would then be in effect if such
date fixed for the determination of stockholders entitled to receive such rights
or warrants had not been fixed. In determining whether any rights or warrants
entitle the holders to subscribe for or purchase shares of Common Stock at less
than such current market price, and in determining the aggregate offering price
of such
6
<PAGE> 7
shares of Common Stock, there shall be taken into account any consideration
received for such rights or warrants. The value of such consideration, if other
than cash, shall be determined in the reasonable good faith judgment of the
Board of Directors of Company, whose determination shall be conclusive.
SECTION 3.04. Common Stock Subdivisions and Combinations. In case at any
time after the date hereof, all or any portion of the Common Stock outstanding
shall be subdivided into a greater number of shares of Common Stock, the Warrant
Share Amount in effect at the opening of business on the day following the day
upon which such subdivision becomes effective shall be proportionately
increased, and, conversely in case at any time after the date hereof, all or any
portion of the shares of Common Stock outstanding shall each be combined into a
smaller number of shares of Common Stock, the Warrant Share Amount in effect at
the opening of business on the day following the day upon which such combination
becomes effective shall be proportionately reduced, such increase or reduction,
as the case may be, to become effective immediately after the opening of
business on the day following the day upon which such subdivision or combination
becomes effective.
SECTION 3.05. Distributions of Property. In case at any time after the
date hereof, Company shall, by dividend or otherwise, distribute to all holders
of its Common Stock evidences of its indebtedness or assets (including
securities, rights, warrants or options, but excluding any rights, warrants, or
options referred to in Section 3.03 as entitling the holders of Common Stock to
subscribe for or purchase Common Stock at a price per share less than the
current market price, any dividend or distribution paid exclusively in cash, any
dividend or distribution referred to in Section 3.02 and any dividend or
distribution upon a merger or consolidation referred to in Section 3.14), the
Warrant Share Amount shall be increased so that the same shall equal the amount
determined by multiplying the Warrant Share Amount in effect immediately prior
to the close of business on the date fixed for the determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the current market price per share (determined as provided in Section
3.09) of the Common Stock on the date fixed for such determination less the then
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive) of the portion of the assets or evidence of indebtedness so
distributed applicable to one share of Common Stock and the numerator shall be
such current market price per share of the Common Stock, such adjustment to
become effective immediately prior to the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such distribution. If any dividend or distribution of the type described
in this Section 3.05 is declared but not so paid or made, the Warrant Share
Amount shall again be adjusted to the
7
<PAGE> 8
Warrant Share Amount which would then be in effect if such dividend or
distribution had not been declared.
SECTION 3.06. Special Cash Distributions. In case at any time after the
date hereof, Company shall, by dividend or otherwise, make a distribution to all
holders of its Common Stock consisting exclusively of cash (excluding any cash
that is distributed upon a merger or consolidation or a sale or transfer of all
or substantially all of the assets of Company to which Section 3.14 applies or
as part of a distribution referred to in Section 3.05) in an aggregate amount
that, combined together with (i) the aggregate amount of any other distributions
to all holders of its Common Stock made exclusively in cash within the 12 months
preceding the date of payment of such distribution and in respect of which no
adjustment pursuant to this Section 3.06 has been made and (ii) the aggregate of
any cash plus the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive) of consideration payable in respect of
any tender offer by Company or any of its Subsidiaries for all or any portion of
the Common Stock concluded within the 12 months preceding the date of payment of
such distribution and in respect of which no adjustment pursuant to Section 3.07
has been made, exceeds 12.5% of the product of the current market price per
share of Common Stock on the date for the determination of holders of Common
Stock entitled to receive such distribution times the number of shares of Common
Stock outstanding on such date, then, and in each such case, immediately after
the close of business on such date for determination, the Warrant Share Amount
shall be increased so that the same shall equal the rate determined by
multiplying the Warrant Share Amount in effect immediately prior to the close of
business in the date fixed for determination of the stockholders entitled to
receive such distribution by a fraction (A) the denominator of which shall be
equal to the current market price per share (determined as provided in Section
3.09) of the Common Stock on the date fixed for such determination less an
amount equal to the quotient of (x) the excess of such combined amount over such
12.5% and (y) the number of shares of Common Stock outstanding on such date for
determination and (B) the numerator of which shall be equal to the current
market price per share (determined as provided in Section 3.09) of the Common
Stock on such date for determination. If any dividend or distribution of the
type described in this Section 3.06 is declared but not so paid or made, the
Warrant Share Amount shall again be adjusted to the Warrant Share Amount which
would then be in effect if such dividend or distribution had not been declared.
SECTION 3.07. Tender Offers. In case a tender or exchange offer made by
Company or any Subsidiary for all or any portion of the Common Stock shall
expire and such tender or exchange offer (as amended upon the expiration
thereof) shall require the payment to stockholders (based on the acceptance (up
to any maximum specified in the terms of the tender offer) of Purchased Shares
(as
8
<PAGE> 9
defined below)) of an aggregate consideration having a fair market value (as
determined by the Board of Directors, whose determination shall be conclusive)
that combined together with (i) the aggregate of the cash plus the fair market
value (as determined by the Board of Directors, whose determination shall be
conclusive) as of the expiration of such tender or exchange offer, of
consideration payable in respect of any other tender or exchange offer, by
Company or any Subsidiary of Company for all or any portion of the Common Stock
expiring within the 12 months preceding the expiration of such tender or
exchange offer and in respect of which no adjustment, pursuant to this Section
3.07 has been made and (ii) the aggregate amount of any distributions to all
holders of Company's Common Stock made exclusively in cash within 12 months
preceding the expiration of such tender or exchange offer and in respect of
which no adjustment pursuant to Section 3.06 has been made, exceeds 12.5% of the
product of the current market price per share of the Common Stock (determined as
provided in Section 3.09) as of the last time (the "EXPIRATION TIME") tenders or
tenders could have been made pursuant to such tender or exchange offer (as it
may be amended) times the number of shares of Common Stock outstanding
(including any tendered or exchanged shares) on the Expiration Time, then, and
in each such case, immediately prior to the opening of business on the day after
the date of the Expiration Time, the Warrant Share Amount shall be increased so
that the same shall equal the rate determined by multiplying the Warrant Share
Amount immediately prior to the close of business on the date of the Expiration
Time by a fraction (A) the denominator of which shall be equal to (1) the
product of (x) the current market price per share of the Common Stock
(determined as provided in Section 3.09) on the date of the Expiration Time and
(y) the number of shares of Common Stock outstanding (including any tendered or
exchanged shares) on the date of the Expiration Time less (2) the amount of cash
plus the fair market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the tender offer) of Purchased Shares, and (B) the
numerator of which shall be equal to the product of (x) the current market price
per share of the Common Stock (determined as provided in Section 3.09), as of
the Expiration Time and (y) the number of shares of Common Stock outstanding
(including any tendered or exchanged shares) as of the Expiration Time less the
number of all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted up to any such maximum, being
referred to as the "PURCHASED SHARES"). In the event that Company is obligated
to purchase shares pursuant to any such tender offer, but Company is permanently
prevented by applicable law from effecting any such purchases or all such
purchases are rescinded, the Warrant Share Amount shall again be adjusted to be
the Warrant Share Amount which would then be in effect if such tender offer had
not been made.
9
<PAGE> 10
SECTION 3.08. Reclassifications. The reclassification of Common Stock
into securities other than Common Stock (other than any reclassification upon a
consolidation or merger to which Section 3.14 applies) shall be deemed to
involve (i) a distribution of such securities other than Common Stock to all
holders of Common Stock (and the effective date of such reclassification shall
be deemed to be "the date fixed for the determination of stockholders entitled
to receive such distribution" and "the date fixed for such determination" within
the meaning of Section 3.05)) and (ii) a subdivision or combination, as the case
may be, of the number of Common Stock outstanding immediately prior to such
reclassification into the number of Common Stock outstanding immediately
thereafter (and the effective date of such reclassification shall be deemed to
be "the day upon which such subdivision becomes effective," as the case may be,
and "the day upon which such subdivision or combination becomes effective",
within the meaning of Section 3.04).
SECTION 3.09. Current Market Price. For the purpose of any computation
under Section 3.03, 3.05, 3.06 or 3.07, the current market price per share of
Common Stock on any date shall be deemed to be the average of the daily Closing
Prices per share for the five consecutive Trading Days immediately preceding the
earlier of the day in question and the day before the "ex date" with respect to
the issuance or distribution requiring such computation. For purposes of this
paragraph, the term "ex date", when used with respect to any issuance or
distribution, means the first date on which the Common Stock trades regular way
on the applicable securities exchange or in the applicable securities market
without the right to receive such issuance or distribution.
SECTION 3.10. Certain Limitations. Company hereby covenants not to take
any action (1) to increase the par value per share of the Common Stock, or (2)
that would or does result in any adjustment to the number of shares for which
this Warrant may be exercised that would cause such number to exceed the number
of authorized but unissued shares of Common Stock not reserved for other
purposes.
SECTION 3.11. Minimum Adjustment. Notwithstanding any of the foregoing
provisions of this Article 3, no adjustment in the Warrant Share Amount need be
made until all cumulative adjustments amount to 1% or more of the Warrant Share
Amount as last adjusted. Any adjustments that are not made shall be carried
forward and taken into account in any subsequent adjustment.
SECTION 3.12. Notice to Holder. Whenever the Warrant Share Amount is
adjusted as herein provided, Company shall prepare a certificate signed by the
Treasurer of Company setting forth the adjusted Warrant Share Amount showing
10
<PAGE> 11
in reasonable detail the facts upon which such adjustment is based, and such
certificate shall forthwith be delivered to the Holder.
SECTION 3.13. Deferred Delivery. In any case in which this Article 3
provides that an adjustment shall become effective immediately after a record
date for an event, Company may defer until the occurrence of such event (x)
issuing to the Holder upon exercise of this Warrant after such record date and
before the occurrence of such event the additional shares of Common Stock
issuable upon such exercise by reason of the adjustment required by such event
over and above the Common Stock issuable upon such exercise before giving effect
to such adjustment and (y) paying to such Holder any amount in cash in lieu of
any fractional share of Common Stock pursuant to Section 1.03.
SECTION 3.14. Merger and Consolidation. In the event that Company shall
be a party to any transaction, including without limitation any (i)
recapitalization or reclassification of the Common Stock (other than a change in
par value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination of the Common Stock), (ii) any
consolidation of Company with, or merger of the Company into, any other Person,
any merger of another Person into the Company (other than a merger which does
not result in a reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the Company), (iii) any sale or transfer
of all or substantially all of the assets of the Company or (iv) any compulsory
share exchange, pursuant to which the Common Stock is converted into the right
to receive other securities, cash or other property, then lawful provision shall
be made as part of the terms of such transaction whereby the Holder of this
Warrant shall have the right thereafter, to exercise this Warrant for the kind
and amount of securities, cash and other property receivable upon such
recapitalization, reclassification, consolidation, merger, sale, transfer or
share exchange by a holder of the number of shares of Common Stock for which
this Warrant might have been exercised immediately prior to such
recapitalization, reclassification, consolidation, merger, sale, transfer or
share exchange. Company or the person formed by such consolidation or resulting
from such merger or which acquires such assets or which acquires Company's
shares, as the case may be, shall make provisions in its certificate or articles
of incorporation or other constituent document to establish such right. Such
certificate or articles of incorporation or other constituent document shall
provide for adjustments which, for events subsequent to the effective date of
such certificate or articles of incorporation or other constituent document,
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Article 3. The above provisions shall similarly apply to successive
recapitalization, reclassifications, consolidations, mergers, sales, transfers
or share exchanges.
11
<PAGE> 12
ARTICLE 4
DEFINITIONS
The following terms, as used in this Warrant, have the following
meanings:
"BUSINESS DAY" means any day excluding Saturday, Sunday and any day on
which banking institutions located in New York are authorized by law or other
governmental action to be closed.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"COMPANY" means Orbital Sciences Corporation, a Delaware corporation, and
its successors.
"CREDIT AGREEMENT" means the Third Amended and Restated Credit and
Reimbursement Agreement dated as of December 21, 1998 among the Company, the
Banks parties thereto and Morgan Guaranty Trust Company of New York, as
Administrative Agent and as Collateral Agent, as amended and in effect from time
to time.
"EXERCISE PRICE" means $.01 per share of Common Stock.
"HOLDER" has the meaning set forth in the first paragraph of this
Warrant.
"NASD" means The National Association of Securities Dealers, Inc.
"NASDAQ" means The National Association of Securities Dealers, Inc.
Automated Quotation System.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
12
<PAGE> 13
"SECURITIES ACT" means the Securities Act of 1933, as amended, and rules
and regulations of the Securities and Exchange Commission thereunder.
"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 Corporation or ORBCOMM USA L.P., be a "Subsidiary" of the
Company.
"TRADING DAY" means (x) if the applicable security is listed or admitted
for trading on the New York Stock Exchange or another national securities
exchange, a day on which the New York Stock Exchange or such other national
securities exchange is open for business or (y) if the applicable security is
quoted on the Nasdaq National Market, a day on which trade may be made on the
Nasdaq National Market or (z) if the applicable security is not otherwise
listed, admitted for trading or quoted, any day other than a Saturday or Sunday
or a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.
"WARRANT AGENCY" has the meaning set forth in Section 2.02.
"WARRANT SHARES" means the shares of Common Stock issuable upon the
exercise of the Warrants.
"WARRANT SHARE AMOUNT" means the number of Warrant Shares issuable upon
the exercise of this Warrant.
"WARRANTHOLDER" means a holder of a Warrant.
All references herein to "DAYS" shall mean calendar days unless otherwise
specified.
ARTICLE 5
MISCELLANEOUS
SECTION 5.01. Notices. Notices and other communications provided for
herein shall be in writing and may be given by mail, courier, confirmed telex or
facsimile transmission and shall, unless otherwise expressly required, be deemed
given when received. In the case of the Holder, such notices and communications
13
<PAGE> 14
shall be addressed to its address as shown on the books maintained by the
Warrant Agency, unless the Holder shall notify the Warrant Agency that notices
and communications should be sent to a different address (or telex or facsimile
number), in which case such notices and communications shall be sent to the
address (or telex or facsimile number) specified by the Holder. In the case of
the Company, such notices and communications shall be addressed to its address
as shown on the signature pages hereof or to such other address as it may
designate by notice to the Holder and the Administrative Agent.
SECTION 5.02. Amendments. The provisions of this Warrant may be amended,
modified or waived only with the written consent of Company and the Holder.
SECTION 5.03. Governing Law. THIS WARRANT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW).
SECTION 5.04. Transfer; Covenants to Bind Successor and Assigns. All
covenants, stipulations, promises and agreements in this Warrant contained by or
on behalf of Company or the Holder shall bind its successors and assigns,
whether so expressed or not. This Warrant shall be transferable and assignable
by the Holder hereof in whole or from time to time in part to any other Person
and the provisions of this Warrant shall be binding upon and inure to the
benefit of the Holder hereof and its successors and assigns.
SECTION 5.05. No Stockholder Rights. Prior to exercise of this Warrant,
the Holder shall not be entitled to any rights of a stockholder with respect to
the shares of Common Stock purchasable upon exercise, including, without
limitation, the right to vote such shares of Common Stock, receive dividends or
other distributions thereon, exercise preemptive rights or be notified of
stockholder meetings, and, except as explicitly stated herein, the Holder shall
not be entitled to any notice or other communication concerning the business or
affairs of Company.
14
<PAGE> 15
IN WITNESS WHEREOF, Company has caused this Warrant to be executed in its
corporate name by one of its officers thereunto duly authorized, and its
corporate seal to be hereunto affixed, attested by its Secretary or an Assistant
Secretary, all as of the day and year first above written.
ORBITAL SCIENCES CORPORATION
By:
------------------------------------
Name:
Title:
Address: 21700 Atlantic Boulevard
Dulles, VA 20166
Attention: Chief Financial Officer
Telephone No.:
Facsimile No.:
[Corporate Seal]
Attest:
By:
-------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.1.7
EXECUTION COPY
AMENDMENT NO. 7
TO
THIRD AMENDED AND RESTATED
CREDIT AND REIMBURSEMENT AGREEMENT
AMENDMENT No. 7 dated as of February 16, 2000 among ORBITAL
SCIENCES CORPORATION (the "COMPANY"), the BANKS listed on the signature pages
hereof and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent
(the "ADMINISTRATIVE AGENT") and as Collateral Agent (the "COLLATERAL AGENT").
WITNESSETH:
WHEREAS, the parties hereto have heretofore entered into a Third
Amended and Restated Credit and Reimbursement Agreement dated as of December 21,
1998 (as amended from time to time, the "CREDIT AGREEMENT"); and
WHEREAS, the Company has asked the Banks to waive compliance by
the Company with certain covenants set forth in the Credit Agreement for the
period from and including the Amendment No. 7 Effective Date (as defined in the
Credit Agreement as amended hereby) to and including April 30, 2000 (the "WAIVER
PERIOD"), and the Banks are willing to do so, subject to the terms and
conditions set forth herein; and
WHEREAS, the Company has entered into an Omnibus Agreement dated
as of January 1, 2000 with OCC, Teleglobe Inc., Teleglobe Mobile Partners and
ORBCOMM Global, a copy of which has been delivered to each of the Banks prior to
the date hereof; and
WHEREAS, the Company has asked the Banks to amend certain
covenants set forth in the Credit Agreement in order to permit the Company to
consummate the transactions contemplated by such Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definition; References. Unless otherwise specifically defined
herein, each term used herein that is defined in the Credit Agreement shall have
the meaning assigned to such term in the Credit Agreement. Each reference to
<PAGE> 2
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall from and after the Amendment No. 7
Effective Date (as defined in Section 14 below) refer to the Credit Agreement as
amended hereby.
SECTION 2. Additional Definitions. Section 1.01 of the Credit Agreement
is amended by adding therein the following definitions in alphabetical order:
"AMENDMENT NO. 7 EFFECTIVE DATE" means the date of effectiveness
of Amendment No. 7 to this Agreement.
"GEMTRACK BUSINESS" means all of the assets of the Company
relating to the business of, among other things, developing, designing,
manufacturing, marketing and selling to commercial customers automated tracking
and cargo status data systems of unpowered mobile assets such as truck trailers,
railcars, and containers, such assets being set forth on Schedule IV.
"ORBCOMM OMNIBUS AGREEMENT" means the Agreement entered into as of
January 1, 2000, by and among the Company, OCC, Teleglobe Inc., Teleglobe Mobile
Partners and ORBCOMM Global.
"ORBCOMM PROCUREMENT AGREEMENTS" means the ORBCOMM System
Procurement Agreement dated as of September 12, 1995 (as amended), and the
ORBCOMM Procurement Agreement dated as of February 1, 1999 (as amended), each
between ORBCOMM Global and the Company.
"ORBCOMM PROCUREMENT RECEIVABLES" means Receivables of the Company
with respect to which ORBCOMM Global is the account debtor in an aggregate
amount equal to $66,163,290.44 outstanding as of July 1999, under the ORBCOMM
Procurement Agreements.
SECTION 3. Waiver of Compliance with Certain Covenants. (a) The Banks
waive (i) compliance by the Company with the provisions of Section 5.08 of
the Credit Agreement and (ii) any Default arising under Section 6.01(c) of the
Credit Agreement by reason of such noncompliance; provided that the waivers
granted pursuant to this Section shall be effective only so long as Consolidated
Net Worth at the last day of any fiscal quarter ended during the Waiver Period
will not be less than (i) $365,000,000 plus (ii) 50% of Consolidated Net Income
for each fiscal quarter of the Company ended on or after September 30, 1999, for
which 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
2
<PAGE> 3
increased by reason of the issuance and sale after September 30, 1999 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, 1999 and on or prior to such day.
(b) The Banks waive (i) compliance by the Company with the provisions of
Section 5.09 of the Credit Agreement and (ii) any Default arising under Section
6.01(c) of the Credit Agreement by reason of such noncompliance; provided that
the waivers granted pursuant to this Section 3(b) shall be effective only so
long as the Leverage Ratio will at no time during the Waiver Period exceed
5.00:1.
(c) The Banks waive (i) compliance by the Company with the provisions of
Section 5.10 of the Credit Agreement and (ii) any Default arising under Section
6.01(c) of the Credit Agreement by reason of such noncompliance; provided that
the waivers granted pursuant to this Section 3(c) shall be effective only so
long as the ratio of Earnings Available for Fixed Charges to Consolidated Fixed
Charges, on the last day of any fiscal quarter during the Waiver Period, in each
case for the four consecutive fiscal quarters then ended, not be less than
1.15:1.
(d) The Banks waive (i) compliance by the Company with the provisions of
Section 5.17 of the Credit Agreement and (ii) any Default arising under Section
6.01(c) of the Credit Agreement by reason of such noncompliance; provided that
the waivers granted pursuant to this Section 3(d) shall be effective only so
long as the Total Debt of all of the Company's Subsidiaries (excluding (i) Loans
and Letter of Credit Liabilities hereunder, (ii) Debt of a Subsidiary to the
Company or to a Wholly-Owned Subsidiary of the Company and (iii) Debt consisting
of performance bonds and letters of credit issued for the account of MDA in an
aggregate amount not in excess of $48,000,000 to support certain contractual
obligations, including obligations in an aggregate amount of approximately
$20,000,000 for construction of the Radarsat 2 satellite, of approximately
$8,000,000 under a contract with respect to a Malaysian ground station, of
approximately $3,000,000 under a contract with respect to a Taiwanese ground
station and of approximately $17,000,000 with respect to miscellaneous
performance bonds) will at no time during the Waiver Period exceed 90% of
Consolidated Tangible Net Worth.
(e) Each of the waivers granted pursuant to subsections (a), (b), (c) and
(d) above shall expire on the earlier of (i) close of business (New York City
time) on the last day of the Waiver Period and (ii) the first date on which the
Company shall, or shall permit any other Borrower to, breach any of its
obligations set forth in Section 7.
(f) Except as provided in subsections (a), (b), (c) and (d) above, this
Section 3 shall not operate as a waiver of any right, remedy, power or privilege
of
3
<PAGE> 4
the Banks under any Financing Document or of any other term or condition of any
Financing Document.
SECTION 4. Additional Permitted Investments. Section 5.07 of the Credit
Agreement is amended by (i) deleting the "and" at the end of clause (n) thereof,
(ii) renumbering clause (o) thereof as clause (p) and substituting a reference
to "clause (p)" for the reference to "clause (o)" contained therein and (iii)
adding a new clause (o) immediately after clause (n) thereof, to read in its
entirety as follows:
(o) Investments in ORBCOMM Global made pursuant to the ORBCOMM
Omnibus Agreement as in effect on the Amendment No. 7 Effective Date and
consisting solely of (i) the GEMtrack Business, but only to the extent
that the book value of the GEMtrack Business at the time such Investment
is made does not exceed $5,000,000 (and the Company acknowledges that the
provisions of Section 2.10(d) shall apply to any Net Cash Proceeds
resulting from such Investment and such Net Cash Proceeds shall be
applied in accordance therewith) and (ii) the conversion of certain
ORBCOMM Procurement Receivables in an aggregate amount not in excess of
$33,081,645.22 into equity interests in ORBCOMM Global; and
SECTION 5. Additional Covenant to Limit Consolidated Capital
Expenditures. Section 5.20 of the Credit Agreement is hereby amended to read in
its entirety as follows:
SECTION 5.20. Consolidated Capital Expenditure. At any date
the aggregate amount of Consolidated Capital Expenditures for the
period from and including December 1, 1999 to and including such
date, will not exceed $26,000,000.
SECTION 6. Waiver and Amendment of Bankers Meeting. (i) The Banks
waive any Default arising under Section 6.01(c) of the Credit Agreement
due to noncompliance by the Company with Section 5.21 thereof on or prior
to Amendment No. 7 Effective Date.
(ii) Section 5.21 of the Credit Agreement is hereby amended to read in
its entirety as follows:
SECTION 5.21 2000 Bankers Meeting. The Company shall:
(a) On or prior to March 10, 2000, host a tele-conference, at
which the Company shall (i) discuss with the Banks its detailed strategic
4
<PAGE> 5
initiatives for fiscal year 2000 and (ii) provide the Banks in reasonable
detail information regarding such strategic initiatives, as well as any
other information regarding the Company and its Subsidiaries as any Bank
may reasonably request.
(b) On or prior to April 13, 2000 (i) host a bankers meeting, at
which meeting the senior management of the Company shall present in
reasonable detail the financial condition, results of operation, current
status of business and affairs of the Company and the business plan,
budget and projections of the Company for the period from and including
January 1, 2000 to and including the Termination Date, and (ii) provide
the Banks in reasonable detail information regarding the financial
condition, business plans and projections of the Company and its
Subsidiaries, as well as any other information regarding the Company and
its Subsidiaries as any Bank may reasonably request.
(c) At least three Domestic Business Days prior to the date of the
bankers' meeting referred to in subsection (b) (but in any event no later
than April 10, 2000), deliver to each of the Lenders the business plan of
the Company which plan shall include the information set forth in clause
(i) of subsection (b) of this Section.
SECTION 7. Limitation on New Extensions of Credit. The Company agrees
that neither Company nor any other Borrower shall deliver a Notice of Borrowing
under the Credit Agreement or a request for issuance of a Letter of Credit under
the Credit Agreement or otherwise request any Bank (including the LC Bank) to
extend any credit to the Company or any other Borrower under the Credit
Agreement, and that, notwithstanding any provision of the Credit Agreement
(including Sections 2.01, 2.03 and 3.02), on and after the date hereof, no Bank
(including the LC Bank) shall be required to make any Loan, or issue or
participate in any Letter of Credit (it being understood that nothing in this
sentence shall be construed to prohibit the Company from delivering a Notice of
Interest Rate Election with respect to any Loan outstanding prior to the
Amendment No. 6 Effective Date and continuing or converting such Loan on the
terms set forth in such Notice of Interest Rate Election).
SECTION 8. Amendment to Pricing Schedule. The Pricing Schedule to the
Credit Agreement is amended by substituting the date "April 30, 2000" for the
date "February 22, 2000" set forth in paragraph immediately after the table set
forth therein.
SECTION 9. Addition of Schedule IV. A new Schedule IV is added to the
Credit Agreement to read in its entirety as set forth on Schedule I hereto.
5
<PAGE> 6
SECTION 10. Consent to New Lockbox Arrangements. The Banks hereby consent
to the Company changing its present lockbox account with the Designated Lockbox
Bank to a new interest bearing lockbox account ("NEW LOCKBOX ACCOUNT") with the
Designated Lockbox Bank (as defined in the Company Security Agreement); provided
that the New Lockbox Account shall be subject to the provisions of the Company
Security Agreement and a Lockbox Letter substantially in the form Exhibit G
thereto.
SECTION 11. Ratification of Certain Agreements. The Banks hereby
acknowledge and ratify the terms of (i) the Second Amended and Restated Security
Agreement dated as of June 30, 1992, amended and restated as of August 5, 1997
and further amended and restated as of November 30, 1999 among the Company, each
of the Subsidiaries party thereto, the Collateral Agent and Bank of America,
N.A., as Designated Lockbox Bank (the "COMPANY SECURITY AGREEMENT"), (ii) the
Pledge Agreement dated as of November 30, 1999 among the Company, each of the
Subsidiaries party thereto and the Collateral Agent, (iii) the Deed of Trust,
Assignment of Leases and Rents, Security Agreement and Financing Statement dated
as of January 21, 2000 between the Company and Walker Title & Escrow Company,
Inc. for the benefit of the Collateral Agent, and (iv) the Intercreditor
Agreement dated as of January 31, 2000 between the Administrative Agent and The
Northwestern Mutual Life Insurance Company.
SECTION 12. Release of Liens. (a) The Banks hereby agree that:
(i) upon the making of the Investment described in clause (i) of Section
5.07(o) of the Credit Agreement (as amended hereby), the Lien created under the
Company Security Agreement on Collateral consisting solely of the GEMtrak
Business (as defined in the Credit Agreement as amended hereby) and any Proceeds
(as defined in the Company Security Agreement) thereof consisting of equity
interests in ORBCOMM Global (but not any other Proceeds) shall be released; and
(ii) upon the making of the Investment described in clause (ii) of
Section 5.07(o) of the Credit Agreement (as amended hereby), the Lien created
under the Company Security Agreement on Collateral consisting solely of the
ORBCOMM Procurement Receivables (as defined in the Credit Agreement as amended
hereby) and Proceeds thereof consisting of equity interests in ORBCOMM Global
(but not any other Proceeds) shall be released.
(b) The Banks hereby acknowledge and agree that the Collateral Agent may
execute and deliver UCC-3 termination statements and such other releases,
assignments and instruments as may be necessary or desirable to evidence the
release of Liens described in subclauses (i) and (ii) of clause (a) of this
Section 9.
6
<PAGE> 7
SECTION 13. New York Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 14. Counterparts, Effectiveness. This Amendment 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 Amendment shall become effective on the date (the "AMENDMENT NO. 7
EFFECTIVE DATE") on which the Administrative Agent shall have received duly
executed counterparts hereof signed by the Company and the Required Banks (or,
in the case of any party as to which an executed counterpart shall not have been
received, the Administrative Agent shall have received telegraphic, telex or
other written confirmation from such party of execution of a counterpart hereof
by such party).
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
ORBITAL SCIENCES CORPORATION
By
---------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
---------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By
---------------------------------
Name:
Title:
BANK OF AMERICA, N.A., f/k/a
NATIONSBANK, N.A.
By
---------------------------------
Name:
Title:
8
<PAGE> 9
FIRST UNION COMMERCIAL CORPORATION
By
---------------------------------
Name:
Title:
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLAND BRANCHES
By
---------------------------------
Name:
Title:
By
---------------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION
By
---------------------------------
Name:
Title:
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By
---------------------------------
Name:
Title:
9
<PAGE> 10
WACHOVIA BANK, N.A.
By
---------------------------------
Name:
Title:
CHEVY CHASE BANK
By
---------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent
and as Collateral Agent
By
---------------------------------
Name:
Title:
10
<PAGE> 11
SCHEDULE I
Orbital Sciences Corporation
GemTrak Product Line of Electronics and Sensors Systems Group
Balance Sheet
As of December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS LIABILITIES AND EQUITY
<S> <C> <C> <C>
Current assets:
Billed receivables $ 420,951 Current liabilities $ -
Unbilled receivables 79,841
Work in process inventory
1,767,135
---------------
Total current assets 2,267,567
Non-current liabilities $ -
Capitalized development
costs, net of accumulated
amortization of $76,229 2,294,915
Intangible asset - patent Equity and advances
63,947 from Orbital 4,626,429
--------------- --------------
Total assets $ 4,626,429 Total liabilities $ 4,626,429
=============== and equity ==============
</TABLE>
Notes:
(1) This balance sheet is preliminary and may be subject to final adjustment.
(2) Effective March 30, 1999, the operations of GemTrak were merged into
Vantage Tracking Solutions, a business unit of ORBCOMM Global, L.P.
(3) The receivables primarily relate to payroll costs for GemTrak employees
ESSG continued to carry these employees until they were transferred to
ORBCOMM on July 5, 1999.
11
<PAGE> 1
EXHIBIT 10.1.8
FORM
AMENDMENT NO. 8 AND WAIVER
TO
THIRD AMENDED AND RESTATED
CREDIT AND REIMBURSEMENT AGREEMENT
AMENDMENT No. 8 and WAIVER dated as of April 13, 2000 among
ORBITAL SCIENCES CORPORATION (the "COMPANY"), the BANKS listed on the signature
pages hereof and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative
Agent (the "ADMINISTRATIVE AGENT") and as Collateral Agent (the "COLLATERAL
AGENT").
WITNESSETH:
WHEREAS, the parties hereto have heretofore entered into a Third
Amended and Restated Credit and Reimbursement Agreement dated as of December 21,
1998 (as amended from time to time, the "CREDIT AGREEMENT"); and
WHEREAS, the Company has asked the Banks to waive compliance by
the Company with certain covenants set forth in the Credit Agreement for the
period from and including the Amendment No. 8 Effective Date (as defined in the
Credit Agreement as amended hereby) to and including January 1, 2001 (the
"WAIVER PERIOD"), and the Banks are willing to do so, subject to the terms and
conditions set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definition; References. Unless otherwise specifically defined
herein, each term used herein that is defined in the Credit Agreement shall have
the meaning assigned to such term in the Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall from and after the Amendment No. 8
Effective Date (as defined in Section 21 below) refer to the Credit Agreement as
amended hereby.
SECTION 2. Amendments to the Definitions. (a) Section 1.01 of the Credit
Agreement is amended by adding therein the following definitions in alphabetical
order:
<PAGE> 2
"AMENDMENT NO. 8 EFFECTIVE DATE" means the date of effectiveness of
Amendment No. 8 and Waiver to this Agreement.
"**** ACQUISITION" means the ******* acquisition .
"DEBT ISSUANCE" means any issuance of Debt by the Company or any of its
wholly-owned domestic subsidiaries after the Amendment No. 8 Effective Date
(including without limitation any Debt convertible into equity) in the capital
markets (whether in a registered offering or in a private placement).
"MDA FINANCING" means the credit agreement to which MDA will become a
party providing for loans thereunder to be used by MDA for working capital
purposes and for [other purposes]; provided that the aggregate principal amount
of Debt that may be incurred under such credit agreement shall not exceed
$210,000,000 Canadian Dollars.
"NML DEBT" means Debt of the Company under the Note Agreement dated as of
June 1, 1995 between the Company and The Northwestern Mutual Life Insurance
Company.
"RESTATEMENT DATE" means the date of effectiveness of the restatement
described in Section 5.23.
"SENIOR DEBT" means at any date (i) Debt of the Company under this
Agreement plus (ii) the NML Debt plus (iii) other Debt of the Company (other
than (x) Debt owed to any Subsidiary and (y) other Debt so long as such other
Debt is subordinated to Debt of the Company under this Agreement on terms
satisfactory to the Required Banks) plus (iv) Debt of Subsidiaries of the
Company (other than (w) any Guarantees of the NML Debt, (x) Guarantees of Debt
under this Agreement, (y) Debt of any Subsidiary owed to the Company or any
other Subsidiary and (z) other Debt of any Subsidiary Guarantor so long as such
other Debt is subordinated to such Subsidiary Guarantor's Guarantee of Debt
under this Agreement on terms satisfactory to the Required Banks).
"SENIOR LEVERAGE RATIO" means on any date the ratio of Senior Debt on
such date to Consolidated EBITDA for the period of four consecutive fiscal
quarters most recently ended on or prior to such date.
"SUBSIDIARY GUARANTOR" means any Subsidiary of the Company that has
Guaranteed the obligations of the Company under the Financing Documents.
(b) The following definitions set forth in Section 1.01 of the Credit
Agreement are amended to read in their entirety as follows:
2
<PAGE> 3
"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 (other than Debt consisting of performance bonds and letters
of credit issued for the account of MDA in an aggregate amount not in excess of
$48,000,000 to support certain contractual obligations, including obligations in
an aggregate amount of approximately $20,000,000 for construction of the
Radarsat 2 satellite, of approximately $8,000,000 under a contract with respect
to a Malaysian ground station, of approximately $3,000,000 under a contract with
respect to a Taiwanese ground station and of approximately $17,000,000 with
respect to miscellaneous performance bonds) 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.
"EQUITY ISSUANCE" means any issuance of equity securities by the Company
or any of its domestic wholly-owned Subsidiaries, other than (i) any such
issuance to the Company or any of its domestic wholly-owned Subsidiaries, (ii)
any such issuance pursuant to employee benefit arrangements in the ordinary
course of business, (iii) any such issuance pursuant to the warrants
contemplated by Section 16 of Amendment No. 6 and (iv) any such issuance
pursuant to the conversion of any Debt, so long as neither the Company nor any
of its domestic wholly-owned Subsidiaries receives any Net Cash Proceeds in
connection with any such issuance described in this clause (iv).
"REDUCTION EVENT" means any Asset Sale, Debt Issuance or Equity Issuance.
SECTION 3. Waiver of Compliance with Certain Covenants. (a) The Banks
waive (i) compliance by the Company with the provisions of Sections 5.01(a),
5.01(b), 5.01(c), 5.01(d), 5.08, 5.09, 5.10 and 5.17 of the Credit Agreement on
or prior to the Amendment No. 8 Effective Date and (ii) any Default arising
under Sections 6.01(c) or 6.01(d) of the Credit Agreement by reason of such
noncompliance.
(b) Each of the waivers granted pursuant to subsection (a) above shall
expire on the earliest of (i) close of business (New York City time) on the last
day of the Waiver Period, (ii) the first date on which the Company shall, or
shall permit any other Borrower to, breach any of its obligations set forth in
Section 18 and (iii) the first date on which an Event of Default shall occur and
be continuing under the Credit Agreement.
(c) Except as provided in subsection (a) above, this Section 3 shall not
3
<PAGE> 4
operate as a waiver of any right, remedy, power or privilege of the Banks under
any Financing Document or of any other term or condition of any Financing
Document.
SECTION 4. Increase in Commitment Reduction Amount. Sections 2.10(d) and
2.10(e) of the Credit Agreement are amended to read in their entirety as
follows:
(d) If a Reduction Event shall occur, the Commitments shall be
automatically and ratably reduced by an amount equal to 50% of the Net Cash
Proceeds with respect to such Reduction Event; provided that (i) if such portion
of such Net Cash Proceeds, when aggregated with the corresponding portions of
the Net Cash Proceeds of all other Reduction Events not theretofore so applied,
is less than $1,000,000, such Net Cash Proceeds shall be deposited in the
Restricted Account pending application pursuant to this subsection (d) in
connection with a subsequent Reduction Event, (ii) the aggregate amount of the
reductions of the Commitments effected pursuant to this subsection (d) as a
result of Reduction Events consummated on or before August 1, 2000 shall not
exceed $40,000,000, (iii) the aggregate amount of the reductions of the
Commitments effected pursuant to this subsection (d) as a result of Reduction
Events consummated after August 1, 2000 shall not exceed $20,000,000 and (iv) in
no event shall the Commitments be reduced below $85,000,000 pursuant to this
subsection (d). Each such reduction shall be effective as of the day of receipt
by the Company or any of its domestic wholly-owned Subsidiaries, as the case may
be, of the relevant Net Cash Proceeds.
(e) To the extent not theretofore reduced to the same or a lesser amount,
the Commitments shall be automatically and ratably reduced on each date set
forth below to the aggregate amount set forth below opposite such date:
<TABLE>
<CAPTION>
---------------------------------------
DATE AGGREGATE AMOUNT
---------------------------------------
<S> <C>
August 1, 2000 Target Amount
---------------------------------------
July 1, 2001 $85,000,000
---------------------------------------
</TABLE>
"TARGET AMOUNT" means (i) if the Restatement Date has occurred pursuant to
Section 5.23 on or prior to May 31, 2000, $125,000,000 and (ii) otherwise,
$105,000,000.
SECTION 5. Additional Fees. A new Section 2.17 to the Credit Agreement is
added immediately after Section 2.16 thereof, to read in its entirety as
follows:
4
<PAGE> 5
SECTION 2.17. Additional Fees. On the date that is the earlier of (i) May
31, 2000 and (ii) the Restatement Date, the Company shall pay to the
Administrative Agent for the account of each Bank which was entitled to a fee
pursuant to Section 21 of Amendment No.8 and Waiver to this Agreement, a fee in
an amount equal to 0.125% of such Bank's Commitment as in effect on such date.
SECTION 6. Amendment of the Investments Covenant. Section 5.07 of the
Credit Agreement is amended by adding the following sentence at the end thereof:
Notwithstanding any provision of this Agreement (including the foregoing
clauses of this Section 5.07), after the Amendment No.8 Effective Date, the
Company will not and will not permit any Subsidiary to, consummate any
acquisition of any other Person or all of the components of an entire line of
business or division of any other Person (whether by purchase of stock or
assets, by merger, consolidation or otherwise) without the prior written consent
of the Required Banks, other than the .......... Acquisition.
SECTION 7. Change in the Minimum Net Worth Covenant. Section 5.08 of the
Credit Agreement is amended to read in its entirety as follows:
SECTION 5.08. Minimum Consolidated Net Worth. Consolidated Net Worth at
the last day of any fiscal quarter set forth below will not be less than (i) the
amount set forth in the table below opposite such fiscal quarter plus (ii) 50%
of Consolidated Net Income for each fiscal quarter of the Company ended after
March 31, 2000, 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 March
31, 2000 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 March 31, 2000 and on or prior to such date.
<TABLE>
<CAPTION>
------------------------------------------
FISCAL QUARTER ENDED AMOUNT
------------------------------------------
<S> <C>
6/30/00 $300,000,000
------------------------------------------
9/30/00 $290,000,000
------------------------------------------
12/31/00 $270,000,000
------------------------------------------
Thereafter $476,100,000
------------------------------------------
</TABLE>
5
<PAGE> 6
SECTION 8. Change in the Leverage Ratio, Addition of Senior Leverage
Ratio. Section 5.09 of the Credit Agreement is amended to read in its entirety
as follows:
SECTION 5.09. (a) Leverage. The Consolidated Leverage Ratio will at no
date during any period set forth below exceed the ratio set forth below opposite
such period:
<TABLE>
<CAPTION>
---------------------------------------------------
PERIOD RATIO
---------------------------------------------------
<S> <C>
Amendment No. 8 Effective Date- 12/30/00 4.50
---------------------------------------------------
12/31/00 - 1/1/01 4.80
---------------------------------------------------
Thereafter 3.50
---------------------------------------------------
</TABLE>
(b) Senior Leverage. The Senior Leverage Ratio will at no date during any
period set forth below exceed the ratio set forth below opposite such period:
<TABLE>
<CAPTION>
---------------------------------------------------
PERIOD RATIO
---------------------------------------------------
<S> <C>
Amendment No. 8 Effective Date- 12/30/00 3.50
---------------------------------------------------
Thereafter 3.60
---------------------------------------------------
</TABLE>
SECTION 9. Change in the Consolidated Fixed Charge Ratio. Section 5.10 of
the Credit Agreement is amended to read in its entirety as follows:
SECTION 5.10. Consolidated Fixed Charge Ratio. At the last day of any
fiscal quarter set forth below, 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 such fiscal quarter:
<TABLE>
<CAPTION>
----------------------------------------------------
FISCAL QUARTER ENDED RATIO
----------------------------------------------------
<S> <C>
6/30/00 0.75:1
----------------------------------------------------
9/30/00 0.90:1
----------------------------------------------------
12/31/00 0.90:1
----------------------------------------------------
Thereafter 1.50:1
----------------------------------------------------
</TABLE>
6
<PAGE> 7
SECTION 10. Additional Exception For Negative Pledge. (a) Section 5.14 of
the Credit Agreement is amended by (i) deleting the "and" at the end of clause
(s) thereof, (ii) renumbering clause (t) thereof as clause (u), and (iii) adding
a new clause (t) immediately after clause (s) thereof, to read in its entirety
as follows:
(t) Liens on assets of MDA and its subsidiaries securing Debt and
other obligations of MDA and such subsidiaries under the MDA Financing;
and
SECTION 11. Change in the Subsidiary Debt Covenant, Addition of an MDA
Covenant. Section 5.17 of the Credit Agreement is hereby amended to read in its
entirety as follows:
SECTION 5.17. (a) Subsidiary Debt. Total Debt of all of the Company's
Subsidiaries (excluding (i) Loans and Letter of Credit Liabilities hereunder and
any Guarantees thereof, (ii) Debt of a Subsidiary to the Company or to a
Wholly-Owned Subsidiary of the Company, (iii) Debt of MDA or any of its
Subsidiaries and (iv) any Guarantees of the NML Debt) will at no time exceed 5%
of Consolidated Net Worth.
(b) MDA Equity. The Company will cause MDA to comply with the covenant
set forth in the Credit Agreement evidencing the MDA Financing requiring MDA to
maintain a minimum consolidated equity level; provided that failure by the
Company to comply with this Subsection (b) at any time shall not constitute an
Event of Default hereunder unless at such time such failure by MDA to comply
with such covenant in such Credit Agreement constitutes an event of default
thereunder which has not been waived by the lenders to the MDA Financing.
SECTION 12. Change in Consolidated Capital Expenditures. Section 5.20 of
the Credit Agreement is hereby amended to read in its entirety as follows:
SECTION 5.20. Consolidated Capital Expenditures. At any date the
aggregate amount of Consolidated Capital Expenditures (other than the *****
Acquisition) for the period from and including January 1, 2000 to and including
such date will not exceed $60,700,000.
SECTION 13. New Bankers' Meeting Covenant. Section 5.21 of the Credit
Agreement is amended to read in its entirety as follows:
7
<PAGE> 8
SECTION 5.21. Bankers' Meeting. The Company shall:
(a) At the request of the Administrative Agent, after delivery of the
financial information described in Section 5.22, host a tele-conference, at
which the Company shall (i) discuss with the Banks its detailed strategic
initiatives for fiscal year 2000 and (ii) provide the Banks in reasonable detail
information regarding such strategic initiatives, as well as any other
information regarding the Company and its Subsidiaries as any Bank may
reasonably request.
(b) At the request of the Administrative Agent, after delivery of the
financial information described in Section 5.22, (i) host a bankers meeting, at
which meeting the senior management of the Company shall present in reasonable
detail the financial condition, results of operation, current status of business
and affairs of the Company and the business plan, budget and projections of the
Company for the period from and including January 1, 2000 to and including the
Termination Date, and (ii) provide the Banks in reasonable detail information
regarding the financial condition, business plans and projections of the Company
and its Subsidiaries, as well as any other information regarding the Company and
its Subsidiaries as any Bank may reasonably request.
SECTION 14. Delivery of Additional Financial Information. A new Section
5.22 to the Credit Agreement is added immediately after Section 5.21 thereof, to
read in its entirety as follows:
SECTION 5.22. Additional Financial Information. The Company will deliver
to each of the Banks, on or prior to May 15, 2000 (i) a consolidated balance
sheet of the Company and its Consolidated Subsidiaries as of December 31, 1999,
December 31, 1998 and December 31, 1997 and the related consolidated statements
of operations and cash flows for each such fiscal year, together with
consolidating balance sheets, statements of operations and operating cash flows
for each such fiscal year for each of the Company's Consolidated Subsidiaries,
setting forth in each case in comparative form the figures for the previous
fiscal year, all such consolidated statements reported on in a manner consistent
with the guidelines provided to the Company by the Securities and Exchange
Commission by the Company's independent auditors with respect to the relevant
fiscal year, (ii) a projected balance sheet of the Company and its Consolidated
Subsidiaries as of December 31, 2000 and the related projected statements of
operations and cash flows for such fiscal year and (iii) summary financial
information with respect to each division of the Company and its Subsidiaries;
provided that such summary information (x) will include in any event revenues,
gross profit, operating income, selling, general and administrative expenses and
capital expenditures with respect to each such division and (y) will
8
<PAGE> 9
be in such detail as shall be necessary in order to permit a reconciliation of
such information with the information set forth in the projected statements of
operations and cash flows delivered by the Company pursuant to clause (ii).
SECTION 15. Execution of a Restatement. (a) A new Section 5.23 to the
Credit Agreement is added immediately after Section 5.22 thereof, to read in its
entirety as follows:
SECTION 5.23. Restatement Date. (a) The Company and the Banks will use
their respective best efforts to enter into a restatement of this Agreement on
or prior to May 31, 2000 pursuant to which amendment the obligations of the
Company hereunder shall be restructured in a manner satisfactory to the Company
and the Banks.
(b) The Company and the Banks acknowledge and agree that it is
currently contemplated that, pursuant to the restatement of the Credit
Agreement contemplated by Section 5.23 of the Credit Agreement as amended
hereby, (i) the compliance levels applicable to the covenants set forth
in Sections 5.08, 5.09 and 5.10 of the Credit Agreement will be reset for
such fiscal quarter as the Company shall have provided financial
projections to levels mutually agreed upon by the Company and the
Required Banks on the basis of such updated financial projections
consistent with the methodology and intent used in deriving the covenant
levels applicable during the Waiver Period (as defined in Amendment No.8
and Waiver to this Agreement), (ii) the Company shall be permitted to
consummate the acquisition identified to the Banks as the "Cooler
Acquisition" substantially on the terms described by the Company to the
Banks prior to the Amendment No. 8 Effective Date (but not other
acquisitions), (iii) the Company shall be permitted to consummate an
issuance of convertible Debt substantially on the terms described by the
Company to the Banks prior to the Amendment No. 8 Effective Date and (iv)
the mandatory reductions of the Commitments effected by Sections 2.10(d)
and (e) of the Credit Agreement as amended hereby shall not be changed.
SECTION 16. Additional Events of Default. (a) Section 6.01(b) of the
Credit Agreement is amended to read in its entirety as follows:
(b) (i) any fee payable pursuant to Section 2.17 shall not be paid when
due or (ii) any interest on any Loan, any fees (other than any fee described in
clause (i)) 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;
9
<PAGE> 10
(b) Section 6.01(c) of the Credit Agreement is amended to read in its
entirety as follows:
(c) any Borrower shall fail to observe or perform any covenant or
agreement contained in Sections 5.01(g) and 5.07 to 5.22 inclusive;
SECTION 17. Amendment to Amendment and Waivers Section. Clause (iii) of
section 10.05 of the Credit Agreement is amended to read in its entirety as
follows:
(iii) postpone the date fixed for any payment of principal or interest on
any Loan, or any fees hereunder or for termination or scheduled reduction
of any Commitment,
SECTION 18. Limitation on New Extensions of Credit. The Company agrees
that neither Company nor any other Borrower shall deliver a Notice of Borrowing
under the Credit Agreement or a request for issuance of a Letter of Credit under
the Credit Agreement or otherwise request any Bank (including the LC Bank) to
extend any credit to the Company or any other Borrower under the Credit
Agreement, and that, notwithstanding any provision of the Credit Agreement
(including Sections 2.01, 2.03 and 3.02), on and after the date hereof, no Bank
(including the LC Bank) shall be required to make any Loan, or issue or
participate in any Letter of Credit (it being understood that nothing in this
sentence shall be construed to prohibit the Company from delivering a Notice of
Interest Rate Election with respect to any Loan outstanding prior to the
Amendment No. 6 Effective Date and continuing or converting such Loan on the
terms set forth in such Notice of Interest Rate Election).
SECTION 19. Amendment to Pricing Schedule. The Pricing Schedule to the
Credit Agreement is amended by substituting the date "January 1, 2001" for the
date "April 30, 2000" set forth in paragraph immediately after the table set
forth therein.
SECTION 20. New York Law. This Amendment and Waiver shall be governed by
and construed in accordance with the laws of the State of New York.
SECTION 21. Counterparts, Effectiveness. This Amendment and Waiver 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 Amendment and Waiver shall become effective on the date (the
"AMENDMENT NO. 8 EFFECTIVE DATE") on which the Administrative Agent shall have
received:
10
<PAGE> 11
(i) duly executed counterparts hereof signed by the Company and the
Required Banks (or, in the case of any party as to which an executed counterpart
shall not have been received, the Administrative Agent shall have received
telegraphic, telex or other written confirmation from such party of execution of
a counterpart hereof by such party); and
(ii) for the ratable account of each Bank from which approval of this
Amendment and Waiver shall have been received at or prior to the later of (i)
the time the condition in clause (i) is satisfied and (ii) 5:00 P.M., New York
City time, on April 13, 2000, an amendment fee in an amount equal to 0.125% of
the amount of such Bank's Commitment as in effect on such date; provided that
the Administrative Agent shall have received duly executed counterparts hereof
signed by the Required Banks (or, in the case of any Bank as to which an
executed counterpart shall not have been received, the Administrative Agent
shall have received telegraphic, telex or other written confirmation from such
party of execution of a counterpart hereof by such Bank). The determination of
the Administrative Agent as to timing of the receipt of a Bank's approval shall
be conclusive, absent manifest error.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
and Waiver to be duly executed as of the date first above written.
ORBITAL SCIENCES CORPORATION
By
------------------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By
------------------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By
------------------------------------------
Name:
Title:
BANK OF AMERICA, N.A., f/k/a
By
------------------------------------------
Name:
Title:
12
<PAGE> 13
FIRST UNION COMMERCIAL CORPORATION
By
------------------------------------------
Name:
Title:
DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN
ISLAND BRANCHES
By
------------------------------------------
Name:
Title:
By
------------------------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION
By
------------------------------------------
Name:
Title:
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By
------------------------------------------
Name:
Title:
13
<PAGE> 14
WACHOVIA BANK, N.A.
By
------------------------------------------
Name:
Title:
CHEVY CHASE BANK
By
------------------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent and
as Collateral Agent
By
------------------------------------------
Name:
Title:
Acknowledged by:
ENGINEERING TECHNOLOGIES, INC.
By
------------------------------------------
Name:
Title:
ORBITAL SPACE SYSTEMS, INC.
By
------------------------------------------
Name:
Title:
14
<PAGE> 15
ORBITAL COMMERCIAL SYSTEMS, INC.
By
------------------------------------------
Name:
Title:
ORBITAL INTERNATIONAL, INC.
By
------------------------------------------
Name:
Title:
ORBITAL SERVICES CORPORATION
By
------------------------------------------
Name:
Title:
ORBITAL NAVIGATION CORPORATION
By
------------------------------------------
Name:
Title:
ORBLINK LLC
By
------------------------------------------
Name:
Title:
15
<PAGE> 1
EXHIBIT 10.2.9
Execution Copy
================================================================================
ORBITAL SCIENCES CORPORATION
-----------------------------------
NINTH AMENDMENT
Dated as of January 31, 2000
to
NOTE AGREEMENT
Dated as of June 1, 1995
-----------------------------------
Re: $13,333,333 12% Senior Notes
Due June 14, 2001
================================================================================
<PAGE> 2
NINTH AMENDMENT TO NOTE AGREEMENT
THIS NINTH AMENDMENT to Note Agreement dated as of January 31, 2000 (the
or this "Ninth Amendment"), is entered into between ORBITAL SCIENCES
CORPORATION, a Delaware corporation (the "Company") and THE NORTHWESTERN MUTUAL
LIFE INSURANCE COMPANY (the "Noteholder").
RECITALS:
A. The Company and the Noteholder have heretofore entered into the
Note Agreement dated as of June 1, 1995, the First Amendment to Note Agreement
dated as of June 30, 1995, the Second Amendment to Note Agreement dated as of
March 15, 1996, the Third Amendment to Note Agreement dated as of July 31, 1996,
the Fourth Amendment to Note Agreement dated as of March 31, 1997, the Fifth
Amendment to Note Agreement dated as of December 23, 1997, the Sixth Amendment
to Note Agreement dated as of August 14, 1998, the Seventh Amendment to Note
Agreement dated as of May 27, 1999 and the Eighth Amendment to Note Agreement
dated as of December 20, 1999 (as so amended, supplemented or otherwise
modified, the "Note Agreement").
B. The Company and the Noteholder now desire to amend the Note
Agreement in the respects, but only in the respects, hereinafter set forth.
C. Capitalized terms used herein shall have the respective meanings
ascribed thereto in the Note Agreement unless herein defined or the context
shall otherwise require.
D. All requirements of law have been fully complied with and all
other acts and things necessary to make this Ninth Amendment a valid, legal and
binding instrument according to its terms for the purposes herein expressed have
been done or performed.
NOW, THEREFORE, in consideration of good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the Company and the
Noteholder do hereby agree as follows:
SECTION 1. AMENDMENTS.
1.1. The following shall be added as a new Section 1.3 of the Note
Agreement:
"Section 1.3. Security for the Notes. (a) The payment by the
Company of all amounts due with respect to the Notes is fully and
unconditionally guaranteed by Engineering Technologies, Inc., a Virginia
corporation ("Engineering Technologies"), Orbital Space Systems, Inc., a
Virginia corporation ("Orbital Space"), Orbital Commercial Systems, Inc.,
a Virginia corporation ("Orbital Commercial"), Orbital International,
Inc., a Virginia corporation ("Orbital International"), Orbital Services
Corporation, a Delaware corporation ("Orbital Services"), Orbital
Navigation Corporation, a Delaware corporation ("Orbital Navigation"),
Orblink LLC, a Delaware
<PAGE> 3
limited liability company ("Orblink," and together with Engineering
Technologies, Orbital Space, Orbital Commercial, Orbital International,
Orbital Services and Orbital Navigation, collectively, the "Subsidiary
Guarantors") pursuant to that certain Subsidiary Guaranty Agreement dated
as of the date hereof (the "Subsidiary Guaranty Agreement") from the
Subsidiary Guarantors to the Purchaser and each other holder of the Notes
from time to time. Without limiting the foregoing, the enforcement of the
rights and benefits in respect of the Subsidiary Guaranty Agreement and
the allocation of the proceeds thereof, together with the application of
the proceeds from the collection or payment of any Indebtedness of any
Subsidiary of the Company due and owing under the Bank Credit Agreement
will be subject to an Intercreditor Agreement dated as of the date hereof
in form and substance satisfactory to the Noteholder (the "Intercreditor
Agreement") entered into by Morgan Guaranty Trust Company of New York, as
Collateral Agent, the Company and the holders of the Notes.
(b) In addition to the Subsidiary Guaranty Agreement, the Notes
will be entitled to the benefit of (1) that certain Second Amended and
Restated Security Agreement dated as of June 30, 1992, amended and
restated as of August 5, 1997, and further amended and restated as of
November 30, 1999, among the Company, each of its Subsidiaries party
thereto, Morgan Guaranty Trust Company of New York, as Collateral Agent
(the "Collateral Agent") and Bank of America, N.A., as Designated Lockbox
Bank (the "Security Agreement"), (2) that certain Pledge Agreement dated
as of November 30, 1999 among the Company, each of its Subsidiaries party
thereto and Morgan Guaranty Trust Company of New York, as Collateral
Agent (the "Pledge Agreement") and (3) that certain Deed of Trust,
Assignment of Leases and Rents, Security Agreement and Financing
Statement dated as of January 21, 2000, as further amended or
supplemented from time to time, from the Company to the Trustee named
therein, for the benefit of the Collateral Agent (the "Deed of Trust,"
and together with the Security Agreement and the Pledge Agreement,
collectively, the "Security Documents").
1.2. Section 5.10 of the Note Agreement is hereby amended as
follows:
(a) Clause (e) is amended by deleting the second proviso
thereof in its entirety and substituting in lieu thereof the
following proviso:
"provided, further, notwithstanding the foregoing, nothing
contained in this Agreement will prohibit any Lien or Liens
consisting of (i) the Stockholders Agreement amongst the Company,
MacDonald Dettwiler and Associates, BC Ltd. and CAI, which such
agreement shall contain substantially the same terms and
conditions as set forth in the CAI Letter Agreement or (ii) the
pledge for the benefit of CAI and BC Ltd. of up to 51% of the
outstanding common stock of MacDonald, Dettwiler and Associates."
(b) Clause (g) is amended by deleting the word "and" at the
end thereof.
-2-
<PAGE> 4
(c) Clause (h) is amended by deleting the period at the end
thereof and substituting in lieu thereof the text ";and".
(d) A new Clause (i) is added following Clause (h) as
follows:
"(i) liens granted for the benefit of the holders of
the Notes, including any liens shared by the holders of the
Notes and any lender under the Bank Credit Agreement."
1.3. The following shall be added as a new Section 5.18 of the Note
Agreement:
"Section 5.18. Additional Subsidiary Guarantors. If the
Company or any Wholly-owned domestic Subsidiary at any time creates or
acquires any direct Wholly-owned Subsidiary (other than any holding
company created for the purpose of holding shares of MacDonald, Dettwiler
and Associates Ltd.) (each, a "New Subsidiary"), the Company shall,
within 10 days after such creation or acquisition), (a) cause such New
Subsidiary to execute and deliver a supplement to the Subsidiary Guaranty
Agreement in the form of Exhibit A to the Subsidiary Guaranty Agreement,
(b) cause such New Subsidiary to become a party to the Security
Agreement, (c) grant a perfected first priority Lien to the Collateral
Agent for the benefit of the holders of the Notes on all of the
outstanding capital stock or other equity interest of such New Subsidiary
and (d) take, and cause such New Subsidiary and each other Subsidiary to
take, all action necessary or (in the opinion of the Collateral Agent or
the holders of the Notes) desirable to perfect and protect the Liens
intended to be created by this Agreement and the Security Documents
(including any documents delivered in connection with such creation or
acquisition pursuant to clauses (a), (b) and (c) of this Section);
provided that (1) the Company will not be required to take the actions
described in clauses (a) and (b) of this subsection with respect to any
New Subsidiary that is not a domestic Subsidiary or which has not become
liable under the Bank Credit Agreement as a guarantor or otherwise, (2)
the Company will not be required to take the actions described in clause
(c) with respect to the capital stock or other equity interests of any
New Subsidiary that is not a domestic Subsidiary to the extent the
aggregate capital stock or other equity interest of such New Subsidiary
subject to a Lien granted to the Collateral Agent for the benefit of the
holders of the Notes would exceed 66% of the outstanding capital stock or
other equity interests of such New Subsidiary, and (3) the Company will
not be required to take any of the actions described in clauses (a), (b),
or (c) of this Section 5.18 with respect to any New Subsidiary to the
extent any such action is prohibited by the terms of any agreement or
instrument to which (x) such New Subsidiary is a party or is bound as in
effect on the date such New Subsidiary becomes a Subsidiary of the
Company, so long as such agreement or such instrument was not entered
into in contemplation of such New Subsidiary becoming a Subsidiary of the
Company or (y) the Company or any of its Wholly-owned domestic
Subsidiaries (other than such New Subsidiary) is a party or is bound as
in effect on the Ninth Amendment Effective Date."
-3-
<PAGE> 5
1.4. The period at the end of SECTION 6.1 (l) is hereby deleted
and "; or" is substituted therefor and the following shall be added as a new
subsection (m) to Section 6.1 of the Note Agreement:
"(m) the Subsidiary Guaranty Agreement shall cease
to be in full force and effect for any reason whatsoever,
including, without limitation, a determination by any governmental
authority or court that such agreement is invalid, void or
unenforceable or the Company or any of the Subsidiaries party to
the Subsidiary Guaranty Agreement shall contest or deny in writing
the validity or enforceability of the Subsidiary Guaranty
Agreement."
1.5. The second full sentence of Section 6.3 of the Note Agreement
is hereby amended in its entirety to read as follows:
"When any Event of Default described in paragraphs (a) through
(i), inclusive, or paragraph (m) of said SECTION 6.1 has happened
and is continuing, the holder or holders of 66-2/3% or more of the
principal amount of Notes at the time outstanding may, by notice
in writing to the Company in the manner provided in SECTION 9.6,
declare the entire principal and all interest accrued on all Notes
to be and all Notes shall thereupon become, forthwith due and
payable, without any presentment, demand, protest or other notice
of any kind, all of which are expressly waived."
1.6. Section 6.4 of the Note Agreement is hereby amended and
restated to read as follows:
"Section 6.4. Rescission of Acceleration. The
provisions of SECTION 6.3 are subject to the condition that if the
principal of and accrued interest on all or any outstanding Notes
have been declared immediately due and payable by reason of the
occurrence of any Event of Default described in paragraphs (a)
through (i), inclusive, or paragraph (m) of SECTION 6.1, the
holders of 66-2/3% in aggregate principal amount of the Notes then
outstanding may, by written instrument filed with the Company,
rescind and annul such declaration and the consequences thereof,
provided that at the time such declaration is annulled and
rescinded:
(a) no judgment or decree has been entered for
the payment of any monies due pursuant to the Notes or this
Agreement;
(b) all arrears of interest upon all the Notes
and all other sums payable under the Notes and under this
Agreement (except any principal, interest or premium on the Notes
which has become due and payable solely by reason of such
declaration under SECTION 6.3) shall have been duly paid; and
(c) each and every other Default and Event of
Default shall have been made good, cured or waived pursuant to
SECTION 7.1;
-4-
<PAGE> 6
and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereto."
1.7. The following shall be added as new definitions in
alphabetical order to Section 8.1 of the Note Agreement:
"Collateral Agent" shall have the meaning set forth in SECTION
1.3(b).
"Ninth Amendment" shall mean the Ninth Amendment dated as of
January 31, 2000 to this Agreement.
"Ninth Amendment Effective Date" shall mean the date upon which
the Ninth Amendment becomes effective.
"Intercreditor Agreement" shall have the meaning specified in
SECTION 1.3(a).
"Pledge Agreement" shall have meaning specified in SECTION 1.3(b).
"Security Agreement" shall have the meaning specified in SECTION
1.3(b).
"Security Documents" shall have the meaning specified in SECTION
1.3(b).
"Subsidiary Guarantors" shall have the meaning specified in
SECTION 1.3(a).
"Subsidiary Guaranty Agreement" shall have the meaning specified
in SECTION 1.3(a).
1.8. The definition of "Bank Credit Agreement" set forth in
Section 8.1 of the Note Agreement shall be amended and restated to read as
follows:
"Bank Credit Agreement" shall mean the Third Amended and
Restated Credit and Reimbursement Agreement dated as of December 21, 1998
among the Company, the Banks listed therein, and Morgan Guaranty Trust
Company of New York, as Administrative Agent and as Collateral Agent,
including any extensions, renewals or replacements thereof.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
2.1. To induce the Noteholder to execute and deliver this Ninth
Amendment (which representations shall survive the execution and delivery of
this Ninth Amendment), the Company represents and warrants to the Noteholder
that:
(a) this Ninth Amendment has been duly authorized, executed and
delivered by it and this Ninth Amendment constitutes the legal, valid and
binding obligation, contract and agreement of the Company enforceable
against it in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization,
-5-
<PAGE> 7
moratorium or similar laws or equitable principles relating to or
limiting creditors' rights generally;
(b) the Note Agreement, as amended by this Ninth Amendment,
constitutes the legal, valid and binding obligation, contract and
agreement of the Company enforceable against it in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally;
(c) the execution, delivery and performance by the Company of
this Ninth Amendment (i) has been duly authorized by all requisite
corporate action and, if required, shareholder action, (ii) does not
require the consent or approval of any governmental or regulatory body or
agency, and (iii) will not (A) violate (1) any provision of law, statute,
rule or regulation or its certificate of incorporation or bylaws, (2) any
order of any court or any rule, regulation or order of any other agency
or government binding upon it, or (3) any provision of any material
indenture, agreement or other instrument to which it is a party or by
which its properties or assets are or may be bound, including, without
limitation, the Third Amended and Restated Credit and Reimbursement
Agreement dated as of December 21, 1998 among the Company, the Banks
listed therein, and Morgan Guaranty Trust Company of New York, as
Administrative Agent and as Collateral Agent, or (B) result in a breach
or constitute (alone or with due notice or lapse of time or both) a
default under any indenture, agreement or other instrument referred to in
clause (iii)(A)(3) of this SECTION 2.1(c); and
(d) as of the Effective Date and after giving effect to this
Ninth Amendment, no Default or Event of Default has occurred which is
continuing, excepting (i) only as expressly set forth in (A) that certain
Waiver dated October 31, 1999 from the Noteholder to the Company, (B)
that certain Waiver dated November 30, 1999 from the Noteholder to the
Company and (C) that certain Waiver dated December 23, 1999 from the
Noteholder to the Company and (ii) any Default or Event or Default, if
any, relating to Section 5.21 of the Bank Credit Agreement.
SECTION 3. PAYMENT OF NOTEHOLDER'S COUNSEL FEES AND EXPENSES.
The Company agrees to pay the reasonable fees and expenses of Chapman and
Cutler, counsel to the Noteholder, in connection with the negotiation,
preparation, approval, execution and delivery of this Ninth Amendment.
SECTION 4. MISCELLANEOUS.
4.1. This Ninth Amendment shall be construed in connection with
and as part of the Note Agreement, and except as modified and expressly amended
by this Ninth Amendment, and by the waivers granted by the Noteholder prior to
the date, hereof all terms, conditions and covenants contained in the Note
Agreement and the Notes are hereby ratified and shall be and remain in full
force and effect.
-6-
<PAGE> 8
4.2. Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
Ninth Amendment may refer to the Note Agreement without making specific
reference to this Ninth Amendment but nevertheless all such references shall
include this Ninth Amendment unless the context otherwise requires.
4.3. The descriptive headings of the various Sections or parts
of this Ninth Amendment are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
4.4. This Ninth Amendment shall be governed by and construed in
accordance with Illinois law.
4.5. This Ninth Amendment shall become effective on January 31,
2000 (the "Effective Date").
-7-
<PAGE> 9
4.6. The execution hereof by you shall constitute a contract
between us for the uses and purposes hereinabove set forth, and this Ninth
Amendment may be executed in any number of counterparts, each executed
counterpart constituting an original, but all together only one agreement.
ORBITAL SCIENCES CORPORATION
By
Its
--------------------------------
Accepted and Agreed to:
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By
Its
--------------------------------
-8-
<PAGE> 1
EXHIBIT 10.2.10
TENTH AMEMDMENT TO NOTE AGREEMENT
AND
EXTENSION OF WAIVER
THIS TENTH AMENDMENT TO NOTE AGREEMENT AND EXTENSION OF WAIVER ("Tenth
Amendment"), is made and entered into as of the 22nd day of February, 2000,
between ORBITAL SCIENCES CORPORATION, a Delaware corporation (the "Company"),
and THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation (the
"Purchaser").
RECITALS:
A. The Purchaser is the holder of $13,333,333 12% Senior Notes of the
Company due June 14, 2001 (the "Notes"). The Company and the Purchaser are
parties to that certain Note Agreement, dated as of June 1, 1995, the First
Amendment to Note Agreement dated as of June 30, 1995, the Second Amendment to
Note Agreement dated as of March 15, 1996, the Third Amendment to Note Agreement
dated as of July 31, 1996, the Fourth Amendment to Note Agreement dated as of
March 31, 1997, the Fifth Amendment to Note Agreement dated as of December 23,
1997, the Sixth Amendment to Note Agreement dated as of August 14, 1998, the
Seventh Amendment to Note Agreement dated as of May 27, 1999, the Eighth
Amendment to Note Agreement dated as of December 20, 1999, and the Ninth
Amendment to Note Agreement dated as of January 31, 2000 (as amended,
supplemented or otherwise modified, the "Note Agreement") whereby the Purchaser
purchased the Notes from the Company.
B. The Company and the Purchaser entered into that certain Waiver
Letter, dated as of October 31, 1999 (the "Waiver Letter"), whereby the
Purchaser waived certain Defaults or Events of Default arising or existing under
Sections 5.7, 5.8 and 5.9 of the Note Agreement until 11:59 p.m. C.S.T. on
December 31, 1999. Pursuant to that certain Letter Agreement, dated as of
December 23, 1999, between the Company and the Purchaser, the date and time of
termination of the Default Waiver Term (as defined in Section 1 of the Waiver
Letter) was extended to 5:00 p.m. C.S.T. on February 22, 2000. The Company and
the Purchaser now desire to further extend the Default Waiver Term on the terms
set forth in this Tenth Amendment.
C. In addition, the Company and the Purchaser desire to amend certain
provisions of the Note Agreement as of February 22, 2000 (the "Effective Date")
in the respects, but only in the respects, set forth in this Tenth Amendment.
D. Capitalized terms used in this Tenth Amendment have their
respective meanings ascribed thereto in the Note Agreement unless defined in
this Tenth Amendment or the context otherwise requires.
<PAGE> 2
NOW, THEREFORE, upon full and complete satisfaction of the conditions
precedent to the effectiveness of this Tenth Amendment set forth in Section 4
below, the Company and the Purchaser agree as follows:
SECTION 1. EXTENSION OF WAIVER.
The Company and the Purchaser agree that the Default Waiver Term, as
defined in Section 1 of the Waiver Letter, shall be extended so that the Default
Waiver Term shall terminate at 5:00 p.m. C.S.T. on April 30, 2000.
SECTION 2. AMENDMENTS.
2.1 Section 5.11 of the Note Agreement is hereby amended in its
entirety to read as follows:
5.11. Restricted Investments. Neither the Company nor any of its
Subsidiaries will declare, make or authorize any Restricted Investment on
or after February 22, 2000. Any entity which becomes a Subsidiary after
the date of this Agreement shall be deemed to have made, on the 90th day
following the date on which it became a Subsidiary, all Restricted
Investments of such corporation existing on such 90th day after it
becomes a Subsidiary.
2.2 Clause (d) of the definition of "Restricted Investments" appearing
in Section 8.1 of the Note Agreement is hereby amended in its entirety to read
as follows:
(d) Investments made by the Company (i) after the Closing Date but
prior to February 22, 2000, in connection with the development and growth
of the business of ORBCOMM Partnership, provided that the aggregate
amount of such Investments shall not exceed $157,500,000; (ii) pursuant
to that certain Omnibus Agreement, dated January 1, 2000, by and among
the Company, ORBCOMM, Teleglobe Inc., Teleglobe Mobile Partners, and
ORBCOMM Partnership (the "Omnibus Agreement"), whereby the Company,
through ORBCOMM, (x) will acquire $33,081,650.22 of partnership interests
in ORBCOMM Partnership by converting loans, advanced by the Company to
ORBCOMM Partnership prior to January 1, 2000, to such partnership
interests, and (y) will contribute the GEMtrak Business (as defined in
the Omnibus Agreement) to ORBCOMM Partnership; (iii) after December 31,
1996, in connection with the formation and development of the business of
ORBIMAGE, provided that the aggregate amount of such Investments shall
not exceed $52,000,000; (iv) in common stock of Earthwatch Incorporated,
provided that the aggregate amount of such Investments shall not exceed
$1,800,000; and (v) in preferred stock of Wireless Link Corp., provided
that the aggregate amount of such Investments shall not exceed
$2,000,000.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
<PAGE> 3
To induce the Purchaser to execute and deliver this Tenth Amendment, the
Company represents and warrants to the Purchaser (which representations will
survive the execution and delivery of this Tenth Amendment) that:
(a) this Tenth Amendment has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against it in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles
relating to fraudulent conveyance or limiting creditors' rights
generally;
(b) the Note Agreement, as modified by this Tenth Amendment,
constitutes the legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms, except as
enforcement may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium or similar laws or equitable
principles relating to or limiting creditors' rights generally;
(c) the execution, delivery and performance by the Company of
this Tenth Amendment (i) has been duly authorized by all requisite
corporate action and, if required, shareholder action, (ii) does not
require the consent or approval of any governmental or regulatory body or
agency, and (iii) will not (A) violate (1) any provision of law, statute,
rule or regulation or its certificate of incorporation or bylaws, (2) any
order of any court or any rule, regulation or order of any other agency
or government binding upon it, or (3) any material provision of any
material indenture, agreement or other instrument to which it is a party
or by which its properties or assets are or may be bound, or (B) result
in a material breach or constitute (alone or with due notice or lapse of
time or both) a default under any indenture, agreement or other
instrument referred to in clause (iii)(A)(3) of this Section 2(c); and
(d) as of the ate hereof and after giving effect to this Tenth
Amendment, no Default or Event of Default has occurred which is
continuing.
SECTION 4. CONDITIONS AND AGREEMENTS.
Upon fulfillment or receipt of all of the following, as the case may be,
this Tenth Amendment will on the Effective Date become effective:
(a) executed counterparts of this Tenth Amendment, duly
executed by the Company and the Purchaser, have been delivered to the
Purchaser.
(b) the representations and warranties of the Company set forth
in Section 3 of this Tenth Amendment will be true and correct on and with
respect to the date hereof; and
<PAGE> 4
(c) the Company has obtained any consents or approvals required
to be obtained from any holder or holders of any outstanding security of
the Company and any amendments or agreements pursuant to which any
security may have been issued which will be necessary to permit the
consummation of the transactions contemplated by this Tenth Amendment.
SECTION 5. MISCELLANEOUS.
5.1 This Tenth Amendment will be construed in connection with the Note
Agreement, and except as modified by this Tenth Amendment, all terms, conditions
and covenants contained in the Note Agreement and the Note are hereby ratified
and will be and remain in full force and effect.
5.2 The descriptive headings of the various Sections or parts of this
Tenth Amendment are for convenience only and will not affect the meaning or
construction of any of the provisions hereof.
5.3 This Tenth Amendment will be governed by and construed in
accordance with the internal laws of the State of Illinois.
5.4 This Tenth Amendment may be executed in any number of
counterparts, each executed counterpart constituting an original, but all
together only one agreement.
IN WITNESS WHEREOF, the Company and the Purchaser have caused this Tenth
Amendment to be executed and delivered by their respective duly authorized
representatives.
ORBITAL SCIENCES CORPORATION
By:
----------------------------------
Title:
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By:
----------------------------------
Its Authorized Representative
<PAGE> 1
EXHIBIT 10.2.11
FORM OF
ELEVENTH AMENDMENT TO
NOTE AGREEMENT AND WAIVER
THIS ELEVENTH AMENDMENT TO NOTE AGREEMENT AND WAIVER ("ELEVENTH
AMENDMENT"), is made and entered into as of the 12th day of April, 2000, between
ORBITAL SCIENCES CORPORATION, a Delaware corporation (the "COMPANY"), and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation (the
"PURCHASER").
RECITALS
A. The Purchaser is the holder of $13,333,333 12% Senior Notes
of the Company due June 14, 2001 (the "NOTES"). The Company and the Purchaser
are parties to that certain Note Agreement, dated as of June 1, 1995, the First
Amendment to Note Agreement dated as of June 30, 1995, the Second Amendment to
Note Agreement dated as of March 15, 1996, the Third Amendment to Note Agreement
dated as of July 31, 1996, the Fourth Amendment to Note Agreement dated as of
March 31, 1997, the Fifth Amendment to Note Agreement dated as of December 23,
1997, the Sixth Amendment to Note Agreement dated as of August 14, 1998, the
Seventh Amendment to Note Agreement dated as of May 27, 1999, the Eighth
Amendment to Note Agreement dated as of December 20, 1999, the Ninth Amendment
to Note Agreement dated as of January 31, 2000 and the Tenth Amendment to Note
Agreement and Extension of Waiver, dated as of February 22, 2000 (as amended,
supplemented or otherwise modified, the "NOTE AGREEMENT") whereby the Purchaser
purchased the Notes from the Company.
B. The Company and the Purchaser entered into that certain
Waiver Letter, dated as of October 31, 1999 (the "WAIVER LETTER"), whereby the
Purchaser waived certain Defaults or Events of Default arising or existing under
Sections 5.7, 5.8 and 5.9 of the Note Agreement until 11:59 p.m. C.S.T. on
December 31, 1999. Pursuant to that certain Letter Agreement, dated as of
December 23, 1999, between the Company and the Purchaser, the date and time of
termination of the Default Waiver Term (as defined in SECTION 1 of the Waiver
Letter) was extended to 5:00 p.m. C.S.T. on February 22, 2000. Pursuant to that
certain Tenth Amendment and Extension of Waiver dated as of February 22, 2000,
between the Company and the Purchaser, the date and time of termination of the
Default Waiver Term was further extended to 5:00 p.m. C.S.T. on April 30, 2000.
The Company and the Purchaser now desire to further extend the waivers of the
above-referenced covenants and waive defaults existing or arising under certain
other covenants in the Note Agreement on the terms set forth in this Eleventh
Amendment.
C. In addition, the Company and the Purchaser desire to amend
certain provisions of the Note Agreement as of April 12, 2000 (the "EFFECTIVE
DATE") in the respects, but only in the respects, set forth in this Eleventh
Amendment.
D. Capitalized terms used in this Eleventh Amendment have the
respective meanings ascribed thereto in the Note Agreement unless defined in
this Eleventh Amendment or the context otherwise requires.
NOW, THEREFORE, upon full and complete satisfaction of the conditions
precedent to the effectiveness of this Eleventh Amendment set forth in SECTION 5
below, the Company and the Purchaser agree as follows:
<PAGE> 2
SECTION 1. WAIVER
Notwithstanding anything to the contrary set forth in the Note
Agreement, the Notes or any agreement or instrument relating to any of the
foregoing (collectively, the "NOTE DOCUMENTS"), the Purchaser waives any Default
or Event of Default existing or arising under (a) SECTION 5.6 of the Note
Agreement, (b) SECTION 5.7 of the Note Agreement, (c) SECTION 5.8 of the Note
Agreement, (d) SECTION 5.9 of the Note Agreement, or (e) SECTION 5.10 of the
Note Agreement (collectively, the "DEFAULT WAIVERS"); provided that the
effectiveness of the Default Waivers shall expire at 11:59 p.m. C.S.T. on
December 31, 2000 (the "DEFAULT WAIVER TERM"). In addition, the Purchaser waives
any Default or Event of Default under SECTION 5.17 of the Note Agreement
existing or arising on or prior to the Effective Date.
SECTION 2. FUTURE AMENDMENT OF NOTE AGREEMENT
2.1 The Company and the Purchaser shall use their respective
best efforts to enter into an Amended and Restated Note Agreement or an
Amendment to Note Agreement as the Purchaser shall deem appropriate (the
"AMENDMENT"), in either such case providing, inter alia, for (i) covenants that
will amend and restate those covenants set forth in SECTIONS 5.6, 5.7, 5.8, 5.9
and 5.10 of the Note Agreement, and (ii) such other terms and provisions as may
be considered necessary by the Purchaser.
2.2 In connection with the execution and delivery of the
Amendment, the Company shall cause to be delivered to the Purchaser, (i) a
favorable written opinion of Hogan & Hartson L.L.P., counsel to the Company,
with respect to the due authorization, execution and delivery of the Amendment
and the enforceability of the same in accordance with its terms; and (ii) a copy
of the resolutions of the Board of Directors of the Company authorizing the
execution, delivery and performance by the Company of the Amendment certified by
its Secretary or Assistant Secretary.
SECTION 3. AMENDMENTS
From and after the Effective Date the Note Agreement shall be and
hereby is amended as follows:
3.1. SECTION 5.10 of the Note Agreement is hereby amended as
follows:
(a) Clause (i) is amended by deleting the period at the end
thereof and substituting in lieu thereof the text "; and".
(b) A new Clause (j) is added following Clause (i) as follows:
"(i) liens on the assets of MacDonald, Dettwiler and
Associates and its subsidiaries securing debt and other obligations of
MacDonald, Dettwiler and Associates and such subsidiaries under the
MDA Financing."
3.2. SECTION 5.13(c) of the Note Agreement is hereby amended as
follows:
(a) Clause (9) is hereby amended by substituting a semicolon for
the period and adding the word "or" at the end thereof.
- 2 -
<PAGE> 3
(b) A new Clause (10) is added following Clause (9) as follows:
"(10) the pledge by MacDonald, Dettwiler and Associates
or any subsidiary thereof of the shares of any subsidiary of
MacDonald, Dettwiler and Associates pursuant to the MDA Financing."
3.3. SECTION 8.1 of the Note Agreement is amended by adding the
following definitions in their proper alphabetical order:
""Covenant Restatement Date" - shall mean that date following the
Eleventh Amendment Effective Date upon which the Purchaser and the Company enter
into an Amendment to this Note Agreement, or an Amended and Restated Note
Agreement, in accordance with the terms and conditions set forth in SECTION 2 of
the Eleventh Amendment."
""Current Interest Rate"- shall mean the following:
(a) From the Eleventh Amendment Effective Date and thereafter,
12%;
(b) In the event that the Covenant Restatement Date shall not
have occurred on or prior to May 31, 2000, from June 1, 2000 and thereafter,
13%;
(c) In the event that the Covenant Restatement Date shall not
have occurred on or prior to August 31, 2000, from September 1, 2000 and
thereafter, 14%; and
(d) In the event that the Covenant Restatement Date shall not
have occurred on or prior to November 30, 2000, from December 1, 2000 and
thereafter, 15%."
""Eleventh Amendment" shall mean the Eleventh Amendment to Note
Agreement and Waiver between the Company and the Purchaser dated as of April 12,
2000."
""Eleventh Amendment Effective Date" shall mean April 12, 2000."
""MDA Financing" means the credit agreement to which MacDonald,
Dettwiler and Associates will become party providing for loans thereunder to be
used by MacDonald, Dettwiler and Associates for working capital purposes and
________________________; provided that the aggregate principal amount of debt
that may be incurred under such credit agreement (i) shall not exceed
$210,000,000 Canadian Dollars and (ii) shall be non-recourse to the Company."
3.4. The following paragraph shall be inserted immediately
following the first paragraph of the Notes and Exhibit A to the Note Agreement:
"Notwithstanding the foregoing, from and after the Eleventh
Amendment Effective Date, (a) the 12% interest rate referenced in the
foregoing paragraph shall be modified to equal the Current Interest Rate
(as defined in the Note Agreement, as amended), and (b) the rate set forth
in clause (b)(1) of the definition of "Overdue Rate" set forth above shall
be modified to equal the Current Interest Rate as then in effect, plus 2%."
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce the Purchaser to execute and deliver this Eleventh
Amendment, the Company represents and warrants to the Purchaser (which
representations will survive the execution and delivery of this Eleventh
Amendment) that:
- 3 -
<PAGE> 4
(a) this Eleventh Amendment has been duly authorized, executed
and delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against it in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to fraudulent
conveyance or limiting creditors' rights generally;
(b) the Note Agreement, as modified by this Eleventh Amendment,
constitutes the legal, valid and binding obligation of the Company, enforceable
against it in accordance with its terms, except as enforcement may be limited by
bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting creditors' rights
generally;
(c) the execution, delivery and performance by the Company of
this Eleventh Amendment (i) has been duly authorized by all requisite corporate
action and, if required, shareholder action, (ii) does not require the consent
or approval of any governmental or regulatory body or agency, and (iii) will not
(A) violate (1) any provision of law, statute, rule or regulation or its
certificate of incorporation or bylaws, (2) any order of any court or any rule,
regulation or order of any other agency or government binding upon it, or (3)
any material provision of any material indenture, agreement or other instrument
to which it is a party or by which its properties or assets are or may be bound,
or (B) result in a material breach or constitute (alone or with due notice or
lapse of time or both) a default under any indenture, agreement or other
instrument referred to in clause (iii)(A)(3) of this Section 4(c); and
(d) as of the date hereof and after giving effect to this
Eleventh Amendment, no Default or Event of Default has occurred which is
continuing.
SECTION 5. CONDITIONS AND AGREEMENTS
Upon fulfillment or receipt of all of the following, as the case may
be, this Eleventh Amendment will on the Effective Date become effective:
(a) executed counterparts of this Eleventh Amendment, duly
executed by the Company and the Purchaser, have been delivered to the Purchaser;
(b) the representations and warranties of the Company set forth
in Section 4 of this Eleventh Amendment will be true and correct on and with
respect to the date hereof;
(c) the Company has obtained any consents or approvals required
to be obtained from any holder or holders of any outstanding security of the
Company and any amendments of agreements pursuant to which any security may have
been issued which will be necessary to permit the consummation of the
transactions contemplated by this Eleventh Amendment; and
(d) a waiver fee in the amount of $33,333.33 by wire transfer in
immediately available funds to the account specified on Schedule 1 to the Note
Agreement.
SECTION 6. MISCELLANEOUS
6.1 This Eleventh Amendment will be construed in connection with
the Note Agreement, and except as modified by this Eleventh Amendment, all
terms, conditions and covenants contained in the Note Agreement and the Note are
hereby ratified and will be and remain in full force and effect.
<PAGE> 5
6.2. The descriptive headings of the various sections or parts of
this Eleventh Amendment are for convenience only and will not affect the meaning
or construction of any of the provisions hereof.
6.3. This Eleventh Amendment will be governed by and construed in
accordance with the internal laws of the State of Illinois.
6.4. This Eleventh Amendment may be executed in any number of
counterparts, each executed counterpart constituting an original, but all
together only one agreement.
IN WITNESS WHEREOF, the Company and the Purchaser have caused this
Eleventh Amendment to be executed and delivered by their respective duly
authorized representatives.
ORBITAL SCIENCES CORPORATION
By:
---------------------------------
Title:
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By:
---------------------------------
Its Authorized Representative
- 5 -
<PAGE> 1
EXHIBIT 10.3
EXECUTION COPY
================================================================================
SUBSIDIARY GUARANTY AGREEMENT
Dated as of January 31, 2000
Re: $13,333,333 12% Senior Notes
Due June 14, 2001
of
Orbital Sciences Corporation
================================================================================
<PAGE> 2
TABLE OF CONTENTS
(Not a part of the Agreement)
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C>
Parties.................................................................................................................1
Recitals................................................................................................................1
SECTION 1. DEFINITIONS..........................................................................................2
SECTION 2. GUARANTY OF NOTES AND NOTE AGREEMENT.................................................................2
SECTION 3. GUARANTY OF PAYMENT..................................................................................2
SECTION 4. GENERAL PROVISIONS RELATING TO THE GUARANTY..........................................................3
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS.....................................................7
SECTION 6. AMENDMENTS, WAIVERS AND CONSENTS.....................................................................9
SECTION 7. NOTICES..............................................................................................9
SECTION 8. MISCELLANEOUS.......................................................................................10
Signatures.............................................................................................................12
ATTACHMENTS TO SUBSIDIARY GUARANTY AGREEMENT:
EXHIBIT A -- Subsidiary Guaranty Supplement
</TABLE>
-i-
<PAGE> 3
SUBSIDIARY GUARANTY AGREEMENT
Re: $13,333,333 12% Senior Notes
Due June 14, 2001
of
Orbital Sciences Corporation
------------------------------------------------
This SUBSIDIARY GUARANTY AGREEMENT dated as of January 31, 2000 (the or
this "Guaranty") is entered into by the undersigned, together with any entity
which may become a party hereto by execution and delivery of a Subsidiary
Guaranty Supplement in substantially the form set forth as EXHIBIT A hereto (a
"Guaranty Supplement") (which parties are hereinafter referred to individually
as a "Guarantor" and collectively as the "Guarantors").
RECITALS
A. Each Guarantor is a subsidiary of Orbital Sciences Corporation, a
Delaware corporation (the "Company").
B. The Company has entered into a Note Agreement dated as of June 1,
1995 (as amended from time to time, the "Note Agreement") with The Northwestern
Mutual Life Insurance Company (the "Initial Note Purchaser," together with its
successors and assigns the "Holders"), providing for, among other things, the
issue and sale by the Company to the Initial Note Purchaser of the Company's
$20,000,000 10.50% Senior Notes due June 14, 2001 (the "Notes"). As of the date
hereof, $13,333,333 in aggregate principal amount of the Notes remain
outstanding, and the Notes accrue interest at the rate of 12%.
C. As security for the Notes, the Holders have required as a
condition to the granting by certain Subsidiaries (as defined in the Note
Agreement) of the Company of Liens created pursuant to that Second Amended and
Restated Security Agreement dated as of November 30, 1999 among the Company and
the other parties named therein, that the Company cause the undersigned to enter
into this Guaranty and cause each Subsidiary from time to time required under
Section 5.18 of the Note Agreement to enter into a Guaranty Supplement, and the
Company has agreed to cause the undersigned to execute this Guaranty and to
cause each Subsidiary from time to time required under Section 5.18 of the Note
Agreement to execute a Guaranty Supplement, in each case in order to induce the
Holders to consent to the granting of the Liens hereinbefore referred to and
thereby benefit the Company and its Subsidiaries.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency whereof are hereby
acknowledged, each Guarantor does hereby covenant and agree, jointly and
severally, as follows:
<PAGE> 4
SECTION 1. DEFINITIONS
Capitalized terms used herein shall have the meanings set forth in the
Note Agreement unless herein defined or the context shall otherwise require.
SECTION 2. GUARANTY OF NOTES AND NOTE AGREEMENT.
(a) Each Guarantor jointly and severally does hereby irrevocably,
absolutely and unconditionally guarantee unto the Holders: (1) the full and
prompt payment of the principal of, premium, if any, and interest on the Notes
from time to time outstanding, as and when such payments shall become due and
payable whether by lapse of time, upon redemption or prepayment, by extension or
by acceleration or declaration or otherwise (including (to the extent legally
enforceable) interest due on overdue payments of principal, premium, if any, or
interest at the rate set forth in the Notes) in Federal or other immediately
available funds of the United States of America which at the time of payment or
demand therefor shall be legal tender for the payment of public and private
debts and (2) the full and prompt payment, upon demand by any Holder of all
costs and expenses, legal or otherwise (including reasonable attorneys' fees),
if any, as shall have been expended or incurred in the protection or enforcement
of any rights, privileges or liabilities in favor of the Holders under or in
respect of the Notes, the Note Agreement or under this Guaranty or in any
consultation or action in connection therewith or herewith.
(b) The liability of each Guarantor under this Guaranty shall be
limited to an amount equal to a maximum amount as will, after giving effect to
such maximum amount and all other liabilities of such Guarantor, contingent or
otherwise, result in the obligations of such Guarantor hereunder not
constituting a fraudulent transfer, obligation or conveyance.
SECTION 3. GUARANTY OF PAYMENT.
This is a guarantee of payment and each Guarantor hereby waives, to the
fullest extent permitted by law, any right to require that any action on or in
respect of any Note or the Note Agreement be brought against the Company or any
other Person or that resort be had to any direct or indirect security for the
Notes or for this Guaranty or any other remedy. Any Holder may, at its option,
proceed hereunder against any Guarantor in the first instance to collect monies
when due, the payment of which is guaranteed hereby, without first proceeding
against the Company or any other Person and without first resorting to any
direct or indirect security for the Notes or for this Guaranty or any other
remedy. The liability of each Guarantor hereunder shall in no way be affected or
impaired by any acceptance by any Holder of any direct or indirect security for,
or other guaranties of, any Indebtedness, liability or obligation of the Company
or any other Person to any Holder or by any failure, delay, neglect or omission
by any Holder to realize upon or protect any such guarantees, Indebtedness,
liability or obligation or any notes or other instruments evidencing the same or
any direct or indirect security therefor or by any approval, consent, waiver, or
other action taken, or omitted to be taken by any such Holder.
The covenants and agreements on the part of the Guarantors herein
contained shall take effect as joint and several covenants and agreements, and
references to the Guarantors shall take
-2-
<PAGE> 5
effect as references to each of them and none of them shall be released from
liability hereunder by reason of the guarantee ceasing to be binding as a
continuing security on any other of them.
SECTION 4. GENERAL PROVISIONS RELATING TO THE GUARANTY.
(a) Each Guarantor hereby consents and agrees that any Holder or
Holders from time to time, with or without any further notice to or assent from
any other Guarantor may, without in any manner affecting the liability of any
Guarantor under this Guaranty, and upon such terms and conditions as any such
Holder or Holders may deem advisable:
(1) extend in whole or in part (by renewal or otherwise),
modify, change, compromise, release or extend the duration of the time
for the performance or payment of any Indebtedness, liability or
obligation of the Company or of any other Person secondarily or otherwise
liable for any Indebtedness, liability or obligations of the Company on
the Notes, or waive any Default with respect thereto, or waive, modify,
amend or change any provision of any other agreement or waive this
Guaranty; or
(2) sell, release, surrender, modify, impair, exchange or
substitute any and all property, of any nature and from whomsoever
received, held by, or for the benefit of, any such Holder as direct or
indirect security for the payment or performance of any Indebtedness,
liability or obligation of the Company or of any other Person secondarily
or otherwise liable for any Indebtedness, liability or obligation of the
Company on the Notes; or
(3) settle, adjust or compromise any claim of the Company
against any other Person secondarily or otherwise liable for any
Indebtedness, liability or obligation of the Company on the Notes.
Each Guarantor hereby ratifies and confirms any such extension, renewal,
change, sale, release, waiver, surrender, exchange, modification, amendment,
impairment, substitution, settlement, adjustment or compromise and that the same
shall be binding upon it, and hereby waives, to the fullest extent permitted by
law, any and all defenses, counterclaims or offsets which it might or could have
by reason thereof, it being understood that such Guarantor shall at all times be
bound by this Guaranty and remain liable hereunder.
(b) Each Guarantor hereby waives, to the fullest extent permitted by
law:
(1) notice of acceptance of this Guaranty by the Holders or of
the creation, renewal or accrual of any liability of the Company, present
or future, or of the reliance of such Holders upon this Guaranty (it
being understood that every Indebtedness, liability and obligation
described in SECTION 2 hereof shall conclusively be presumed to have been
created, contracted or incurred in reliance upon the execution of this
Guaranty);
(2) demand of payment by any Holder from the Company or any
other Person indebted in any manner on or for any of the Indebtedness,
liabilities or obligations hereby guaranteed; and
-3-
<PAGE> 6
(3) presentment for the payment by any Holder or any other
Person of the Notes or any other instrument, protest thereof and notice
of its dishonor to any party thereto and to such Guarantor.
The obligations of each Guarantor under this Guaranty and the rights of
any Holder to enforce such obligations by any proceedings, whether by action at
law, suit in equity or otherwise, shall not be subject to any reduction,
limitation, impairment or termination, whether by reason of any claim of any
character whatsoever or otherwise and shall not be subject to any defense,
set-off, counterclaim (other than any compulsory counterclaim), recoupment or
termination whatsoever.
(c) The obligations of the Guarantors hereunder shall be binding upon
the Guarantors and their successors and assigns, and shall remain in full force
and effect irrespective of:
(1) the genuineness, validity, regularity or enforceability of
the Notes, the Note Agreement or any other agreement or any of the terms
of any thereof, the continuance of any obligation on the part of the
Company or any other Person on or in respect of the Notes or under the
Note Agreement or any other agreement or the power or authority or the
lack of power or authority of the Company to issue the Notes or the
Company to execute and deliver the Note Agreement or any other agreement
or of any Guarantor to execute and deliver this Guaranty or to perform
any of its obligations hereunder or the existence or continuance of the
Company or any other Person as a legal entity; or
(2) any default, failure or delay, willful or otherwise, in the
performance by the Company, any Guarantor or any other Person of any
obligations of any kind or character whatsoever under the Notes, the Note
Agreement, this Guaranty or any other agreement; or
(3) any creditors' rights, bankruptcy, receivership or other
insolvency proceeding of the Company, any Guarantor or any other Person
or in respect of the property of the Company, any Guarantor or any other
Person or any merger, consolidation, reorganization, dissolution,
liquidation, the sale of all or substantially all of the assets of or
winding up of the Company, any Guarantor or any other Person; or
(4) impossibility or illegality of performance on the part of
the Company, any Guarantor or any other Person of its obligations under
the Notes, the Note Agreement, this Guaranty or any other agreements; or
(5) in respect of the Company or any other Person, any change
of circumstances, whether or not foreseen or foreseeable, whether or not
imputable to the Company or any other Person, or other impossibility of
performance through fire, explosion, accident, labor disturbance, floods,
droughts, embargoes, wars (whether or not declared), civil commotion,
acts of God or the public enemy, delays or failure of suppliers or
carriers, inability to obtain materials, action of any Federal or state
regulatory body or agency, change of law or any other causes affecting
performance, or any other
-4-
<PAGE> 7
force majeure, whether or not beyond the control of the Company or any
other Person and whether or not of the kind hereinbefore specified; or
(6) any attachment, claim, demand, charge, Lien, order,
process, encumbrance or any other happening or event or reason, similar
or dissimilar to the foregoing, or any withholding or diminution at the
source, by reason of any taxes, assessments, expenses, Indebtedness,
obligations or liabilities of any character, foreseen or unforeseen, and
whether or not valid, incurred by or against the Company, any Guarantor
or any other Person or any claims, demands, charges or Liens of any
nature, foreseen or unforeseen, incurred by the Company, any Guarantor or
any other Person, or against any sums payable in respect of the Notes or
under the Note Agreement or this Guaranty, so that such sums would be
rendered inadequate or would be unavailable to make the payments herein
provided; or
(7) any order, judgment, decree, ruling or regulation (whether
or not valid) of any court of any nation or of any political subdivision
thereof or any body, agency, department, official or administrative or
regulatory agency of any thereof or any other action, happening, event or
reason whatsoever which shall delay, interfere with, hinder or prevent,
or in any way adversely affect, the performance by the Company, any
Guarantor or any other Person of its respective obligations under or in
respect of the Notes, the Note Agreement, this Guaranty or any other
agreement; or
(8) the failure of any Guarantor to receive any benefit from or
as a result of its execution, delivery and performance of this Guaranty;
or
(9) any failure or lack of diligence in collection or
protection, failure in presentment or demand for payment, protest, notice
of protest, notice of default and of nonpayment, any failure to give
notice to any Guarantor of failure of the Company, any Guarantor or any
other Person to keep and perform any obligation, covenant or agreement
under the terms of the Notes, the Note Agreement, this Guaranty or any
other agreement or failure to resort for payment to the Company, any
Guarantor or to any other Person or to any other guaranty or to any
property, security, Liens or other rights or remedies; or
(10) the acceptance of any additional security or other
guaranty, the advance of additional money to the Company or any other
Person, the renewal or extension of the Notes or amendments,
modifications, consents or waivers with respect to the Notes, the Note
Agreement or any other agreement, or the sale, release, substitution or
exchange of any security for the Notes; or
(11) any merger or consolidation of the Company, any Guarantor
or any other Person into or with any other Person or any sale, lease,
transfer or other disposition of any of the assets of the Company, any
Guarantor or any other Person to any other Person, or any change in the
ownership of any shares or other equity interests of the Company, any
Guarantor or any other Person; or
-5-
<PAGE> 8
(12) any defense whatsoever that the Company or any other Person
might have to the payment of the Notes (principal, premium, if any, or
interest), other than payment thereof in Federal or other immediately
available funds; or
(13) any act or failure to act with regard to the Notes, the
Note Agreement, this Guaranty or any other agreement or anything which
might vary the risk of any Guarantor or any other Person; or
(14) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, any Guarantor or any other
Person in respect of the obligations of any Guarantor or other Person
under this Guaranty or any other agreement;
provided that the specific enumeration of the above-mentioned acts, failures or
omissions shall not be deemed to exclude any other acts, failures or omissions,
though not specifically mentioned above, it being the purpose and intent of this
Guaranty and the parties hereto that the obligations of each Guarantor shall be
absolute and unconditional and shall not be discharged, impaired or varied
except by the payment of the principal of, premium, if any, and interest on the
Notes in accordance with their respective terms whenever the same shall become
due and payable as in the Notes provided, at the place specified in and all in
the manner and with the effect provided in the Notes and the Note Agreement, as
each may be amended or modified from time to time. Without limiting the
foregoing, it is understood that repeated and successive demands may be made and
recoveries may be had hereunder as and when, from time to time, the Company
shall default under or in respect of the terms of the Notes or the Note
Agreement and that notwithstanding recovery hereunder for or in respect of any
given default or defaults by the Company under the Notes or the Note Agreement,
this Guaranty shall remain in full force and effect and shall apply to each and
every subsequent default.
(d) All rights of any Holder may be transferred or assigned at any
time and shall be considered to be transferred or assigned at any time or from
time to time upon the transfer of such Note whether with or without the consent
of or notice to the Guarantors under this Guaranty.
(e) To the extent of any payments made under this Guaranty, the
Guarantors shall be subrogated to the rights of the Holder or Holders upon whose
Notes such payment was made, but each Guarantor covenants and agrees that such
right of subrogation shall be junior and subordinate in right of payment to the
prior indefeasible final payment in cash in full of all amounts due and owing by
the Company with respect to the Notes and the Note Agreement and by the
Guarantors under this Guaranty, and the Guarantors shall not take any action to
enforce such right of subrogation, and the Guarantors shall not accept any
payment in respect of such right of subrogation, until all amounts due and owing
by the Company under or in respect of the Notes and the Note Agreement and all
amounts due and owing by the Guarantors hereunder have indefeasibly been finally
paid in cash in full. If any amount shall be paid to any Guarantor in violation
of the preceding sentence at any time prior to the indefeasible payment in cash
in full of the Notes and all other amounts payable under the Notes, the Note
Agreement and this Guaranty, such amount shall be held in trust for the benefit
of the Holders and shall forthwith be paid to the Holders to be credited and
applied to the amounts due or to become due with respect to the Notes
-6-
<PAGE> 9
and all other amounts payable under the Note Agreement and this Guaranty,
whether matured or unmatured.
(f) Each Guarantor agrees that to the extent the Company or any other
Person makes any payment on any Note, which payment or any part thereof is
subsequently invalidated, voided, declared to be fraudulent or preferential, set
aside, recovered, rescinded or is required to be retained by or repaid to a
trustee, receiver, or any other Person under any bankruptcy code, common law, or
equitable cause, then and to the extent of such payment, the obligation or the
part thereof intended to be satisfied shall be revived and continued in full
force and effect with respect to the Guarantors' obligations hereunder, as if
said payment had not been made. The liability of the Guarantors hereunder shall
not be reduced or discharged, in whole or in part, by any payment to any Holder
from any source that is thereafter paid, returned or refunded in whole or in
part by reason of the assertion of a claim of any kind relating thereto,
including, but not limited to, any claim for breach of contract, breach of
warranty, preference, illegality, invalidity, or fraud asserted by any account
debtor or by any other Person.
(g) No Holder shall be under any obligation: (1) to marshall any
assets in favor of the Guarantors or in payment of any or all of the liabilities
of the Company under or in respect of the Notes or the obligations of the
Guarantors hereunder or (2) to pursue any other remedy that the Guarantors may
or may not be able to pursue themselves and that may lighten the Guarantors'
burden, any right to which each Guarantor hereby expressly waives.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS.
Each Guarantor represents and warrants to each Holder that:
(a) Such Guarantor is a corporation or other legal entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and is duly qualified as a foreign corporation or
other legal entity and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on (1) the
business, operations, affairs, financial condition, assets or properties of such
Guarantor and its subsidiaries, taken as a whole, or (2) the ability of such
Guarantor to perform its obligations under this Guaranty, or (3) the validity or
enforceability of this Guaranty (herein in this Section 5, a "Material Adverse
Effect"). Such Guarantor has the requisite power and authority to own or hold
under lease the properties it purports to own or hold under lease, to carry on
business as now conducted, to execute and deliver this Guaranty and to perform
the provisions hereof.
(b) This Guaranty has been duly authorized by all necessary action on
the part of such Guarantor, and this Guaranty constitutes a legal, valid and
binding obligation of such Guarantor enforceable against such Guarantor in
accordance with its terms.
(c) The execution, delivery and performance by such Guarantor of this
Guaranty will not (1) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any property
of such Guarantor under, any indenture, mortgage, deed of
-7-
<PAGE> 10
trust, loan, purchase or credit agreement, lease, charter document or by-law, or
any other agreement or instrument to which such Guarantor is bound or by which
such Guarantor or any of its respective properties may be bound or affected, (2)
conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority applicable to such Guarantor or any of its subsidiaries
or (3) violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to the such Guarantor.
(d) No consent, approval or authorization of, or registration, filing
or declaration with, any Governmental Authority is required in connection with
the execution, delivery or performance by such Guarantor of this Guaranty.
(e) (1) There are no actions, suits or proceedings pending or, to the
knowledge of such Guarantor, threatened against or affecting such Guarantor or
any property of such Guarantor in any court or before any arbitrator of any kind
or before or by any governmental authority that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
(2) Such Guarantor is not in default under any term of any
agreement or instrument to which it is a party or by which it is bound, or any
order, judgment, decree or ruling of any court, arbitrator or governmental
authority or is in violation of any applicable law, ordinance, rule or
regulation (including without limitation Environmental Laws) of any governmental
authority, which default or violation, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(f) The obligations of such Guarantor under this Guaranty rank at
least pari passu in right of payment with the senior unsecured Indebtedness of
such Guarantor represented by the guaranty given by such Guarantor to the
Collateral Agent pursuant to the Bank Credit Agreement, the Pledge Agreement and
the Security Agreement.
(g). Such Guarantor does not intend to hinder, delay or defraud its
creditors by or through the execution and delivery of, or performance of its
obligations under, this Guaranty. There has been provided to such Guarantor a
substantial economic benefit and adequate consideration for the execution and
delivery of this Guaranty because, among other reasons, the proceeds of the
Notes have enhanced the financial position of the Company and its Subsidiaries
taken as a whole.
SECTION 6. AMENDMENTS, WAIVERS AND CONSENTS.
(a) This Guaranty may be amended, and the observance of any term
hereof may be waived (either retroactively or prospectively), with (and only
with) the written consent of each Guarantor and the holders of at least 66-2/3%
in aggregate principal amount of outstanding Notes, except that (1) no amendment
or waiver of any of the provisions of SECTIONS 3 OR 4, or any defined term (as
it is used therein), will be effective as to any Holder unless consented to by
such Holder in writing, and (2) no such amendment or waiver may, without the
written consent of each Holder, (i) change the percentage of the principal
amount of the Notes the Holders of
-8-
<PAGE> 11
which are required to consent to any such amendment or waiver, or (ii) amend
SECTION 2 or this SECTION 6.
(b) So long as there are any Notes outstanding, the Guarantors will
not solicit, request or negotiate for or with respect to any proposed waiver or
amendment of any of the provisions hereof unless each holder of Notes
(irrespective of the amount of Notes then owned by it) shall be informed thereof
by the Guarantors and shall be afforded the opportunity of considering the same
and shall be supplied by the Guarantors with sufficient information to enable it
to make an informed decision with respect thereto. The Guarantors will not,
directly or indirectly, pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, to any holder of Notes
as consideration for or as an inducement to entering into by any holder of Notes
of any waiver or amendment of any of the terms and provisions hereof unless such
remuneration is concurrently offered, on the same terms, ratably to the holders
of all Notes then outstanding. Promptly and in any event within 30 days of the
date of execution and delivery of any such waiver or amendment, the Guarantors
shall provide a true, correct and complete copy thereof to each of the holders
of the Notes.
(c) Any amendment or waiver consented to as provided in this SECTION 6
applies equally to all Holders and is binding upon them and upon each future
holder and upon the Guarantors. No such amendment or waiver will extend to or
affect any obligation, covenant or agreement not expressly amended or waived or
impair any right consequent thereon. No course of dealing between the Guarantors
and any Holder nor any delay in exercising any rights hereunder shall operate as
a waiver of any rights of any Holder. As used herein, the term "this Guaranty"
and references thereto shall mean this Guaranty as it may from time to time be
amended or supplemented.
(d) Solely for the purpose of determining whether the Holders of the
requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under this
Guaranty, Notes directly or indirectly owned by any Guarantor, the Company or
any of their respective subsidiaries or Affiliates shall be deemed not to be
outstanding.
SECTION 7. NOTICES.
All notices and communications provided for hereunder shall be in writing
and sent (a) by facsimile if the sender on the same day sends a confirming copy
of such notice by a recognized overnight delivery service (charges prepaid), or
(b) by registered or certified mail with return receipt requested (postage
prepaid), or (c) by a recognized overnight delivery service (with charges
prepaid). Any such notice must be sent:
(1) if to the Initial Note Purchaser or the Initial Note
Purchaser's nominee, to the Initial Note Purchaser or the Initial Note
Purchaser's nominee at the address specified for such communications in
Schedule I to the Note Agreement, or at such other address as the Initial
Note Purchaser or the Initial Note Purchaser's nominee shall have
specified to any Guarantor in writing,
-9-
<PAGE> 12
(2) if to any other Holder, to such Holder at such address as
such Holder shall have specified to the Guarantors in writing, or
(3) if to any Guarantor, to such Guarantor c/o the Company at
its address set forth at the beginning of the Note Agreement to the
attention of Chief Financial Officer, or at such other address as such
Guarantor shall have specified to the Holders in writing.
Notices under this SECTION 7 will be deemed given only when actually received.
SECTION 8. MISCELLANEOUS.
(a) No remedy herein conferred upon or reserved to any Holder is
intended to be exclusive of any other available remedy or remedies, but each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given under this Guaranty now or hereafter existing at law or in equity.
No delay or omission to exercise any right or power accruing upon any default,
omission or failure of performance hereunder shall impair any such right or
power or shall be construed to be a waiver thereof but any such right or power
may be exercised from time to time and as often as may be deemed expedient. In
order to entitle any Holder to exercise any remedy reserved to it under the
Guaranty, it shall not be necessary for such Holder to physically produce its
Note in any proceedings instituted by it or to give any notice, other than such
notice as may be herein expressly required.
(b) The Guarantors will pay all sums becoming due under this Guaranty
by the method and at the address specified for such purpose in Schedule I to the
Note Agreement, or by such other method or at such other address as any Holder
shall have from time to time specified to the Guarantors in writing for such
purpose, without the presentation or surrender of this Guaranty or any Note.
(c) Any provision of this Guaranty that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
(d) If the whole or any part of this Guaranty shall be now or
hereafter become unenforceable against any one or more of the Guarantors for any
reason whatsoever or if it is not executed by any one or more of the Guarantors,
this Guaranty shall nevertheless be and remain fully binding upon and
enforceable against each other Guarantor as if it had been made and delivered
only by such other Guarantors.
(e) This Guaranty shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of each Holder and its
successors and assigns so long as its Notes remain outstanding and unpaid.
(f) This Guaranty may be executed in any number of counterparts, each
of which shall be an original but all of which together shall constitute one
instrument. Each counterpart
-10-
<PAGE> 13
may consist of a number of copies hereof, each signed by less than all, but
together signed by all, of the parties hereto.
(g) This Guaranty shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the law of the State of New
York excluding choice-of-law principles of the law of such State that would
require the application of the laws of a jurisdiction other than such State.
-11-
<PAGE> 14
IN WITNESS WHEREOF, each of the undersigned has caused this Guaranty to
be duly executed by an authorized representative as of this 31st day of January,
2000.
ENGINEERING TECHNOLOGIES, INC.
By
Its
----------------------------------
ORBITAL COMMERCIAL SYSTEMS, INC.
By
Its
----------------------------------
ORBITAL SPACE SYSTEMS, INC.
By
Its
----------------------------------
ORBITAL COMMERCIAL SYSTEMS, INC.
By
Its
----------------------------------
ORBITAL INTERNATIONAL, INC.
By
Its
----------------------------------
-12-
<PAGE> 15
ORBITAL SERVICES CORPORATION
By
Its
----------------------------------
ORBITAL NAVIGATION CORPORATION
By
Its
----------------------------------
ORBLINK LLC
By
Its
----------------------------------
-13-
<PAGE> 16
Accepted and Agreed to:
ORBITAL SCIENCES CORPORATION
By
Its
---------------------------------
-14-
<PAGE> 17
SUBSIDIARY GUARANTY SUPPLEMENT
To the Holders of the hereinafter defined Notes
of Orbital Sciences Corporation
(the "Company")
Ladies and Gentlemen:
WHEREAS the Company has issued its $20,000,000 10.50% Senior Notes due
June 14, 2001 (the "Notes") pursuant to the Note Agreement dated as of June 1,
1995 (as amended from time to time, the "Note Agreement") with The Northwestern
Mutual Life Insurance Company (the "Initial Note Purchaser," together with its
successors and assigns the "Holders"). As of the date hereof, $13,333,333 in
aggregate principal amount of the Notes remain outstanding, and the Notes accrue
interest at the rate of 12%.
WHEREAS, as a condition precedent to the granting by certain Subsidiaries
of the Company of Liens created pursuant to that Second Amended and Restated
Security Agreement dated as of November 30, 1999 among the Company and the other
parties named therein, the Holders have required that from time to time certain
subsidiaries of the Company enter into a Subsidiary Guaranty Agreement as
security for the Notes (the "Subsidiary Guaranty").
Pursuant to Section ___ of the Note Agreement, the Company has agreed to
cause the undersigned, ____________, a __________ organized under the laws of
______________ (the "Additional Guarantor"), to join in the Subsidiary Guaranty.
In accordance with the requirements of the Subsidiary Guaranty, the Additional
Guarantor desires to amend the definition of Guarantor (as the same may have
been heretofore amended) set forth in the Subsidiary Guaranty attached hereto so
that at all times from and after the date hereof, the Additional Guarantor shall
be jointly and severally liable as set forth in the Subsidiary Guaranty for the
obligations of the Company under the Note Agreement and Notes to the extent and
in the manner set forth in the Subsidiary Guaranty.
The undersigned is a subsidiary of the Company and is duly authorized to
execute and deliver this Guaranty Supplement to each of you. The execution by
the undersigned of this Guaranty Supplement shall evidence its consent to and
acknowledgment and approval of the terms set forth herein and in the Subsidiary
Guaranty and by such execution the Additional Guarantor shall be deemed to have
made in favor of the Holders the representations and warranties set forth in
Section 5 of the Subsidiary Guaranty.
Upon execution of this Subsidiary Guaranty Supplement, the Subsidiary
Guaranty shall be deemed to be amended as set forth above. Except as amended
herein, the terms and provisions of the Subsidiary Guaranty are hereby ratified,
confirmed and approved in all respects.
EXHIBIT A
(to Subsidiary Guaranty Agreement)
<PAGE> 18
Any and all notices, requests, certificates and other instruments
(including the Notes) may refer to the Subsidiary Guaranty without making
specific reference to this Subsidiary Guaranty Supplement, but nevertheless all
such references shall be deemed to include this Subsidiary Guaranty Supplement
unless the context shall otherwise require.
Dated: _________________.
[NAME OF ADDITIONAL GUARANTOR]
By
Its
-2-
<PAGE> 1
EXHIBIT 10.5
MacDONALD, DETTWILER AND ASSOCIATES LTD.
1999 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE OF THE PLAN
The purpose of this 1999 Stock Option and Incentive Plan is to advance the
interests of MacDonald, Dettwiler and Associates Ltd. ("MDA or "COMPANY") and
its shareholders by enabling MDA and other Participating Companies (as defined
below) to attract and retain highly talented employees, officers and directors
and, subject to applicable laws, consultants, who are in a position to make
significant contributions to the success of MDA, to reward them for their
contributions to the success of MDA, and to encourage them, through share
ownership, to increase their proprietary interest in MDA and their personal
interest in its continued success and progress.
This 1999 Stock Option and Incentive Plan provides for the award of MDA stock
options to acquire MDA common shares.
2. DEFINITIONS
For the purposes of this Plan and related documents, the following definitions
apply:
"ACT" means the Canada Business Corporations Act, as amended.
"AFFILIATE" has the meaning specified in the Act.
"AWARD AGREEMENT" means the stock option agreement or other written
agreement between MDA and a Grantee that evidences and sets out the terms
and conditions of a Grant.
"BOARD" means the Board of Directors of the Company.
"CAI ENTITIES" Means CAI Capital Partners and Company II, L.P., CAI
Partners and Company II, L.P., and CAI Capital Partners and Company II-C,
L.P.
"COMMITTEE" means a committee of the Board designated from time to time
by resolution of the Board, which committee shall consist of no fewer
than two members of the Board, none of whom shall be an officer or other
salaried employee of any Participating Company.
"COMPANY" or "MDA" means MacDonald, Dettwiler and Associates Ltd., a
corporation governed by the laws of Canada or any successor thereof.
"EFFECTIVE DATE" means December 22, 1999.
"EMPLOYEE" with respect to a Participating Company means an individual
who is considered an employee of the Participating Company as defined
under the Income Tax Act, (Canada) as amended, or who is an individual
who is a full-time or a part-time
<PAGE> 2
2
dependent contractor of the Participating Company providing services
normally provided by an employee of the Participating Company and is
subject to the same control and direction by the Participating Company
over the detail and methods of work as an employee of the Participating
Company.
"FAIR MARKET VALUE OF A SHARE" Means the closing sale price of the Shares
on the national securities or stock exchange on which the Shares are then
principally traded or, if that measure of price is not available, in a
national market system for securities on the date of the Grant (or such
other date as is specified herein). In the event that there are no sales
of Shares on any such exchange or market on date of the Grant (or such
other date as is specified herein), the fair market value of Shares on
the date of the Grant (or such other date as is specified herein) shall
be deemed to be the closing sale price on the next preceding day on which
Shares were sold on any such exchange or market. In the event that the
Shares are not listed on any such market or exchange on the applicable
date, a valuation of the fair market value of a Share on such date shall
be made by the Board in its sole discretion.
"GRANT" Means an award of an Option under the Plan.
"GRANTEE" means a person who receives or holds an Option under the Plan.
"OPTION" Means an option to acquire Shares granted under the Plan.
"OPTION TERMINATION DATE" is defined in Section 9(b) below.
"PARTICIPATING COMPANY" means the Company and any Affiliate of the
Company prior to such event and, following a public offering, means the
Company and any Subsidiary of the Company.
"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.
"PLAN" means this 1999 Stock Option and Incentive Plan.
"SECURITIES LAWS" means all applicable laws, rules, regulations, rules,
orders, and published policies relating in full or in part to trading in
securities, to the extent legally enforceable.
"SHAREHOLDERS AGREEMENT" Means the unanimous shareholders' agreement
dated December 22, 1999 among the CAI Entities, 597858 B.C. Ltd., as
agent, Orbital Sciences Corporation and those persons who become parties
thereto and bound thereto from time to time.
"SHARES" means common shares in the capital of the Company.
"SUBSIDIARY" has the meaning specified in the Act.
<PAGE> 3
3
"TERMINATING TRANSACTION" Means any of the following events: (a) the
dissolution or liquidation of the Company; (b) a reorganization, merger,
amalgamation or consolidation of the Company with one or more other
Persons as a result of which the Company goes out of existence or becomes
a Subsidiary of a corporation other than a Participating Company
immediately prior to such event or there has otherwise been an
acquisition of control of the Company (within the meaning of the Income
Tax Act (Canada)) by a Person other than a Participating Company
immediately prior to such event and other than pursuant to the exercise
of rights under the Treasury Option Agreement or the Secondary Option
Agreement (each as defined in the Shareholders' Agreement) or (c) a sale
of all or substantially all of the Company's assets to a Person or entity
other than a Person that was a Participating Company immediately prior to
such event; or (d) a sale to one Person (or two or more Persons acting in
concert), other than to a Participating Company immediately prior to such
event, of equity securities of the Company resulting in such Person or
Persons holding Shares representing at least eighty percent (80%) or more
of the aggregate voting power of all outstanding equity securities of the
Company.
"TOTAL DISABILITY" means permanent and total disability as determined in
the sole discretion of the Board.
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 to such eligible persons
as the Board may select;
(ii) determine the timing of Grants and the number of Shares
subject to each Grant;
(iii) determine the terms and conditions of each Grant, including
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 and permitted assigns and upon all
other Persons claiming by, through, under or against any of them.
<PAGE> 4
4
(b) Administration and Delegation by Committee. Subject to the Act but
otherwise in its sole discretion, the Board may delegate some 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 the authority to make
Grants under the Plan. The delegated authority shall include the
power to:
(i) determine the timing of Grants and the number of Shares
subject to each Grant; and
(ii) determine the terms and conditions of each Grant, including
the nature and duration of any restriction or condition (or
provision for lapse thereof) relating to the vesting or
forfeiture of a Grant.
4. SHARES SUBJECT TO THE PLAN
(a) Availability. Subject to adjustment as provided in Section 4(c)
below, the maximum aggregate number of Shares available for
issuance under the Plan will be six (6) million. The number of
Shares that may be so reserved and authorized for issuance to any
one person shall not exceed 5 percent of the total issued and
outstanding Shares of the Company (calculated on a non-diluted
basis).
(b) Reavailability of Options; Shares to be Delivered. If any Shares
covered by a Grant are not purchased or are forfeited, or if a
Grant otherwise terminates without delivery of any Shares subject
thereto, then the number of Shares so terminated or forfeited
shall again be available for making Grants under the Plan. Shares
delivered under the Plan shall be authorized but unissued shares.
No fractional Shares shall be delivered under the Plan.
(c) Changes in Capital. In the event of a stock dividend, share split
or combination of shares, exchange of securities, distribution
payable in Shares, recapitalization or other change in MDA's
capital stock, the number and kind of securities subject to Grants
then outstanding or subsequently awarded under the Plan, the
exercise price of any outstanding Option, the maximum number of
Shares 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.
6. AWARD AGREEMENT
Each Grant pursuant to the Plan shall be evidenced by an Award Agreement, to be
executed by MDA and by the Grantee, in such form or forms as the Board shall
from time to time approve containing terms and conditions not inconsistent with
the terms and conditions of this Plan.
<PAGE> 5
5
7. OPTION EXERCISE PRICE
The Option exercise price for a Share to be issued under the Plan shall be not
less than the Fair Market Value of a Share on the Grant date, as determined by
the Board in its sole discretion.
8. DISCRETIONARY OPTION PLAN
Grants may be made under the Plan to any Employee or director or officer of any
Participating Company and, subject to Securities Laws, to individuals while
employed as consultants of any Participating Company, in each case as the Board
shall determine and designate from time to time. The Board may set limits on the
number of Options that may be granted to any Person or class of Persons.
9. VESTING AND TERMINATION OF OPTIONS
(a) Vesting of Discretionary Options. Subject to the other provisions
of this Section 9, Options granted pursuant to Section 8 shall
vest and become exercisable at such time and in such instalments
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) Termination of Options. Each Option 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 of the Grant of such Option. Upon termination of an
Option or portion thereof, the Grantee shall have no further right
to purchase Shares pursuant to such Option.
(c) Termination of Employment, Officership or Directorship. In the
event of the termination of all positions of employment,
officership or directorship of a Grantee with the Participating
Companies for any reason other than for "cause" (pursuant to
Section 11 below) or by reason of death or Total Disability,
except as may be provided in any Award Agreement all Options that
are not exercisable shall terminate on the day after notice of
termination of such position(s) is given. Options that are
exercisable on such date shall continue to be exercisable for (A)
three (3) months following the day notice of termination of such
position(s) was given or (B) the Option Termination Date,
whichever occurs first; such longer period (not to exceed three
(3) years following the day notice of termination of such
position(s) was given) as may be specified in the Grantee's Award
Agreement. A Grantee who is an Employee, officer or director of a
Participating Company shall be deemed to have incurred a
termination and been given notice of termination for purposes of
this Section 9(c) if such Participating Company ceases to be a
Participating Company, unless such Grantee is an Employee, officer
or director of any other Participating Company.
<PAGE> 6
6
(d) Rights in the Event of Death. In the event that the employment
and/or officership and/or directorship of a Grantee with a
Participating Company is terminated by reason of death, all
Options that are not exercisable on the day prior to the Grantee's
death shall terminate on the date of death. Options that were
exercisable on the date prior to the Grantee's death may be
exercised by the Grantee'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 Grantee'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 Grantee with a Participating
Company is terminated by reason of Total Disability, all Options
that are not exercisable shall terminate on the
employment/officership/directorship termination date. Options that
were exercisable on the employment/officership/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 Grantee'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 result in an Option surviving beyond the
Option Termination Date.
10. 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 to be purchased,
shall be accompanied by payment in full of the purchase price
therefor in accordance with Section 10(b) below and the full
amount of any federal, provincial, state and/or withholding and
other employment taxes applicable to such person as a result of
such exercise and shall be accompanied by signed copies of the
document(s) referred to in Section 10(c) below. No Shares shall be
issued pursuant to the exercise of an Option until full payment of
the purchase price and applicable withholding tax has been made to
the Company. Upon receipt of such amounts, the Company shall issue
forthwith share certificates representing the Shares purchased
pursuant to the exercise of the Option. Until the share
certificates representing such Shares have been issued by the
Company, the Grantee shall have no right to vote or receive
dividends on or exercise any other rights as a shareholder, with
respect to optioned Shares notwithstanding the exercise of the
Option.
<PAGE> 7
7
(b) Payment. Full payment of the purchase price for the Shares as to
which an Option is being exercised shall be made in Canadian
dollars in cash or by cheque in a form satisfactory to the
Company.
(c) Unanimous Shareholders Agreement. The Shares are subject to the
terms and conditions of the Shareholders' Agreement. It is a
condition to the exercise of an Option that the Grantee, if not
already a party to the Shareholders Agreement, at or before the
time of the exercise of the Option, must sign and deliver to the
Corporation an agreement substantially in the form of Schedule "A"
to the Shareholders Agreement agreeing to be bound thereby as if
he or she were an original signatory thereto and, if requested by
the Company, any of the CAI Entities, 597858 B.C. Ltd., or Orbital
Sciences Corporation or, if applicable, Holdings (as defined in
the Shareholders Agreement), the Grantee must also sign and
deliver to the Corporation the Shareholders Agreement in
counterpart.
(d) 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 a Grantee's
lifetime an Option may be exercised only by the Grantee.
11. 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 wilful 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.
12. COMPLIANCE WITH SECURITIES LAWS
(a) The delivery of Shares upon the exercise of an Option shall be
subject to compliance with (i) applicable federal, provincial and
state laws and regulations, including Securities Laws, (ii) all
applicable listing requirements of any national securities or
stock exchange or national market system on which the Shares are
then listed or quoted, and (iii) Company counsel's approval of all
other legal matters in connection with the issuance and delivery
of such Shares. The Company may also require, as a condition to
exercise of the Option, that the Grantee make such representations
or agreements as the Company may consider appropriate to ensure
compliance with applicable Securities Laws.
<PAGE> 8
8
(b) All share certificates evidencing Shares issued pursuant to
exercised Options shall bear an appropriate legend restricting
transfer.
(c) It is the intent of the Company that Grants pursuant to the Plan
and the exercise of Options granted hereunder will be made
pursuant to exemptions from applicable Securities Laws and stock
exchange rules. To the extent that any provision of the Plan or
action by the Board or any Option does not comply with the
requirements of applicable Securities Laws and/or stock exchange
rules, 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, and the Board may make any amendments
necessary to the Plan or any Option for such purposes.
13. MERGERS, ETC.
Except as otherwise provided herein, all Options outstanding under the Plan
shall accelerate and become immediately exercisable for a period of not less
than fifteen days (or such longer 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 shares 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 13
shall be of no effect. The Company shall send written notice of a Terminating
Transaction to all individuals who hold Options not later than fifteen days
prior to the consummation of the Terminating Transaction.
14. REPURCHASE OF SHARES AND OPTIONS
(a) At any time and from time to time prior to the listing of the
Shares on a national securities or stock exchange or a national
market system, the Company (or its designee) shall have, and a
Grantee hereby grants to the Company (or its designee), an
irrevocable right and option to purchase from a Grantee (or the
Grantee's legal representative) all or any portion of the Options
of the Grantee and any Shares acquired by the Grantee pursuant to
the exercise of Options under this Plan. The Company may exercise
such right and option by delivering to the Grantee a notice
specifying the number of Shares and/or Options to be purchased and
the Fair Market Value of a Share. The Company may assign its right
and option to purchase a Grantee's Shares and/or Options.
(b) The price payable by the Company for Shares acquired pursuant to
this Section 14 shall be the Fair Market Value of the Shares and
the price payable by the Company for Options acquired pursuant to
this Section 14 shall be the amount, if
<PAGE> 9
9
any, by which the Fair Market Value of a Share exceeds the
exercise price per Share of such Option multiplied by number of
Shares issuable upon exercise.
15. TAXES
The Board shall make such provisions and take such steps as it deems necessary
or appropriate for the withholding of any federal, provincial, state, local and
other tax required by law to be withheld by the Company with respect to the
grant or exercise of Options, or with respect to the disposition of Shares
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 Grantee's beneficiary or
legal representative), as a condition of a Grant or exercise of an Option, 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.
16. 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, officer or director of any
Participating Company or affect in any way the right of any Participating
Company to terminate the Employee, officer or director at any time. Except as
otherwise 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.
17. CORPORATE ACTION
Nothing contained in the Plan or in an Award Agreement shall be construed so as
to prevent any Participating Company from taking corporate action which is
deemed by the Company or the Participating Company, acting in good faith, to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any outstanding Grant, provided that the Company
shall not undertake any such corporate action with the intent to adversely
prejudice any outstanding Grant.
18. AMENDMENT OR TERMINATION OF PLAN
(a) Neither the adoption of the Plan nor the making of any Grants
shall affect the Company's right to grant Options outside of the
Plan to any Person that is not subject to the Plan, to issue to
such Persons Shares as a bonus or otherwise, or to adopt other
plans or arrangements under which Shares may be issued.
(b) The Board may at any time discontinue Grants under the Plan. With
the consent of the Grantee, the Board may at any time cancel an
existing Grant in whole or in
<PAGE> 10
10
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 any changes in applicable tax 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, but no such amendment shall materially adversely
affect the rights of any Grantee (without the Grantee's consent)
under any outstanding Grant. In addition, the Board may at any
time, prospectively or retroactively, amend the Plan without the
consent of the Grantees for the purpose of complying with the
requirements of any national securities or stock exchange on which
the Shares are to be listed.
19. 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
Province of British Columbia and the federal laws of Canada
applicable therein.
(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
December 22, 1999.
----------------------------------------
Susan Herlick
Assistant Secretary of the Company
The Plan was duly approved by the shareholders of the Company on December 22,
1999.
----------------------------------------
Susan Herlick
Assistant Secretary of the Company
<PAGE> 1
EXHIBIT 10.18
ORBITAL SCIENCES CORPORATION
1997 STOCK OPTION AND INCENTIVE PLAN
(as amended on January 20, 2000)
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.
<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.
<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 6,800,000.*
- ----------
*Authorized shares increased by action of the Board of Directors on January 20,
2000.
<PAGE> 5
(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 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).
<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.
<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.
<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)
<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
<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.
<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 withholding tax from any compensation or other amounts payable to a
Grantee, or requiring a
<PAGE> 12
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.
<PAGE> 13
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
<PAGE> 1
EXHIBIT 16
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
April 17, 2000
Ladies and Gentlemen:
KPMG LLP ("KPMG") was previously the principal accountants for Orbital Sciences
Corporation ("Orbital" or the "Company") and under the date of February 16,
1999, except as to note 2A which is as of April 17, 2000, we reported on the
consolidated financial statements of the Company as of December 31, 1998 and
for each of the years in the two-year period ended December 31, 1998. Our
appointment as principal accountants was terminated by the Company on April 22,
1999. We have read the Company's statements included under the heading "Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure" in its 1999 Form 10-K, and we agree with those statements, except
as follows:
KPMG is not in a position to agree or disagree with the Company's statement in
the first sentence of the first paragraph, regarding the date from which
PricewaterhouseCoopers LLP has served as the Company's independent auditors.
KPMG is not in a position to agree or disagree with the Company's statement in
the third sentence of the first paragraph, that the Company had determined to
change auditors "at the direction of the Audit and Finance Committee of the
Board of Directors."
KPMG is not in a position to agree or disagree with the Company's statement in
the third sentence of the third paragraph, that "While we believed that our own
interpretation and application of accounting standards had been reasonable
under the circumstances, after discussion with KPMG and the Audit and Finance
Committee, the Company determined to restate the previously issued 1998
unaudited quarterly financial statements in the manner recommended by KPMG."
KPMG believes that the fourth sentence of the tenth paragraph should be
clarified to indicate that all uncorrected financial statement misstatements
proposed by KPMG that the Company determined were material, individually or in
the aggregate, to the consolidated financial statements were recorded by the
Company.
Very truly yours,
<PAGE> 1
Exhibit 21
SUBSIDIARIES
All subsidiaries of Orbital Sciences Corporation are Delaware Corporations
unless otherwise indicated.
ORBITAL COMMUNICATIONS CORPORATION
ORBITAL INTERNATIONAL, INC.
ORBITAL INTERNATIONAL SERVICES, INC.
ORBITAL NAVIGATION CORPORATION
MACDONALD, DETTWILER AND ASSOCIATES LTD., a Canadian company
MACDONALD, DETTWILER SPACE AND ADVANCED ROBOTICS LTD., a Canadian company
MACDONALD, DETTWILER SPACE ROBOTICS CORPORATION
ACCESS BC INFORMATION SERVICES, LTD., a Canadian company
MACDONALD, DETTWILER INFORMATION SERVICES, LTD., a Canadian company
MACDONALD, DETTWILER SERVICES, LTD., a Canadian company
MACDONALD, DETTWILER TECHNOLOGIES INC.
TRIATHLON LTD., a Canadian company
TRIATHLON, INC.
EARTH OBSERVATION SCIENCES LIMITED, a U.K. corporation
IOTEK INCORPORATED, a Canadian company
MAGELLAN CORPORATION
MAGELLAN DIS, INC.
MAGELLAN FOREIGN SALES CORPORATION
ASHTECH USVI
ASHTECH EUROPE LTD
ASHTECH A/O
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby 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) of ORBITAL SCIENCES CORPORATION of our
reports dated April 17, 2000 relating to the consolidated financial statements
and financial statement schedules of Orbital Sciences Corporation and our
report dated March 24, 2000 related to the financial statements of Orbital
Imaging Corporation, which appear in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
April 17, 2000
3
<PAGE> 1
EXHIBIT 23.2.1
ACCOUNTANTS CONSENT
The Board of Directors
Orbital Sciences Corporation and subsidiaries:
We consent to the references to our Firm under the heading "Item 9. Changes in
and Disagreements with Accountants on Accounting and Financial Disclosure" and
the incorporation by reference in the registration statements on Forms
S-8 (Nos. 33-84296, 33-62277, 33-64517, 333-53585, 333-69887, 333-69885, and
333-27999) of Orbital Sciences Corporation and subsidiaries of our reports dated
February 16, 1999, except as to note 2A, which is as of April 17, 2000, relating
to the consolidated balance sheet of Orbital Sciences Corporation as of December
31, 1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows, and the related consolidated financial statement
schedule, for each of the years in the two-year period ended December 31, 1998,
which reports appear in the December 31, 1999 annual report on Form 10-K of
Orbital Sciences Corporation.
Our reports refer to the restatement of the consolidated balance sheet as of
December 31, 1998, and the consolidated statements of operations, stockholders'
equity and cash flows, and the related consolidated financial statement
schedule for each of the years in the two-year period ended December 31, 1998.
KPMG LLP
Washington, D.C.
April 17, 2000
<PAGE> 1
EXHIBIT 23.2.2
ACCOUNTANTS' CONSENT
The Board of Directors
Orbital Sciences Corporation and subsidiaries:
We consent to the incorporation by reference in the registration statements on
Forms S-8 (Nos. 33-84296, 33-62277, 33-64517, 333-53585, 333-69887, 333-69885,
and 333-27999) of Orbital Sciences Corporation and subsidiaries of our report
dated March 30, 1999, relating to the consolidated balance sheet of ORBCOMM
Global, L.P. and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations and comprehensive loss, partners' capital,
and cash flows for each of the years in the two-year period ended December 31,
1998, which report appears in the December 31, 1999 annual report on Form 10-K
of Orbital Sciences Corporation.
KPMG LLP
Washington, D.C.
April 17, 2000
<PAGE> 1
EXHIBIT 23.2.3
ACCOUNTANTS' CONSENT
The Board of Directors
Orbital Sciences Corporation and subsidiaries:
We consent to the incorporation by reference in the registration statements on
Forms S-8 (Nos. 33-84296, 33-62277, 33-64517, 333-53585, 333-69887, 333-69885,
and 333-27999) of Orbital Sciences Corporation and subsidiaries of our report
dated January 22, 1999, except for the second paragraph of Note 3 which is as of
March 23, 2000, relating to the balance sheet of Orbital Imaging Corporation as
of December 31, 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1998, which report appears in the December 31, 1999 annual
report on Form 10-K of Orbital Sciences Corporation.
Our report refers to the restatement of the balance sheet as of December 31,
1998, and the related statements of operations, stockholders' equity, and cash
flows for each of the years in the two-year period ended December 31, 1998.
KPMG LLP
Washington, D.C.
April 17, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 3, 2000 included in this Form 10-K, into Orbital Sciences
Corporation's previously filed Registration Statements on Form S-8 (File Nos.
33-84296, 33-62277, 33-64517, 333-53585, 333-69887, 333-69885 and 333-27999)
ARTHUR ANDERSEN LLP
April 13, 2000
Vienna, Virginia
<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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000820736
<NAME> ORBITAL SCIENCES CORP /DE/
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 74,524
<SECURITIES> 34,630
<RECEIVABLES> 314,235
<ALLOWANCES> (18,920)
<INVENTORY> 54,483
<CURRENT-ASSETS> 476,139
<PP&E> 259,751
<DEPRECIATION> (122,129)
<TOTAL-ASSETS> 1,092,912
<CURRENT-LIABILITIES> 515,169
<BONDS> 239,672
374
0
<COMMON> 0
<OTHER-SE> 306,418
<TOTAL-LIABILITY-AND-EQUITY> 1,092,912
<SALES> 874,911
<TOTAL-REVENUES> 874,911
<CGS> 738,526
<TOTAL-COSTS> 738,526
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (2,650)
<INTEREST-EXPENSE> 27,843
<INCOME-PRETAX> (110,833)
<INCOME-TAX> 11,104
<INCOME-CONTINUING> (121,937)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (121,937)
<EPS-BASIC> (3.27)
<EPS-DILUTED> (3.27)
</TABLE>
