-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EgxdnTYmZz++qT8nz1o4t/1YG3NFsIFfiuYEdAwAJqbtM2lrDi+mfQZxj4We3X4w /r+ldNp8tySj0N1UQ52kgA== 0001001907-99-000003.txt : 19990217 0001001907-99-000003.hdr.sgml : 19990217 ACCESSION NUMBER: 0001001907-99-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPACEHAB INC \WA\ CENTRAL INDEX KEY: 0001001907 STANDARD INDUSTRIAL CLASSIFICATION: GUIDED MISSILES & SPACE VEHICLES & PARTS [3760] IRS NUMBER: 911273737 STATE OF INCORPORATION: WA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27206 FILM NUMBER: 99540776 BUSINESS ADDRESS: STREET 1: 1595 SPRING HILL ROAD STREET 2: STE 360 CITY: VIENNA STATE: VA ZIP: 22182 BUSINESS PHONE: 7038213000 MAIL ADDRESS: STREET 1: 1595 SPRING HILL ROAD STREET 2: SUITE 360 CITY: VIENNA STATE: VA ZIP: 22182 10-Q 1 SPACEHAB, INCORPORATED FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended...............December 31, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission file number 0-27206 SPACEHAB, Incorporated 300 D Street, SW Suite 814 Washington, D.C. 20024 (202) 488-3500 Incorporated in the State of Washington I.R.S. Employer Identification No. 91-1273737 The number of shares of Common Stock outstanding as of the close of business on January 31, 1999: Class Number of Shares Outstanding Common Stock 11,188,836 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ----- DECEMBER 31, 1998 QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS PART 1 FINANCIAL INFORMATION Page Item 1. Unaudited Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of December 31, 1998 and June 30, 1998 3 Condensed Consolidated Statements of Operations for the Three and Six Months ended December 31, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows for the Six Months ended December 31, 1998 and 1997 5 Notes to Unaudited Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 17 PART 1: FINANCIAL INFORMATION Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SPACEHAB, INCORPORATED AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except share data) December 31, June 30, 1998 1998 (unaudited) (audited) --------------- --------------- ASSETS Cash and cash equivalents $ 38,787 $ 92,327 Receivables 18,968 5,979 Prepaid expenses and other current assets 1,695 550 --------------- --------------- Total current assets 59,450 98,856 Property, plant and equipment, net of accumulated depreciation and amortization of $46,221 and $43,338 115,805 112,588 Goodwill, net of accumulated amortization of 27,148 3,224 $804 and $230 Other assets, net 6,675 5,936 --------------- --------------- Total assets $ 209,078 $ 220,604 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Loan payable, current portion $ 2,824 $ 2,824 Loan payable under credit agreement, 333 500 current portion Accounts payable and accrued expenses 10,683 6,204 Accrued subcontracting services 8,629 13,177 Deferred revenue 8,953 13,491 -------------- ------------- Total current liabilities 31,422 36,196 Accrued contract costs 906 - Notes payable to shareholder 7,860 11,895 Loan payable under credit agreement, net of current portion 667 1,000 Loan payable, net of current portion 7,765 9,177 Convertible notes payable 63,250 63,250 Deferred income taxes 2,094 2,678 -------------- -------------- Total liabilities 113,964 124,196 Commitments and contingencies Stockholders' equity: Common stock, no par value, authorized 30,000,000 shares, issued and outstanding 11,176,651 and 11,168,161 shares, respectively 81,383 81,239 Additional paid-in capital 16 16 Retained earnings 13,715 15,153 -------------- -------------- Total stockholders' equity 95,114 96,408 -------------- -------------- Total liabilities and stockholders' equity $ 209,078 $ 220,604 ============= ============ See accompanying notes to unaudited condensed consolidated financial statements. SPACEHAB, INCORPORATED AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Operations
Three Months Six Months (In thousands, except share data) Ended December 31, Ended December 31, ----------------------- ------------------------ 1998 1997 1998 1997 ---------- ----------- ----------- ----------- Revenue $ 23,634 $ 17,756 $ 51,907 $ 20,293 Costs of revenue: Integration and operations 14,547 6,143 33,237 9,961 Depreciation 1,259 1,224 2,517 2,446 Insurance and other direct costs 4,350 553 6,142 752 ----------- ---------- ----------- ---------- Total costs of revenue 20,156 7,920 41,896 13,159 ----------- ---------- ----------- ---------- Gross profit 3,478 9,836 10,011 7,134 Operating expenses: Marketing, general and administrative 4,722 3,243 8,857 5,881 Research and development 763 760 1,010 1,051 ----------- ---------- ----------- ---------- Total operating expenses 5,485 4,003 9,867 6,932 ----------- ---------- ----------- ---------- Income (loss) from operations (2,007) 5,833 144 202 Interest expense, net of capitalized 1,227 1,176 2,658 1,379 amounts Interest and other income (918) (1,148) (1,437) (1,410) Other expense - - 550 - ----------- ---------- ----------- ---------- Income (loss) before income taxes (2,316) 5,805 (1,627) 233 Income tax expense (benefit) (465) 78 (189) 160 ----------- ---------- ----------- ---------- Net income (loss) $ (1,851) $ 5,727 $ (1,438) $ 73 =========== ========== =========== ========== Basic earnings per share: Net income (loss) per share- basic $ (0.17) $ 0.51 $ (0.13) $ 0.01 =========== ========== =========== ========== Shares used in computing net income Per share- basic 11,176,651 11,149,789 11,172,507 11,148,830 =========== ========== =========== =========== Diluted earnings per share: Net income (loss) per share - diluted $ (0.17) $ 0.43 $ (0.13) $ 0.01 =========== ========== =========== ========== Shares used in computing net income Per share - assuming dilution 11,176,651 15,034,271 11,172,507 11,401,426 =========== ========== =========== ===========
See accompanying notes to unaudited condensed consolidated financial statements. SPACEHAB, INCORPORATED AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Cash Flows (In thousands) Six Months Ended December 31, 1998 1997 -------------- --------------- Cash flows provided by (used for) operating activities: Net income (loss) $ (1,438) $ 73 Adjustments to reconcile net income (loss) to net cash provided by (used for)operating activities: Depreciation and amortization 3,693 2,790 Changes in assets and liabilities: Increase in accounts receivable (4,624) (2,915) Increase in prepaid and other current assets (639) (954) Increase in deferred mission costs - (1,149) Increase in other assets (233) (1,575) Increase (decrease) in deferred revenue (4,539) 9,171 Increase (decrease) in accounts payable and accrued expenses (3,589) 887 Decrease in accrued consulting and subcontracting services (4,570) (693) -------------- --------------- Net cash provided by (used for) operating activities (15,939) 5,635 -------------- --------------- Cash flows used for investing activities: Payments for flight assets under construction (3,948) (8,339) Payments for building under construction (446) (2,046) Purchase of property and equipment and other assets (2,061) (687) Purchase of Johnson Engineering, net of cash acquired (25,344) - -------------- --------------- Net cash used for investing activities (31,799) (11,072) -------------- --------------- Cash flows provided by (used for) financing activities: Payment of note payable to Insurers (500) (500) Payment of debt placement fees - (3,822) Proceeds from issuance of convertible notes payable - 63,250 Payment of note payable to shareholder (4,035) - Proceeds from note payable - 13,413 Payment of loan payable (1,412) - Proceeds from issuance of common stock 145 66 -------------- --------------- Net cash provided by (used for) financing activities (5,802) 72,407 -------------- --------------- Net increase (decrease) in cash and cash equivalents (53,540) 66,970 Cash and cash equivalents at beginning of period 92,327 12,887 -------------- --------------- Cash and cash equivalents at end of period $ 38,787 $ 79,857 ============== =============== See accompanying notes to unaudited condensed consolidated financial statements. SPACEHAB, INCORPORATED AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements 1. Basis of Presentation: In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring accruals, necessary for a fair presentation of the consolidated financial position of SPACEHAB, Incorporated and subsidiaries ("SPACEHAB" or the "Company") as of December 31, 1998, and the results of their operations for the three and six month periods ended December 31, 1998 and 1997 and their cash flows for the six months ended December 31, 1998 and 1997. However, the consolidated financial statements are unaudited, and do not include all related footnote disclosures. The consolidated results of operations for the three and six months ended December 31, 1998 and 1997 are not necessarily indicative of the results that may be expected for the full year. The Company's results of operations fluctuate significantly from quarter to quarter (see note 4). The interim unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements appearing in the Company's Form 10-K for the year ended June 30, 1998. 2. Earnings per Share: In December 1997, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which establishes new guidelines, for the calculations of earnings per share. The following are reconciliations of the numerators and denominators of the basic and diluted earnings per share computations for the three and six-month periods ended December 31, 1998 and 1997, respectively: (In thousands except Three months ended Three months ended per share data) December 31, 1998 December 31, 1997 Income Shares Per Income Shares Per Share Share (Numerator)(Denominator)Amount(Numerator)(Denominator) Amount ------------------------------------------------------------ Basic EPS: Income available to common stockholders $(1,851) 11,176,651 $(0.17) $5,727 11,149,789 $0.51 Effect of dilutive securities: Convertible notes payable - - - $797 3,626,446 - Options and warrants - - - - 258,036 - -------------------------------------------------------- Diluted EPS: Income available to common stockholders $(1,851) 11,176,651 $(0.17) $6,524 15,034,271 $0.43 Six months ended Six months ended December 31, 1998 December 31, 1997 Income Shares Per Income Shares Per Share Share (Numerator)(Denominator)Amount (Numerator)(Denominator)Amount -------------------------------------------------------- Basic EPS: Income available to common stockholders $(1,438) 11,172,507 $(0.13) $73 11,148,830 $0.01 Effect of dilutive securities: Convertible notes payable - - - - - - Options and warrants - - - - 252,596 - -------------------------------------------------------- Diluted EPS: Income available to common stockholders : $(1,438) 11,172,507 $(0.13) $73 11,401,426 $0.01 Convertible notes payable outstanding as of December 31, 1998, convertible into 4,642,202 shares of common stock at $13.625 per share and due October 2007, were not included in the computation of diluted EPS for the three and six months ended December 31, 1998 or the six months ending December 31, 1997 as the inclusion of the converted notes would be anti-dilutive for these periods. Options and warrants to purchase 1,425,373 shares of common stock for the three month period ended December 31,1998, at prices ranging from $8.88 to $24.00 per share, were outstanding as of December 31, 1998 but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares during the three months ended December 31, 1998. The options expire between February 19, 1999 and August 3, 2007. Options and warrants to purchase 1,342,000 shares of common stock for the six months ending December 31, 1998, at prices ranging from $9.875 to $24.00 per share, were outstanding but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares during the six months ended December 31, 1998. The options expire between February 19, 1999 and August 3, 2007. Options and warrants to purchase 1,161,650 shares of common stock, at prices ranging from $11.00 to $14.88 per share, were outstanding for the three and six month periods ended December 31, 1997 but were not included in the computation of diluted EPS because the options' and warrants' exercise prices were greater than the average market price of the common shares during the three and six month periods ended December 31, 1997. The options expire between January 31, 1998 and October 21, 2004 and warrants expire between December 31, 1997 and June 21, 1998. 3. Acquisition of Johnson Engineering: On July 1, 1998, the Company acquired all of the outstanding shares of capital stock of Johnson Engineering Corporation ("Johnson Engineering"). Johnson Engineering performs several critical services for NASA including flight crew support services, operations, training and fabrication of mockups at NASA's Neutral Buoyancy Laboratory and at NASA's Mockup and Integration Laboratory, where astronauts train for both Space Shuttle and International Space Station missions. Johnson Engineering also designs and fabricates flight hardware, such as flight crew equipment and crew quarters habitability outfitting as well as provides stowage integration services. Johnson Engineering is also responsible for configuration management of the International Space Station (ISS). The Company paid approximately $25.3 million, including transaction costs, to acquire all of the capital stock of Johnson Engineering. The business combination is being accounted for using the purchase method under Accounting Principles Board Opinion No. 16, Business Combinations, (APB Opinion 16) to record the purchase of all the capital stock of Johnson Engineering. The purchase price has been allocated to the assets and liabilities acquired based on preliminary estimates of fair value as of the date of acquisition. Based on the allocation of the net assets acquired, goodwill of approximately $24.6 million was recorded. Such goodwill is being amortized on a straight-line basis over 25 years. The purchase price has been allocated as follows (in thousands): Cash $ 2 Prepaid and other current assets 306 Accounts receivable, net 8,366 Inventory 5 Property, plant and equipment, net 446 Other assets 622 Goodwill 24,562 Current liabilities (8,070) Accrued contract costs (928) ---- Total purchase price $ 25,311 ======== APB Opinion 16 requires, for purchase business computations, the presentation of pro forma combined results of operations for the current year and the preceding year as if the combination had occurred at the beginning of the periods presented. The following unaudited pro forma consolidated results of operations are not necessarily indicative of actual or future results of operations. (in thousands except per Three Months Six Months share data) Ended December 31, Ended December 31, 1998 1997 1998 1997 ------------------------------------------------ Revenue $ 23,634 $ 29,151 $ 51,907 $ 45,467 Gross profit 3,478 11,397 10,011 9,648 Net income (loss) $ (1,851) $ 5,708 (1,438) $ 21 ========== ========== ========== ========= Net income (loss) per share - diluted $ (0.17) $ 0.43 $ (0.13) $ 0.00 ========== ========== ========= ========= 4. Revenue Recognition: Under the Mir contract, revenue was recognized upon completion of each module flight, total contract revenue was allocated to each flight based on the amount of services the Company provided on the flight relative to total services provided for all flights under contract. Obligations associated with a specific mission, e.g., integration services, were also recognized upon completion of the mission. For the REALMS contract and for new contract awards for which the capability to successfully complete the contract can be reasonably assured and the costs at completion can be reliably estimated at contract inception, revenue is recognized under the percentage-of-completion method. This percentage-of-completion method allows the Company to report revenue based on costs incurred on a per mission basis over the period of that mission. The percentage of completion method results in the recognition of revenue over the period of contract performance, thereby decreasing significant quarter by quarter fluctuations in reported revenue. Revenue provided by the Astrotech payload processing facilities is recognized ratably over the occupancy period of the satellites at the Astrotech facilities. Revenue provided by Johnson Engineering is primarily based on cost-plus award fee contracts, whereby revenue is recognized to the extent of costs incurred plus estimates of award fee revenues using the percentage-of-completion method. Award fees, which provide earnings based on the Company's contract performance as determined by NASA evaluations, are recorded when the amounts can be reasonably estimated, or are awarded. 5. Statements of Cash Flows - Supplemental Information: (a) Cash paid for interest costs was $3.8 million and $0.9 million for the six months ended December 31, 1998 and 1997, respectively. The Company capitalized interest of approximately $1.2 million and $0.8 million during the six months ended December 31, 1998 and 1997, respectively. (b) The Company paid $4 thousand and $1.4 million for income taxes during the six months ended December 31, 1998 and 1997, respectively. 6. Credit Facilities: On June 16, 1997, the Company entered into a $10.0 million line of credit agreement with a financial institution. Outstanding balances on the line of credit accrue interest at either the lender's prime rate or a LIBOR-based rate, and are collateralized by certain assets of the Company. The term of the agreement is through October 1999. As of December 31, 1998, the Company had not drawn against the line of credit. On July 14, 1997, the Company's wholly owned subsidiary, Astrotech, entered into a five-year credit facility with a financial institution for loans of up to $15.0 million. This loan is collateralized by the assets of Astrotech and certain other assets of the Company, and is guaranteed by the Company. Interest accrues at LIBOR plus three percent. As of December 31, 1998, the Company had drawn $14.1 million against this loan. As of December 31, 1998 and 1997, the outstanding balance on this loan was $10.6 million and $13.4 million, respectively. In October 1997, the Company completed a private placement offering for $63.3 million of aggregate principal of 8% Convertible Subordinated Notes due 2007. Interest is payable semi-annually. The notes are convertible into the common stock of the Company at a rate of $13.625 per share. This offering provided the Company with net proceeds of approximately $59.9 million to be used for capital expenditures associated with the development and construction of space related assets, the purchase of Johnson Engineering and for other general corporate purposes. In December 1998, the Company amended the agreement with Alenia Spazio S.p.A., a shareholder, relative to subordinated notes payable with an outstanding principal balance of $11.9 million and due in August 2001. In exchange for payment of $4.0 million of principal payable on or before December 31, 1998, Alenia agreed to waive the interest payment due for the quarter ended December 31, 1998 and reduce the annual interest rate on the subordinated notes from 12% to 10% on the outstanding balance as of January 1, 1999. The interest expense benefit,$0.4 million for the payment waived, is being amortized over the remaining term of the loan which is due August 2001. Beginning January 1, 1999, the same interest rate will be applied to the senior debt (the Insurers' note) that has an outstanding balance of $1.0 million as of December 31, 1998. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General This document may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including (without limitation) the "General" and "Liquidity and Capital Resources" sections of this Item 2. Such statements are subject to certain risks and uncertainties, including those discussed herein, which could cause actual results to differ materially from those projected in such statements. SPACEHAB was incorporated in 1984 to commercially develop space habitat modules to operate in the cargo bay of the Space Shuttles. The Company currently operates under two contracts with NASA: the Research and Logistics Module Services Contract, (the "REALMS Contract"), a $87.8 million contract for two research missions aboard the Space Shuttle and two logistics missions to resupply the International Space Station; and, the Flight Crew Systems Development Contract (the "FCSD Contract") currently a $324.9 million multitask cost-plus-award and incentive-fee contract, that commenced in May 1993 and will conclude in April 2001. The value of the NASA portion of the REALMS contract is $63.0 million for four firm missions and the commercial value is currently $24.8 million. The Company has the potential to increase the total REALMS contract value by additional $12.5 million through module usage sales to commercial customers for microgravity space research such as the European Space Agency (ESA), the National Space Development Agency of Japan (NASDA) and the Canadian Space Agency (CSA). The first mission under the REALMS Contract, STS-95 which carried Senator John Glenn back into space, was completed in October 1998. The three remaining flights are scheduled for launch in May 1999, October 1999 and December 2000. Under the FCSD Contract, Johnson Engineering provides a variety of critical crew training, support and manufacturing functions on a cost plus award fee and incentive fee basis. Revenue SPACEHAB generates revenue by: (i) providing lockers and/or volume within the SPACEHAB Modules; (ii) integration and operations support services provided to scientists and researchers responsible for the experiments; and/or (iii) from NASA or International Agencies to carry logistics supplies for Module missions aboard the Shuttle system. Under the Mir Contract, the Company recognized revenue only at the completion of each Space Shuttle mission utilizing Company assets. Accordingly, the Company's quarterly revenue and profits had fluctuated dramatically based on NASA's launch schedule and will continue to do so under any contract for which revenue is recognized only upon completion of a mission. For the REALMS contract and for future contract awards for which the capability to successfully complete the contract can be demonstrated at contract inception, revenue recognition under the percentage-of-completion method is being reported based on costs incurred on a per mission basis over the period of the mission. The percentage-of-completion method results in the recognition of revenue over the period of contract performance, thereby significantly decreasing the quarter-by-quarter fluctuations in reported revenue. Astrotech revenue is derived from various multiyear fixed price contracts with satellite and launch vehicle manufacturers. The services and facilities Astrotech provides to its customers support the final assembly, checkout and countdown functions associated with preparing a satellite for launch. This preparation includes: the final assembly and checkout of the satellite, installation of the solid rocket motors, loading of the liquid propellant, encapsulation of the satellite in the launch vehicle, transportation to the launch pad and command and control of the satellite during pre-launch countdown. Revenue provided by the Astrotech payload processing facilities is recognized ratably over the occupancy period of the satellites in the Astrotech facilities. In addition, Astrotech expects to generate additional revenue from an exclusive multiyear agreement to process all Sea Launch program payloads at the Boeing facility in Long Beach, California. Johnson Engineering generates revenue primarily from its multiyear cost plus award and incentive-fee contract with NASA. Johnson Engineering's flight crew support services include operations, training and fabrication of mockups at NASA's Neutral Buoyancy Laboratory, and at NASA's Mockup and Integration Laboratory, where astronauts train for both Space Shuttle and International Space Station missions. Johnson Engineering also designs and fabricates flight hardware including flight crew equipment and crew quarters habitability outfitting and provides stowage integration services. Johnson is also responsible for configuration management of the ISS. Revenue provided by Johnson Engineering is recognized to the extent of costs incurred plus award fee using the percentage of completion method, measured on costs incurred. Award fees, which provide earnings based on contract performance as determined by periodic NASA evaluations, are recorded when the amounts can be reasonably estimated or are awarded. Costs of Revenue Costs of revenue for SPACEHAB missions include integration and operations expenses associated with the performance of three types of efforts: (i) sustaining engineering in support of all missions under a contract, (ii) mission specific support and (iii) other costs of revenue including depreciation expense, related insurance, costs associated with the Astrotech payload processing facilities and Johnson Engineering costs under the FCSD Contract. Expenses associated with sustaining engineering are expensed as incurred. RESULTS OF OPERATIONS For the three months ended December 31, 1998 as compared to the three months ended December 31, 1997. Revenue. Revenue increased by 33% to approximately $23.6 million as compared to $17.8 million for the three months ended December 31, 1998 and 1997, respectively. Revenue of $9.4 million was recognized from the REALMS contract with NASA and with related commercial customers, $11.9 million from Johnson Engineering under the FCSD contract and $2.3 million from Astrotech. In contrast, for the quarter ended December 31, 1997, revenue of $13.6 million was recognized for the fifth Mir mission upon the return of the module, $1.7 million was recognized under the REALMS contract for both NASA and related commercial customers and revenue of $2.5 million was generated by Astrotech. Johnson's revenue was reduced during the quarter ended December 31, 1998 by $0.7 million as the result of the receipt of their award score, for the award period April-September 1998, which was lower than accrued and resulted in no fee earned for the period. The fee reduction addressed performance at Johnson prior to its acquisition by SPACEHAB. Corrective action has been taken and the award score has been appealed to NASA. For the current award period, Johnson has been recognizing revenue based on an anticipated award score of 75%, which management of the Company believes is reasonable based on its understanding of the reasons for the low score and the corrective actions taken by the Company in response to the customer's concerns. There can be no assurance that Johnson will achieve that score. Costs of Revenue. Costs of revenue for the quarter ended December 31, 1998 increased by 254% to $20.2 million, as compared to $7.9 million for the prior year's quarter. This significant increase is due to the inclusion of Johnson Engineering's costs of $11.6 million, primarily for costs incurred in support of the FCSD contract. For the quarter ended December 31, 1998, integration and operations costs for the REALMS and related commercial customer contracts were $6.2 million, $1.1 million for Astrotech payload processing and $1.3 million of depreciation expense. For the three months ended December 1997, the components of costs of revenue include integration and operations costs under the Mir contract of $4.6 million, $1.0 million under the REALMS and related commercial customer contracts, $1.1 million for Astrotech payload processing, and depreciation expense of $1.2 million. Operating Expenses. Operating expenses increased approximately 37% to approximately $5.5 million for the three months ended December 31, 1998 as compared to approximately $4.0 million for the three months ended December 31, 1997. This increase is due primarily to the Company's efforts to increase staff during fiscal year 1998 by adding strength in engineering, design and research and development capabilities and also reflects the additional costs of approximately $0.7 million incurred for operating the Johnson Engineering subsidiary, which was acquired in July 1998. Research and development costs were essentially the same for the two corresponding periods. Interest and Other Expense. Interest expense was approximately $1.2 million for the three months ended December 31, 1998 as compared to approximately $1.2 million for the three months ended December 31, 1997. There was also approximately $0.6 million and $0.5 million of interest capitalized for the quarters ended December 31, 1998 and 1997, respectively. Interest was capitalized based on the construction of the Company's research module with double module hardware, the ICC and an additional facilities being constructed by Astrotech. Interest and Other Income. Interest and other income was approximately $0.9 million and $1.1 million for the three months ended December 31, 1998 and 1997, respectively. Interest is earned on the Company's short-term investments of proceeds received from the Company's debt financings completed during July and October 1997. Income Taxes. Based on the Company's projected taxable earnings for fiscal year 1999, the Company has recorded a $0.5 million income tax benefit for the quarter ended December 31, 1998. Net Income (Loss). Net income (loss) was approximately ($1.9) million and $5.7 million for the quarter ended December 31, 1998 and 1997, respectively. Basic earnings per share for the quarter ended December 31, 1998 and 1997 was ($0.17) per share on 11,176,651 shares and $0.51 per share on 11,149,789 shares, respectively. Diluted earnings per share for the quarter ended December 31, 1998 and 1997 were ($0.17) per share on 11,176,762 shares and $0.43 per share on 15,034,271 shares, respectively. For the six months ended December 31, 1998 as compared to the six months ended December 31, 1997. Revenue. Revenue increased by 156% to $51.9 million as compared to $20.3 million for the six months ended December 31, 1998 and 1997, respectively. Revenue recognized during the six months ended December 31, 1998 was from: REALMS and commercial customer contracts of $20.8 million; Astrotech operations of $4.8 million and Johnson Engineering operations of $26.3 million primarily under the FCSD contract. Conversely, for the six months ended December 31, 1997 the Company's revenue was attributable to the fifth mission under the Mir Contract of $13.6 million, REALMS and commercial customer contracts of $1.7 million and Astrotech operations of $5.0 million. Johnson's revenue was reduced during the quarter ended December 31, 1998 by $0.7 million as the result of the receipt of their award score, for the award period April-September 1998, which was lower than accrued and resulted in no fee earned for the period. The fee reduction addressed performance at Johnson prior to its acquisition by SPACEHAB. Corrective action has been taken and the award score has been appealed to NASA. For the current award period, Johnson has been recognizing revenue based on an anticipated award score of 75%, which management of the Company believes is reasonable based on its understanding of the reasons for the low score and the corrective actions taken by the Company in response to the customer's concerns. There can be no assurance that Johnson will achieve that score. Costs of Revenue. Costs of revenue for the six months ended December 31, 1998 increased 318% to $41.9 million, as compared to $13.2 million for six months ended December 31, 1997. The primary components of costs of revenue for the six months ended December 31, 1998 include integration and operation costs under the REALMS and commercial customer contracts of $12.3 million, Astrotech operations $2.3 million and Johnson Engineering $24.8 million. Depreciation expense for the period was $2.5 million. In contrast, the primary components of costs of revenue for the six months ended December 31, 1997 included integration and operations costs under the Mir contract of $7.5 million, REALMS and commercial customers contracts of $1.1 million, and Astrotech operations of $2.1 million. Depreciation expense for the period was $2.5 million. Operating Expenses. Operating expenses increased by approximately 42% to approximately $9.9 million for the six months ended December 31, 1998 as compared to approximately $6.9 million for the six months ended December 31, 1997. This increase is due primarily to the Company's efforts to increase staff, adding strength in engineering, design and research and development capabilities during fiscal year 1998. In addition, $1.4 million of costs were incurred for operating Johnson Engineering. Research and development expense is similar to the prior year. Interest and Other Expense. Interest and other expense was approximately $3.2 million for the six months ended December 31, 1998 as compared to approximately $1.4 million for the six months ended December 31, 1997. There was approximately $1.2 million and $0.8 million of capitalized interest for the six months ended December 31, 1998 and 1997, respectively. Interest for the current fiscal year is capitalized primarily on the construction of the Company's science module with adapter hardware, the ICC and an additional payload processing facility being constructed by Astrotech. The increase in interest expense between the two periods is due primarily to the interest accrued on the convertible notes that were issued on October 21, 1997. Additionally during the six months ended December 31, 1998, the Company recognized $0.6 million in other expense related to costs associated with a debt offering that the Company canceled in July. Interest and Other Income. Interest and other income was approximately $1.4 million for the six months ended December 31, 1998 and 1997. Interest income is due to short-term interest earned by the Company for the investment of proceeds received from the Company's credit facilities. Income Taxes. Based on the Company's projected taxable earnings for fiscal year 1999, the Company has recorded a $0.2 million income tax benefit for the six months ended December 31, 1999. Net Income (Loss). Net income (loss) was approximately ($1.4) million, or ($0.13) per share (basic and diluted EPS), on 11,172,507 shares as compared to $0.1 million, or $0.01 per share (basic EPS and diluted), for the six months ended December 31, 1997, on 11,148,830 shares and 11,401,426 respectively. LIQUIDITY AND CAPITAL RESOURCES The Company has historically financed its capital expenditures, research and development and working capital requirements with progress payments under its various contracts, as well as with proceeds received from private debt and equity offerings and borrowings under credit facilities. During December 1995, SPACEHAB completed an initial public offering of common stock (the "Offering"), which provided the Company with net proceeds of approximately $43.5 million. In June 1997, the Company signed an agreement with a financial institution securing a $10.0 million revolving line of credit (the "Revolving Line of Credit") that the Company may use for working capital purposes. As of December 31, 1998, no amounts were drawn on this line of credit. In July 1997, Astrotech obtained a five-year term loan (the "Term Loan Agreement"), which is guaranteed by SPACEHAB, and provides for draws of up to $15.0 million for general corporate purposes. As of December 31, 1998, the Company had drawn $14.1 million on this loan and had an outstanding balance on that date of $10.6 million. On October 21, 1997, the Company completed a private placement offering of convertible subordinated notes (the "Notes Offering"), which provided the Company with net proceeds of approximately $59.9 million to be used for capital expenditures associated with the development and construction of space related assets, the purchase of Johnson Engineering, and for general corporate purposes. In December 1998, the Company amended its agreement with Alenia Spazio S.p.A. relative to subordinated notes payable with an outstanding balance of $11.9 million. In exchange for payment of $4.0 million of principal, Alenia agreed to reduce the annual interest rate from 12% to 10% on the outstanding balance as of January 1, 1999 and the interest payment due for the quarter ended December 31, 1998 was waived. An agreement with the senior debt holders under the Insurers' note requires that the same interest rate be applied to the senior debt with an outstanding balance of $1.0 million as of December 31, 1998. For the period ended December 31, 1998, the Company was in breach of certain loan covenants of the term loan and line of credit facility. The covenants had been negotiated prior to the acquisition of Johnson Engineering. While the Company has not drawn against the line of credit, covenant waivers were requested and received from both lending institutions. The Company is in the process or renegotiating the loan covenants. Cash Flows from Operating Activities. Cash flows provided by (used for) operating activities for the six months ended December 31, 1998 and 1997, were ($15.9) million and $5.6 million respectively. The decrease in cash flows provided by operating activities for the current period is due to a number of factors. Deferred flight revenue decreased by $4.5 million during the six months ended December 31, 1998. Accrued consulting and subcontracting services decreased by $4.6 million. Accounts payable decreased by $3.0 million. Accounts receivable increased by $3.6 million related to missions currently under contract. Cash Flows from Investing Activities. For the six months ended December 31, 1998 and 1997, cash flows used for investing activities consisted primarily of capital expenditures related to the acquisition of Johnson Engineering in July 1998 for $25.3 million. Additional investing included approximately $3.9 million attributable to the construction of the ICC system and the Company's research module with adapter hardware. $0.5 million was invested in the expansion of the Astrotech facilities, $1.2 million for the purchase of additional property and equipment and $0.8 million in a joint venture with Guigne Technologies Limited. Cash Flows from Financing Activities. Cash flows provided by (used for) financing activities were approximately ($5.8) million and $72.4 million for the six months ended December 31, 1998 and 1997, respectively. During the period ended December 31, 1998, the Company made an early payment of $4.0 million of Alenia debt in exchange for a lower interest rate and a waiver of interest expense due and payable for the quarter ended December 31, 1998. Additional payments were made on outstanding debt of $1.9 million. During the six months ended December 31, 1997, the Company received net proceeds of approximately $13.4 million under the Term Loan Agreement. In August 1997, the Company also made the first payment of $0.5 million under the Credit Agreement. In October 1997, the Company received net proceeds of approximately $59.9 million by completing an offering of $55.0 million of its 8% Convertible Subordinated Notes due 2007 as well as exercise of the underwriters' over-allotment for an additional $8.3 million. The Company believes that cash flows from the Notes Offering, the Term Loan Agreement, the Revolving Line of Credit and other current financing activities will be sufficient to meet any cash flow requirements from operations and other funding requirements for capital asset construction and development for at least the next twelve months. Recent Accounting Pronouncements In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131 establishes new procedures and requirements for the (i) determination of business segments and (ii) presentation and disclosure of segment information. The Company is required to adopt the provisions of SFAS 131 for the year ended June 30, 1999. Year 2000 Readiness Disclosure Statement The Year 2000 ("Y2K") issue is the result of computer programs that were written using two digits rather than four to define the applicable year. Any computer program that has date-sensitive software may recognize the date using "00" as the year 1900 rather than the year 2000. This error could result in systems failures and computational errors causing disruptions of operations, including, among other things, the temporary inability to process transactions, send invoices or engage in similar normal business activities. SPACEHAB has established a Y2K program to address both information-technology ("IT") and non-IT problems that may exist within the SPACEHAB system, including its vendors and customers, e.g.- NASA and the Space Shuttle. SPACEHAB's Y2K program is divided into five major phases- Awareness and Risk Assessment, Inventory and Risk Assessment, Repair, Replacement and Renovation, Verification and Validation, and Implementation and Monitoring. Phases AWARENESS AND RISK ASSESSMENT- This phase is intended to ensure the establishment of the Y2K program and the awareness of potential risks and issues. This phase involves communicating the status and progress of the Y2K program within SPACEHAB and to third parties. It is an on-going activity and will continue as SPACEHAB proceeds through the other phases. INVENTORY AND RISK ASSESSMENT- This phase involves taking an inventory of SPACEHAB hardware, software and infrastructure to identify those systems that are and are not Y2K compatible. The emphasis is on those items, which are believed by SPACEHAB to have a significant impact on the business from a financial, legal or service perspective. While this process is ongoing, SPACEHAB estimates that this phase is substantially complete for Company owned hardware and software. SPACEHAB is in the process of surveying third party vendors to determine their state of readiness. REPAIR, REPLACEMENT AND RENOVATION- This phase, also known as "conversion", is intended to ensure that the appropriate items identified in the preceding phase are upgraded to meet the Y2K compliance criteria. Material repairs, replacements and renovations will be substantially complete by the end of the current fiscal year for systems that are under direct control of SPACEHAB. No assessment of completion dates are available for which third parties are responsible until the completion of that portion of the Inventory and Risk Assessment phase. VERIFICATION AND VALIDATION- This phase ensures that critical processes, systems and infrastructure are verified and tested to ensure Y2K issues will not cause major disruptions in the on-going operations and business of the Company. Verification and testing of systems under SPACEHAB's direct control will be performed by SPACEHAB personnel and personnel of Spacehab's major subcontractor, Boeing. SPACEHAB expects that all testing of these systems will be complete by the end of the Company's fiscal year. IMPLEMENTATION AND MONITORING- Y2K upgrades are and will be installed into SPACEHAB's operating systems as necessary. Monitoring will be employed to ensure that unforeseen Y2K critical items are appropriately prioritized for correction. SPACEHAB's implementation and monitoring activities are ongoing. State of Readiness While there is uncertainty inherent in the Y2K problem resulting in large part from the uncertainty of the readiness of third party vendors, SPACEHAB's progress towards completing risk assessment within the SPACEHAB systems is expected to be completed before the end of 1999. A) Based on an ongoing assessment, the Company has determined that the vast majority of the hardware and software used in its administrative functions are Y2K compliant. The computers that are not compliant will be replaced during 1999. B) Some computer hardware used in the operations function of SPACEHAB will require upgrading. The computers at SPACEHAB's Payload Process Facility in Florida used for ground support electrical testing (GSE) are antiquated, inefficient and are not Y2K compatible. A proposal has been to upgrade those systems during 1999. C) Surveys and/or questionnaires are being sent to those third parties that might have an impact on SPACEHAB's business to determine their state of readiness. Those third parties include; NASA, Boeing, Lockheed-Martin and the various utility service companies serving our locations. Costs The costs associated with required modifications to become Y2K compliant are not expected to be material to SPACEHAB's financial position or results of operations. The current estimate to become Y2K compliant is minimal, approximately $0.2 million, for the replacement of all hardware and software. This estimate excludes system enhancements, modifications and upgrades to replace inefficient and antiquated GSE equipment. The costs of the Year 2000 program are being expensed as incurred. Risks In a likely worse case scenario, the failure to correct a material Y2K problem could result in an interruption in, or a failure of, certain normal business activities or operations, including operations that are essential to the provision of SPACEHAB's services. Due to the general uncertainty inherent in the Y2K problem, resulting in major part from the state of readiness of third parties, SPACEHAB is unable to determine at this time whether the consequences of Y2K failures will have a material impact on SPACEHAB's results of operations, liquidity or financial condition. The potential Y2K impacts from third parties include; the failure of the utility companies and power grids, NASA and the shuttle in particular and from the customer owned IT systems which are located at Astrotech's payload processing facilities. Contingency Plans After gathering information from SPACEHAB's Y2K readiness program and to prepare for the possibility that certain information systems or third parties will not be Y2K compliant, SPACEHAB intends to develop appropriate contingency plans. The GSE at SPACEHAB's payload processing facility in Florida, while not Y2K compliant, is still usable. The only functionality of the GSE that is expected to be impaired is the printing of the correct date on computer generated reports. Readers are cautioned that the discussion of SPACEHAB's efforts and expectations related to Year 2000 are forward looking statements and should be read in conjunction with SPACEHAB's disclosure under "Management's Discussion and Analysis of Financial Condition and Results of Operations- Forward Looking Statements." PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS NONE ITEM 2. CHANGES IN SECURITIES NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders was held on October 20, 1998. ( a ) At the Annual Meeting of Shareholders, the existing Board of Directors stood for and were duly reelected, with each nominee receiving a vote of at least 8,731,770 votes. The reelected directors are: Hironori Aihara Robert A. Citron Dr. Edward E. David, Jr. Dr. Shelley Harrison Dr. Shi H. Huang Chester M. Lee Gordon S. Macklin Dr. Brad M. Meslin Dr. Udo Pollvogt Alvin L. Reeser James R. Thompson Giuseppe Viriglio ( b ) The appointment of KPMG LLP as the Company's independent auditors for fiscal year 1999 was also approved and ratified. For 9,386,175 Against 830 Abstain 11,155 ITEM 5. OTHER INFORMATION NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The separate Index to Exhibits accompanying this filing is incorporated herein by reference. (b) Reports on Form 8-K. None Exhibit No. Description of Exhibits 10.85 Letter Agreement between the Company and Alenia Aerospazio 10.86 Employment and Non-Interference Agreement dated July 1, 1998 between the Company and William A. Jackson 10.87 Employment and Non-Interference Agreement dated July 1, 1998 between the Company and Eugene A. Cernan 10.88 Employment and Non-Interference Agreement dated July 1, 1998 between the Company and W.T. Short 10.89 Modification S/A 14 to NAS9-97199 dated November 25, 1998, between the Company and NASA 11. Statement regarding Computation of Earnings Per Common Share. 27 Financial Data Schedule Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SPACEHAB, INCORPORATED Date: February 16, 1999 /s/ Mark A. Kissman ---------------------------------- Mark A. Kissman Vice President, Finance and Chief Financial Officer /s/ David A. Rossi ---------------------------------- David A. Rossi President and Chief Operating Officer EX-10.85 2 ALENIA AGREEMENT December 10, 1998 LETTER AGREEMENT BETWEEN SPACEHAB, Inc., AND ALENIA AEROSPAZIO This letter is to confirm our agreement regarding the outstanding debt SPACEHAB, Inc. ("Spacehab") owes to Alenia Aerospazio("Alenia") Notwithstanding anything to the contrary contained in the Subordinated Promissory Notes issued by Spacehab to Alenia and subsequent agreements and correspondence in respect thereto, it is acknowledged and agreed as follows: 1. As of today, 10 December 1998, Spacehab owes to Alenia an amount of $11,895,000. Of such amount, Spacehab shall pay to Alenia an amount of $4,034,928 on or before December 31, 1998. 2. Subject to compliance by Spacehab with the terms of this letter, Alenia agrees that the remaining amount of $7,860,072 owed to Alenia shall be finally due and payable by Spacehab to Alenia on August 1, 2001. 3. From August 1, 2001, the debt of Spacehab to Alenia shall be no longer subordinated to the Senior Indebtedness as defined in the Subordinated Promissory Notes. On or before August 1, 2001, Alenia may elect to convert, in whole or in part, the principal amount into Spacehab equity, on terms and conditions to be agreed with Spacehab. 4. Subject to compliance by Spacehab with the terms of this letter, Alenia further agrees that: a) the interest accruing beginning January 1, 1999 on the outstanding amount owed by Spacehab to Alenia shall be calculated at the rate of 10% per annum compounded and payable quarterly, until the principal amount is paid in full as foreseen in point 3 above or converted as provided therein and, b) Alenia cancels payment of the October through December 1998 quarterly interest obligation due under the Subordinated Promissory Notes. 5. The undersigned hereby represent and warrant that they have obtained the necessary authorizations and consents necessary to execute and bind the respective parties hereto. If the foregoing is in accordance with your understanding of our arrangements, please sign and return one copy of this letter, whereupon this letter shall become a binding agreement among us in accordance with its terms. Sincerely, SPACEHAB, Inc. by: /s/ Shelley A. Harrison Name Shelley A. Harrison Title Chairman and CEO Accepted and agreed to this _________ day of _____________1998 Alenia Aerospazio Div. Spazio A company of Finnmeccanica S.p.A. By: /s/ Name EX-10.86 3 EMPLOYMENT AGREEMENT - JACKSON EMPLOYMENT AND NON-INTERFERENCE AGREEMENT with William A. Jackson This Employment and Non-Interference Agreement (this "Agreement"), is dated as of July 1, 1998, by and between William A. Jackson (the "Executive") and SPACEHAB, INCORPORATED, a Washington corporation (the "Company"). WITNESSETH: WHEREAS, the Company wishes to retain the future services of Executive for the Company; WHEREAS, Executive is willing, upon the terms and conditions set forth in this Agreement, to provide services hereunder; and WHEREAS, the Company wishes to secure Executive's non-interference, upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Nature of Employment Subject to Section 3, the Company hereby employs Executive, and Executive agrees to accept such employment, during the Term of Employment (as defined in Section 3(a)), as an executive of the Company in the position of Vice-President, Corporate Development. Executive will also undertake such duties and responsibilities as may be reasonably assigned to Executive from time to time by the President of the Company, by the Board of Directors of the Company, or by such other appropriately authorized or designated executive officer of the Company. 2. Extent of Employment (a) During the Term of Employment, Executive shall perform his obligations hereunder faithfully and to the best of his ability under the direction of the President of the Company, by the Company's Board of Directors, or by such other appropriately authorized or designated executive officer of the Company, and shall abide by the rules, customs and usages from time to time established by the Company. (b) During the Term of Employment, Executive shall devote all of his business time, energy and skill as may be reasonably necessary for the performance of his duties, responsibilities and obligations under this Agreement (except for vacation periods and reasonable periods of illness or other incapacity), consistent with past practices and norms with respect to similar positions. (c) Nothing contained herein shall require Executive to follow any directive or to perform any act which would violate any laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agent or authority, any court or judicial authority, or any public, private or industry regulatory authority. Executive shall act in accordance with the laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agent or authority, any court or judicial authority, or any public, private or industry regulatory authority. 3. Term of Employment, Termination (a) The "Term of Employment" shall commence on the date hereof and shall continue for a term ending July 1, 1999 (the "Initial Term"), subject to automatic annual renewal for one-year terms thereafter (the "Additional Term"), unless either the Company or Executive notifies the other party of its intent not to renew within ninety (90) days prior to the end of the Initial Term or the Additional Term as the case may be. Should Executive's employment by the Company be earlier terminated pursuant to Section 3(b), the Term of Employment shall end on the date of such earlier termination. (b) Subject to the payments contemplated by Section 3(d), the Term of Employment may be terminated at any time by the Company: (i) upon the death of Executive; (ii) in the event that because of physical or mental disability, Executive is unable to perform and does not perform his duties hereunder, for a continuous period of 90 days, and an experienced, recognized physician specializing in such disabilities certifies as to the foregoing in writing; (iii) for Cause or Material Breach (each as defined in Section 3(d)); (iv) upon the continuous poor or unacceptable performance of Executive's duties to the Company, in the sole judgment of the Board of Directors of the Company, which has remained uncured for a period of 90 days after the delivery of notice by the Company to the Executive of such dissatisfaction with Executive's performance; or (v) for any other reason not referred to in clauses (i) through (iv), or for no reason, such that this Agreement shall be construed as terminable at will by the Company. Executive acknowledges that no representations or promises have been made concerning the grounds for termination or the future operation of the Company's business, and that nothing contained herein or otherwise stated by or on behalf of the Company modifies or amends the right of the Company to terminate Executive at any time, with or without Material Breach or Cause. Termination shall become effective upon the delivery by the Company to Executive of notice specifying such termination and the reasons therefor, subject to the requirements for advance notice and an opportunity to cure provided in this Agreement, if and to the extent applicable. (c) Subject to the payments contemplated by Section 3(d), the Term of Employment may be terminated at any time by Executive: (i) upon the death of Executive; (ii) in the event that because of physical or mental disability, Executive is unable to perform and does not perform his duties hereunder, for a continuous period of 90 days, and an experienced, recognized physician specializing in such disabilities certifies as to the foregoing in writing; (iii) as a result of the Company's material reduction in Executive's authority, perquisites, position, title or responsibilities (other than such a reduction by the Company because of a temporary illness or disability or such a reduction which affects all of the Company's senior executives on a substantially equal or proportionate basis as a result of financial results, conditions, prospects, reorganization, workout or distressed condition of the Company), or the Company's willful, material violation of its obligations under this Agreement, in each case, after 30 days' prior written notice by Executive to the Company and its Board of Directors and the Company's failure thereafter to cure such reduction or violation within such 30 days; or (iv) voluntarily or for any reason not referred to in clauses (i) through (iii), or for no reason, in each case, after 90 days' prior written notice to the Company and its Board of Directors. (d) For the purposes of this Section 3: "Cause" shall mean any of the following: (i) Executive's conviction of any crime or criminal offense involving the unlawful theft or conversion of substantial monies or other property or any other felony (other than a criminal offense arising solely under a statutory provision imposing criminal liability on the Executive on a per se basis due to the offices held by the Executive); or (ii) Executive's conviction of fraud or embezzlement. "Material Breach" shall mean any of the following: (i) Executive's breach of any of his fiduciary duties to the Company or its stockholders or making of a willful misrepresentation or omission which breach, misrepresentation or omission would reasonably be expected to materially adversely affect the business, properties, assets, condition (financial or other) or prospects of the Company; (ii) Executive's willful, continual and material neglect or failure to discharge his duties, responsibilities or obligations prescribed by Sections 1 and 2 (other than arising solely due to physical or mental disability); (iii) Executive's habitual drunkenness or substance abuse which materially interferes with Executive's ability to discharge his duties, responsibilities or obligations prescribed by Sections 1 and 2; (iv) Executive's willful, continual and material breach of any non-competition or confidentiality agreement with the Company, including without limitation, those set forth in Sections 7 and 8 of this Agreement; and (v) Executive's gross neglect of his duties and responsibilities, as determined by the Company's Board of Directors; in each case, for purposes of clauses (i) through (v), after the Company or the Board of Directors has provided Executive with 30 days' written notice of such circumstances and the possibility of a Material Breach, and Executive fails to cure such circumstances and Material Breach within those 30 days. (i) In the event Executive's employment is terminated pursuant to Section 3(b)(i) [death], 3(b)(ii) [disability] or 3(b)(v) [any other reason or no reason] or 3(c)(i) [death], 3(c)(ii) [disability) or 3(c)(iii) [material reduction], the Company will: (A) pay to Executive (or his estate or representative) the full amounts to which the Executive would be entitled to under Section 4(a) for the period from effectiveness of termination through the sixth month anniversary of termination; and (B) pay to Executive (or his estate or representative) the benefits described in Section 6 through the sixth month anniversary of termination. Payment of the amounts and provision of the benefits described above will be made in accordance with the timetable and schedule for such payments contemplated therefor as if such termination did not occur, and will be subject to the other provisions of this Agreement, including Section 3(g) and Sections 7 and 8. If the Company makes the payments required by this Section 3(d)(i), such payments will constitute severance and liquidated damages, and the Company will not be obligated to pay any further amounts to Executive under this Agreement or otherwise be liable to Executive in connection with any termination. (ii) In the event Executive's employment is terminated pursuant to Section 3(b)(iii) [Cause or Material Breach], 3(b)(iv) [poor performance], or 3(c)(iv) [voluntary], the Company will not be obligated to pay any further amounts to Executive under this Agreement. (e) In the event the Term of Employment is terminated and the Company is obligated to make payments to Executive pursuant to Section 3(d)(i), Executive shall have a duty to seek to obtain alternative employment; and if Executive thereafter obtains alternative employment, the Company's payment obligations under Section 3(d)(i), including its obligation to provide insurance coverage, if any, will be mitigated and reduced by and to the extent of Executive's compensation under such alternative employment during the period for which payments are owed by the Company pursuant to Section 3(d)(i). Moreover, in the event that Executive is employed by or engaged in a Competitive Business as contemplated by Section 8(a)(i), then the Company will thereupon no longer be obligated to make payments under Section 3(d)(i). (f) In the event the Term of Employment is terminated and the Company is obligated to make payments pursuant to Section 3(d)(i), Executive hereby waives any and all claims against the Company and its respective officers, directors, employees, agents, or representatives, stockholders and affiliates relating to his employment during the term hereof and this Agreement. (g) Termination of the Term of Employment will not terminate Sections 3(d), 3(f)and 7 through 22. 4. Compensation During the Term of Employment, the Company shall pay to Executive: (a) As base compensation for his services hereunder, in semi-monthly installments, a base salary at a rate of not less than $171,200 per annum. Such amounts may be increased (but not decreased) annually at the discretion of the Compensation Committee of the Board of Directors based upon an annual review by the Compensation Committee of the Board of Directors of Executive's performance. (b) An annual bonus, if any, based on Executive's performance as determined and approved by the Compensation Committee of the Board of Directors. 5. Reimbursement of Expenses During the Term of Employment, the Company shall pay all expenses, including without limitation, transportation, lodging and food for Executive to attend conventions, conferences and meetings that the Company determines are necessary or in the best interest of the Company, and for any ordinary and reasonable expenses incurred by Executive in the conduct of the Business of the Company. Travel outside the United States shall be subject to the prior approval of an executive officer of the Company. 6. Benefits During the Term of Employment, Executive shall be entitled to any fringe or employee benefits made available to similarly situated executives, in each case, in accordance with guidelines or established from time to time, by the Board of Directors. 7. Confidential Information (a) Executive acknowledges that his employment hereunder gives him access to Confidential Information relating to the Business of the Companies and their customers which must remain confidential. Executive acknowledges that this information is valuable, special, and a unique asset of the Business of the Companies, and that it has been and will be developed by the Companies at considerable effort and expense, and if it were to be known and used by others engaged in a Competitive Business, it would be harmful and detrimental to the interests of the Companies. In consideration of the foregoing, Executive hereby agrees and covenants that, during and after the Term of Employment, Executive will not, directly or indirectly in one or a series of transactions, disclose to any person, or use or otherwise exploit for Executive's own benefit or for the benefit of anyone other than the Companies, Confidential Information (as defined in Section 10), whether prepared by Executive or not; provided, however, that any Confidential Information may be disclosed to officers, representatives, employees and agents of the Companies who need to know such Confidential Information in order to perform the services or conduct the operations required or expected of them in the Business (as defined in Section 10). Executive shall use his best efforts to prevent the removal of any Confidential Information from the premises of the Companies, except as required in his normal course of employment by the Company. Executive shall use his best efforts to cause all persons or entities to whom any Confidential Information shall be disclosed by him hereunder to observe the terms and conditions set forth herein as though each such person or entity was bound hereby. Executive shall have no obligation hereunder to keep confidential any Confidential Information if and to the extent disclosure of any thereof is specifically required by law; provided, however, that in the event disclosure is required by applicable law, Executive shall provide the Company with prompt notice of such requirement, prior to making any disclosure, so that the Companies may seek an appropriate protective order. At the request of the Company, Executive agrees to deliver to the Company, at any time during the Term of Employment, or thereafter, all Confidential Information which he may possess or control. Executive agrees that all Confidential Information of the Companies (whether now or hereafter existing) conceived, discovered or made by him during the Term of Employment exclusively belongs to the Companies (and not to Executive). Executive will promptly disclose such Confidential Information to the Company and perform all actions reasonably requested by the Company to establish and confirm such exclusive ownership. (b) In the event that Executive breaches his obligations in any material respect under this Section 7, the Company, in addition to pursuing all available remedies under this Agreement, at law or otherwise, and without limiting its right to pursue the same shall cease all payments to Executive under this Agreement. (c) The terms of this Section 7 shall survive the termination of this Agreement regardless of who terminates this Agreement, or the reasons therefor. 8. Non-Interference and Non-Competition (a) Executive acknowledges that the services to be provided give him the opportunity to have special knowledge of the Companies and their Confidential Information and the capabilities of individuals employed by or affiliated with the Companies, and that interference in these relationships would cause irreparable injury to the Companies. In consideration of this Agreement, Executive covenants and agrees that: (i) During the Restricted Period (which shall not include any period of violation of this Agreement by the Executive), Executive will not, without the express written approval of the Board of Directors of the Company, anywhere in the Market, directly or indirectly, in one or a series of transactions, own, manage, operate, control, invest or acquire an interest in, or otherwise engage or participate in, whether as a proprietor, partner, stockholder, lender, director, officer, employee, joint venturer, investor, lessor, supplier, customer, agent, representative or other participant, in any Competitive Business without regard to (A) whether the Competitive Business has its office, manufacturing or other business facilities within or without the Market, (B) whether any of the activities of Executive referred to above occur or are performed within or without the Market or (C) whether Executive resides, or reports to an office, within or without the Market; provided, however, that (x) Executive may, anywhere in the Market, directly or indirectly, in one or a series of transactions, own, invest or acquire an interest in up to five percent (5%) of the capital stock of a corporation whose capital stock is traded publicly, or that (y) Executive may accept employment with a successor company to the Company. (ii) During the Restricted Period (which shall not include any period of violation of this Agreement by Executive), Executive will not without the express prior written approval of the Board of Directors of the Company (A) directly or indirectly, in one or a series of transactions, recruit, solicit or otherwise induce or influence any proprietor, partner, stockholder, lender, director, officer, employee, sales agent, joint venturer, investor, lessor, supplier, customer, agent, representative or any other person which has a business relationship with any of the Companies or had a business relationship with the Companies within the twenty-four (24) month period preceding the date of the incident in question, to discontinue, reduce or modify such employment, agency or business relationship with the Companies, or (B) employ or seek to employ or cause any Competitive Business to employ or seek to employ any person or agent who is then (or was at any time within six months prior to the date Executive or the Competitive Business employs or seeks to employ such person) employed or retained by the Companies. Notwithstanding the foregoing, nothing herein shall prevent Executive from providing a letter of recommendation to an employee with respect to a future employment opportunity. (iii) The scope and term of this Section 8 would not preclude him from earning a living with an entity that is not a Competitive Business. (b) The terms of this Section 8 shall survive termination of this Agreement regardless of who terminates this Agreement, or the reasons therefor. 9. Inventions (a) Each invention, improvement or discovery made or conceived by Executive, either individually or with others, during the term of his employment with the Company, which invention, improvement or discovery is related to any of the lines of business or work of the Companies, any projected or potential activities which the Companies have investigated or hereinafter investigates, or which result from or are suggested by any service performed by Executive for the Company, whether patentable or not, shall be promptly and fully disclosed by Executive to the Company. Executive assigns each such invention, improvement or discovery, and the patents thereof, or related thereto, to the Company. Executive shall, during the term of his employment with the Company and thereafter without charge to the Company, but at the request and expense of the Company, assist the Company in obtaining or vesting in itself patents upon such improvements and inventions. All such inventions, improvements or discovery shall at all times become and remain the exclusive property of the Company. Executive represents that he does not claim ownership of any inventions, improvements, formulae or discoveries which are excluded from this Agreement. (b) In the event that Executive breaches his obligations in any material respect under Sections 7, 8 or this Section 9, the Company, in addition to pursuing all available remedies under this Agreement, at law or otherwise, and without limiting its right to pursue the same shall cease all payments to Executive under this Agreement. 10. Definitions "Business" means (a) the design, manufacture, lease and operation of pressurized habitable space modules, unpressurized space logistics and science hardware, including unpressurized pallets, and those other businesses and activities that are described in the Company's Form 10-K for the fiscal year ended June 30, 1998, or (b) the provision of services relating to communication satellite launch processing and integration, as performed by ASTROTECH SPACE OPERATIONS, INC., a wholly-owned subsidiary of the Company, or (c) the provision of engineering services to the National Aeronautics and Space Administration, as performed by JOHNSON ENGINEERING CORPORATION, a wholly-owned subsidiary of the Company, or (d) any similar, incidental or related business conducted or pursued by, or engaged in, or proposed to be conducted or pursued by or engaged in, by the Companies prior to the date hereof or at any time during the Term of Employment. "Cause" is defined in Section 3(d). "Companies" means the Company, any of its direct or indirect subsidiaries and affiliates and any other entity identified by the Board of Directors in its sole discretion, whether now existing or hereafter existing. "Company" is defined in the introduction. "Competitive Business" means any business which competes, directly or indirectly, with the Business in the Market. "Confidential Information" means any trade secret, confidential study, data, calculations, software storage media or other compilation of information, patent, patent application, copyright, trademark, trade name, service mark, service name, "know-how", trade secrets, customer lists, details of client or consultant contracts, pricing policies, sales techniques, confidential information relating to suppliers, information relating to the special and particular needs of the Companies' customers operational methods, marketing plans or strategies, products and formulae, product development techniques or plans, business acquisition plans or any portion or phase of any scientific or technical information, ideas, discoveries, designs, computer programs (including source of object codes), processes, procedures, research or technical data, improvements or other proprietary or intellectual property of the Companies, whether or not in written or tangible form, and whether or not registered, and including all files, records, manuals, books, catalogues, memoranda, notes, summaries, plans, reports, records, documents and other evidence thereof. The term "Confidential Information" does not include, and there shall be no obligation hereunder with respect to, information that is or becomes generally available to the public other than as a result of a disclosure by Executive. "Executive" means the individual identified in the first paragraph of this Agreement, or his or her estate, if deceased. "Market" means any county in the United States of America and each similar jurisdiction in any other country in which the Business was conducted or pursued by, engaged in by the Companies prior to the date hereof or is conducted or engaged in or pursued, or is proposed to be conducted or engaged in or pursued, by the Companies at any time during the Term of Employment. "Material Breach" is defined in Section 3(d). "Non-Interference Period" means the period commencing on the date of this Agreement and continuing through the twelfth month anniversary of the termination of the Term of Employment. "Prior Employment Agreement" is defined in Section 12(a). "Restricted Period" means the period commencing on the date of this Agreement and continuing through the sixth month anniversary of the termination of the Term of Employment. "Subsidiary" means any corporation, limited liability company, joint venture, limited and general partnership, joint stock company, association or any other type of business entity over which the Company owns, directly or indirectly through one or more intermediaries, more than fifty percent (50%) of the voting securities at the time of determination. "Term of Employment" is defined in Section 3(a). 11. Notice Any notice, request, demand or other communication required or permitted to be given under this Agreement shall be given in writing and if delivered personally, or sent by certified or registered mail, return receipt requested, as follows (or to such other addressee or address as shall be set forth in a notice given in the same manner): If to Executive: William A. Jackson c/o Johnson Engineering Corporation 555 Forge River Road Webster, Texas 77598 with a copy to: Porter & Hedges, L.L.P. 700 Louisiana, 35th Floor Houston, Texas 77002-2764 Attn: John M. Ransom If to Company: Johnson Engineering Corporation SPACEHAB, Incorporated 1595 Spring Hill Road, Suite 360 Vienna, Virginia 22182 Attention: President with a copy to: Frank E. Morgan II Dewey Ballantine, LLP 1301 Avenue of the Americas New York, New York 10019-6092 Any such notices shall be deemed to be given on the date personally delivered or such return receipt is issued. 12. Previous Agreements; Executive's Representation (a) Attached hereto as Annex A are all previous employment or severance agreements by and between Executive and the Company (collectively, the "Prior Employment Agreements"). Executive and the Company hereby cancel, void and render without force and effect all Prior Employment Agreements, and the Executive releases and discharges the Company from any further obligations or liabilities thereunder. (b) Executive hereby warrants and presents to the Company that Executive has carefully reviewed this Agreement and has consulted with such advisors as Executive considers appropriate in connection with this Agreement, is not subject to any covenants, agreements or restrictions, including without limitation any covenants, agreements or restrictions arising out of Executive's prior employment, which would be breached or violated by Executive's execution of this Agreement or by Executive's performance of his duties hereunder. 13. Other Matters Executive agrees and acknowledges that the obligations owed to Executive under this Agreement are solely the obligations of the Company, and that none of the Companies' stockholders, directors, officers, affiliates, representatives, agents or lenders will have any obligations or liabilities in respect of this Agreement and the subject matter hereof. 14. Validity If, for any reason, any provision hereof shall be determined to be invalid or unenforceable, the validity and effect of the other provisions hereof shall not be affected thereby. 15. Severability Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. If any court determines that any provision of Section 8 or any other provision hereof is unenforceable because of the power to reduce the scope or duration of such provision, as the case may be and, in its reduced form, such provision shall then be enforceable. 16. Waiver of Breach, Specific Performance The waiver by the Company or Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other breach of such other party. Each of the parties (and third party beneficiaries) to this Agreement will be entitled to enforce its rights under this breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of Sections 7, 8 and 9 of this Agreement and that any party (and third party beneficiaries) may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions in order to enforce or prevent any violations of the provisions of this Agreement. In the event either party takes legal action to enforce any of the terms or provisions of this Agreement against the other party, the party against whom judgement is rendered in such action shall pay the prevailing party's costs and expenses, including but not limited to, attorneys' fees, incurred in such action. 17. Assignment; Third Parties Neither Executive nor the Company may assign, transfer, pledge, hypothecate, encumber or otherwise dispose of this Agreement or any of his or its respective rights or obligations hereunder, without the prior written consent of the other. The parties agree and acknowledge that each of the Companies and the stockholders and investors therein are intended to be third party beneficiaries of, and have rights and interests in respect of, Executive's agreements set forth in Sections 7, 8 and 9. 18. Amendment; Entire Agreement This Agreement may not be changed orally but only by an agreement in writing agreed to by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. This Agreement embodies the entire agreement and understanding of the parties hereto in respect of the subject matter of this Agreement, and supersedes and replaces all prior Agreements, understandings and commitments with respect to such subject matter. 19. Litigation THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF VIRGINIA, EXCEPT THAT NO DOCTRINE OF CHOICE OF LAW SHALL BE USED TO APPLY ANY LAW OTHER THAN THAT OF VIRGINIA, AND NO DEFENSE, COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR ALLOWED BY THE LAWS OF ANY OTHER STATE OR JURISDICTION, OR ARISING OUT OF THE ENACTMENT, MODIFICATION OR REPEAL OF ANY LAW, REGULATION, ORDINANCE OR DECREE OF ANY FOREIGN JURISDICTION, BE INTERPOSED IN ANY ACTION HEREON. SUBJECT TO SECTION 20, EXECUTIVE AND THE COMPANY AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT OF THIS AGREEMENT MAY BE COMMENCED IN THE COURTS OF THE STATE OF VIRGINIA OR THE UNITED STATES DISTRICT COURTS IN ARLINGTON, VIRGINIA. EXECUTIVE AND THE COMPANY CONSENT TO SUCH JURISDICTION, AGREE THAT VENUE WILL BE PROPER IN SUCH COURTS AND WAIVE ANY OBJECTIONS BASED UPON FORUM NON CONVENIENS. THE CHOICE OF FORUM SET FORTH IN TIES SECTION 19 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER JURISDICTION. 20. Arbitration EXCEPT AS DESCRIBED IN SECTION 16, EXECUTIVE AND THE COMPANY AGREE THAT ANY DISPUTE BETWEEN OR AMONG THE PARTIES TO THIS AGREEMENT RELATING TO OR IN RESPECT OF THIS AGREEMENT, ITS NEGOTIATION, EXECUTION, PERFORMANCE, SUBJECT MATTER, OR ANY COURSE OF CONDUCT OR DEALING OR ACTIONS UNDER OR IN RESPECT OF THIS AGREEMENT, SHALL BE SUBMITTED TO, AND RESOLVED EXCLUSIVELY PURSUANT TO ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. SUCH ARBITRATION SHALL TAKE PLACE IN ARLINGTON, VIRGINIA, AND SHALL BE SUBJECT TO THE SUBSTANTIVE LAW OF THE STATE OF VIRGINIA. DECISIONS PURSUANT TO SUCH ARBITRATION SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES. UPON THE CONCLUSION OF ARBITRATION, EXECUTIVE OR THE COMPANY MAY APPLY TO ANY COURT OF THE TYPE DESCRIBED IN SECTION 19 TO ENFORCE THE DECISION PURSUANT TO SUCH ARBITRATION. IN CONNECTION WITH THE FOREGOING, THE PARTIES HEREBY WAIVE ANY RIGHTS TO A JURY TRIAL TO RESOLVE ANY DISPUTES OR CLAIMS RELATING TO THIS AGREEMENT OR ITS SUBJECT MATTER. 21. Further Action Executive and the Company agree to perform any further acts and to execute and deliver any documents which may be reasonable to carry out the provisions hereof. 22. Counterparts This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have set their hands as of the day and year first written above. EXECUTIVE: /s/ William A. Jackson William A. Jackson SPACEHAB, INCORPORATED By: /s/ David A. Rossi Name: David A. Rossi Title: President EX-10.87 4 EMPLOYMENT AGREEMENT - CERNAN EMPLOYMENT AND NON-INTERFERENCE AGREEMENT with Eugene A. Cernan This Employment and Non-Interference Agreement (this "Agreement"), is dated as of July 1, 1998, by and between Eugene A. Cernan (the "Executive") and SPACEHAB, INCORPORATED, a Washington corporation (the "Company"). WITNESSETH: WHEREAS, the Company wishes to retain the future services of Executive for the Company; WHEREAS, Executive is willing, upon the terms and conditions set forth in this Agreement, to provide services hereunder; and WHEREAS, the Company wishes to secure Executive's non-interference, upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Nature of Employment Subject to Section 3, the Company hereby employs Executive, and Executive agrees to accept such employment, during the Term of Employment (as defined in Section 3(a)), as Chairman of the Board of Directors of JOHNSON ENGINEERING CORPORATION, a wholly-owned subsidiary of the Company. Executive will also undertake such duties and responsibilities as may be reasonably assigned to Executive from time to time by the President of the Company, by the Board of Directors of the Company, or by such other appropriately authorized or designated executive officer of the Company. 2. Extent of Employment (a) During the Term of Employment, Executive shall perform his obligations hereunder faithfully and to the best of his ability under the direction of the President of the Company, by the Company's Board of Directors, or by such other appropriately authorized or designated executive officer of the Company, and shall abide by the rules, customs and usages from time to time established by the Company. (b) During the Term of Employment, Executive shall devote up to fifteen (15) hours per week to the performance of his duties, responsibilities and obligations under this Agreement (except for vacation periods and reasonable periods of illness or other incapacity), consistent with past practices and norms with respect to similar positions. (c) Nothing contained herein shall require Executive to follow any directive or to perform any act which would violate any laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agent or authority, any court or judicial authority, or any public, private or industry regulatory authority. Executive shall act in accordance with the laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agent or authority, any court or judicial authority, or any public, private or industry regulatory authority. 3. Term of Employment, Termination (a) The "Term of Employment" shall commence on the date hereof and shall continue for a term ending July 1, 1999 (the "Initial Term"), subject to automatic annual renewal for one-year terms thereafter (the "Additional Term"), unless either the Company or Executive notifies the other party of its intent not to renew within ninety (90) days prior to the end of the Initial Term or the Additional Term as the case may be. Should Executive's employment by the Company be earlier terminated pursuant to Section 3(b), the Term of Employment shall end on the date of such earlier termination. (b) Subject to the payments contemplated by Section 3(d), the Term of Employment may be terminated at any time by the Company: (i) upon the death of Executive; (ii) in the event that because of physical or mental disability, Executive is unable to perform and does not perform his duties hereunder, for a continuous period of 90 days, and an experienced, recognized physician specializing in such disabilities certifies as to the foregoing in writing; (iii) for Cause or Material Breach (each as defined in Section 3(d)); (iv) upon the continuous poor or unacceptable performance of Executive's duties to the Company, in the sole judgment of the Board of Directors of the Company, which has remained uncured for a period of 90 days after the delivery of notice by the Company to the Executive of such dissatisfaction with Executive's performance; or (v) for any other reason not referred to in clauses (i) through (iv), or for no reason, such that this Agreement shall be construed as terminable at will by the Company. Executive acknowledges that no representations or promises have been made concerning the grounds for termination or the future operation of the Company's business, and that nothing contained herein or otherwise stated by or on behalf of the Company modifies or amends the right of the Company to terminate Executive at any time, with or without Material Breach or Cause. Termination shall become effective upon the delivery by the Company to Executive of notice specifying such termination and the reasons therefor, subject to the requirements for advance notice and an opportunity to cure provided in this Agreement, if and to the extent applicable. (c) Subject to the payments contemplated by Section 3(d), the Term of Employment may be terminated at any time by Executive: (i) upon the death of Executive; (ii) in the event that because of physical or mental disability, Executive is unable to perform and does not perform his duties hereunder, for a continuous period of 90 days, and an experienced, recognized physician specializing in such disabilities certifies as to the foregoing in writing; (iii) as a result of the Company's material reduction in Executive's authority, perquisites, position, title or responsibilities (other than such a reduction by the Company because of a temporary illness or disability or such a reduction which affects all of the Company's senior executives on a substantially equal or proportionate basis as a result of financial results, conditions, prospects, reorganization, workout or distressed condition of the Company), or the Company's willful, material violation of its obligations under this Agreement, in each case, after 30 days' prior written notice by Executive to the Company and its Board of Directors and the Company's failure thereafter to cure such reduction or violation within such 30 days; or (iv) voluntarily or for any reason not referred to in clauses (i) through (iii), or for no reason, in each case, after 90 days' prior written notice to the Company and its Board of Directors. (d) For the purposes of this Section 3: "Cause" shall mean any of the following: (i) Executive's conviction of any crime or criminal offense involving the unlawful theft or conversion of substantial monies or other property or any other felony (other than a criminal offense arising solely under a statutory provision imposing criminal liability on the Executive on a per se basis due to the offices held by the Executive); or (ii) Executive's conviction of fraud or embezzlement. "Material Breach" shall mean any of the following: (i) Executive's breach of any of his fiduciary duties to the Company or its stockholders or making of a willful misrepresentation or omission which breach, misrepresentation or omission would reasonably be expected to materially adversely affect the business, properties, assets, condition (financial or other) or prospects of the Company; (ii) Executive's willful, continual and material neglect or failure to discharge his duties, responsibilities or obligations prescribed by Sections 1 and 2 (other than arising solely due to physical or mental disability); (iii) Executive's habitual drunkenness or substance abuse which materially interferes with Executive's ability to discharge his duties, responsibilities or obligations prescribed by Sections 1 and 2; (iv) Executive's willful, continual and material breach of any non-competition or confidentiality agreement with the Company, including without limitation, those set forth in Sections 7 and 8 of this Agreement; and (v) Executive's gross neglect of his duties and responsibilities, as determined by the Company's Board of Directors; in each case, for purposes of clauses (i) through (v), after the Company or the Board of Directors has provided Executive with 30 days' written notice of such circumstances and the possibility of a Material Breach, and Executive fails to cure such circumstances and Material Breach within those 30 days. (i) In the event Executive's employment is terminated pursuant to Section 3(b)(i) [death], 3(b)(ii) [disability] or 3(b)(v) [any other reason or no reason] or 3(c)(i) [death], 3(c)(ii) [disability) or 3(c)(iii) [material reduction], the Company will: (A) pay to Executive (or his estate or representative) the full amounts to which the Executive would be entitled to under Section 4(a) for the period from effectiveness of termination through the sixth month anniversary of termination; and (B) pay to Executive (or his estate or representative) the benefits described in Section 6 through the sixth month anniversary of termination. Payment of the amounts and provision of the benefits described above will be made in accordance with the timetable and schedule for such payments contemplated therefor as if such termination did not occur, and will be subject to the other provisions of this Agreement, including Section 3(g) and Sections 7 and 8. If the Company makes the payments required by this Section 3(d)(i), such payments will constitute severance and liquidated damages, and the Company will not be obligated to pay any further amounts to Executive under this Agreement or otherwise be liable to Executive in connection with any termination. (ii) In the event Executive's employment is terminated pursuant to Section 3(b)(iii) [Cause or Material Breach], 3(b)(iv) [poor performance], or 3(c)(iv) [voluntary], the Company will not be obligated to pay any further amounts to Executive under this Agreement. (e) In the event the Term of Employment is terminated and the Company is obligated to make payments to Executive pursuant to Section 3(d)(i), Executive shall have a duty to seek to obtain alternative employment; and if Executive thereafter obtains alternative employment, the Company's payment obligations under Section 3(d)(i), including its obligation to provide insurance coverage, if any, will be mitigated and reduced by and to the extent of Executive's compensation under such alternative employment during the period for which payments are owed by the Company pursuant to Section 3(d)(i). Moreover, in the event that Executive is employed by or engaged in a Competitive Business as contemplated by Section 8(a)(i), then the Company will thereupon no longer be obligated to make payments under Section 3(d)(i). (f) In the event the Term of Employment is terminated and the Company is obligated to make payments pursuant to Section 3(d)(i), Executive hereby waives any and all claims against the Company and its respective officers, directors, employees, agents, or representatives, stockholders and affiliates relating to his employment during the term hereof and this Agreement. (g) Termination of the Term of Employment will not terminate Sections 3(d), 3(f)and 7 through 22. 4. Compensation During the Term of Employment, the Company shall pay to Executive: (a) As base compensation for his services hereunder, in semi-monthly installments, a base salary at a rate of not less than $36,000 per annum. Such amounts may be increased (but not decreased) annually at the discretion of the Compensation Committee of the Board of Directors based upon an annual review by the Compensation Committee of the Board of Directors of Executive's performance. (b) An annual bonus, if any, based on Executive's performance as determined and approved by the Compensation Committee of the Board of Directors. Although bonuses are entirely discretionary, it is agreed that Executive shall be treated on the same basis as executives of the Company who are employed at the level of Director for purposes of establishing the range of bonuses and benefits that may be awarded to Executive. 5. Reimbursement of Expenses During the Term of Employment, the Company shall pay all expenses, including without limitation, transportation, lodging and food for Executive to attend conventions, conferences and meetings that the Company determines are necessary or in the best interest of the Company, and for any ordinary and reasonable expenses incurred by Executive in the conduct of the Business of the Company. Travel outside the United States shall be subject to the prior approval of an executive officer of the Company. Executive shall also be provided with an office at Johnson Engineering Corporation's headquarters location and shall be provided with the services of a secretary, who shall, provided she continues to be employable under the policies of Johnson Engineering Corporation, be Executive's current secretary. 6. Benefits During the Term of Employment, Executive shall be entitled to any fringe or employee benefits made available to executives of the Company who are employed at the level of Director, in each case, in accordance with guidelines or established from time to time, by the Board of Directors. 7. Confidential Information (a) Executive acknowledges that his employment hereunder gives him access to Confidential Information relating to the Business of the Companies and their customers which must remain confidential. Executive acknowledges that this information is valuable, special, and a unique asset of the Business of the Companies, and that it has been and will be developed by the Companies at considerable effort and expense, and if it were to be known and used by others engaged in a Competitive Business, it would be harmful and detrimental to the interests of the Companies. In consideration of the foregoing, Executive hereby agrees and covenants that, during and after the Term of Employment, Executive will not, directly or indirectly in one or a series of transactions, disclose to any person, or use or otherwise exploit for Executive's own benefit or for the benefit of anyone other than the Companies, Confidential Information (as defined in Section 10), whether prepared by Executive or not; provided, however, that any Confidential Information may be disclosed to officers, representatives, employees and agents of the Companies who need to know such Confidential Information in order to perform the services or conduct the operations required or expected of them in the Business (as defined in Section 10). Executive shall use his best efforts to prevent the removal of any Confidential Information from the premises of the Companies, except as required in his normal course of employment by the Company. Executive shall use his best efforts to cause all persons or entities to whom any Confidential Information shall be disclosed by him hereunder to observe the terms and conditions set forth herein as though each such person or entity was bound hereby. Executive shall have no obligation hereunder to keep confidential any Confidential Information if and to the extent disclosure of any thereof is specifically required by law; provided, however, that in the event disclosure is required by applicable law, Executive shall provide the Company with prompt notice of such requirement, prior to making any disclosure, so that the Companies may seek an appropriate protective order. At the request of the Company, Executive agrees to deliver to the Company, at any time during the Term of Employment, or thereafter, all Confidential Information which he may possess or control. Executive agrees that all Confidential Information of the Companies (whether now or hereafter existing) conceived, discovered or made by him during the Term of Employment exclusively belongs to the Companies (and not to Executive). Executive will promptly disclose such Confidential Information to the Company and perform all actions reasonably requested by the Company to establish and confirm such exclusive ownership. (b) In the event that Executive breaches his obligations in any material respect under this Section 7, the Company, in addition to pursuing all available remedies under this Agreement, at law or otherwise, and without limiting its right to pursue the same shall cease all payments to Executive under this Agreement. (c) The terms of this Section 7 shall survive the termination of this Agreement regardless of who terminates this Agreement, or the reasons therefor. 8. Non-Interference and Non-Competition (a) Executive acknowledges that the services to be provided give him the opportunity to have special knowledge of the Companies and their Confidential Information and the capabilities of individuals employed by or affiliated with the Companies, and that interference in these relationships would cause irreparable injury to the Companies. In consideration of this Agreement, Executive covenants and agrees that: (i) During the Restricted Period (which shall not include any period of violation of this Agreement by the Executive), Executive will not, without the express written approval of the Board of Directors of the Company, anywhere in the Market, directly or indirectly, in one or a series of transactions, own, manage, operate, control, invest or acquire an interest in, or otherwise engage or participate in, whether as a proprietor, partner, stockholder, lender, director, officer, employee, joint venturer, investor, lessor, supplier, customer, agent, representative or other participant, in any Competitive Business without regard to (A) whether the Competitive Business has its office, manufacturing or other business facilities within or without the Market, (B) whether any of the activities of Executive referred to above occur or are performed within or without the Market or (C) whether Executive resides, or reports to an office, within or without the Market; provided, however, that (x) Executive may, anywhere in the Market, directly or indirectly, in one or a series of transactions, own, invest or acquire an interest in up to five percent (5%) of the capital stock of a corporation whose capital stock is traded publicly, or that (y) Executive may accept employment with a successor company to the Company. (ii) During the Restricted Period (which shall not include any period of violation of this Agreement by Executive), Executive will not without the express prior written approval of the Board of Directors of the Company (A) directly or indirectly, in one or a series of transactions, recruit, solicit or otherwise induce or influence any proprietor, partner, stockholder, lender, director, officer, employee, sales agent, joint venturer, investor, lessor, supplier, customer, agent, representative or any other person which has a business relationship with any of the Companies or had a business relationship with the Companies within the twenty-four (24) month period preceding the date of the incident in question, to discontinue, reduce or modify such employment, agency or business relationship with the Companies, or (B)employ or seek to employ or cause any Competitive Business to employ or seek to employ any person or agent who is then (or was at any time within six months prior to the date Executive or the Competitive Business employs or seeks to employ such person) employed or retained by the Companies. Notwithstanding the foregoing, nothing herein shall prevent Executive from providing a letter of recommendation to an employee with respect to a future employment opportunity. (iii) The scope and term of this Section 8 would not preclude him from earning a living with an entity that is not a Competitive Business. (b) The terms of this Section 8 shall survive termination of this Agreement regardless of who terminates this Agreement, or the reasons therefor. 9. Inventions (a) Each invention, improvement or discovery made or conceived by Executive, either individually or with others, during the term of his employment with the Company, which invention, improvement or discovery is related to any of the lines of business or work of the Companies, any projected or potential activities which the Companies have investigated or hereinafter investigates, or which result from or are suggested by any service performed by Executive for the Company, whether patentable or not, shall be promptly and fully disclosed by Executive to the Company. Executive assigns each such invention, improvement or discovery, and the patents thereof, or related thereto, to the Company. Executive shall, during the term of his employment with the Company and thereafter without charge to the Company, but at the request and expense of the Company, assist the Company in obtaining or vesting in itself patents upon such improvements and inventions. All such inventions, improvements or discovery shall at all times become and remain the exclusive property of the Company. Executive represents that he does not claim ownership of any inventions, improvements, formulae or discoveries which are excluded from this Agreement. (b) In the event that Executive breaches his obligations in any material respect under Sections 7, 8 or this Section 9, the Company, in addition to pursuing all available remedies under this Agreement, at law or otherwise, and without limiting its right to pursue the same shall cease all payments to Executive under this Agreement. 10. Definitions "Business" means (a) the design, manufacture, lease and operation of pressurized habitable space modules, unpressurized space logistics and science hardware, including unpressurized pallets, and those other businesses and activities that are described in the Company's Form 10-K for the fiscal year ended June 30, 1998, or (b) the provision of services relating to communication satellite launch processing and integration, as performed by ASTROTECH SPACE OPERATIONS, INC., a wholly-owned subsidiary of the Company, or (c) the provision of engineering services to the National Aeronautics and Space Administration, as performed by JOHNSON ENGINEERING CORPORATION, a wholly-owned subsidiary of the Company, or (d) any similar, incidental or related business conducted or pursued by, or engaged in, or proposed to be conducted or pursued by or engaged in, by the Companies prior to the date hereof or at any time during the Term of Employment. "Cause" is defined in Section 3(d). "Companies" means the Company, any of its direct or indirect subsidiaries and affiliates and any other entity identified by the Board of Directors in its sole discretion, whether now existing or hereafter existing. "Company" is defined in the introduction. "Competitive Business" means any business which competes, directly or indirectly, with the Business in the Market. "Confidential Information" means any trade secret, confidential study, data, calculations, software storage media or other compilation of information, patent, patent application, copyright, trademark, trade name, service mark, service name, "know-how", trade secrets, customer lists, details of client or consultant contracts, pricing policies, sales techniques, confidential information relating to suppliers, information relating to the special and particular needs of the Companies' customers operational methods, marketing plans or strategies, products and formulae, product development techniques or plans, business acquisition plans or any portion or phase of any scientific or technical information, ideas, discoveries, designs, computer programs (including source of object codes), processes, procedures, research or technical data, improvements or other proprietary or intellectual property of the Companies, whether or not in written or tangible form, and whether or not registered, and including all files, records, manuals, books, catalogues, memoranda, notes, summaries, plans, reports, records, documents and other evidence thereof. The term "Confidential Information" does not include, and there shall be no obligation hereunder with respect to, information that is or becomes generally available to the public other than as a result of a disclosure by Executive. "Executive" means the individual identified in the first paragraph of this Agreement, or his or her estate, if deceased. "Market" means any county in the United States of America and each similar jurisdiction in any other country in which the Business was conducted or pursued by, engaged in by the Companies prior to the date hereof or is conducted or engaged in or pursued, or is proposed to be conducted or engaged in or pursued, by the Companies at any time during the Term of Employment. "Material Breach" is defined in Section 3(d). "Non-Interference Period" means the period commencing on the date of this Agreement and continuing through the twelfth month anniversary of the termination of the Term of Employment. "Prior Employment Agreement" is defined in Section 12(a). "Restricted Period" means the period commencing on the date of this Agreement and continuing through the sixth month anniversary of the termination of the Term of Employment. "Subsidiary" means any corporation, limited liability company, joint venture, limited and general partnership, joint stock company, association or any other type of business entity over which the Company owns, directly or indirectly through one or more intermediaries, more than fifty percent (50%) of the voting securities at the time of determination. "Term of Employment" is defined in Section 3(a). 11. Notice Any notice, request, demand or other communication required or permitted to be given under this Agreement shall be given in writing and if delivered personally, or sent by certified or registered mail, return receipt requested, as follows (or to such other addressee or address as shall be set forth in a notice given in the same manner): If to Executive: Eugene A. Cernan c/o Johnson Engineering Corporation 555 Forge River Road Webster, Texas 77598 with a copy to: McDade, Fogler, Maines and Lohse 909 Fannin, Suite 1800 Houston, Texas 77010 Attn: Thomas R. McDade If to Company: Johnson Engineering Corporation SPACEHAB, Incorporated 1595 Spring Hill Road, Suite 360 Vienna, Virginia 22182 Attention: President with a copy to: Frank E. Morgan II Dewey Ballantine, LLP 1301 Avenue of the Americas New York, New York 10019-6092 Any such notices shall be deemed to be given on the date personally delivered or such return receipt is issued. 12. Previous Agreements; Executive's Representation (a) Attached hereto as Annex A are all previous employment or severance agreements by and between Executive and the Company (collectively, the "Prior Employment Agreements"). Executive and the Company hereby cancel, void and render without force and effect all Prior Employment Agreements, and the Executive releases and discharges the Company from any further obligations or liabilities thereunder. (b) Executive hereby warrants and presents to the Company that Executive has carefully reviewed this Agreement and has consulted with such advisors as Executive considers appropriate in connection with this Agreement, is not subject to any covenants, agreements or restrictions, including without limitation any covenants, agreements or restrictions arising out of Executive's prior employment, which would be breached or violated by Executive's execution of this Agreement or by Executive's performance of his duties hereunder. 13. Other Matters Executive agrees and acknowledges that the obligations owed to Executive under this Agreement are solely the obligations of the Company, and that none of the Companies' stockholders, directors, officers, affiliates, representatives, agents or lenders will have any obligations or liabilities in respect of this Agreement and the subject matter hereof. 14. Validity If, for any reason, any provision hereof shall be determined to be invalid or unenforceable, the validity and effect of the other provisions hereof shall not be affected thereby. 15. Severability Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. If any court determines that any provision of Section 8 or any other provision hereof is unenforceable because of the power to reduce the scope or duration of such provision, as the case may be and, in its reduced form, such provision shall then be enforceable. 16. Waiver of Breach, Specific Performance The waiver by the Company or Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other breach of such other party. Each of the parties (and third party beneficiaries) to this Agreement will be entitled to enforce its rights under this breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of Sections 7, 8 and 9 of this Agreement and that any party (and third party beneficiaries) may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions in order to enforce or prevent any violations of the provisions of this Agreement. In the event either party takes legal action to enforce any of the terms or provisions of this Agreement against the other party, the party against whom judgement is rendered in such action shall pay the prevailing party's costs and expenses, including but not limited to, attorneys' fees, incurred in such action. 17. Assignment; Third Parties Neither Executive nor the Company may assign, transfer, pledge, hypothecate, encumber or otherwise dispose of this Agreement or any of his or its respective rights or obligations hereunder, without the prior written consent of the other. The parties agree and acknowledge that each of the Companies and the stockholders and investors therein are intended to be third party beneficiaries of, and have rights and interests in respect of, Executive's agreements set forth in Sections 7, 8 and 9. 18. Amendment; Entire Agreement This Agreement may not be changed orally but only by an agreement in writing agreed to by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. This Agreement embodies the entire agreement and understanding of the parties hereto in respect of the subject matter of this Agreement, and supersedes and replaces all prior Agreements, understandings and commitments with respect to such subject matter. 19. Litigation THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF VIRGINIA, EXCEPT THAT NO DOCTRINE OF CHOICE OF LAW SHALL BE USED TO APPLY ANY LAW OTHER THAN THAT OF VIRGINIA, AND NO DEFENSE, COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR ALLOWED BY THE LAWS OF ANY OTHER STATE OR JURISDICTION, OR ARISING OUT OF THE ENACTMENT, MODIFICATION OR REPEAL OF ANY LAW, REGULATION, ORDINANCE OR DECREE OF ANY FOREIGN JURISDICTION, BE INTERPOSED IN ANY ACTION HEREON. SUBJECT TO SECTION 20, EXECUTIVE AND THE COMPANY AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT OF THIS AGREEMENT MAY BE COMMENCED IN THE COURTS OF THE STATE OF VIRGINIA OR THE UNITED STATES DISTRICT COURTS IN ARLINGTON, VIRGINIA. EXECUTIVE AND THE COMPANY CONSENT TO SUCH JURISDICTION, AGREE THAT VENUE WILL BE PROPER IN SUCH COURTS AND WAIVE ANY OBJECTIONS BASED UPON FORUM NON CONVENIENS. THE CHOICE OF FORUM SET FORTH IN TIES SECTION 19 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER JURISDICTION. 20. Arbitration EXCEPT AS DESCRIBED IN SECTION 16, EXECUTIVE AND THE COMPANY AGREE THAT ANY DISPUTE BETWEEN OR AMONG THE PARTIES TO THIS AGREEMENT RELATING TO OR IN RESPECT OF THIS AGREEMENT, ITS NEGOTIATION, EXECUTION, PERFORMANCE, SUBJECT MATTER, OR ANY COURSE OF CONDUCT OR DEALING OR ACTIONS UNDER OR IN RESPECT OF THIS AGREEMENT, SHALL BE SUBMITTED TO, AND RESOLVED EXCLUSIVELY PURSUANT TO ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. SUCH ARBITRATION SHALL TAKE PLACE IN ARLINGTON, VIRGINIA, AND SHALL BE SUBJECT TO THE SUBSTANTIVE LAW OF THE STATE OF VIRGINIA. DECISIONS PURSUANT TO SUCH ARBITRATION SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES. UPON THE CONCLUSION OF ARBITRATION, EXECUTIVE OR THE COMPANY MAY APPLY TO ANY COURT OF THE TYPE DESCRIBED IN SECTION 19 TO ENFORCE THE DECISION PURSUANT TO SUCH ARBITRATION. IN CONNECTION WITH THE FOREGOING, THE PARTIES HEREBY WAIVE ANY RIGHTS TO A JURY TRIAL TO RESOLVE ANY DISPUTES OR CLAIMS RELATING TO THIS AGREEMENT OR ITS SUBJECT MATTER. 21. Further Action Executive and the Company agree to perform any further acts and to execute and deliver any documents which may be reasonable to carry out the provisions hereof. 22. Counterparts This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have set their hands as of the day and year first written above. EXECUTIVE: /s/ Eugene A. Cernan Eugene A. Cernan SPACEHAB, INCORPORATED By: /s/ David A. Rossi Name: David A. Rossi Title: President EX-10.88 5 EMPLOYMENT AGREEMENT - SHORT EMPLOYMENT AND NON-INTERFERENCE AGREEMENT with W. T. Short This Employment and Non-Interference Agreement (this "Agreement"), is dated as of July 1, 1998, by and between W.T. Short (the "Executive") and SPACEHAB, INCORPORATED, a Washington corporation (the "Company"). WITNESSETH: WHEREAS, the Company wishes to retain the future services of Executive for the Company; WHEREAS, Executive is willing, upon the terms and conditions set forth in this Agreement, to provide services hereunder; and WHEREAS, the Company wishes to secure Executive's non-interference, upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Nature of Employment Subject to Section 3, the Company hereby employs Executive, and Executive agrees to accept such employment, during the Term of Employment (as defined in Section 3(a)), as an executive of the Company in the position of Vice-President, Johnson Engineering, and as an executive of JOHNSON ENGINEERING CORPORATION, a wholly-owned subsidiary of the Company, in the position of President of JOHNSON ENGINEERING CORPORATION. Executive will also undertake such duties and responsibilities as may be reasonably assigned to Executive from time to time by the President of the Company, by the Board of Directors of the Company, or by such other appropriately authorized or designated executive officer of the Company. 2. Extent of Employment (a) During the Term of Employment, Executive shall perform his obligations hereunder faithfully and to the best of his ability under the direction of the President of the Company, by the Company's Board of Directors, or by such other appropriately authorized or designated executive officer of the Company, and shall abide by the rules, customs and usages from time to time established by the Company. (b) During the Term of Employment, Executive shall devote all of his business time, energy and skill as may be reasonably necessary for the performance of his duties, responsibilities and obligations under this Agreement (except for vacation periods and reasonable periods of illness or other incapacity), consistent with past practices and norms with respect to similar positions. (c) Nothing contained herein shall require Executive to follow any directive or to perform any act which would violate any laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agent or authority, any court or judicial authority, or any public, private or industry regulatory authority. Executive shall act in accordance with the laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agent or authority, any court or judicial authority, or any public, private or industry regulatory authority. 3. Term of Employment, Termination (a) The "Term of Employment" shall commence on the date hereof and shall continue for a term ending July 1, 1999 (the "Initial Term"), subject to automatic annual renewal for one-year terms thereafter (the "Additional Term"), unless either the Company or Executive notifies the other party of its intent not to renew within ninety (90) days prior to the end of the Initial Term or the Additional Term as the case may be. Should Executive's employment by the Company be earlier terminated pursuant to Section 3(b), the Term of Employment shall end on the date of such earlier termination. (b) Subject to the payments contemplated by Section 3(d), the Term of Employment may be terminated at any time by the Company: (i) upon the death of Executive; (ii) in the event that because of physical or mental disability, Executive is unable to perform and does not perform his duties hereunder, for a continuous period of 90 days, and an experienced, recognized physician specializing in such disabilities certifies as to the foregoing in writing; (iii) for Cause or Material Breach (each as defined in Section 3(d)); (iv) upon the continuous poor or unacceptable performance of Executive's duties to the Company, in the sole judgment of the Board of Directors of the Company, which has remained uncured for a period of 90 days after the delivery of notice by the Company to the Executive of such dissatisfaction with Executive's performance; or (v) for any other reason not referred to in clauses (i) through (iv), or for no reason, such that this Agreement shall be construed as terminable at will by the Company. Executive acknowledges that no representations or promises have been made concerning the grounds for termination or the future operation of the Company's business, and that nothing contained herein or otherwise stated by or on behalf of the Company modifies or amends the right of the Company to terminate Executive at any time, with or without Material Breach or Cause. Termination shall become effective upon the delivery by the Company to Executive of notice specifying such termination and the reasons therefor, subject to the requirements for advance notice and an opportunity to cure provided in this Agreement, if and to the extent applicable. (c) Subject to the payments contemplated by Section 3(d), the Term of Employment may be terminated at any time by Executive: (i) upon the death of Executive; (ii) in the event that because of physical or mental disability, Executive is unable to perform and does not perform his duties hereunder, for a continuous period of 90 days, and an experienced, recognized physician specializing in such disabilities certifies as to the foregoing in writing; (iii) as a result of the Company's material reduction in Executive's authority, perquisites, position, title or responsibilities (other than such a reduction by the Company because of a temporary illness or disability or such a reduction which affects all of the Company's senior executives on a substantially equal or proportionate basis as a result of financial results, conditions, prospects, reorganization, workout or distressed condition of the Company), or the Company's willful, material violation of its obligations under this Agreement, in each case, after 30 days' prior written notice by Executive to the Company and its Board of Directors and the Company's failure thereafter to cure such reduction or violation within such 30 days; or (iv) voluntarily or for any reason not referred to in clauses (i) through (iii), or for no reason, in each case, after 90 days' prior written notice to the Company and its Board of Directors. (d) For the purposes of this Section 3: "Cause" shall mean any of the following: (i) Executive's conviction of any crime or criminal offense involving the unlawful theft or conversion of substantial monies or other property or any other felony (other than a criminal offense arising solely under a statutory provision imposing criminal liability on the Executive on a per se basis due to the offices held by the Executive); or (ii) Executive's conviction of fraud or embezzlement. "Material Breach" shall mean any of the following: (i) Executive's breach of any of his fiduciary duties to the Company or its stockholders or making of a willful misrepresentation or omission which breach, misrepresentation or omission would reasonably be expected to materially adversely affect the business, properties, assets, condition (financial or other) or prospects of the Company; (ii) Executive's willful, continual and material neglect or failure to discharge his duties, responsibilities or obligations prescribed by Sections 1 and 2 (other than arising solely due to physical or mental disability); (iii) Executive's habitual drunkenness or substance abuse which materially interferes with Executive's ability to discharge his duties, responsibilities or obligations prescribed by Sections 1 and 2; (iv) Executive's willful, continual and material breach of any non-competition or confidentiality agreement with the Company, including without limitation, those set forth in Sections 7 and 8 of this Agreement; and (v) Executive's gross neglect of his duties and responsibilities, as determined by the Company's Board of Directors; in each case, for purposes of clauses (i) through (v), after the Company or the Board of Directors has provided Executive with 30 days' written notice of such circumstances and the possibility of a Material Breach, and Executive fails to cure such circumstances and Material Breach within those 30 days. (i) In the event Executive's employment is terminated pursuant to Section 3(b)(i) [death], 3(b)(ii) [disability] or 3(b)(v) [any other reason or no reason] or 3(c)(i) [death], 3(c)(ii) [disability) or 3(c)(iii) [material reduction], the Company will: (A) pay to Executive (or his estate or representative) the full amounts to which the Executive would be entitled to under Section 4(a) for the period from effectiveness of termination through the sixth month anniversary of termination; and (B) pay to Executive (or his estate or representative) the benefits described in Section 6 through the sixth month anniversary of termination. Payment of the amounts and provision of the benefits described above will be made in accordance with the timetable and schedule for such payments contemplated therefor as if such termination did not occur, and will be subject to the other provisions of this Agreement, including Section 3(g) and Sections 7 and 8. If the Company makes the payments required by this Section 3(d)(i), such payments will constitute severance and liquidated damages, and the Company will not be obligated to pay any further amounts to Executive under this Agreement or otherwise be liable to Executive in connection with any termination. (ii) In the event Executive's employment is terminated pursuant to Section 3(b)(iii) [Cause or Material Breach], 3(b)(iv) [poor performance], or 3(c)(iv) [voluntary], the Company will not be obligated to pay any further amounts to Executive under this Agreement. (e) In the event the Term of Employment is terminated and the Company is obligated to make payments to Executive pursuant to Section 3(d)(i), Executive shall have a duty to seek to obtain alternative employment; and if Executive thereafter obtains alternative employment, the Company's payment obligations under Section 3(d)(i), including its obligation to provide insurance coverage, if any, will be mitigated and reduced by and to the extent of Executive's compensation under such alternative employment during the period for which payments are owed by the Company pursuant to Section 3(d)(i). Moreover, in the event that Executive is employed by or engaged in a Competitive Business as contemplated by Section 8(a)(i), then the Company will thereupon no longer be obligated to make payments under Section 3(d)(i). (f) In the event the Term of Employment is terminated and the Company is obligated to make payments pursuant to Section 3(d)(i), Executive hereby waives any and all claims against the Company and its respective officers, directors, employees, agents, or representatives, stockholders and affiliates relating to his employment during the term hereof and this Agreement. (g) Termination of the Term of Employment will not terminate Sections 3(d), 3(f) and 7 through 22. 4. Compensation During the Term of Employment, the Company shall pay to Executive: (a) As base compensation for his services hereunder, in semi-monthly installments, a base salary at a rate of not less than $171,200 per annum. Such amounts may be increased (but not decreased) annually at the discretion of the Compensation Committee of the Board of Directors based upon an annual review by the Compensation Committee of the Board of Directors of Executive's performance. (b) An annual bonus, if any, based on Executive's performance as determined and approved by the Compensation Committee of the Board of Directors. 5. Reimbursement of Expenses During the Term of Employment, the Company shall pay all expenses, including without limitation, transportation, lodging and food for Executive to attend conventions, conferences and meetings that the Company determines are necessary or in the best interest of the Company, and for any ordinary and reasonable expenses incurred by Executive in the conduct of the Business of the Company. Travel outside the United States shall be subject to the prior approval of an executive officer of the Company. 6. Benefits During the Term of Employment, Executive shall be entitled to any fringe or employee benefits made available to similarly situated executives, in each case, in accordance with guidelines or established from time to time, by the Board of Directors. 7. Confidential Information (a) Executive acknowledges that his employment hereunder gives him access to Confidential Information relating to the Business of the Companies and their customers which must remain confidential. Executive acknowledges that this information is valuable, special, and a unique asset of the Business of the Companies, and that it has been and will be developed by the Companies at considerable effort and expense, and if it were to be known and used by others engaged in a Competitive Business, it would be harmful and detrimental to the interests of the Companies. In consideration of the foregoing, Executive hereby agrees and covenants that, during and after the Term of Employment, Executive will not, directly or indirectly in one or a series of transactions, disclose to any person, or use or otherwise exploit for Executive's own benefit or for the benefit of anyone other than the Companies, Confidential Information (as defined in Section 10), whether prepared by Executive or not; provided, however, that any Confidential Information may be disclosed to officers, representatives, employees and agents of the Companies who need to know such Confidential Information in order to perform the services or conduct the operations required or expected of them in the Business (as defined in Section 10). Executive shall use his best efforts to prevent the removal of any Confidential Information from the premises of the Companies, except as required in his normal course of employment by the Company. Executive shall use his best efforts to cause all persons or entities to whom any Confidential Information shall be disclosed by him hereunder to observe the terms and conditions set forth herein as though each such person or entity was bound hereby. Executive shall have no obligation hereunder to keep confidential any Confidential Information if and to the extent disclosure of any thereof is specifically required by law; provided, however, that in the event disclosure is required by applicable law, Executive shall provide the Company with prompt notice of such requirement, prior to making any disclosure, so that the Companies may seek an appropriate protective order. At the request of the Company, Executive agrees to deliver to the Company, at any time during the Term of Employment, or thereafter, all Confidential Information which he may possess or control. Executive agrees that all Confidential Information of the Companies (whether now or hereafter existing) conceived, discovered or made by him during the Term of Employment exclusively belongs to the Companies (and not to Executive). Executive will promptly disclose such Confidential Information to the Company and perform all actions reasonably requested by the Company to establish and confirm such exclusive ownership. (b) In the event that Executive breaches his obligations in any material respect under this Section 7, the Company, in addition to pursuing all available remedies under this Agreement, at law or otherwise, and without limiting its right to pursue the same shall cease all payments to Executive under this Agreement. (c) The terms of this Section 7 shall survive the termination of this Agreement regardless of who terminates this Agreement, or the reasons therefor. 8. Non-Interference and Non-Competition (a) Executive acknowledges that the services to be provided give him the opportunity to have special knowledge of the Companies and their Confidential Information and the capabilities of individuals employed by or affiliated with the Companies, and that interference in these relationships would cause irreparable injury to the Companies. In consideration of this Agreement, Executive covenants and agrees that: (i) During the Restricted Period (which shall not include any period of violation of this Agreement by the Executive), Executive will not, without the express written approval of the Board of Directors of the Company, anywhere in the Market, directly or indirectly, in one or a series of transactions, own, manage, operate, control, invest or acquire an interest in, or otherwise engage or participate in, whether as a proprietor, partner, stockholder, lender, director, officer, employee, joint venturer, investor, lessor, supplier, customer, agent, representative or other participant, in any Competitive Business without regard to (A) whether the Competitive Business has its office, manufacturing or other business facilities within or without the Market, (B) whether any of the activities of Executive referred to above occur or are performed within or without the Market or (C) whether Executive resides, or reports to an office, within or without the Market; provided, however, that (x) Executive may, anywhere in the Market, directly or indirectly, in one or a series of transactions, own, invest or acquire an interest in up to five percent (5%) of the capital stock of a corporation whose capital stock is traded publicly, or that (y) Executive may accept employment with a successor company to the Company. (ii) During the Restricted Period (which shall not include any period of violation of this Agreement by Executive), Executive will not without the express prior written approval of the Board of Directors of the Company (A) directly or indirectly, in one or a series of transactions, recruit, solicit or otherwise induce or influence any proprietor, partner, stockholder, lender, director, officer, employee, sales agent, joint venturer, investor, lessor, supplier, customer, agent, representative or any other person which has a business relationship with any of the Companies or had a business relationship with the Companies within the twenty-four (24) month period preceding the date of the incident in question, to discontinue, reduce or modify such employment, agency or business relationship with the Companies, or (B) employ or seek to employ or cause any Competitive Business to employ or seek to employ any person or agent who is then (or was at any time within six months prior to the date Executive or the Competitive Business employs or seeks to employ such person) employed or retained by the Companies. Notwithstanding the foregoing, nothing herein shall prevent Executive from providing a letter of recommendation to an employee with respect to a future employment opportunity. (iii) The scope and term of this Section 8 would not preclude him from earning a living with an entity that is not a Competitive Business. (b) The terms of this Section 8 shall survive termination of this Agreement regardless of who terminates this Agreement, or the reasons therefor. 9. Inventions (a) Each invention, improvement or discovery made or conceived by Executive, either individually or with others, during the term of his employment with the Company, which invention, improvement or discovery is related to any of the lines of business or work of the Companies, any projected or potential activities which the Companies have investigated or hereinafter investigates, or which result from or are suggested by any service performed by Executive for the Company, whether patentable or not, shall be promptly and fully disclosed by Executive to the Company. Executive assigns each such invention, improvement or discovery, and the patents thereof, or related thereto, to the Company. Executive shall, during the term of his employment with the Company and thereafter without charge to the Company, but at the request and expense of the Company, assist the Company in obtaining or vesting in itself patents upon such improvements and inventions. All such inventions, improvements or discovery shall at all times become and remain the exclusive property of the Company. Executive represents that he does not claim ownership of any inventions, improvements, formulae or discoveries which are excluded from this Agreement. (b) In the event that Executive breaches his obligations in any material respect under Sections 7, 8 or this Section 9, the Company, in addition to pursuing all available remedies under this Agreement, at law or otherwise, and without limiting its right to pursue the same shall cease all payments to Executive under this Agreement. 10. Definitions "Business" means (a) the design, manufacture, lease and operation of pressurized habitable space modules, unpressurized space logistics and science hardware, including unpressurized pallets, and those other businesses and activities that are described in the Company's Form 10-K for the fiscal year ended June 30, 1998, or (b) the provision of services relating to communication satellite launch processing and integration, as performed by ASTROTECH SPACE OPERATIONS, INC., a wholly-owned subsidiary of the Company, or (c) the provision of engineering services to the National Aeronautics and Space Administration, as performed by JOHNSON ENGINEERING CORPORATION, a wholly-owned subsidiary of the Company, or (d) any similar, incidental or related business conducted or pursued by, or engaged in, or proposed to be conducted or pursued by or engaged in, by the Companies prior to the date hereof or at any time during the Term of Employment. "Cause" is defined in Section 3(d). "Companies" means the Company, any of its direct or indirect subsidiaries and affiliates and any other entity identified by the Board of Directors in its sole discretion, whether now existing or hereafter existing. "Company" is defined in the introduction. "Competitive Business" means any business which competes, directly or indirectly, with the Business in the Market. "Confidential Information" means any trade secret, confidential study, data, calculations, software storage media or other compilation of information, patent, patent application, copyright, trademark, trade name, service mark, service name, "know-how", trade secrets, customer lists, details of client or consultant contracts, pricing policies, sales techniques, confidential information relating to suppliers, information relating to the special and particular needs of the Companies' customers operational methods, marketing plans or strategies, products and formulae, product development techniques or plans, business acquisition plans or any portion or phase of any scientific or technical information, ideas, discoveries, designs, computer programs (including source of object codes), processes, procedures, research or technical data, improvements or other proprietary or intellectual property of the Companies, whether or not in written or tangible form, and whether or not registered, and including all files, records, manuals, books, catalogues, memoranda, notes, summaries, plans, reports, records, documents and other evidence thereof. The term "Confidential Information" does not include, and there shall be no obligation hereunder with respect to, information that is or becomes generally available to the public other than as a result of a disclosure by Executive. "Executive" means the individual identified in the first paragraph of this Agreement, or his or her estate, if deceased. "Market" means any county in the United States of America and each similar jurisdiction in any other country in which the Business was conducted or pursued by, engaged in by the Companies prior to the date hereof or is conducted or engaged in or pursued, or is proposed to be conducted or engaged in or pursued, by the Companies at any time during the Term of Employment. "Material Breach" is defined in Section 3(d). "Non-Interference Period" means the period commencing on the date of this Agreement and continuing through the twelfth month anniversary of the termination of the Term of Employment. "Prior Employment Agreement" is defined in Section 12(a). "Restricted Period" means the period commencing on the date of this Agreement and continuing through the sixth month anniversary of the termination of the Term of Employment. "Subsidiary" means any corporation, limited liability company, joint venture, limited and general partnership, joint stock company, association or any other type of business entity over which the Company owns, directly or indirectly through one or more intermediaries, more than fifty percent (50%) of the voting securities at the time of determination. "Term of Employment" is defined in Section 3(a). 11. Notice Any notice, request, demand or other communication required or permitted to be given under this Agreement shall be given in writing and if delivered personally, or sent by certified or registered mail, return receipt requested, as follows (or to such other addressee or address as shall be set forth in a notice given in the same manner): If to Executive: W.T. Short c/o Johnson Engineering Corporation 555 Forge River Road Webster, Texas 77598 with a copy to: Porter & Hedges, L.L.P. 700 Louisiana, 35th Floor Houston, Texas 77002-2764 Attn: John M. Ransom If to Company: Johnson Engineering Corporation SPACEHAB, Incorporated 1595 Spring Hill Road, Suite 360 Vienna, Virginia 22182 Attention: President with a copy to: Frank E. Morgan II Dewey Ballantine, LLP 1301 Avenue of the Americas New York, New York 10019-6092 Any such notices shall be deemed to be given on the date personally delivered or such return receipt is issued. 12. Previous Agreements; Executive's Representation (a) Attached hereto as Annex A are all previous employment or severance agreements by and between Executive and the Company (collectively, the "Prior Employment Agreements"). Executive and the Company hereby cancel, void and render without force and effect all Prior Employment Agreements, and the Executive releases and discharges the Company from any further obligations or liabilities thereunder. (b) Executive hereby warrants and presents to the Company that Executive has carefully reviewed this Agreement and has consulted with such advisors as Executive considers appropriate in connection with this Agreement, is not subject to any covenants, agreements or restrictions, including without limitation any covenants, agreements or restrictions arising out of Executive's prior employment, which would be breached or violated by Executive's execution of this Agreement or by Executive's performance of his duties hereunder. 13. Other Matters Executive agrees and acknowledges that the obligations owed to Executive under this Agreement are solely the obligations of the Company, and that none of the Companies' stockholders, directors, officers, affiliates, representatives, agents or lenders will have any obligations or liabilities in respect of this Agreement and the subject matter hereof. 14. Validity If, for any reason, any provision hereof shall be determined to be invalid or unenforceable, the validity and effect of the other provisions hereof shall not be affected thereby. 15. Severability Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. If any court determines that any provision of Section 8 or any other provision hereof is unenforceable because of the power to reduce the scope or duration of such provision, as the case may be and, in its reduced form, such provision shall then be enforceable. 16. Waiver of Breach, Specific Performance The waiver by the Company or Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other breach of such other party. Each of the parties (and third party beneficiaries) to this Agreement will be entitled to enforce its rights under this breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of Sections 7, 8 and 9 of this Agreement and that any party (and third party beneficiaries) may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions in order to enforce or prevent any violations of the provisions of this Agreement. In the event either party takes legal action to enforce any of the terms or provisions of this Agreement against the other party, the party against whom judgement is rendered in such action shall pay the prevailing party's costs and expenses, including but not limited to, attorneys' fees, incurred in such action. 17. Assignment; Third Parties Neither Executive nor the Company may assign, transfer, pledge, hypothecate, encumber or otherwise dispose of this Agreement or any of his or its respective rights or obligations hereunder, without the prior written consent of the other. The parties agree and acknowledge that each of the Companies and the stockholders and investors therein are intended to be third party beneficiaries of, and have rights and interests in respect of, Executive's agreements set forth in Sections 7, 8 and 9. 18. Amendment; Entire Agreement This Agreement may not be changed orally but only by an agreement in writing agreed to by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. This Agreement embodies the entire agreement and understanding of the parties hereto in respect of the subject matter of this Agreement, and supersedes and replaces all prior Agreements, understandings and commitments with respect to such subject matter. 19. Litigation THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF VIRGINIA, EXCEPT THAT NO DOCTRINE OF CHOICE OF LAW SHALL BE USED TO APPLY ANY LAW OTHER THAN THAT OF VIRGINIA, AND NO DEFENSE, COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR ALLOWED BY THE LAWS OF ANY OTHER STATE OR JURISDICTION, OR ARISING OUT OF THE ENACTMENT, MODIFICATION OR REPEAL OF ANY LAW, REGULATION, ORDINANCE OR DECREE OF ANY FOREIGN JURISDICTION, BE INTERPOSED IN ANY ACTION HEREON. SUBJECT TO SECTION 20, EXECUTIVE AND THE COMPANY AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT OF THIS AGREEMENT MAY BE COMMENCED IN THE COURTS OF THE STATE OF VIRGINIA OR THE UNITED STATES DISTRICT COURTS IN ARLINGTON, VIRGINIA. EXECUTIVE AND THE COMPANY CONSENT TO SUCH JURISDICTION, AGREE THAT VENUE WILL BE PROPER IN SUCH COURTS AND WAIVE ANY OBJECTIONS BASED UPON FORUM NON CONVENIENS. THE CHOICE OF FORUM SET FORTH IN TIES SECTION 19 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER JURISDICTION. 20. Arbitration EXCEPT AS DESCRIBED IN SECTION 16, EXECUTIVE AND THE COMPANY AGREE THAT ANY DISPUTE BETWEEN OR AMONG THE PARTIES TO THIS AGREEMENT RELATING TO OR IN RESPECT OF THIS AGREEMENT, ITS NEGOTIATION, EXECUTION, PERFORMANCE, SUBJECT MATTER, OR ANY COURSE OF CONDUCT OR DEALING OR ACTIONS UNDER OR IN RESPECT OF THIS AGREEMENT, SHALL BE SUBMITTED TO, AND RESOLVED EXCLUSIVELY PURSUANT TO ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. SUCH ARBITRATION SHALL TAKE PLACE IN ARLINGTON, VIRGINIA, AND SHALL BE SUBJECT TO THE SUBSTANTIVE LAW OF THE STATE OF VIRGINIA. DECISIONS PURSUANT TO SUCH ARBITRATION SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES. UPON THE CONCLUSION OF ARBITRATION, EXECUTIVE OR THE COMPANY MAY APPLY TO ANY COURT OF THE TYPE DESCRIBED IN SECTION 19 TO ENFORCE THE DECISION PURSUANT TO SUCH ARBITRATION. IN CONNECTION WITH THE FOREGOING, THE PARTIES HEREBY WAIVE ANY RIGHTS TO A JURY TRIAL TO RESOLVE ANY DISPUTES OR CLAIMS RELATING TO THIS AGREEMENT OR ITS SUBJECT MATTER. 21. Further Action Executive and the Company agree to perform any further acts and to execute and deliver any documents which may be reasonable to carry out the provisions hereof. 22. Counterparts This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have set their hands as of the day and year first written above. EXECUTIVE: /s/ W.T. Short W.T. Short SPACEHAB, INCORPORATED By: /s/ David A. Rossi Name: David A. Rossi Title: President EX-10.89 6 MODIFICATION S/A 14 AMENDMENT OF SOLICIATION/MODIFICATION OF CONTRACT 1. CONTRACT ID CODE 2. AMENDMENT/MODIFICATION NO. S/A 14 3. EFFECTIVE DATE See Block 16C 4. REQUISITION REQ. NO N/A 5. PROJECT NO. (if applicable) 6. ISSUED BY CODE BV2/Y55 NASA/Johnson Space Center Space Shuttle Acquisition Management Office Attn: Christine L. Mack Houston, TX 77058 7. ADMINISTERED BY (if other than Item 6) CODE 8. NAME AND ADDRESS OF CONTRACTOR (No, street, county, State, and ZIP Code) SPACEHAB, Inc. Attn: Nelda Wilbanks 1595 Springhill Rd., Suite 360 Vienna, VA 22182 CODE FACILITY CODE 9A. AMENDMENT OF SOLICITATION NO. 9B. DATED (SEE ITEM 11) x 10A. MODIFIACTION OF CONTRACT/ORDER NO. 10B. DATED (SEE ITEM 13) NAS9-97199 12/18/97 11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICIATIONS ____ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers _____ is extended, _____ is not extended. Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by on the following methods: (a) By completing Items 8 and 15, and returning _____ copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offor submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation of this amendment, and is received prior to the opening hour and date specified. 12. ACCOUNTING AND APPROPRIATION DATE (if required) N/A 13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO AS DESCRIBED IN ITEM 14.(x) A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT/ORDER NO. IN ITEM 10A. B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b) X C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO THE AUTHORITY OF: F.3 OPTION TO EXTEND COMPLETION OF WORK D. other (Specify type of modification and authority) E. IMPORTANT: Contractor ____ is not, __X___ is required to sign this document and return 3 copies to the issuing office. 14. description of amendment/modification (Organized by UCF section headings, including solicitation/contract subject matter where feasible.) The purpose of this modification is to: (1) Reduce Milestone 1(e) by $6,000 to $494,999 as consideration for use of the LSLE Mine O-scope and Battery Pack; (2) Exercise option 4 of the contraction in accordance with Article F.3, Option To Extend Completion of Work, with the exception of the date of issuance, type of modification ; (3) Revise Section C, Statement of Work, sections 1.0 Scope, 2.3 Summary of Module Resources, and 3.1 Module Configuration, 3.2.1 Heat Rejection, 3.3 Power, and 5.2 Ground Operations are modified to reference STS-101 and the reduced processing time where required; and (4) Revise the Milestone Schedule for the option mission. Due to the time constraints prior to launch of STS-101, this option is bilaterally exercised in a shorter period than 15 months prior to the launch date. To implement the above action, the following changes are made: 1. Article B.3, Milestone Schedule, Item 1e, is deleted in its entirety and replaced with the following: " Delivery Firm-Fixed Item Number Services Date Price 1e Delivery of flight-ready SPACEHAB single module in accordance with the SOW to KSC L-1 mo. $ 494,000" 2. Article B.2, Firm-Fixed-Price, (NASA 1852.216-78) (DEC 1988) is deleted in its entirety and replaced with the following: "B.2 FIRM-FIXED PRICE (NASA 1852.216-78) (DEC 1988) The total firm-fixed price of this contract is $60,714,000. (End of clause)" 3. Article B.3 entitled, "Milestone Schedule" is modified to add the following milestones established as follows: " Delivery Firm-Fixed Item Number Services Date Price 4 Lease of Logistics Double Module and related integration services on STS-101 (100% NASA Allocation) 4a Preliminary MRAD, submit CIP Addendum, Delivery of Finite Element structural models, thermal models, and Mission Training Plan L-8 mo. $ 5,023,125 4b Baseline MRAD, Submittal of Phase III Safety Data Packages (Flight & Ground) L-5 mo. $ 6,139,375 4c All Interface Control Agreements (core ICD's, SIA's, PTA's) baselined L-3 mo. $ 2,232,500 4d Analytical Engineering Analyses (Structural, Thermal, EMI/EMC and Acoustics) delivered to SSP L-2 mo. $ 1,116,250 Delivery Firm-Fixed Item Number Services Date Price 4e Delivery of flight-ready SPACEHAB double module in accordance with the SOW to KSC L-1 mo. $ 1,116,250 4f Post-flight destow process complete R+1 mo. $ 2,232,500 SUBTOTAL STS-TBD $ 17,860,000 TOTAL PAYMENTS $ 60,714,000" " 4. Statement of work sections 1.0 Scope is deleted in its entirety and replaced with the following to reference STS-101 where required: "1.0 SCOPE From time to time, the National Aeronautics and Space Administration (NASA) offers Space Shuttle flight opportunities in support of research in the fields of materials science/processing, biological research, fluid dynamics, etc. This research requires accommodations in a pressurized habitable volume and interactive flight crew operations. Additionally, outfitting and logistical resupply of the International Space Station (ISS) requires a pressurized habitable volume much greater than that available in the Orbiter middeck to carry the necessary items. To provide flight opportunities for research missions and to support the logistics needs of the ISS, NASA must obtain pressurized habitable modules with integration services from the private sector to augment the present Space Shuttle Orbiter middeck capabilities. Use of unpressurized payload accommodation capability resulting from the installation of pressurized habitable modules is not precluded on any mission. In order to provide flight opportunities to a complement of research payloads on two missions the Contractor shall provide a SPACEHAB Single Module (SM) payload carrier with end-to-end payload and mission management, and integration and operations services for Space Transportation System (STS) Mission-95 (STS-95), currently scheduled to launch on October 29, 1998. The Contractor shall provide a Research Double Module (RDM) payload carrier with end-to-end payload and mission management, and integration and operations services for the STS-107 mission, currently scheduled to launch in September, 2000. To support the outfitting of the ISS, the Contractor shall provide a Logistics Double Module (LDM) payload carrier with end-to-end payload and mission management, and integration and operations services for the STS-96 mission, currently scheduled to launch on May 13, 1999; and for the STS-101 mission, currently scheduled to launch on August 5, 1999. To determine the degree of interest in the research and new technology community in commercial space flight opportunities NASA will allow the Contractor to contract with its commercial, international and external (non-NASA) customers for payload carrying capability (gross payload mass) not required by the Government. No carryover of unused capacity from mission to mission, or contract to contract, shall be allowed. The following terms are used frequently throughout this Statement Of Work (SOW). The term "payload" corresponds to all research hardware, samples, logistics items and support equipment carried in the SPACEHAB module. Also included as "payload" are research hardware, samples, logistics items and support equipment carried in the Space Shuttle Orbiter crew compartment middeck lockers for which the Contractor has been assigned specific responsibility. "Module" refers to either single or double module configurations (unless explicitly stated) plus the module integration hardware required to effect a complete interface with the Orbiter. The integrated module and payload are referred to as the SPACEHAB `cargo element.'" 5. 2.3 Summary of Module Resources, paragraph (j), is deleted in its entirety and replaced with the following to reference STS-101 information: " Mass NASA Allocation Contractor Allocation Mission Config. Capability %, (lbm), [kg] %, (lbm), [kg] STS-95 SM 4800 lbm 55, (2640), [1197] 45, (2160), [980] STS-96 LDM 9000 lbm 100, (9000), [4082] 0 STS-101 LDM 9000 lbm 100, (9000), (4082) 0 STS-107 RDM 9000 lbm 82, (7380), [3347] 18, (1620), [735] The Contractor shall provide and maintain the pressurized SPACEHAB modules for each mission. Depending upon payload requirements and mission manifest opportunity, the SPACEHAB module configuration may be: 1) a Single Module (SM) configuration (as flown on STS-95) with a maximum gross payload mass accommodation capacity of 4800 lb.; 2) a Logistics Double Module (LDM) configuration (as flown on STS-96 and STS-101) with a maximum gross payload mass internal accommodation capability of 9000 lb.; or 3) a Research Double Module (RDM) configuration (as flown on STS-107) with a maximum gross payload mass internal accommodation capability of 9000 lb. Note that the fully resourced RDM is in development and is not expected to be available for flight before October, 1999. Active payloads (those requiring extensive ICD and safety packages, module electrical power, crew training, procedures and flight support), either bulkhead or rack mounted, are not precluded on any mission. Active payloads manifested on the STS-95 SM mission and any Research-class mission shall nominally constitute up to 80% of the total net ascent payload mass accommodated in the SPACEHAB module on those missions. Active payload content up to 100% is not precluded on any Research-class mission. Active payloads manifested on STS-96 LDM mission, and any Logistics-class mission, shall nominally constitute up to 20% of the total net ascent payload mass accommodated in the SPACEHAB module on those missions. Net ascent payload mass is the mass of the payloads, including Government Furnished Equipment (GFE) or Contractor-provided support equipment, less integration hardware or stowage accommodation hardware, as delivered to the Contractor for installation for launch. The following table quantifies the SPACEHAB module resources which shall be available for the payloads defined in the STS-95, STS-96, STS-101 and STS-107 MRAD's. Other special-purpose hardware, software and services are available as non-standard services (see Article H.8 of the contract). Generic module resource capabilities and allocations, (i.e. number of racks and lockers, power and heat rejection, data transmission rate and onboard storage, etc.) will be tailored to the specific payload complement requirements for each mission." SPACEHAB Module Resources Available to Payloads SPACEHAB Single Logistics Double Research Double Module Module Module STS-95 STS-96, -101 STS-107 Gross Payload 4800 [2177] 10,000 [4535] 10,000 [4535] Capacity (lbm) [kg] (internal + (internal + external)(internal + external) external) Gross Payload 4800 [2177] 9000 [4082] 9000 [4082] Capability (lbm)[kg] (internal + (internal) (internal) external) Power - on orbit (2 SMCH) (2 SMCH) (4 SMCH) DC (Watts) 3150 3150 5500 AC (Volt Amperes) 690 690 1380 Heat Rejection - 4000 4000 5500 on orbit (Watts) Vacuum Venting 1 Experiment Vent 1 EVV forward 1 EVV forward Valve (EVV) 1 EVV aft 1 EVV aft Data Downlink low rate PDI low rate PDI - low rate PDI (discrete, analog, (discrete, analog, (discrete, serial - 13 kbps serial - 13 kbps analog, serial - total) total) 26 kbps total) - RS-232 via - RS-232 via - KuSP Channel 2 Serial Converter Serial Converter (2Mbps total) Units Units - KuSP Channel 3 (48 Mbps total) - RS-232/422 - Ethernet - MIL-1553 Data Bus - RAU Serial - LOS data record/playback Video Downlink Video Switch Unit Video Switch Unit VideoSwitch Unit - 8 module inputs - 8 module inputs - 8 module inputs - camcorder power - camcorder power - camcorder power - onboard monitors - onboard monitors - onboard monitors - output to - output to - output to Orbiter CCTV PL Orbiter CCTV PL Orbiter CCTV PL input input input - selectable - selectable - selectable outputs to video outputs to video outputs to digitizer digitizer video digitizer Commanding Uplink - low rate PSP - low rate PSP - low rate PSP (2 Kbps max.) (2 Kbps max.) (2 Kbps max.) - high rate KuSP fwd link (128 Kbps) Locker Capability 42 - 62 27 - 61 27-61 Rack Capability - 2 SH double or - 4 SH double or - 6 SH double or single racks single racks single racks - 1 ISPR may sub - 1 ISPR may sub - 1 ISPR may for a SPACEHAB for a forward sub for a rack via an ISA SPACEHAB rack via forward an ISA SPACEHAB rack via an ISA Viewports 0 - 2 0 - 3 0 - 3 NOTE: The number of lockers and racks that can be accommodated on any mission is dependent on locker and rack types and mounting locations and is determined during the mission complement analysis process." 6. Statement of Work Section 3.1, Module Configuration, the first three paragraphs, are deleted in their entirety and replaced with the following to reference STS-101 where required: "3.1 MODULE CONFIGURATION The dimensions, mass, volume and other accommodations of the SPACEHAB module described in this section shall be such that they are contained within the Orbiter cargo bay and connect to the Tunnel Adapter or External Airlock hatch opening. The structural/mechanical interface between the SPACEHAB module and the Space Shuttle Orbiter shall consist of four longeron trunnions and one keel trunnion that shall attach to SSP-provided longeron and keel attach fittings. The cargo bay configuration for STS-95 is shown in Figure 2, and for STS-96 and STS-101 in Figure 3. The cargo bay configuration for STS-107 is TBD. The Contractor shall provide, beginning with the STS-95 mission, a tunnel segment 27.14 inches long which shall interface with a tunnel segment or flex section, and the SPACEHAB module forward bulkhead. For the STS-95, STS-96 and STS-101 missions the complete structural/mechanical interface between the SPACEHAB SM, the LDM and the Orbiter shall be specified in ICD-A-21095, Shuttle Orbiter/SPACEHAB Cargo Element Interfaces, the SSP A-level Orbiter-to-SPACEHAB Interface Control Document (ICD). For the STS-107 mission the complete structural/mechanical interface between the RDM and the Orbiter shall be specified in ICD-A-TBD, Shuttle Orbiter/SPACEHAB RDM Cargo Element Interfaces." 7. Statement of Work Section 3.2.1, Heat Rejection, is deleted in its entirety to reference STS-101 where required: "3.2.1 Heat Rejection The SPACEHAB modules, when integrated into the Orbiter, shall reject heat from subsystems and payloads using module air flow or utilizing a forced air and/or liquid cooling system. The total SPACEHAB Single Module (STS-95) and limited resource LDM (STS-96 and STS-101) cargo element may require up to 6.0 kilowatts of active cooling on orbit and 1,500 watts during prelaunch, ascent, descent and post-landing phases of flight. The RDM (STS-107) cargo element may require up to 8.5 kilowatts of active cooling on orbit and 1.52 kilowatts during prelaunch, ascent, descent and post-landing phases of flight. Heat rejection shall be compatible with Shuttle Orbiter/Cargo Standard Interfaces, ICD-2-19001, and defined in ICD-A-21095 (STS-95/-96/-101) and ICD-A-TBD (STS-107). The Contractor shall perform mission-unique thermal analyses as a part of the SPACEHAB Mission Performance Analyses (DRL Line Item No. 4) which verify that the SPACEHAB module and its manifested payloads can operate during routine mission situations at a cabin temperature between 65 deg. F and 80 deg. F, consistent with the cooling requirements of the payloads." 8. Statement of Work Section 3.3, Power, paragraph one, the first sentence, is deleted in its entirety and replaced with the following to reference STS-101 where required: "3.3 POWER The SPACEHAB Single Module (STS-95) and LDM (STS-96 and STS-101), when integrated into the Orbiter, shall be capable of accommodating two (2) Orbiter power feeds to supply up to 3.5 kilowatts of continuous and 6 kilowatts peak DC power during on-orbit (payload bay doors open) operations." 9. Statement of Work Section 5.2 Ground Operations, is deleted in its entirety and replaced with the following to reflect the compressed mission schedule for STS-101 in the last sentence: "5.2 GROUND OPERATIONS Because of the potential for unforeseeable launch delays in the Space Shuttle Program launch schedule, changes to projected launch dates are likely to occur and are recognized as being beyond the Contractor's ability to control. The effort required by the Contractor to adjust his ground operations schedules and processes to those in support of SSP ground processing shall be considered to be within the scope of this contract, unless the total contract period of performance is lengthened, or unless SSP schedules do not allow the Contractor at least 45 working days in the SPPF for processing Logistics-class modules between consecutive missions, or 60 days for Research-class modules between consecutive missions. The STS-101 mission is an exception to the 45 day minimum allowable period in the SPPF for processing Logistics modules. Module internal configuration changes were minimized to accelerate the turnaround between the STS-96 and STS-101 missions to not less than 32 non-premium (Monday through Friday, single shift) working days." 15A. NAME AND TITLE OF SIGNER 16A. NAME AND TITLE OF (Type or print) CONTRACTING OFFICER (Type or print) Nelda Wilbanks, Contracts Administrator John E. Trahan, Contracting Officer 15B. CONTRACTOR/OFFEROR 16B. UNITED STATES OF AMERICA /s/ Nelda Wilbanks BY: /s/ John E. Trahan 15C. DATE SIGNED 16C. DATE SIGNED 11/25/98 11/30/98 EX-11 7 COMPUTATION OF EARNINGS PER COMMON SHARE
Exhibit 11 SPACEHAB, INCORPORATED AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE Three Months Six Months Ended December 31, Ended December 31, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Net Income and Adjusted Earnings: Net income applicable to common shareholders used for basic computations $(1,851,607) $5,726,775 $(1,438,394) $ 72,637 ----------- ----------- ----------- ----------- Dilution adjustments: Savings in convertible note payable interest expense net of tax 775,867 797,063 1,551,734 797,063 ----------- ----------- ----------- ----------- Adjusted net income applicable to common shareholders assuming dilution $(1,075,740) $6,523,838 $113,340 $ 869,700 =========== =========== =========== =========== Average number of shares of common stock used for basic computation 11,176,651 11,149,789 11,172,507 11,148,830 ----------- ----------- ----------- ----------- Diluted adjustments (1): Weighted Average Shares and Share Equivalents Outstanding: Assumed exercise of options and warrants 144,866 258,036 165,924 252,596 Assumed conversion of convertible debt 4,642,202 3,626,446 4,642,202 1,813,223 ----------- ----------- ----------- ----------- Total number of shares assumed to be outstanding assuming dilution 15,963,719 15,034,271 15,980,633 13,215,581 ----------- ----------- ----------- ----------- Earnings Common Per Share: Income per common share: Income before extraordinary item $ (0.17) $ 0.51 $ (0.13) $ 0.01 Extraordinary item - - - - =========== =========== =========== =========== Basic $ (0.17) $ 0.51 $ (0.13) $ 0.01 =========== =========== =========== =========== Income before extraordinary item $ (0.07) $ 0.43 $ 0.01 $ 0.07 Extraordinary item - - - - ----------- ----------- ----------- ----------- Diluted (1): $ (0.07) $ 0.43 $ 0.01 $ 0.07 =========== =========== =========== ===========
(1) The assumed exercise of options and warrants and the conversion of convertible debt is anti-dilutive but are included in the calculation of dilutive earnings per share in accordance with Regulation S-K Item 601 (a)(11). EX-27 8 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. Exhibit 27 SPACEHAB, INCORPORATED AND SUBSIDIARIES FINANCIAL DATA SCHEDULE
5 0001001907 SPACEHAB, Inc. 1,000 U.S. Dollars 6-MOS Jun-30-1999 Jul-01-1998 Dec-31-1998 1.000 38,787 0 18,968 0 0 59,450 115,805 46,221 209,078 31,422 0 0 0 81,383 16 209,078 51,907 51,907 41,896 41,896 9,867 0 2,658 (1,627) (189) (1,438) 0 0 0 (1,438) (0.13) (0.13)
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