<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Section
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 14a-11(c) or Section 14a-12
ORBITAL SCIENCES CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by Registration Statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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<PAGE> 2
[ORBITAL LOGO]
April 20, 2000
Dear Stockholder:
It is my pleasure to invite you to the Annual Meeting of Stockholders of
Orbital Sciences Corporation to be held on Thursday, June 1, 2000 at 9:00 A.M.
at the Company's headquarters located at 21700 Atlantic Boulevard, Dulles,
Virginia 20166.
Whether or not you plan to attend, and regardless of the number of shares
you own, it is important that your shares be represented at the meeting. You are
accordingly urged to sign, date and return your proxy promptly in the enclosed
envelope, which requires no postage if mailed in the United States. Your return
of a proxy in advance will not affect your right to vote in person at the
meeting.
I hope that you will be able to attend the meeting. Orbital's officers and
directors look forward to seeing you at that time.
Sincerely,
/s/ DAVID W. THOMPSON
DAVID W. THOMPSON
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
ORBITAL SCIENCES CORPORATION
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 1, 2000
------------------------
The Annual Meeting of Stockholders of Orbital Sciences Corporation (the
"Company"), a Delaware corporation, will be held at the Company's headquarters
located at 21700 Atlantic Boulevard, Dulles, Virginia 20166, on Thursday, June
1, 2000 at 9:00 A.M. for the following purposes:
1. To elect four directors for three-year terms ending in 2003.
2. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has set April 20, 2000 as the record date for the
meeting. This means that owners of the Company's Common Stock at the close of
business on that date are entitled to receive notice of the meeting and to vote
at the meeting and any adjournments or postponements thereof.
EACH STOCKHOLDER IS URGED TO VOTE PROMPTLY BY SIGNING AND RETURNING THE ENCLOSED
PROXY CARD. IF A STOCKHOLDER DECIDES TO ATTEND THE MEETING, HE OR SHE MAY REVOKE
THE PROXY AND VOTE THE SHARES IN PERSON.
By Order of the Board of Directors,
/s/ LESLIE C. SEEMAN
LESLIE C. SEEMAN
Executive Vice President, General Counsel
and Secretary
April 20, 2000
<PAGE> 4
ORBITAL SCIENCES CORPORATION
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
------------------------
The accompanying proxy is solicited by and on behalf of the Board of
Directors of Orbital Sciences Corporation (the "Company" or "Orbital") for use
at the Annual Meeting of Stockholders to be held at the Company's headquarters
located at 21700 Atlantic Boulevard, Dulles, Virginia 20166, on Thursday, June
1, 2000 at 9:00 A.M. and any adjournments thereof.
The Board of Directors has fixed the close of business on April 20, 2000
(the "Record Date") for determining stockholders who are entitled to vote at the
Annual Meeting of Stockholders. On the Record Date, there were 37,417,245 shares
of common stock, par value $0.01 per share (the "Common Stock"), outstanding,
the holders of which are entitled to one vote per share on each matter to come
before the meeting. Proxies properly executed and returned will be voted at the
meeting in accordance with any directions noted. Any proxy on which no
directions are indicated will be voted FOR the election of the nominees for
director set forth below. Proxies will be voted in the discretion of the holder
of the proxy with respect to any other business that may properly come before
the meeting and as to which a stockholder has not provided timely notice, and
all matters incidental to the conduct of the meeting. Any stockholder signing
and delivering a proxy may revoke it at any time before it is voted by
delivering to the Secretary of the Company a written revocation or a duly
executed proxy bearing a date later than the date of the proxy being revoked.
Any stockholder attending the meeting in person may revoke his or her proxy and
vote his or her shares in person.
This Proxy Statement and accompanying form of proxy will be first mailed to
stockholders on or about April 24, 2000.
<PAGE> 5
PROPOSAL 1
ELECTION OF DIRECTORS
Four directors are to be elected at the 2000 Annual Meeting for three-year
terms that expire in 2003. Nine other directors have been elected to terms that
end in either 2001 or 2002, as indicated below. Mr. James R. Thompson, who had
previously been elected as a director for the term ending in 2001, has been
nominated to fill the vacancy in the slate of directors for election in 2000
resulting from the retirement of Dr. John L. McLucas, who will assume an
advisory role as director emeritus. The term of office of each nominated
director will be for three years expiring at the 2003 Annual Meeting of
Stockholders and until a successor is elected and qualified or until such
director's death, removal or resignation. If any nominees for directors should
become unavailable, the Human Resources and Nominating Committee of the Board of
Directors would designate substitute nominees and proxies would be voted for
such substitutes. Management does not anticipate that any of the nominees will
become unavailable.
In order to be elected, a nominee must receive the vote of a plurality of
the outstanding shares of Common Stock represented at the meeting and entitled
to vote. The four nominees for election as directors at the Annual Meeting who
receive the greatest number of votes properly cast for the election of directors
will be elected directors. Shares that are withheld and broker nonvotes will
have no effect on the outcome of the election.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH OF
THE NOMINEES NAMED. Unless instructions are given to the contrary, it is the
intention of the persons named as proxies to vote the shares to which the proxy
is related FOR the election of each of the nominees listed below.
Set forth below is certain information (as of March 1, 2000) concerning
each of the nominees and each person whose term of office as a director will
continue after the Annual Meeting.
DIRECTORS TO BE ELECTED AT THE 2000 ANNUAL MEETING
DOUGLAS S. LUKE, 58
Chairman of Audit and Finance Committee and Member of Human Resources and
Nominating Committee
Douglas S. Luke has been a director of the Company since 1983. Since 1998, Mr.
Luke has been President and Chief Executive Officer of HL Capital, Inc., a
private investment firm. From 1991 until 1998, Mr. Luke was President and Chief
Executive Officer of WLD Enterprises, Inc., a private investment firm. From 1979
until 1990, he held various positions with Rothschild, Inc., including the
position of Managing Director from 1987 until 1990. Mr. Luke is currently a
director of Regency Realty Corporation and Westvaco Corporation.
HARRISON H. SCHMITT, 64
Member of Audit and Finance Committee and Strategy and Technology Committee
Harrison H. Schmitt has been a director of the Company since 1983. From 1982
until the present, Dr. Schmitt has served in various capacities as a business
and technical consultant. From 1976 to 1982, Dr. Schmitt was a United States
Senator from New Mexico, during which time he chaired the Senate Science,
Technology and Space Subcommittee, which oversees all non-military space-related
research and development programs of the U.S. Government. From 1974 to 1975, he
was Assistant Administrator for Energy Programs for the National Aeronautics and
Space Administration ("NASA"). From 1965 to 1973, he was a NASA astronaut. As
Lunar Module Pilot on Apollo 17 in 1972, he explored the Moon's surface.
2
<PAGE> 6
JAMES R. THOMPSON, 63
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.
SCOTT L. WEBSTER, 47
Scott L. Webster is a co-founder of Orbital and has been a director of the
Company since 1982. In early 1998, Mr. Webster became Chairman of the Board and
Chief Executive Officer of ORBCOMM Global, L.P. ("ORBCOMM"). From 1993 to 1997,
Mr. Webster served in various consulting capacities with the Company. He served
as President of Orbital's Space Data Division from 1990 until 1993, and
Executive Vice President of that Division from 1989 to 1990. Mr. Webster served
as Orbital's Senior Vice President/ Marketing and Vice President of Marketing
from Orbital's inception in 1982 until 1989. Previously, he held technical and
management positions at Advanced Technology Laboratories and Litton Industries,
Inc.
DIRECTORS WHOSE TERMS EXPIRE IN 2001
FRED C. ALCORN, 69
Member of Human Resources and Nominating Committee
Fred C. Alcorn has been a director of the Company since 1983. Since 1975, Mr.
Alcorn has been President of Alcorn Oil & Gas Company and Alcorn Development
Company.
LENNARD A. FISK, 56
Member of Strategy and Technology Committee
Lennard A. Fisk has been a director of the Company since 1993. Since 1993, Dr.
Fisk has been Professor and Chairman of the Department of Atmospheric, Oceanic,
and Space Sciences at the University of Michigan. From 1987 until 1993, he was
Associate Administrator for Space Science and Applications at NASA. From 1977
until 1987, he held various positions at the University of New Hampshire,
including Vice President for Research and Financial Affairs.
JACK L. KERREBROCK, 72
Member of Strategy and Technology Committee
Jack L. Kerrebrock has been a director of the Company since 1993. From 1984
until 1993, he was a director of Orbital's then wholly owned subsidiary, Orbital
Research Corporation. Since 1965, Dr. Kerrebrock has been a Professor of
Aeronautics and Astronautics at the Massachusetts Institute of Technology. He
also served as Associate Administrator for Aeronautics and Space Technology at
NASA from 1981 to 1983.
DAVID W. THOMPSON, 45
Chairman of the Board
David W. Thompson is a co-founder of Orbital and has been Chairman of the Board
and Chief Executive Officer of the Company since 1982. From 1982 until October
1999, he also served as the Company's 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
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<PAGE> 7
Charles Stark Draper Laboratory. Mr. Thompson serves as Chairman of Orbital
Imaging Corporation ("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.
DIRECTORS WHOSE TERMS EXPIRE IN 2002
KELLY H. BURKE, 70
Chairman of Human Resources and Nominating Committee
Kelly H. Burke has been a director of the Company since 1984. Lt. General Burke
served in the U.S. Air Force for 30 years, holding a variety of command and
staff positions, culminating in that of Deputy Chief of Staff for Research,
Development and Acquisition in the Pentagon. Since retiring from the U.S. Air
Force in 1982, Lt. General Burke has been Chairman of Stafford, Burke and
Hecker, Inc., an aerospace consulting firm. Additionally, Lt. General Burke has
served as an advisor to the White House Science Office, the National Academy of
Sciences, the Defense Science Board and the U.S. Air Force Scientific Advisory
Board.
BRUCE W. FERGUSON, 45
Bruce W. Ferguson is a co-founder of Orbital and has been a director of the
Company since 1982. Mr. Ferguson is Chairman, President and Chief Executive
Officer of Edenspace Systems Corporation, an environmental services company he
co-founded in 1998. Mr. Ferguson was Senior Vice President, Special Projects of
Orbital from 1997 to 1999, Executive Vice President and General
Manager/Communications and Information Services Group from 1993 until 1997, and
Executive Vice President and Chief Operating Officer of Orbital from 1989 to
1993. From 1985 to 1989, he was Senior Vice President/Finance and Administration
and General Counsel of Orbital. Mr. Ferguson is also a director of ORBIMAGE.
DANIEL J. FINK, 73
Chairman of Strategy and Technology Committee and Member of Audit and Finance
Committee
Daniel J. Fink has been a director of the Company since 1983. Since 1982, Mr.
Fink has been President of D.J. Fink Associates, Inc., a management consulting
firm. From 1967 until 1982, Mr. Fink held a variety of positions at General
Electric Company, including the position of Senior Vice President from 1979 to
1982. Mr. Fink is a director of Titan Corporation, a former member of the
Defense Science Board and a former Chairman of the NASA Advisory Council.
JANICE I. OBUCHOWSKI, 48
Member of Strategy and Technology Committee
Janice I. Obuchowski has been a director of the Company since 1996. Since 1992,
Ms. Obuchowski has been President of Freedom Technologies, Incorporated, a
telecommunications research and consulting firm. From 1995 until June 1998, Ms.
Obuchowski was an Executive Vice President of NextWave Telecom, Inc. From 1989
to 1992, she served as the Assistant Secretary for Communications and
Information at the U.S. Department of Commerce and Administrator of the National
Telecommunications and Information Agency. From 1980 to 1987, Ms. Obuchowski
served in a variety of positions at the U.S. Federal Communications Commission,
including Chief of the Common Carrier Bureau's International Policy Division and
Senior Advisor to the Chairman. Ms. Obuchowski is a director of CSG Systems,
Inc.
FRANK L. SALIZZONI, 61
Member of Audit and Finance Committee
Frank L. Salizzoni has been a director of the Company since 1996. Mr. Salizzoni
has been President and Chief Executive Officer of H&R Block, Inc. since 1996.
From 1994 until 1996, Mr. Salizzoni was President and Chief Operating Officer of
USAir, Inc. and USAir Group, Inc. He joined USAir as Executive Vice
President-Finance and Chief Financial Officer in 1990. From 1987 to 1989, Mr.
Salizzoni was Chairman and
4
<PAGE> 8
Chief Executive Officer of TW Services, one of the largest food services
companies in the United States. From 1967 to 1987, Mr. Salizzoni held several
senior financial management positions with Trans World Airlines and its parent
company, Transworld Corporation. Mr. Salizzoni is a director of H&R Block, Inc.
INFORMATION CONCERNING THE BOARD AND ITS COMMITTEES
Meetings and Committees
During 1999, the Board of Directors held 10 meetings. The Board has three
standing committees: the Audit and Finance Committee; the Human Resources and
Nominating Committee; and the Strategy and Technology Committee. The
biographical information in the immediately preceding section identifies the
committee memberships held by each director.
The Audit and Finance Committee, which held 13 meetings in 1999, reviews
the Company's financial reports and other information relating to corporate
financial performance and planning, including major issues regarding accounting
and auditing practices; oversees the Company's internal controls that could
significantly affect the Company's financial statements; evaluates Company
financings and financial aspects of potential acquisitions, divestitures and
joint ventures; recommends annually the appointment of the Company's independent
auditors and reviews such auditors' compensation and performance; consults with
the independent auditors with regard to the plan of audit; and consults with the
independent auditors with regard to the Company's financial results, significant
accounting policies and issues, and the adequacy of internal controls of the
Company.
The Human Resources and Nominating Committee, which held six meetings in
1999, administers the Company's stock option and stock purchase plans; approves
compensation arrangements for directors, executive officers and certain other
members of management; evaluates compensation plans and policies and makes
recommendations to the Board with respect thereto; oversees the Company's
defined contribution and deferred compensation plans; considers issues of
management development, evaluation and succession; reviews corporate human
resources matters, including issues relating to work force recruiting and
retention; and nominates candidates for positions on the Board. In addition, the
Committee will consider nominees recommended by stockholders for election as
directors if such recommendations are in writing, are filed with the Secretary
of the Company by the time specified in the Company's By-Laws and include the
information specified in the Company's By-Laws.
The Strategy and Technology Committee, which held four meetings in 1999,
gives initial Board-level consideration to certain advanced technology and
business strategy issues, including competitive assessments; reviews and
assesses major programs and research and development activities; evaluates
potential acquisitions, divestitures and joint ventures; and evaluates technical
and market risks associated with new product development.
Director Compensation
During 1999, four members of the Board of Directors were salaried employees
of the Company or its affiliates. Such employee-directors receive no additional
compensation for serving on the Board. Board members who are not salaried
employees receive separate compensation for Board service. That compensation
includes: (i) an annual retainer in the form of cash or restricted stock or a
combination of the two, (ii) attendance fees, (iii) stock options and (iv) in
some instances, restricted stock awards. All directors also are reimbursed for
out-of-pocket expenses in connection with Board and committee service.
Retainer and Fees. Nonemployee directors receive an annual retainer of
$7,500, along with $1,000 for each Board or committee meeting attended. As
described below, nonemployee directors may elect to receive their annual
retainer in restricted Common Stock of the Company.
Options and Restricted Stock. Under the 1997 Stock Option and Incentive
Plan (the "1997 Option Plan"), nonemployee directors receive an annual grant on
the first business day in January of options to purchase 3,000 shares of Common
Stock at an exercise price equal to the fair market value on that date. On
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<PAGE> 9
January 2, 1999, the option exercise price was $43.31 per share. The option
grant vests in its entirety one year from the grant date.
The Board has adopted two nonemployee director compensation programs that
are intended to incentivize nonemployee directors to increase their equity
ownership in the Company and to directly align their financial interests with
those of stockholders. The first is a compensation program that allows
nonemployee directors to elect to receive shares of restricted Common Stock in
lieu of all or a portion of their annual cash retainer under the 1997 Option
Plan. Nonemployee directors making this election receive an additional matching
award of an equal number of shares of restricted Common Stock. The grant,
including the matching award of restricted Common Stock, vests in its entirety
two years from the date of grant. During 1999, the Company issued a total of
3,440 shares of restricted Common Stock to all ten eligible directors in lieu of
a cash annual retainer.
The second compensation program allows the Company to match a nonemployee
director's purchase of up to $10,000 worth of Common Stock in the open market in
a calendar year with a grant of restricted Common Stock under the 1997 Option
Plan. The number of shares of restricted Common Stock granted is equal to the
dollar value of the nonemployee director's stock purchase in any given calendar
quarter divided by the average closing sales price of the Company's Common Stock
during that calendar quarter. The grant vests in its entirety in two years from
the date of grant. In 1999, the Company issued a total of 1,594 shares of
restricted Common Stock to five nonemployee directors who participated in the
program.
6
<PAGE> 10
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of all compensation earned,
awarded or paid in the fiscal years ended December 31, 1999, 1998 and 1997, as
applicable, to the Chief Executive Officer and the four most highly compensated
executive officers of the Company who were serving as executive officers at
December 31, 1999 (collectively, the "Named Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION(A)
--------------------------- ---- -------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
David W. Thompson................. 1999 $415,000 $ 166,000 250,000 $14,600
Chairman of the Board and 60,000(b)
Chief Executive Officer
1998 390,000 207,800(c) 90,000 16,036
50,000(b)
250,000(d)
1997 375,000 1,700,135(e) 105,000 22,600
40,000(b)
James R. Thompson................. 1999 312,000 110,625 50,000 17,942
President and Chief Operating
Officer
1998 270,000 137,800 40,000 14,311
1997 255,000 114,800 30,000 16,896
Robert R. Lovell.................. 1999 325,000 313,250(f) 30,000 28,399(g)
Executive Vice President and
General Manager/Space Systems 1998 310,000 413,300(f) 40,000 37,594(g)
Group 75,000(b)
1997(h) 161,000 56,300 50,000 14,467(g)
Jeffrey V. Pirone................. 1999 280,000 84,000 150,000 12,893
Executive Vice President and 15,000(b)
Chief Financial Officer
1998 250,000 91,200 75,000 13,514
140,000(d)
1997 215,000 136,800 80,000 15,636
20,000(b)
Michael D. Griffin................ 1999 280,000 70,000 30,000 9,329
Executive Vice President and Chief
Technical Officer 1998 265,000 86,100 30,000 13,741
100,000(d)
1997 250,000 112,500 30,000 16,750
</TABLE>
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<PAGE> 11
- ---------------
(a) Except for other compensation additionally noted, "All Other Compensation"
consists of Company contributions under a 401(k) plan or deferred
compensation plan. For 1999, amounts contributed under a 401(k) plan and
deferred compensation plan, respectively, were as follows for each Named
Officer: Mr. D.W. Thompson, $8,000 and $6,600; Mr. J.R. Thompson, $8,000 and
$9,942; Mr. Lovell, $4,321 and $78; Mr. Pirone, $8,000 and $4,893; and Mr.
Griffin, $7,188 and $2,141.
(b) Shares of common stock of ORBIMAGE underlying options granted under the
ORBIMAGE 1996 Stock Option Plan. ORBIMAGE options were granted with an
exercise price of $6.25 per share in 1999 and $4.17 per share in 1998 and
1997 and vest annually over a three-year period.
(c) Does not include $1,545,000 earned under Mr. Thompson's performance share
agreement, which award Mr. Thompson declined to accept.
(d) Shares of common stock of Magellan underlying options granted under the 1998
Magellan Stock Option and Incentive Plan (the "1998 Magellan Option Plan").
Magellan options were granted with an exercise price of $.40 per share and
generally vest over a three-year period.
(e) Includes a $1,420,135 bonus earned under Mr. Thompson's performance share
agreement.
(f) Includes $232,000 and $312,500 special bonuses earned in 1999 and 1998,
respectively, based on achieving sales targets in such years.
(g) Includes $2,000 per month housing allowance.
(h) Mr. Lovell joined the Company on a full-time basis in August 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The table below shows information on grants of stock options during the
fiscal year ended December 31, 1999 to the Named Officers under Orbital's 1997
Option Plan, which options are reflected in the Summary Compensation Table.
Except as otherwise indicated, all options granted to the Named Officers under
the 1997 Option Plan vest annually over a three-year period.
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
-------------------------------------------------- ---------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ---------- ------------ --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
David W. Thompson....... 250,000(a) 12% $ 40.00 5/28/2009 N/A $4,670,856
James R. Thompson....... 50,000 2% 22.625 5/28/2009 $711,437 1,802,921
Robert R. Lovell........ 30,000 1% 22.625 5/28/2009 426,862 1,081,753
Jeffrey V. Pirone....... 150,000(a) 7% 40.00 5/28/2009 N/A 2,802,513
Michael D. Griffin...... 30,000 1% 22.625 5/28/2009 426,862 1,081,753
</TABLE>
- ---------------
(a) Options vest annually over a four-year period.
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<PAGE> 12
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The table below shows information with respect to the exercise of stock
options during fiscal year 1999 by the Named Officers, as well as the 1999
year-end value of unexercised stock options granted under the 1997 Option Plan
and its predecessor, the Company's 1990 Stock Option Plan.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTION SHARES IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David W. Thompson.............. -- -- 155,000 345,000 $337,188 $54,688
James R. Thompson.............. 11,000 $194,260 122,755 86,665 406,456 14,790
Robert R. Lovell............... -- -- 79,668 73,332 177,219 5,208
Jeffrey V. Pirone.............. -- -- 72,334 226,666 115,228 37,499
Michael D. Griffin............. -- -- 28,337 59,999 56,994 14,790
</TABLE>
COMPENSATION COMMITTEE REPORT
Overview and Philosophy. The Human Resources and Nominating Committee (the
"Committee") is composed entirely of independent nonemployee directors and is
responsible for evaluating and determining the compensation of the Company's
senior executives. The Committee strives to ensure that compensation serves to
motivate and retain senior executives while also being in the best interests of
the Company and its stockholders. The Committee's philosophy relating to
executive compensation is to attract and retain highly qualified people at
industry competitive salaries, and to link the financial interests of Orbital's
senior management to those of the Company's stockholders. The Committee
endeavors to attain these goals by tying compensation to the achievement of
certain operational and financial objectives adopted semi-annually by the
Committee. To implement these objectives, the Company's compensation structure
has five general components: (i) base salary, (ii) annual cash bonuses and,
under certain circumstances, special cash bonuses, (iii) stock options, (iv)
stock ownership incentives and (v) under certain circumstances, stock
appreciation rights.
Base Salary. In the early part of each fiscal year, the Committee reviews
with Mr. David W. Thompson, Orbital's Chief Executive Officer, and approves,
with any modifications it deems appropriate, salary levels for the Company's
executive officers, including the Named Officers, and certain other members of
senior management. Generally, the salaries are determined subjectively,
intending to reflect the value of the job in the marketplace and the past and
expected future performance and contributions of the individual senior
executive, as well as the Company's overall growth and profitability.
Annual Cash Incentive Bonus. Under the Company's incentive bonus plan for
1999, the Chief Executive Officer was eligible to receive a bonus of up to 80%
of base salary, and the Company's President and Chief Operating Officer and
Executive Vice President and Chief Financial Officer were each eligible to
receive a bonus of up to 60% of base salary, based on individual achievements
and overall Company financial and operational performance. The Company's other
executive officers, including the other Named Officers, were eligible to receive
annual bonuses of up to 50% of base salary, based primarily on individual
achievements and their operating groups' financial and operational performance.
In January 1999 and July 1999, the Committee reviewed and adopted operational
and financial goals recommended by management for purposes of 1999 bonus
opportunities. Financial goals included achievement of target levels with
respect to revenues, backlog, earnings and cash flow, and the price of the
Company's Common Stock, with greater emphasis placed on earnings and the
performance of the Company's Common Stock. Operational goals included space
mission reliability and timeliness, new orders and contracts, new product
initiatives, adherence to schedules and budgets, and the completion of certain
corporate transactions.
In July 1999 and January 2000, the Chief Executive Officer evaluated the
Company's and the individual groups' performance against the established goals,
and presented his evaluation, together with his reasoning and recommended bonus
percentages. The Committee then determined, based on the recommendations of the
9
<PAGE> 13
Chief Executive Officer and other members of management and any other factors
the Committee considered relevant, the percentage of base salary to be awarded
as a bonus to each executive officer. In addition, the Committee established a
bonus pool for all other eligible employees. The Committee concluded that the
Company achieved moderate success in meeting its operational goals in the first
half of 1999 and was somewhat less successful in meeting its operational goals
in the second half of 1999. The Company failed to meet certain financial goals,
especially with respect to earnings and stock price. The total bonus percentage
awarded to each of the Named Officers, other than the Chief Executive Officer
(discussed below), was 50% of the target bonus amount, or 30% of annual base
salary for the President and Chief Operating Officer and the Executive Vice
President and Chief Financial Officer and 25% of annual base salary for the
other Named Officers.
In addition to its annual incentive bonus plan, the Company also has a
policy of awarding special cash bonuses to an individual or a group in
recognition of exceptional achievement or effort. No special bonuses were
awarded to the Named Officers in 1999. Pursuant to an agreement with the Company
intended to incentivize satellite system marketing efforts, Mr. Lovell may be
eligible to receive a special annual cash bonus of up to $312,500 depending upon
new Space Systems Group business. As a result of such new business booked in the
past two years, Mr. Lovell received a special bonus of $232,000 for 1999 and
$312,500 for 1998.
In 1999, the Committee awarded Performance Share Agreements to the
Company's Chief Executive Officer (discussed below) and to Mr. J.R. Thompson and
Mr. Pirone, the Company's President and Chief Operating Officer and Executive
Vice President and Chief Financial Officer, respectively. These agreements are
intended to provide these Named Officers with further incentive to enhance the
financial and operational strength of the Company by directly linking a
significant component of their compensation to the amount of appreciation in the
Company's Common Stock. Under these agreements, 50,000 performance shares each
were granted to Mr. J.R. Thompson and Mr. Pirone. The agreements provide for a
bonus to be paid in 2000 equal to the number of performance shares multiplied by
the amount by which the average closing sales price of the Company's Common
Stock for the month of March 2000 exceeded $30 per share. Messrs. Thompson and
Pirone were not entitled to receive any bonus in 2000 under their Performance
Share Agreements, in accordance with their terms. The agreements also provide
for a bonus to be paid next year determined by the number of performance shares
multiplied by the increase of the average closing sales price of the Company's
Common Stock for the month of March 2001 over the average closing sales price of
the Company's Common Stock for the month of March 2000. Bonuses earned pursuant
to these agreements are paid into the Named Officer's account under Orbital's
deferred compensation plan, with 50% of the amount vesting immediately and the
remainder vesting one year later.
Stock Options. The Committee believes that the award of stock options
provides meaningful long-term incentives that are directly related to the
enhancement of stockholder value. Under the 1997 Option Plan, stock options are
granted at an exercise price equal to or, in limited circumstances, greater than
the closing price of the Company's Common Stock on the date of the grant and
generally vest annually over a three-year period. Therefore, the value of the
grant to the recipient is directly related to an increase in the price of the
Common Stock. The Committee generally approves an annual grant to senior
executives, including the Named Officers. In addition, stock option grants
occasionally may be awarded throughout the year to individuals, including the
Named Officers. The number of stock options granted to each individual is
determined subjectively based on a number of factors, including the individual's
degree of responsibility, general level of performance, ability to affect future
Company performance, salary level, option holdings and recent noteworthy
achievements. Stock option awards are intended to incentivize employees to work
towards achieving operational and financial goals that management believes will
ultimately be reflected in stock value.
In 1999, as a result of the steep decline in the Company's Common Stock and
the Committee's view that certain members of senior management should be further
incentivized to take the necessary steps to strengthen Orbital's stock price to
prior years' levels, the Committee decided to grant larger than usual awards to
the Company's Chief Executive Officer and Executive Vice President and Chief
Financial Officer with an exercise price set at $40 per share, which was
approximately twice the fair market value on the date of grant. Such options
vest annually over a four-year period.
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<PAGE> 14
In addition to the options granted under the 1997 Option Plan, in 1999
certain senior managers, including certain of the Named Officers, were granted
ORBIMAGE common stock options under the ORBIMAGE 1996 Stock Option Plan. The
ORBIMAGE 1996 Stock Option Plan is administered by ORBIMAGE's Board of
Directors. These stock options were granted to incentivize continued efforts by
the grantees in assisting ORBIMAGE's development and operations.
Stock Ownership Incentives. Intending to incentivize senior management to
increase their equity ownership in the Company and thus to further motivate
performance, the Committee has instituted an executive officer loan program that
authorizes the Company to make a loan of up to $50,000 to each executive officer
solely for the purpose of purchasing Common Stock in the open market. Each loan
is for a term of four years with interest deferred. The Company has agreed to
forgive one-half of the principal amount and any accrued interest on the third
anniversary of the loan and the other one-half of the principal amount and any
accrued interest on the fourth anniversary of the loan if the executive officer
continues to hold all the shares of stock acquired with the loan proceeds on the
third anniversary of the loan and at least one-half of all such shares on the
fourth anniversary of the loan. Since 1997, five executive officers, including
three Named Officers, have participated in this program.
In October 1998, the Committee adopted the 1999 Employee Stock Purchase
Plan ("ESPP"), which provides an opportunity for all employees, including senior
management, to purchase the Company's Common Stock at a 15% discount. The
Committee believes that promoting company-wide employee stock ownership will
benefit the Company by aligning employees' financial interests with those of
stockholders. The ESPP is intended to benefit the Company by increasing
employees' interest in the Company's growth and success and to assist in
recruiting and retaining high quality employees.
Chief Executive Compensation. Based on the Committee's review of the Chief
Executive Officer's performance, the overall performance of the Company and
compensation levels for comparable positions in the industry, the Committee
authorized a merit increase of $25,000 in Mr. Thompson's annual base salary from
$390,000 in 1998 to $415,000 effective January 1, 1999. The Committee maintained
the Chief Executive Officer's target bonus percentage at 80% of base salary for
1999. The total bonus percentage awarded the Chief Executive Officer under the
Company's incentive bonus plan in 1999 was 50% of target, or 40% of his base
salary. In determining the Chief Executive Officer's annual cash incentive
bonus, the Committee considered specific personal objectives of the Chief
Executive Officer for 1999, which included management goals with respect to the
operations of the Company's product line groups, certain financial and
operational goals for ORBCOMM and ORBIMAGE, and goals related to revenues,
earnings and stock price. As discussed above under Stock Options, the Committee
approved a grant of 250,000 options to Mr. Thompson in 1999 with an exercise
price of $40 per share, which was approximately twice the fair market value on
the date of grant. Such options vest annually over a four-year period.
Since 1996, the Company has awarded the Chief Executive Officer with
Performance Share Agreements to provide him with further incentive to enhance
the financial and operational strength of the Company by directly linking a
significant component of his compensation to the amount of appreciation in the
Company's Common Stock. In 1999, Mr. Thompson declined to accept the performance
share award to which he would have otherwise been entitled based on the
Company's stock price performance in 1998 through the beginning of 1999. Under
the agreement awarded in 1999, 100,000 performance shares were granted to Mr.
Thompson. The agreement provides for a bonus to be paid in 2000 equal to the
number of performance shares multiplied by the amount by which the average
closing sales price of the Company's Common Stock for the month of March 2000
exceeded $30 per share. Mr. Thompson was not entitled to receive any bonus in
2000 under his Performance Share Agreement, in accordance with its terms. The
agreement also provides for a bonus to be paid next year determined by the
number of performance shares multiplied by the increase of the average closing
sales price of the Company's Common Stock for the month of March 2001 over the
average closing sales price of the Company's Common Stock for the month of March
2000. Bonuses earned pursuant to this agreement are paid into the Chief
Executive Officer's account under Orbital's deferred compensation plan, with 50%
of the amount vesting immediately and the remainder vesting one year later.
11
<PAGE> 15
The foregoing report has been furnished by the Committee members:
<TABLE>
<S> <C>
Lt. Gen. Kelly H. Burke (Chairman) Dr. John L. McLucas
Mr. Douglas S. Luke Mr. Fred C. Alcorn
</TABLE>
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
The following graph compares the yearly cumulative total return on the
Company's Common Stock against the cumulative total return on the Nasdaq Stock
Market Index of U.S. Companies and the Dow Jones Aerospace/Defense Index for the
five-year period commencing on December 31, 1994 and ending on December 31,
1999.
PERFORMANCE GRAPH COMPARISON OF CUMULATIVE TOTAL RETURNS*
<TABLE>
<CAPTION>
NASDAQ US COMPANY DOW JONES ORBITAL SCIENCES
INDEX AEROSPACE/DEFENSE INDEX CORPORATION
----------------- ----------------------- ----------------
<S> <C> <C> <C>
December 1993 100.00 100.00 100.00
December 1994 97.75 109.95 93.90
December 1995 138.26 187.70 62.20
December 1996 170.02 246.23 84.15
December 1997 208.58 255.52 145.12
December 1998 293.21 208.17 214.63
</TABLE>
* Assumes that the value of the investment in Orbital Common Stock, the Nasdaq
Stock Market Index of U.S. Companies and the Dow Jones Aerospace/Defense Index
was $100 on December 31, 1994. It should be noted that the Company has not
declared any dividends on its Common Stock.
INDEMNIFICATION AGREEMENTS
The Company has entered into substantially identical indemnification
agreements with each of its directors, the Named Officers and with certain other
officers and senior managers. The agreements provide that the Company shall, to
the full extent permitted by the Delaware General Corporation Law, as amended
from time to time, indemnify each indemnitee against all loss and expense
incurred by the indemnitee because he or she was, is or is threatened to be made
a party to any completed, pending or threatened action, suit or proceeding by
reason of the fact that he or she was a director, officer, employee or agent of
the Company or any of its affiliates, or because the Company has a right to
judgment in its favor because of his or her position with the Company or any of
its affiliates. The indemnitee will be indemnified so long as he or she acted in
good faith and in a manner reasonably believed by him or her to be in or not
opposed to the Company's best interest. The agreements further provide that the
indemnification thereunder is not exclusive of any other rights the indemnitee
may have under the Company's Restated Certificate of Incorporation, By-Laws or
any
12
<PAGE> 16
agreement or vote of stockholders and that the Restated Certificate of
Incorporation or By-Laws may not be amended to affect adversely the rights of
the indemnitee.
The Company also maintains insurance to indemnify its directors and
officers against certain liabilities, for which the Company paid approximately
$350,000 in premiums in 1999.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered into executive employment agreements with the
Company's executive officers, including each of the Named Officers, currently
employed by the Company. These agreements become effective in the event of a
"change of control" (as defined in the agreements) of the Company, and no
officer currently receives compensation under these agreements. Upon a "change
of control," each officer whose employment is terminated by the Company other
than for disability or "cause" (as defined in the agreements), or who terminates
his or her employment for "good reason" (as defined in the agreements), within
24 months following such "change of control," would receive his or her full base
salary through the termination date, plus a lump sum equal to two times the sum
of his or her annual base salary plus an amount equal to any bonus paid in the
previous year. In addition, all retirement benefits would vest, all insurance
benefits would continue for 24 months and all Company stock options would be
repurchased by the Company at the difference between the highest price paid in
the "change of control" transaction for shares of stock of the same class or
series and the exercise price of the stock option.
Pursuant to an agreement with the Company, Mr. Lovell may be eligible to
receive a special cash bonus depending upon new business booked by the Space
Systems Group in each July 1 to June 30 twelve-month period. Under this
agreement, Mr. Lovell may be eligible to receive up to $312,500 per year. The
Company also pays Mr. Lovell a $2,000 per month housing allowance due to the
fact that his position at the Company requires him to live away from his
permanent residence.
RELATED TRANSACTIONS
Halprin, Temple, Goodman & Maher, a law firm in which the spouse of one of
the Company's directors, Ms. Obuchowski, is a partner, has, since 1989, provided
the Company and its affiliates, ORBCOMM and ORBIMAGE, with legal services in
connection with licensing and regulatory matters involving the Federal
Communications Commission.
In February 1998, the Company entered into a loan agreement with Mr. John
P. Huyett, who is currently the President of the Company's subsidiary, Magellan
Corporation, for the principal amount of $325,000, bearing an annual interest
rate of 5.5%, to assist in financing the purchase of a residence. The loan came
due in 1999. The Company agreed to extend the due date of the loan, with accrued
interest rolled into the principal amount, through December 31, 2000. The loan
will be secured by Mr. Huyett's principal residence. The total amount of the
loan outstanding as of April 7, 2000 was approximately $365,000.
In September 1999, Mr. Ferguson, a director of the Company, exercised his
right under the Orbital Communications Corporation ("OCC") 1992 Stock Option
Plan (the "OCC Option Plan"), to cause OCC to repurchase 7,500 shares of the
32,500 shares of OCC common stock that Mr. Ferguson had acquired upon exercise
of options. OCC is a wholly owned subsidiary of Orbital. At that time, OCC
tendered to Mr. Ferguson $163,762.50 cash and a promissory note for $163,762.50
for the repurchase of Mr. Ferguson's OCC shares. The note bears an annual
interest rate of 5.35% and is due in September 2000.
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<PAGE> 17
OWNERSHIP OF COMMON STOCK
The table below sets forth certain information regarding Orbital's
stock-based holdings as of March 1, 2000 by (i) each person known by the Company
to own beneficially more than 5% of the Company's Common Stock, (ii) each
director of the Company and each Named Officer, and (iii) all executive officers
and directors as a group. Unless otherwise indicated, each of the persons or
entities listed below exercises sole voting and investment power over the shares
that each of them beneficially owns. Each of the individuals listed below owns
less than 1% of the outstanding shares and voting power of Common Stock.
The Company's directors and executive officers as a group beneficially held
approximately 5% of the Company's Common Stock as of March 1, 2000.
<TABLE>
<CAPTION>
SHARES TOTAL SHARES
BENEFICIALLY AND OPTIONS
NAME AND ADDRESS OWNED(a) OWNED(b)
---------------- ------------ ------------
<S> <C> <C>
Lord, Abbett & Co. ......................................... 2,556,370 2,556,370
767 Fifth Avenue
New York, NY 10153(c)
Wallace R. Weitz & Company.................................. 4,900,400 4,900,400
1125 S. 103rd Street, Suite 600
Omaha, NE 68124(c)
Fred C. Alcorn.............................................. 74,176 77,176
Kelly H. Burke.............................................. 47,996 50,996
Bruce W. Ferguson(d)........................................ 103,334 103,334
Daniel J. Fink(e)........................................... 37,432 40,432
Lennard A. Fisk............................................. 20,215 23,215
Michael D. Griffin.......................................... 45,003 88,336
Jack L. Kerrebrock.......................................... 37,889 40,889
Robert R. Lovell............................................ 98,101 183,100
Douglas S. Luke............................................. 36,347 39,347
John L. McLucas............................................. 37,334 40,334
Janice I. Obuchowski........................................ 13,506 16,506
Jeffrey V. Pirone(e)........................................ 115,550 340,550
Frank L. Salizzoni.......................................... 13,319 16,319
Harrison H. Schmitt......................................... 19,529 22,529
David W. Thompson(d)........................................ 257,459 622,459
James R. Thompson(d)(e)..................................... 147,680 274,346
Scott L. Webster............................................ 261,050 261,050
Officers and Directors as a Group (23 persons).............. 1,876,738 3,252,060
</TABLE>
- ---------------
(a) Includes shares issuable upon exercise of currently vested stock options or
options that will vest within 60 days of March 1, 2000, in the following
amounts: Fred C. Alcorn, 24,000 shares; Kelly H. Burke, 16,000 shares; Bruce
W. Ferguson, 55,000 shares; Daniel J. Fink, 24,000 shares; Lennard A. Fisk,
16,000 shares; Michael D. Griffin, 45,003 shares; Jack L. Kerrebrock, 24,000
shares; Robert R. Lovell, 93,001 shares; Douglas S. Luke, 20,000 shares;
John L. McLucas, 16,000 shares; Janice I. Obuchowski, 9,000 shares; Jeffrey
V. Pirone, 114,000 shares; Frank L. Salizzoni, 9,000 shares; Harrison H.
Schmitt, 13,000 shares; David W. Thompson, 210,000 shares; James R.
Thompson, 142,754 shares; Scott L. Webster, 158,000 shares; and all officers
and directors as a group, 1,453,525 shares.
(b) Total Orbital stock-based holdings, including shares beneficially owned and
reported on this table and stock options that will not become exercisable
within 60 days of March 1, 2000.
(c) Lord, Abbett & Co. owned 6.8% of the Company's Common Stock as of December
31, 1999 and Wallace R. Weitz & Company owned 13.1% of the Company's Common
Stock as of February 4, 2000
14
<PAGE> 18
based on a Schedule 13G filed by each of them with the Securities and Exchange
Commission (the "SEC").
(d) Excludes 12,580 shares of Common Stock owned by Mr. Ferguson's wife, 23,000
shares of Common Stock owned by Mr. D.W. Thompson's wife, and 1,385 shares
of Common Stock owned by Mr. J.R. Thompson's wife. Messrs. Ferguson, D.W.
Thompson and J.R. Thompson disclaim beneficial ownership of such shares.
(e) Includes 1,000 shares of Common Stock with respect to which Mr. Fink shares
voting and investment power with his wife, 200 shares of Common Stock with
respect to which Mr. Pirone exercises voting and investment power on behalf
of his dependent children, and 16,374 shares of Common Stock with respect to
which Mr. J.R. Thompson exercises voting and investment power on behalf of a
trust.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act requires Orbital's
executive officers and directors, and persons who beneficially own more than 10%
of the Company's Common Stock, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the SEC. Executive officers, directors and
greater than 10% stockholders are required by SEC regulation to furnish to the
Company copies of all Forms 3, 4 and 5 they file. Based solely on the Company's
review of the copies of such forms it has received and written representations
from certain reporting persons, the Company believes that, except as specified
below, all its executive officers and directors complied with the filing
requirements applicable to them with respect to transactions during fiscal year
1999. In 1998, Scott L. Webster gifted shares of Common Stock which was reported
late on a Form 5 filed in February 2000.
INDEPENDENT AUDITORS
The Board of Directors has selected the firm of PricewaterhouseCoopers LLP
("PricewaterhouseCoopers") as the Company's independent auditors for the fiscal
year ending December 31, 2000. PricewaterhouseCoopers has served as the
Company's independent auditors since May 10, 1999. Representatives of
PricewaterhouseCoopers are expected to be present at the Annual Meeting and will
be available to respond to appropriate questions and make a statement if they so
desire.
Previously, KPMG LLP ("KPMG") served as the Company's independent auditors
since 1989. On April 22, 1999, the Company, at the direction of the Audit and
Finance Committee of the Board of Directors, notified KPMG that the Company had
determined to change auditors. PricewaterhouseCoopers has been given full
authorization by the Company to speak with KPMG, and has done so. The Company
has 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 13,
which was as of March 18, 1999 (the "Audit Report"), on the consolidated
financial statements of the Company 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 the Company's 1998 consolidated
financial statements, KPMG proposed adjustments to the Company's previously
issued 1998 quarterly financial statements and to the results for the 1998
fourth quarter as initially prepared by the Company. The proposed adjustments
were based on KPMG's interpretation of specific accounting standards. While the
Company believed that its 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. The Company also agreed to adjust its results for the
fourth quarter of 1998 in the manner recommended by KPMG. Except as described
herein, for
15
<PAGE> 19
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 the Company by letter that KPMG believed
that there were material weaknesses in the Company's systems of internal
controls relating to the manner of recording adjustments to financial
information submitted by subsidiaries and operating divisions of the Company. In
particular, KPMG cited:
- adjustments made in the first and second quarters of 1998 to capitalize
certain product enhancement costs at the Company's 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 the Company's 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 the Company's 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.
In its letter, KPMG further advised the Company 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, the
Company and the Audit and Finance Committee had discussions with KPMG indicating
disagreement with KPMG's conclusions and had expressed to KPMG the Company's
view that the adjustments in question were properly recorded by the Company
after appropriate consultation with the subsidiaries and operating divisions
involved.
On May 13, 1999, the Company received a response from KPMG to the Company's
Form 8-K. In its response, KPMG disagreed with the Company's 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.
16
<PAGE> 20
- 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 the Company's Form 8-K dated May 14, 1999, the Company reported that it
disagreed with a number of the statements made by KPMG in its response letter.
Orbital reiterated its belief that (i) its interpretation and application of
accounting standards in the quarterly financial statements as originally filed
were reasonable, however, the Company 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 the audit were unnecessary. The Company 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 indicted 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." The Company also reported
that it continued to disagree with KPMG's assertions with respect to alleged
material weaknesses.
In October 1999, after questions were raised pertaining primarily to
Orbital's previous accounting for certain transactions related to its
investments in ORBIMAGE and CCI, the valuation of its subsidiary, Magellan, and
certain other matters, KPMG informed Orbital that KPMG's 1998 and 1997 audit
reports should no longer be relied upon. The Company announced that it would
restate its financial statements for the foregoing periods. In addition the
Company will restate its 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 opinions or disclaimer of opinion and is not
qualified or modified as to uncertainty, audit scope or accounting principles.
STOCKHOLDER PROPOSALS FOR 2001 PROXY STATEMENT
Stockholder proposals that are intended to be included in the proxy
statement and related proxy materials for the Company's 2001 Annual Meeting of
Stockholders must be received by the Company no later than December 27, 2000 at
its principal office, 21700 Atlantic Boulevard, Dulles, Virginia 20166,
Attention: Corporate Secretary.
17
<PAGE> 21
In addition, the proxy solicited by the Board of Directors for the 2001
Annual Meeting of Stockholders will confer discretionary authority to vote on
any stockholder proposal presented at that meeting, unless the Company is
provided with notice of such proposal by March 1, 2001.
OTHER MATTERS
Management has no knowledge of any other matter that may come before the
Annual Meeting and does not, itself, currently intend to present any such other
matter. However, if any such other matter properly comes before the meeting or
any adjournments thereof, the persons named as proxies will have discretionary
authority to vote the shares represented by the accompanying proxy in accordance
with their own judgment.
PROXY SOLICITATION
The cost of soliciting proxies will be paid by the Company. Proxies may be
solicited without extra compensation by certain directors, officers and regular
employees of the Company by mail, telephone or personally. In addition, the
Company has retained D.F. King & Co. ("D.F. King") to solicit proxies by
personal interview, mail, telephone and telegram and to request brokerage houses
and other custodians, nominees and fiduciaries to forward proxy materials to the
beneficial owners of Common Stock. The Company will pay D.F. King a fee not to
exceed $3,500 covering its services and, in addition, will reimburse D.F. King
for expenses and payments made for the Company's account to brokers and other
nominees for their expenses in forwarding soliciting material.
Stockholders are urged to send their proxies without delay. Your
cooperation is appreciated.
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<PAGE> 22
ORBITAL SCIENCES CORPORATION
Proxy for Annual Meeting of Stockholders - June 1, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints David W. Thompson and Leslie C. Seeman and
each of them as proxies, with power of substitution and re-substitution to each,
to vote at the annual meeting of stockholders of Orbital Sciences Corporation
(the "Company") to be held at the Company's headquarters, 21700 Atlantic
Boulevard, Dulles, Virginia 20166 on June 1, 2000 at 9:00 a.m. and at any
adjournments thereof, all shares of stock of the Company that the undersigned
would be entitled to vote if personally present. A majority of said proxies or
their substitutes or re-substitutes or any one if only one is present and
acting, shall have all the powers of all said proxies. The undersigned instructs
said proxies, or their substitutes or re-substitutes, to vote in such manner as
they may determine on any matters that may properly come before the meeting as
indicated in the Notice of Annual Meeting and Proxy Statement, receipt of which
is hereby acknowledged, and to vote as specified by the undersigned on the
reverse side.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ITEM SET FORTH BELOW.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED, OR IF NO
DIRECTION IS MADE, FOR THE ELECTION OF THE NAMED NOMINEES AS DIRECTORS.
1. To elect four Directors, each to serve for a three-year term ending in
2003.
Nominees: Douglas S. Luke, Harrison H. Schmitt, James R. Thompson,
Scott L. Webster
[ ] FOR ALL [ ] WITHHOLD ALL
[ ] FOR ALL NOMINEES EXCEPT AS NOTED ABOVE
(Instruction: To withhold authority to vote for any nominee(s), write
such nominee(s) name(s) above.)
- --------------------------------------------------------------------------------
Please vote, date and promptly return this proxy in the enclosed return envelope
which is postage prepaid if mailed in the United States.
Dated: , 2000
-----------------------
- ----------------------------------- For Inspector of
Signature Elections' Use Only
- ----------------------------------- --------------------
Name (please print) Number of Shares
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If signer is
a corporation, please give full corporate name and have an authorized officer
sign, stating title. If signer is a partnership, please sign in partnership name
by authorized person.
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