-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, AISsXPhB8T9pboy0DhEcSRGmUUcU1xrbCEcr5IZuQf26xnoA4ckEcr6zHZjogVi7 OVWivoUn0rC5JEZ91XUQtg== 0000820736-95-000007.txt : 199507120000820736-95-000007.hdr.sgml : 19950711 ACCESSION NUMBER: 0000820736-95-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORBITAL SCIENCES CORP /DE/ CENTRAL INDEX KEY: 0000820736 STANDARD INDUSTRIAL CLASSIFICATION: GUIDED MISSILES & SPACE VEHICLES & PARTS [3760] IRS NUMBER: 061209561 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-18287 FILM NUMBER: 95523850 BUSINESS ADDRESS: STREET 1: 21700 ATLANTIC BOULEVARD CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034065000 MAIL ADDRESS: STREET 2: 21700 ATLANTIC BLVD CITY: DULLES STATE: VA ZIP: 20166 FORMER COMPANY: FORMER CONFORMED NAME: ORBITAL SCIENCES CORP II DATE OF NAME CHANGE: 19900212 10-K 1 10K TEXT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________ FORM 10-K /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1994 or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from __________ to __________ Commission file number 0-18287 ORBITAL SCIENCES CORPORATION 21700 Atlantic Boulevard Dulles, Virginia 20166 (703) 406-5000 (Address and telephone number of principal executive offices) Delaware 06-1209561 (State of incorporation) (I.R.S. Employer I.D. No.) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 (listed on The Nasdaq National Market System) ________________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price on March 6, 1995 was approximately $335,678,381. As of March 6, 1995, 20,211,540 shares of the registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Annual Report to Stockholders for fiscal year ended December 31, 1994 (the "Annual Report") are incorporated by reference in Parts I, II and IV of this Report. Portions of the registrant's definitive Proxy Statement dated March 27, 1995 (the "Proxy Statement") are incorporated by reference in Part III of this Report. ORBITAL SCIENCES CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1994 PART I Page Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . .10 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . .11 Item 4a. Executive Officers of the Registrant . . . . . . . . . . . . . . . .11 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . .13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . .13 Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . .13 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . .13 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . .13 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . .13 Item 12. Security Ownership of Certain Beneficial Owners and Management . . .13 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . .14 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . .14 ITEM 1. BUSINESS Background and Recent Acquisitions Orbital Sciences Corporation (together with its subsidiaries, "Orbital" or the "Company") is a space technology company that designs, manufactures, operates and markets a broad range of space products and services that are grouped into three categories: Launch Systems, Space and Electronics Systems, and Communications and Information Systems. Launch Systems include space and suborbital launch vehicles and orbit transfer vehicles; Space and Electronics Systems include satellites, spacecraft platforms, space sensors and instruments, space payloads and experiments, as well as advanced avionics and data management systems; and Communications and Information Systems include satellite-based two- way mobile data communications systems, remote sensing systems and satellite- based navigation products, along with satellite tracking systems and environmental monitoring products. Orbital was incorporated in Delaware in 1987 to consolidate the assets, liabilities and operations of Space Systems Corporation (formerly named Orbital Sciences Corporation) ("SSC") and Orbital Research Partners, L.P. (the "Partnership") through an exchange offer to the Partnership and to the stockholders of SSC (the "Consolidation"). As a result of the consummation of the Consolidation in 1988, SSC became a wholly owned subsidiary of Orbital, and Orbital acquired substantially all of the assets and liabilities of the Partnership. The Company acquired Space Data Corporation ("Space Data") in 1988, thereby expanding its product lines and increasing its vertical integration in production and testing. In late 1992, SSC and Space Data were merged into Orbital, with the Company being the surviving corporation. In September 1993, Orbital acquired all the assets of the Applied Science Operation, a division of The Perkin-Elmer Corporation ("ASO"). This operation designs, develops and produces satellite-borne scientific sensors for space and terrestrial research and in situ atmospheric monitoring equipment for human space flight programs. In August 1994 and December 1994, Orbital acquired Fairchild Space and Defense Corporation ("Fairchild") and Magellan Corporation ("Magellan"), respectively. The Fairchild acquisition has enhanced Orbital's satellite system and subsystem development and production capabilities and has expanded Orbital's existing product lines by adding various sophisticated electronics products. Magellan designs, manufactures and markets hand-held receivers for Global Positioning System ("GPS") satellite-based navigation and positioning for commercial and consumer markets. Description of Orbital's Products and Services The space products and services provided by the Company are grouped into three categories: Launch Systems, Space and Electronics Systems, and Communications and Information Systems. Orbital's business is not seasonal to any significant extent. Launch Systems The Company's Launch Systems Group's products include space and suborbital launch vehicles and orbit transfer vehicles. Space Launch Vehicles. The Company has developed three space launch vehicles: the Pegasus(TM) launch vehicle; the Pegasus XL(R) launch vehicle; and the Taurus(R) launch vehicle. Orbital's Pegasus vehicle is launched from beneath a modified large aircraft such as a Lockheed L-1011 to deploy 500- to 1,000-pound satellites into low-Earth orbit. The Pegasus vehicle has been developed and is being produced and marketed pursuant to a joint venture agreement with Hercules Incorporated ("Hercules"). Through December 1994, the Company has conducted a total of seven Pegasus missions (including one Pegasus XL), six of which were fully or partially successful. The modified Pegasus XL, developed to deploy heavier satellites into orbit, had an unsuccessful first flight in June 1994. The Company believes it has identified the cause of this failure and has implemented what it currently believes to be the necessary corrective actions. In 1992, Orbital entered into a ten-year lease for a Lockheed L-1011 aircraft, which has been modified to enable it to launch both the Pegasus and Pegasus XL vehicles. There is no assurance that, in the event that the L-1011 were unavailable for any reason, another aircraft could be obtained on a timely or cost-effective basis. Customers for Pegasus launch vehicles include the National Aeronautics and Space Administration ("NASA"), the U.S. Air Force, the Advanced Research Projects Agency ("ARPA"), the Ballistic Missile Defense Organization ("BMDO"), Spain's National Institute of Aerospace Technology and the Company's majority owned subsidiary, Orbital Communications Corporation ("ORBCOMMsm"). Orbital also anticipates Pegasus launches in connection with certain programs of the Company's wholly owned subsidiary, Orbital Imaging Corporation ("ORBIMAGEsm"). The higher-capacity Taurus vehicle is a ground-launched derivative of the Pegasus vehicle that can carry payloads weighing up to 3,000 pounds to low-Earth orbit and payloads weighing up to 800 pounds to geosynchronous orbit. In March 1994, Orbital successfully launched the first Taurus vehicle, deploying two satellites for ARPA. The Company continues to explore new, longer-term research and development opportunities for more affordable and flexible space launch vehicles. In March 1995, the Company and Rockwell International Corporation were selected by NASA to develop, operate and market the X-34 small reusable launch system. Suborbital Launch Vehicles. Suborbital launch vehicles place payloads into a variety of high-altitude trajectories but, unlike space launch vehicles, do not place payloads into orbits around the Earth. The Company's suborbital launch products include suborbital vehicles and their principal subsystems, payloads carried by such vehicles and related launch support installations and systems used in their assembly and operation. The Company offers its customers customized vehicle and payload design, manufacturing and integration, launch and mission support and tracking and recovery services, as well as construction and activation of launch pads and other infrastructure elements. Customers typically use the Company's suborbital launch vehicles to launch scientific and other payloads and for defense-related applications such as target and interceptor experiments. Primary customers of the Company's suborbital launch vehicles include the U.S. Army, the U.S. Navy and BMDO. Orbital's primary programs in 1994 for suborbital launch vehicles and related systems included the STORM contract pursuant to which Orbital provided ballistic and maneuvering tactical target suborbital vehicles for use with the Patriot and Extended Range Interceptor anti-missile defense systems for target and interceptor experiments for the U.S. Army, the Navy LEAP contract with BMDO and the High-Gear contract with the Massachusetts Institute of Technology - Lincoln Laboratory pursuant to which Orbital provided suborbital vehicles that serve as targets for U.S. Air Force testing of anti-missile defense systems. Since January 1991, the Company has conducted a total of 37 launches of suborbital vehicles, of which 33 have been fully or partially successful and four have been failures. Orbit Transfer Vehicles. Orbit transfer vehicles carry satellite payloads from lower- to higher-energy orbits or to interplanetary trajectories. The Company's Transfer Orbit Stage(TM) ("TOS(TM)") orbit transfer vehicle completed successful missions in September 1992 (NASA's Mars Observer spacecraft) and September 1993 (NASA's Advanced Communications Technology Satellite). While Orbital currently has no bookings for TOS, the Company continues to explore potential future missions for the vehicle. Space and Electronics Systems The Company's Space and Electronics Systems products enable Orbital to provide its customers fully integrated, low-cost space networks and related services. The Company's most significant Space and Electronics Systems products are spacecraft systems and payloads, engineering services, defense avionics and sensors. The Company's Dulles, Virginia operations manage the design and production of the Company's small satellite platforms such as PegaStar(TM), MicroStar(TM) and PicoStar(TM). The PegaStar spacecraft platform is deployed by the Pegasus or Taurus launch vehicle for use as a general purpose spacecraft, and is planned to be used for certain of the Company's satellite-based remote sensing systems, such as the SeaStar(TM) project. The PegaStar spacecraft platform was first successfully used in August 1994 in the Company's launch on a Pegasus launch vehicle of the U.S. Air Force's Advanced Photovoltaic and Electronics Experiment satellite. Orbital's MicroStar spacecraft platform, which is placed into orbit by the Pegasus launch vehicle, is designed for use in ORBCOMM's satellite-based two-way data communications network (the "ORBCOMM System") and also for a variety of small space science and remote sensing projects, including some of those being pursued by ORBIMAGE. Customers for the Company's small spacecraft and related ground station equipment include NASA, the U.S. Air Force, the University Corporation for Atmosphere Research and ORBCOMM. The Company's Germantown, Maryland operations (formerly Fairchild) have enhanced Orbital's satellite system and subsystem development and production capabilities and have expanded Orbital's existing product lines by adding various sophisticated electronics products. The Company designs, produces and tests small and medium class spacecraft for scientific, military and commercial applications. In addition, Orbital designs and manufactures spacecraft command and data handling, attitude control and structural subsystems for a variety of government and commercial customers, and provides a broad range of spacecraft design engineering services as well as specialized analytical engineering services for NASA, the Department of Defense ("DoD"), the Department of Energy and other customers. The Company develops, manufactures and markets defense avionics, including advanced electronics and data management systems for aircraft flight operations and ground support. These systems collect, process and store mission-critical data for, among other things, mission planning and flight operations, and manage on-board equipment for strategic tactical military aircraft, helicopters, satellites and surface vehicles. The primary customers for data management systems are the U.S. Navy, the U.S. Air Force, and various DoD prime contractors and foreign governments. The Company is the leading supplier of certain avionics systems and products, including mission data loaders for the U.S. Navy, and data transfer equipment and digital terrain systems for the U.S. Air Force. In addition, as a result of the Fairchild acquisition, the Company now provides stores management systems, including weapons arming and firing functions for use on tactical aircraft and helicopters. The avionics systems and products are deployed on a number of aircraft, including the F-14, F-15, F-16, F-22 and the LAMPS Helicopter. Orbital's Pomona, California operations include satellite-borne scientific sensors and instruments, such as atmospheric ozone monitoring instruments and environmental sensors. The Total Ozone Mapping Spectrometer ("TOMS") instrument is being produced by the Company for launch on a Pegasus vehicle for NASA. TOMS measures ozone concentrations around the world for the purpose of monitoring the effect of man-made chemicals and atmospheric conditions on the ozone layer. In addition, Orbital is currently developing and producing various in situ monitoring products for space and defense applications. These products include an atmospheric monitoring system for use on the Space Station called the Atmospheric Composition Monitoring Assembly ("ACMA"). The ACMA, developed under a contract with The Boeing Company, will measure various atmospheric gases in the crew's living quarters on the Space Station for the purpose of ensuring a healthy living environment for astronauts. The Company also produces the Central Atmospheric Monitoring System for the U.S. Navy for use on submarines. Communications and Information Systems Orbital's Communications and Information Systems include products and services provided by Orbital's Magellan, ORBCOMM and ORBIMAGE subsidiaries. Magellan manufactures GPS-based navigation and positioning products for commercial and consumer markets including marine and aviation applications, outdoor recreational users such as hunters and hikers, professional users such as geologists, geographers, surveyors, natural resource managers and contractors and, to a lesser extent, the government. ORBCOMM and ORBIMAGE are developing satellite-based services to address the expanding markets for global two-way data communications and information derived from remote sensing of the atmosphere, oceans and land surfaces. The Company believes that the ORBCOMM and ORBIMAGE systems will require significant capital investments. Although the Company believes the long-term profit potential of such service businesses developed and supported by the Company's proprietary product technologies is significant, there can be no assurance that the Company will be able to successfully develop these businesses. Satellite-Based Navigation and Positioning Products. The Company's Magellan subsidiary designs, manufactures and markets hand-held GPS receivers that provide users with precise positioning and navigation information. The need for positioning and navigation information is central to a broad range of personal and professional activities including marine navigation, outdoor recreation (hiking and hunting), surveying and general aviation. Magellan focuses its research, design and engineering activities on the development of GPS receivers that are reliable, portable, easy to use and affordable, recently targeting the growing recreational market. Magellan is also expected to be a significant supplier of personal communicators for the ORBCOMM System and to be involved in the continued development of satellite-based communications and tracking technology for the ORBCOMM System. In addition, Orbital's Germantown operations produce data management systems that have been applied to the design, development and manufacture of "intelligent transportation systems," primarily for metropolitan transit operators, that provide GPS-based location of vehicles and allow for communications and schedule management. ORBCOMM System. The ORBCOMM System, which is being designed, developed, constructed and launched in two phases, is designed to provide virtually continuous mobile data communications coverage over much of the Earth's surface. Under this design, subscribers will be able to use inexpensive, pocket-sized personal communicators to send and receive short messages, emergency alerts and other critical information, and to use the position-determining capability of the communicators to obtain data concerning the location and condition of automobiles, trucks, shipping vessels and other valuable assets. The Company expects that the ability to send and receive other short messages and data without the geographic limitations of existing data communications systems will stimulate the growth of new markets for satellite-based data communications and will be used to supplement terrestrial communications systems by providing relatively low-cost coverage in areas outside the range of these systems. The ORBCOMM System design consists of a constellation of small low-Earth orbit satellites, a satellite control center operating and positioning the satellites, network control centers controlling the flow of information through the system, local ground stations sending and receiving signals between the network control centers and nearby satellites, and the mobile communicators used by subscribers to transmit and receive messages to and from nearby satellites. In early 1993, the Company successfully launched two experimental satellite payloads that obtained information concerning spectrum occupancy by existing users in the frequency bands allocated to low-Earth orbit mobile satellite systems. The satellite payloads also performed successfully in a variety of other ORBCOMM System tests. The Company expects that, using at least 26 satellites and appropriately located gateway Earth stations, the ORBCOMM System will provide communications availability generally exceeding 95% during each 24-hour period in the United States and other temperate zones in the Northern and Southern hemispheres and exceeding 75% of each 24-hour period in the equatorial region. Equatorial region availability could be improved to generally exceed 90% with an additional plane of eight satellites. Outages will be dispersed in brief intervals over the 24-hour period, thereby minimizing the effect of any unavailability of the system. The ORBCOMM System will only be available in areas where appropriate licenses have been obtained and generally only where there is a proximate gateway Earth station. Development and Financing. Effective June 30, 1993, ORBCOMM and Teleglobe Mobile Partners ("Teleglobe Mobile"), an affiliate of Teleglobe Inc., created a partnership, ORBCOMM Development Partners, L.P. ("ORBCOMM Development") for the design, development, construction, testing and operation of the ORBCOMM System, and created two marketing partnerships to market the ORBCOMM System in the United States and internationally. ORBCOMM U.S. L.P. and ORBCOMM International L.P. (together, the "Marketing Partnerships") each have the exclusive right to market the ORBCOMM System in the United States and internationally, respectively. Also effective June 30, 1993, Orbital entered into the ORBCOMM System Design, Development and Operations Agreement (the "System Agreement") with ORBCOMM Development pursuant to which ORBCOMM continues to have responsibility for the overall design, development, integration and testing of the ORBCOMM System. ORBCOMM has retained control over applicable licenses issued by the Federal Communications Commission ("FCC"), consistent with FCC regulations. The System Agreement provides that ORBCOMM will subcontract with Orbital for construction and launch of the two satellites for the ORBCOMM Phase 1 System and the 24 satellites for the ORBCOMM Phase 2 System, and for construction of the satellite control center, the United States network control center and the four United States gateway Earth stations. The System Agreement also contains options for the construction and launch by the Company of an additional eight satellites. Under the System Agreement, Orbital is providing satellites and launch services and vehicles and the gateway Earth stations on a fixed-price basis, and is providing the other products and services on a cost reimbursable basis. Consistent with industry practice for many launch contracts, the System Agreement contains certain performance warranties with respect to the satellites and their launch. Under ORBCOMM Development's partnership agreement, action by the partnership generally requires the approval of general partners holding a majority of the participating interests (i.e., interests participating in profits and losses) held by the general partners. Each of ORBCOMM and Teleglobe Mobile is a general partner of ORBCOMM Development and holds 50% of the participating interests in ORBCOMM Development, with the result that the approval of both the Company and Teleglobe Mobile is necessary for ORBCOMM Development to act. The partnership agreements for the Marketing Partnerships contain management provisions generally similar to those of ORBCOMM Development. Currently, the Company holds 85% of the participating interests in each of the Marketing Partnerships, and thus is generally able to control these partnerships. ORBCOMM Development intends to construct and implement the ORBCOMM System in two phases: the ORBCOMM Phase 1 System, consisting of the satellite control center, the United States network control center, four United States gateway Earth stations and two MicroStar satellites; and the ORBCOMM Phase 2 System, consisting of an additional 24 MicroStar satellites. ORBCOMM is licensed by the FCC to launch an additional ten satellites. The decision as to when to deploy additional satellites will depend upon market and financial factors. The Company currently expects to complete the construction of the ground portion of the ORBCOMM Phase 1 System and the construction and launch of the two ORBCOMM Phase 1 System satellites in the first half of 1995. Subject to the technical success of the ORBCOMM Phase 1 System and to the ability of ORBCOMM Development to secure sufficient financing from, among other sources, the exercise of the Phase 2 Option (as described below), the construction and launch of the 24 additional satellites comprising the ORBCOMM Phase 2 System is targeted to be completed in late 1996 or early 1997. Orbital estimates that implementation of the ORBCOMM Phase 1 System in the United States will cost approximately $66 million, and that implementation in the United States of the ORBCOMM Phase 2 System will cost approximately an additional $104 million. Although construction of the ORBCOMM Phase 1 System is almost completed, development and construction of the ORBCOMM Phase 2 System is in an early stage and the actual cost of the system and the amount and structure of anticipated investment in ORBCOMM Development may vary significantly from current estimates. Teleglobe Mobile has invested $10 million in ORBCOMM Development in exchange for a 50% participating interest. Orbital has invested approximately $55 million in ORBCOMM Development, and has committed to invest the balance of the funding necessary to implement the ORBCOMM Phase 1 System, in exchange for a 50% participating interest and a non-participating interest in an amount equal to the excess of its investment over $10 million. In addition, Orbital and Teleglobe Mobile hold 85% and 15% participating interests, respectively, in each of the Marketing Partnerships. Teleglobe Mobile has an option (the "Phase 2 Option") to increase its aggregate investment in ORBCOMM Development to at least $80 million. The Phase 2 Option is exercisable from the launch of the first ORBCOMM satellite and until the later of 90 days after such launch and initial satellite signal acquisition or 30 days after completion of on-orbit satellite acceptance testing. If the Phase 2 Option is exercised, the Company will be obligated to increase its aggregate investment in ORBCOMM Development to at least $66 million. ORBCOMM Development intends to seek additional equity contributions and/or bank or other debt financing for up to $20 to $25 million. ORBCOMM Development has already obtained asset-based financing of $5 million to fund a portion of its development and startup costs for the ORBCOMM Phase 2 System. The Company has guaranteed ORBCOMM Development's outstanding indebtedness, and may be required to guarantee or provide credit support in connection with additional indebtedness incurred by ORBCOMM Development. Assuming exercise of the Phase 2 Option, each of Teleglobe Mobile's and Orbital's non-participating interest in ORBCOMM Development will be increased by the amount of such additional contribution, and each will continue to hold a 50% participating interest in ORBCOMM Development. The Company has been informed that Teleglobe Mobile has obtained a $44 million commitment from Technologies Resources Industries Bhd., a Malaysian telecommunications company, to acquire up to 30% of Teleglobe Mobile's interest in ORBCOMM Development, and that Teleglobe Mobile intends to seek additional investors to participate in its investment in ORBCOMM Development. In the event that Teleglobe Mobile does not exercise the Phase 2 Option, Orbital may solicit additional equity or debt investors for ORBCOMM Development and, if any additional commitment is obtained, Orbital has the option, under certain circumstances, to purchase, or cause ORBCOMM Development to purchase, Teleglobe Mobile's interest in ORBCOMM Development and the Marketing Partnerships. There can be no assurance such funding can be obtained or, if such funding is available, it will be at acceptable rates. Upon investment by Teleglobe Mobile in ORBCOMM Development for construction of the ORBCOMM Phase 2 System, 98% of the participating interests in the Marketing Partnerships will be transferred to ORBCOMM Development, with ORBCOMM and Teleglobe Mobile each retaining a 2% participating interest in ORBCOMM U.S. and ORBCOMM International, respectively. In the event that Teleglobe Mobile does not exercise the Phase 2 Option or ORBCOMM Development does not otherwise receive the necessary capital, implementation and commercial development of the ORBCOMM System may be delayed, significantly restricted or possibly abandoned, and the Company could be required to expense part or all of its investment (approximately $55 million as of December 31, 1994) in the ORBCOMM System. In addition, start-up of the ORBCOMM System will produce significant ORBCOMM Development operating losses for several years. Because Orbital has a 50% participating interest in ORBCOMM Development, Orbital expects to recognize its pro rata share of ORBCOMM Development profits and losses. As of December 31, 1994, certain officers and employees of ORBCOMM and Orbital held options to acquire 599,074 shares of ORBCOMM's common stock (or approximately 13 percent of ORBCOMM's outstanding common stock) at option exercise prices ranging from $1.50 to $14.00 per share. Commencing in September 1995, and annually thereafter, holders of ORBCOMM common stock acquired on exercise of these options may, subject to certain conditions, require ORBCOMM to purchase such ORBCOMM common stock at its then fair market value. Regulatory Approvals. In October 1994, ORBCOMM became the first company to be awarded full FCC authority to construct, launch and operate a low-Earth orbit satellite-based messaging and data communications network in the United States. This license, which provides that the ORBCOMM System must be constructed within six years from the date the license was granted, extends for a period of ten years from the date the first ORBCOMM System satellite is operational. At the end of the seventh year of the ten-year term, a renewal application must be filed with the FCC. As with any such license, the ORBCOMM System license may be revoked and a license renewal application may be denied for cause. In late 1994, two other applicants for FCC licenses similar to that awarded to ORBCOMM petitioned the FCC to reconsider the grant of the license to ORBCOMM. ORBCOMM has opposed the petition, which the Company and ORBCOMM believe are without merit. In addition, for the ORBCOMM System to be operated in other countries throughout the world, the Company or the foreign licensees must obtain from the appropriate foreign regulatory bodies authority to do so. The Company anticipates that the cost of these activities will be borne primarily by foreign licensees. ORBCOMM International has entered into preliminary agreements with 22 candidate licensees serving 69 countries to seek such licenses and to initiate country-specific market development in such countries. There can be no assurance that the Company or foreign licensees will be granted all licenses or approvals necessary to operate the ORBCOMM System in any other country. ORBIMAGE Remote Sensing and Imaging Systems. The Company is currently seeking to develop and market a broad range of information services to identify and monitor global environmental changes and to collect and disseminate other remote sensing information. Small Earth-viewing satellites and related sensors and instruments to be placed in relatively low orbits are expected to offer cost-efficient data collection, daily global coverage and high-resolution imaging services. In March 1991, Orbital entered into a contract with NASA to provide worldwide, daily ocean imagery using Orbital's SeaStar environmental monitoring satellite system, based on the PegaStar spacecraft. The Company plans to develop, produce, launch and operate the SeaStar system to deliver high-quality multi-spectral ocean imagery for up to five years, currently scheduled to commence during 1995. In addition to providing unprocessed real-time ocean data to NASA, the Company plans to use value-added resellers and other marketing agents to sell the SeaStar data to other U.S. Government users and to potential domestic and international customers such as commercial fishermen, oil and gas companies, ocean transportation companies and oceanographers. ORBIMAGE is developing and marketing other small satellite-based Earth observation, remote sensing and environmental monitoring services using, among other things, the Company's PegaStar and MicroStar spacecraft platforms, Pegasus and Taurus launch vehicles, space sensors and instruments and other space products. Services to be provided by ORBIMAGE could include high-resolution optical imaging of land surfaces for geographic information services, mapping and news-gathering, sensing of ocean and atmospheric conditions and measuring of ozone and other gaseous concentrations in the atmosphere. The Company is currently exploring potential strategic arrangements for the development of several remote sensing businesses, with Orbital providing launch services, spacecraft and other related products. There can be no assurance that the Company will be able to conclude such strategic arrangements or develop profitable commercial Earth observation, remote sensing or environmental monitoring businesses. Satellite Tracking Systems. Orbital's ground tracking systems, installed at approximately 75 sites around the world, consist of meteorological and satellite tracking and telemetry stations that are used to collect weather data and to communicate with and control orbiting spacecraft. Orbital's current customers for satellite tracking systems include Lockheed Martin Corporation ("Lockheed Martin"), as well as certain ORBCOMM and ORBIMAGE programs. Financial information, including revenue and gross profit contributions, concerning the Company's primary products and services is included in Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company's Annual Report, and is incorporated herein by reference. Competition Orbital believes that competition for sales of its products and services is based on price, performance and other technical features, reliability, scheduling and customization. The primary competition to the Pegasus and Taurus vehicles is expected to come from the smaller and larger classes, respectively, of LLV launch vehicles currently being developed by Lockheed Martin. Direct competition to the Taurus vehicle also comes from EER Systems' Conestoga launch vehicle. Potential competition to the Pegasus may come from launch systems derived from surplus ballistic missiles that could be made available by the U.S. Government and various foreign governments including Russia. In August 1994, the President signed the National Space Transportation Policy Presidential Decision Directive pursuant to which agencies of the U.S. Government are authorized to use excess ballistic missiles to launch payloads into orbit on a case-by-case basis. Such use may only be permitted after the DoD has determined, among other things, that such use would meet the agency's needs and would result in a cost savings to the U.S. Government compared to a commercial launch service. Competition for Taurus could also come from surplus Titan II launch vehicles, although Titan II production has been discontinued and only a limited inventory remains. Indirect competition to Pegasus and Taurus vehicles also exists in the form of secondary or "piggyback" payload capacity on large boosters such as Ariane, Titan, Long March and Proton launch vehicles. While secondary payloads offer a low-cost method of launching satellites in some cases, the secondary status of the payload often requires customers to accept less desirable orbits, "standby" launch scheduling and potentially more complicated and costly payload integration procedures. The Company's TOS vehicle primarily competes with The Boeing Company's Inertial Upper Stage. In addition, foreign launch vehicles such as Europe's Ariane IV may compete with TOS for certain satellite launches, while certain satellites themselves have an integrated orbit transfer stage and do not require a separate rocket such as the TOS vehicle. Orbital's suborbital launch vehicles, spacecraft systems and payloads, satellite-based services and space support products compete with products and services produced or provided by numerous companies and government entities. The Company's space instruments and airborne and ground-based electronics, data management systems and defense-oriented avionics products face competition from several established manufacturers. The ORBCOMM System will face direct and indirect competition from numerous existing and potential alternative communication products and services from various large and small companies, ranging from one-way tower-based data and messaging services to sophisticated two-way satellite-based data and voice communications services. Depending on the requirement of the specific market, the ORBCOMM System may both compete with and complement existing services such as paging (offered by SkyTel, PageNet, MobileComm, Metrocall and others), cellular data (offered by McCaw, Bell Atlantic, and others), specialized mobile radio (such as that offered by Nextel) and private networks (including Ram and Ardis). ORBIMAGE may face competition from private and U.S. government entities that provide satellite-based and other land imaging, environmental monitoring and atmospheric sensing products. Satellite-based navigation and positioning products manufactured by the Company's recently acquired Magellan operations face competition from other producers of GPS receivers. The Company believes that Magellan's success will depend on its ability to continue to develop new lower-cost and enhanced performance products and to enter into and develop new markets for GPS receivers. The Company's space sensors and instruments face competition from a number of companies and university research laboratories capable of designing and producing space instruments. Many of the Company's competitors are larger and have substantially greater resources than the Company. Furthermore, the possibility exists that other domestic or foreign companies or governments, some with greater experience in the space industry and greater financial resources than Orbital, will seek to produce products or services that compete with those of the Company, including the Pegasus and Taurus launch vehicles, various suborbital launch vehicles, the TOS orbit transfer vehicle, PegaStar, MicroStar and other satellite systems, GPS receivers and ORBCOMM and other satellite services. Any such foreign competitor could benefit from subsidies from, or other protective measures by, its home country. In addition, in response to reductions in the U.S. defense budget, Orbital may face competition from companies, such as missile manufacturers, that could attempt to adapt existing or future products for non-defense, space and suborbital launch applications. Research and Development The Company expects to continue to invest in product-related research and development, to conceive and develop new products and services, to enhance existing products and to seek customer and, where appropriate, strategic partner investments in these products. Orbital's research and development expenses, excluding direct customer-funded development, were approximately $14.4 million, $14.9 million, and $10.6 million, respectively, for the fiscal years ended December 31, 1994, 1993 and 1992. It is expected that the Company's research and development expenses during 1995 will be primarily for new or modified launch systems, spacecraft programs, including possible ORBIMAGE projects, and satellite-based navigation and positioning products. Patents and Trademarks Orbital relies, in part, on patents, trade secrets and know-how to develop and maintain its competitive position and technological advantage. The Company holds U.S. and foreign patents relating to the Pegasus vehicle as well as for other components and products produced by the Company. The Company also has various pending patent applications relating to Pegasus and the ORBCOMM System. Certain of the trademarks and service marks used in connection with the Company's products and services have been registered with the U.S. Patent and Trademark Office. Components and Raw Materials Orbital purchases a significant percentage of its product components, including rocket propulsion motors and electronic equipment, from third parties. From time to time, Orbital obtains parts and equipment from the U.S. Government that are used in the production of the Company's products or in the provision of the Company's services. Orbital to date has not experienced material difficulty in obtaining such parts and equipment and believes that, if any difficulty should arise, alternative sources of supply would be available. However, increased costs could be incurred in securing alternative sources of supply. Orbital's Pegasus program Joint Venture Agreement with Hercules provides that neither joint venturer will contract with other parties for the scope of work to be performed by the other under the Pegasus Joint Venture Agreement without the consent of the other party. From time to time, issues have arisen between the Company and Hercules relating to the Joint Venture Agreement, particularly with respect to the determination of each party's recoverable recurring costs under the joint venture including the recoverability by the Company of certain general and administrative expenses. See "Legal Proceedings." Government Contracts During 1994, 1993 and 1992, approximately 60 percent, 70 percent and 80 percent, respectively, of the Company's total annual revenues were derived from contracts with the U.S. Government and its agencies or from subcontracts with the U.S. Government's prime contractors. Orbital's government contracts are subject to regular audit and periodic reviews and may be modified, increased, reduced or terminated in the event of changes in government requirements or policies, Congressional appropriations and program progress and scheduling. U.S. Government curtailment of expenditures for space research and development and related products and services could have a material adverse effect on Orbital's revenues and results from operations. Agencies within the U.S. Government and commercial customers to which sales by the Company accounted for ten percent or more of the Company's consolidated 1994 revenues were NASA, DoD and ORBCOMM. Orbital's major contracts with the U.S. Government fall into three categories: firm fixed-price contracts, fixed-price incentive fee contracts and cost-plus-fee contracts. Under firm fixed-price contracts, work performed and products shipped are paid for at a fixed price without adjustment for actual costs incurred in connection with the contract. Risk of loss due to increased cost, therefore, is borne by the Company although some of this risk may be passed on to subcontractors. Under fixed-price government contracts requiring work with lead times in excess of six months prior to delivery, Orbital may receive progress payments, generally in an amount equal to between 80 and 95 percent of monthly costs, or it may receive milestone payments upon the occurrence of certain program achievements. Fixed-price incentive fee contracts provide for sharing by the customer and the supplier of unexpected costs incurred or savings realized within specified limits, and may provide for adjustments in price depending on actual contract performance other than costs. Costs in excess of the negotiated maximum (ceiling) price and the risk of loss by reason of such excess costs are borne by the Company, although some of this risk may be passed on to subcontractors. Under a cost-plus-fee contract, Orbital recovers its actual allowable costs incurred and receives a fee consisting of a base amount that is fixed at the inception of the contract and/or an award amount that is based on the Government's subjective evaluation of the contractor's performance in terms of the criteria stated in the contract. All of Orbital's U.S. Government contracts and, in general, its subcontracts with the U.S. Government's prime contractors provide that such contracts may be terminated at will by the U.S. Government or the prime contractor, respectively. Furthermore, any of these contracts may become subject to a government-issued stop work order under which the Company is required to suspend production. In the event of a termination at will, Orbital is normally entitled to recognize the purchase price for delivered items, reimbursement for allowable costs for work in process, and an allowance for reasonable profit thereon or adjustment for loss if completion of performance would have resulted in a loss. The Company has experienced several contract suspensions and terminations in the past. Backlog The Company's backlog at December 31, 1994 and 1993 was approximately $335 million and $210 million, respectively. As of December 31, 1994, approximately 60 percent of the Company's backlog was with the U.S. Government and its agencies or from subcontracts with the U.S. Government's prime contractors. Backlog consists of aggregate contract values for firm product orders, excluding the portion previously included in operating revenues on the basis of percentage of completion accounting, and including government contracts awarded but not signed and orders not yet funded in the amounts of approximately $171 million and $108 million as of December 31, 1994 and 1993, respectively. Approximately $143 million of backlog is currently scheduled to be performed beyond 1995. Backlog excludes unexercised contract options having an aggregate potential contract value at December 31, 1994 of approximately $828 million. Environmental Regulation The Company's operations are subject to a variety of Federal, state and local environmental regulations, including laws regulating air and water quality and hazardous materials and regulations implementing those laws. The Company is one of several potentially responsible parties involved in a California mandated clean-up of a manufacturing facility near Salinas, California. Through December 31, 1994, Orbital and two other potentially responsible parties have shared certain investigation and monitoring costs, resulting in total Company expenditures after insurance recoveries of approximately $85,000. Based on the cost allocations among responsible parties to date, the Company currently believes that its share of total clean-up costs, which would be payable over a number of years, should not exceed $600,000 before insurance recoveries. Orbital believes that it will receive insurance reimbursement for a significant portion of its clean-up costs. The Company does not believe that its total exposure in this clean-up, or that other compliance by it with applicable environmental regulations, will have a material adverse effect on its operations. Employees As of December 31, 1994, Orbital had 1,845 full-time permanent employees. ITEM 2. PROPERTIES In 1993, Orbital entered into a 12-year lease agreement for approximately 100,000 square feet of office and engineering space in Dulles, Virginia, which serves as its corporate headquarters. In 1994, the Company completed construction of an approximately 30,000 square-foot satellite engineering and manufacturing facility on land adjacent to the Dulles office facility. Orbital also leases approximately 320,000 square feet of office, engineering and manufacturing space in Germantown, Maryland; 305,000 square feet of office, engineering and manufacturing space in Chandler, Arizona; approximately 135,000 square feet of office, engineering and manufacturing space in Pomona, California; and approximately 40,000 square feet of office, engineering and manufacturing space in San Dimas, California. The Company leases or owns other small facilities or offices in Huntsville, Alabama; Edwards Air Force Base, California; Vandenberg Air Force Base, California; and Greenbelt, Maryland. Although completion of the Company's existing and pending contracts may in the future require additional manufacturing capacity, Orbital believes that its existing facilities are adequate for its near and medium-term requirements. ITEM 3. LEGAL PROCEEDINGS In 1993, Hercules commenced arbitration proceedings against the Company relating to certain insurance proceeds obtained by the Company in connection with the second Pegasus mission which occurred in 1991. In 1994, the arbitration panel unanimously held in favor of the Company and denied all of Hercules' claims. On January 3, 1994, Hercules filed a lawsuit against the Company in Arizona Superior Court in Phoenix, Arizona. The action concerns alleged breaches of certain representations and warranties in the 1988 stock purchase agreement between Hercules and Orbital, pursuant to which Hercules purchased 20 percent of Orbital's common stock. These shares were sold by Hercules in June 1991. Hercules is seeking unspecified monetary damages in an amount up to $15,000,000. On July 21, 1994, Hercules filed a lawsuit against the Company in the Delaware Chancery Court for New Castle County. The action concerns alleged breaches by the Company, in its joint venture with Hercules, of certain fiduciary duties and certain terms of the joint venture agreement. Hercules is seeking unspecified monetary damages, including up to $3,000,000 for one count. In March 1995, this action was dismissed with prejudice and is now subject to adjudication by an arbitration panel. Orbital believes that the claims in both pending suits are without merit and will not have a material adverse effect on the financial condition of the Company. Orbital is disputing vigorously Hercules' claims. Although the Company believes that regardless of the outcome, Hercules' claims do not affect its obligations under the Pegasus joint venture agreement, the failure to resolve these claims could adversely affect the joint venture and the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There was no matter submitted to a vote of the Company's security holders during the fourth quarter of 1994. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the name, age and position of each of the Executive Officers of Orbital as of March 1, 1995. All Executive Officers are elected annually and serve at the discretion of the Board of Directors. Name Age Position David W. Thompson 40 Chairman of the Board, President and Chief Executive Officer Bruce W. Ferguson 40 Executive Vice President and General Manager/Communications and Information Systems Group James R. Thompson 58 Executive Vice President and General Manager/ Launch Systems Group Jack A. Frohbieter 59 Executive Vice President and General Manager/ Space and Electronics Systems Group Alan L. Parker 55 Senior Vice President John H. Mehoves 47 Senior Vice President Albert F. Tillman 59 Senior Vice President Donald W. Tutwiler 59 Senior Vice President Antonio L. Elias 45 Senior Vice President Carlton B. Crenshaw 49 Senior Vice President/Finance and Administration and Treasurer Leslie C. Seeman 42 Senior Vice President, General Counsel and Secretary David W. Thompson is a founder of Orbital and has been Chairman of the Board, President and Chief Executive Officer of the Company since 1982. Bruce W. Ferguson is a founder of Orbital and has been Executive Vice President and General Manager/Communications and Information Systems Group since October 1993 and a Director of the Company since 1982. Mr. Ferguson was Executive Vice President and Chief Operating Officer of Orbital from 1989 to October 1993 and Senior Vice President/Finance and Administration and General Counsel of Orbital from 1985 to 1989. James R. Thompson (who is not related to David W. Thompson) has been Executive Vice President and General Manager/Launch Systems Group since October 1993 and a Director since January 1992. Mr. Thompson was Executive Vice President and Chief Technical Officer of Orbital from 1991 to October 1993. He was Deputy Administrator of NASA from 1989 to 1991. From 1986 until 1989, Mr. Thompson was Director of the Marshall Space Flight Center. Mr. Thompson was Deputy Director for Technical Operations at Princeton University's Plasma Physics Laboratory from 1983 through 1986. Before that, he had a 20-year career with NASA at the Marshall Space Flight Center. Jack A. Frohbieter has been a Director of the Company since August 1994, and Executive Vice President and General Manager/Space and Electronics Systems since September 1994. From 1990 until August 1994, Mr. Frohbieter was President and Chief Operating Officer of Fairchild. From 1988 to 1990, he was Vice President and General Manager of General Electric Company's Government Electronics Systems Division, and from 1966 to 1987, he held a variety of positions at RCA's Astro Space Division, including Vice President and Division Manager from 1986 to 1987. Alan L. Parker has been Senior Vice President of the Company since October 1993 and President of ORBCOMM since 1990. From 1991 to October 1993, he served as President/Satellite Services Division of the Company. From 1988 until 1990, he was President of Business Development Resources, a management consulting firm. From 1987 until 1988, he was Senior Vice President of Technology Applications, Inc., a professional services company. From 1962 until 1986, he held a variety of managerial positions with Ford Motor Company and Ford Aerospace Corporation, including President of Ford Aerospace Satellite Services Corporation from 1982 until 1986. John H. Mehoves has been Senior Vice President since October 1993. From 1990 to October 1993, he was Executive Vice President/Space Systems Division of Orbital, from 1987 to 1989, he was Vice President/Space Transportation and from 1985 to 1987, he was Vice President/Operations. Albert F. Tillman has been Senior Vice President since October 1993. From 1988 to September 1993, he was a Vice President of The Perkin-Elmer Corporation and General Manager of ASO, and from 1982 to 1988, he was a Group Director at the Central Intelligence Agency. Donald W. Tutwiler has been Senior Vice President since February 1994. From 1991 to October 1993, he was Executive Vice President/Space Data Division of Orbital. From 1963 to 1991, Mr. Tutwiler held a variety of positions at McDonnell Douglas Astronautics Company, including the position of Director of the Delta launch vehicle program for NASA, the Strategic Defense Initiative Organization and commercial customers from 1984 until 1991. Antonio L. Elias has been Senior Vice President since May 1993 and was Senior Vice President/Space Systems Division from 1990 to April 1993. He was Vice President/Engineering of Orbital from 1989 to 1990 and was Chief Engineer from 1986 to 1989. From 1980 to 1986, Dr. Elias was an Assistant Professor of Aeronautics and Astronautics at Massachusetts Institute of Technology. Carlton B. Crenshaw has been Senior Vice President/Finance and Administration and Treasurer of Orbital since January 1993. From 1989 to January 1993, he was Vice President/Finance and Administration and Treasurer of the Company. From 1985 to 1989, Mr. Crenshaw was Vice President/Finance and Administration and Chief Financial Officer of Software AG Systems, Inc. Leslie C. Seeman has been Senior Vice President of the Company since October 1993 and General Counsel and Secretary of the Company since 1989. From 1989 to October 1993, she was Vice President of the Company, and from 1987 to 1989, Ms. Seeman was Assistant General Counsel of Orbital. From 1984 to 1987, she was General Counsel of Source Telecomputing Corporation, a telecommunications company. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this Item is included under the captions "Market Information" and "Corporate Information - Dividends" of the Annual Report and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is included under the caption "Selected Consolidated Financial Data" of the Annual Report and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is included under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Annual Report and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is included in pages 31 through 47 of the Annual Report and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item and not given in Item 4A, Executive Officers of the Registrant, is included under the caption "Election of Directors - -- Directors to be Elected at the 1995 Annual Meeting, -- Directors Whose Term Expires in 1996, and -- Directors Whose Term Expires in 1997" and "Compliance with Section 16(a) of the Exchange Act" of the Proxy Statement filed pursuant to Regulation 14A on March 27, 1995 and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is included under the captions "Election of Directors -- Summary Compensation Table," "Election of Directors - - - Option Grants in Last Fiscal Year," "Election of Directors -- Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values," "Election of Directors -- Indemnification Agreements," "Election of Directors - - - Executive Employment Agreements" and "Election of Directors - Information Concerning the Board and Its Committees" of the Proxy Statement filed pursuant to Regulation 14A on March 27, 1995 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is included under the caption "Ownership of Common Stock" of the Proxy Statement filed pursuant to Regulation 14A on March 27, 1995 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this Report: 1. Financial Statements. The following financial statements, together with the report of KPMG Peat Marwick LLP, appearing in the portions of the Annual Report, filed as Exhibit 13, are incorporated herein by reference and filed as a part of this report: A. Independent Auditors' Report (Annual Report page 31) B. Consolidated Statements of Earnings (Annual Report page 32) C. Consolidated Balance Sheets (Annual Report page 33) D. Consolidated Statements of Stockholders' Equity (Annual Report page 34) E. Consolidated Statements of Cash Flows (Annual Report page 35) F. Notes to Consolidated Financial Statements (Annual Report pages 36 through 47) 2. Financial Statement Schedules. The following additional financial data should be read in conjunction with the Consolidated Financial Statements in the Annual Report. Schedules other than those listed below have been omitted because they are inapplicable or are not required. Form 10-K Page Independent Auditors' Report on Consolidated Financial Statement Schedule 17 VIII Valuation and Qualifying Accounts 18 3. Exhibits. A complete listing of exhibits required is given in the Exhibit Index that precedes the exhibits filed with this report on page 19-22 hereof. (b) Reports on Form 8-K On August 26, 1994, the Company filed a report on Form 8- K, reporting the acquisition of Fairchild on August 11, 1994. The following amendments on Form 8-K/A were filed with respect to this report: Amendment No. 1 filed on September 14, 1994; Amendment No. 2 filed on October 11, 1994; Amendment No. 3 filed on October 12, 1994; Amendment No. 4 filed on November 29, 1994; and Amendment No. 5 filed on December 9, 1994. On November 29, 1994 the Company filed a report on Form 8-K, reporting the proposed acquisition of Magellan Corporation. On January 11, 1995, the Company filed Amendment No. 1 on Form 8-K/A to the Company's Report on Form 8-K filed with the Commission on November 29, 1994 reporting consummation of the Magellan acquisition. (c) See Item 14(a)(3) of this report. (d) See Item 14(a)(2) of this report. SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ORBITAL SCIENCES CORPORATION DATED: March 28, 1995 By /s/ David W. Thompson David W. Thompson, Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Each individual whose signature appears below hereby authorizes each of David W. Thompson, Bruce W. Ferguson and Leslie C. Seeman, and appoints each of them singly, his true and lawful attorney, each with full power of substitution, to sign for him, and in his name and in the capacity indicated below, the Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission, hereby ratifying and confirming his signature as it may be signed by said attorneys, and each of them, to said report and any and all amendments and supplements thereto, and generally to do all such things in his name and on his behalf in his capacity as director to enable Orbital Sciences Corporation to comply with the provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and all requirements of the Securities and Exchange Commission. DATED: March 28, 1995 Signature: Title: /s/ David W. Thompson David W. Thompson Chairman of the Board, Principal Executive Officer and Director /s/ Carlton B. Crenshaw Carlton B. Crenshaw Principal Financial Officer /s/ Jeffrey V. Pirone Jeffrey V. Pirone Controller and Principal Accounting Officer /s/ Fred C. Alcorn Fred C. Alcorn Director /s/ Kelly H. Burke Kelly H. Burke Director /s/ Bruce W. Ferguson Bruce W. Ferguson Director /s/ Daniel J. Fink Daniel J. Fink Director /s/ Lennard A. Fisk Lennard A. Fisk Director /s/ Jack A. Frohbieter Jack A. Frohbieter Director /s/ Jack L. Kerrebrock Jack L. Kerrebrock Director /s/ J. Paul Kinloch J. Paul Kinloch Director /s/ Douglas S. Luke Douglas S. Luke Director /s/ John L. McLucas John L. McLucas Director /s/ Harrison H. Schmitt Harrison H. Schmitt Director /s/ James R. Thompson James R. Thompson Director /s/ Scott L. Webster Scott L. Webster Director C:\LEGAL\SEC-FILE\10K.94 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Orbital Sciences Corporation Under date of February 6, 1995, we reported on the consolidated balance sheets of Orbital Sciences Corporation and subsidiaries (the "Company") as of December 31, 1994 and 1993, and the related statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994, as contained in the 1994 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the Company's annual report on Form 10-K for the year 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related consolidated financial statement schedule as listed in Item 14(a)2 in the Company's Form 10-K for the year 1994. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statement schedule based on our audits. In our opinion, based on our audits and the reports of other auditors, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Washington, D.C. February 6, 1995
ORBITAL SCIENCES CORPORATION SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS (Amounts in Thousands) Column A Column B Column C Column D Column E Additions __________________________________ Charged/credited Balance at Charged to costs to Balance at Description start of period and expenses other accounts Deductions end of period Year ended December 31, 1992 Allowance for doubtful accounts $ 289 $ 150 - $ (47) $ 392 Allowance for obsolete inventory 1,034 39 - (175) 898 Deferred income tax valuation reserve - 588 - - 588 Year ended December 31, 1993 Allowance for doubtful accounts $ 392 $ 55 $ 15 - $ 462 Allowance for obsolete inventory 898 416 910 - 2,224 Deferred income tax valuation reserve 588 - - (303) 285 Year ended December 31, 1994 Allowance for doubtful accounts $ 462 $ 136 $ 80 - $ 678 Allowance for obsolete inventory 2,224 216 1,571 (111) 3,900 Allowance for unrecoverable investment - - 3,100 - 3,100 Deferred income tax valuation reserve 285 - 32,003 (168) 32,120 All historical balances have been restated to reflect the Company's acquisition of Magellan Corporation. The acquisition was accounted for using the pooling of interests method of accounting. Additions charged/credited to other accounts represent valuation and qualifying accounts recorded pursuant to purchase business combinations as described in Note 4 to the consolidated financial statements incorporated by reference elsewhere herein, and adjustments required to recast pooled company's year end as described in Note to the consolidated financial statements incorporated by reference elsewhere herin. Deduction of specific charge-offs previously reserved. Deduction for re-valuation of allowance account.
EXHIBIT INDEX The following exhibits are filed as part of this report. Where such filing is made by incorporation by reference to a previously filed statement or report, such statement or report is identified in parentheses. In addition, the registrant has executed certain instruments reflecting long-term debt, the total amount of which does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. In accordance with section 4(iii) of Item 601 under Regulation S-K, the registrant agrees to furnish to the Securities and Exchange Commission copies of each instrument relating to such long-term debt not otherwise filed herewith or incorporated herein by reference. Exhibit No. Description 2.1 Asset Acquisition Agreement dated as of September 16, 1993 between The Perkin-Elmer Corporation and the Company (incorporated by reference to Exhibit 2 to the Company's Report on Form 8-K, dated September 27, 1993). 2.2 Acquisition Agreement dated as of July 29, 1994 between Matra Aerospace, Inc., and the Company (incorporated by reference to Exhibit 2 to the Company's Report on Form 8-K, dated August 11, 1994). 2.3 Agreement and Plan of Merger dated as of November 25, 1994 among the Company, Orbital Acquisition Corporation and Magellan Corporation (incorporated by reference to Exhibit 2 to the Company's Report on Form 8-K, dated November 25, 1994). 3.1 Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990 and effective on April 24, 1990). 3.2 By-Laws (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990 and effective on April 24, 1990). 4.1 Form of Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990 and effective on April 24, 1990). 4.2 Stock Purchase Agreement, dated November 9, 1988, by and between the Company and Hercules Incorporated (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990 and effective on April 24, 1990). 4.3 Indenture dated as of February 25, 1993 among the Company and Security Trust Company, National Association, as Trustee (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K, dated March 31, 1993). 4.4 Form of 6 3/4% Convertible Subordinated Debenture due 2003 (incorporated by reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K, dated March 31, 1993). 4.5 Registration Rights Agreement dated as of August 11, 1994 between Matra Aerospace, Inc. and the Company (incorporated by reference to Exhibit 10.1 to the Company's Report on Form 8-K, dated August 11, 1994). 4.6 Promissory Notes dated as of August 31, 1994 made by Fairchild Space and Defense Corporation and Corporate Guaranty dated August 31, 1994 made by the Company (incorporated by reference to Exhibit 10.7 to the Company's Report on Form 10-Q for the Quarter ended September 30, 1994, dated November 14, 1994). 10.2 Sale/Leaseback Agreement, dated September 29, 1989, by and among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P. and Space Data Corporation (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990 and effective on April 24, 1990). 10.2.1 First Amendment to Sale/Leaseback Agreement, dated as of December 27, 1990, by and among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P. and Space Data Corporation (incorporated by reference to Exhibit 10.2.1 to the Company's Annual Report on Form 10-K, dated March 23, 1992). 10.3 Office Lease, dated July 17, 1992, between S.C. Realty, Inc. and the Company (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K, dated March 31, 1993). 10.4 Lease Agreement dated as of August 11, 1994 between Germantown Holding Corp. and Fairchild Space and Defense Corporation (incorporated by reference to Exhibit 10.3 to the Company's Report on Form 8-K, dated August 11, 1994). 10.5.1 Orbital Sciences Corporation 1990 Stock Option Plan (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 (File Number 33-47789) dated May 11, 1992).** 10.5.2 Orbital Sciences Corporation 1990 Stock Option Plan for Non-Employee Directors (incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-8 (File Number 33-47789) dated May 11, 1992).** 10.5.3 Orbital Communications Corporation Restated 1992 Stock Option Plan (transmitted herewith).** 10.6 Amended and Restated Credit Agreement dated as of September 27, 1994 among the Company, Orbital Imaging Corporation and Fairchild Space and Defense Corporation, the Banks listed therein, Morgan Guaranty Trust Company of New York, as Administrative Agent and J.P. Morgan Delaware, as Collateral Agent (the "Credit Agreement") (incorporated by reference to Exhibit 10.6 to the Company's Report on Form 10-Q for the Quarter ended September 30, 1994, dated November 14, 1994). 10.6.1 Amendment No. 1 to the Credit Agreement dated October 26, 1994 among the Company, Orbital Imaging Corporation and Fairchild Space and Defense Corporation, the Banks listed therein, Morgan Guaranty Trust Company of New York, as Administrative Agent, and J.P. Morgan Delaware, as Collateral Agent (transmitted herewith). 10.6.2 Waiver No. 1 to the Credit Agreement dated December 19, 1994 among the Company, Orbital Imaging Corporation and Fairchild Space and Defense Corporation, the Banks listed therein, Morgan Guaranty Trust Company of New York, as Administrative Agent, and J.P. Morgan Delaware, as Collateral Agent (transmitted herewith). 10.7 Security Agreement dated as of June 30, 1992 among the Company, J.P. Morgan Delaware, as Collateral Agent and American Security Bank, N.A., as Audit Agent (incorporated by Reference to Exhibit 10.6.1 to the Company's Report on Form 10-Q for the Quarter Ended September 30, 1994, dated November 14, 1994). 10.8 Master Security Agreement dated as of August 31, 1994 between Fairchild Space and Defense Corporation and General Electric Capital Corporation (incorporated by reference to Exhibit 10.7 to the Company's Report on Form 10-Q for the Quarter ended September 30, 1994, dated November 14, 1994). 10.9 Participation Agreement dated August 20, 1992 by and between ITT Commercial Finance Corp. and the Company, as amended through August 26, 1992 (incorporated by reference to Exhibit 10.14 to Amendment No. 2 to the Company's Report on Form 10-Q for the Quarter Ended September 30, 1992, dated January 27, 1993). 10.10 Form of Executive Employment Agreement entered into between the Company and Executive Officers and certain other Officers of the Company (incorporated by reference to Exhibit 10.17 to the Company's Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990 and effective on April 24, 1990).** 10.10.1 Employment Agreement between Jack A. Frohbieter and Fairchild Space and Defense Corporation, dated August 26, 1992 (transmitted herewith).** 10.11 Form of Indemnification Agreement entered into between the Company and Directors, Executive Officers and certain other Officers of the Company (incorporated by reference to Exhibit 10.18 to the Company's Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990 and effective on April 24, 1990).** 10.11.1 Amendment dated October 22, 1992 to form of Indemnification Agreement entered into between the Company and Directors, Executive Officers and certain other Officers of the Company (incorporated by reference to Exhibit 19 to the Company's Report on Form 10-Q for the Quarter Ended September 30, 1992, dated November 16, 1992).** 10.12 Joint Venture Agreement, dated November 9, 1988, by and among the Company, Space Systems Corporation and Hercules Incorporated (incorporated by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990 and effective on April 24, 1990). 10.13.1 Master Agreement dated as of June 30, 1993 among the Company, Orbital Communications Corporation, Teleglobe Inc. and Teleglobe Mobile Partners (the "Master Agreement") (incorporated by reference to Exhibit 10.24.1 to the Company's Report on Form 10-Q for the Quarter Ended June 30, 1993, dated August 13, 1993).+ 10.13.1.1 Amendment No. 1 to Master Agreement dated as of April 1, 1994 (incorporated by reference to Exhibit 10.16.1.1 to the Company's Report on Form 10-Q for the Quarter Ended June 30, 1994, dated August 15, 1994).+ 10.13.1.2 Amendment No. 2 to Master Agreement dated as of October 1, 1994 (transmitted herewith).* 10.14 Agreement of Limited Partnership of ORBCOMM Development Partners, L.P. dated as of June 30, 1993 between Orbital Communications Corporation and Teleglobe Mobile Partners (incorporated by reference to Exhibit 10.24.2 for the Company's Report on Form 10-Q for the Quarter ended June 30, 1993, dated August 13, 1993).+ 10.14.1 Amendment No.1 to Agreement of Limited Partnership of ORBCOMM Development Partners, L.P. dated as of April 1, 1994 (incorporated by reference to Exhibit 10.16.2.1 to the Company's Report on Form 10-Q for the Quarter Ended June 30, 1994, dated August 15, 1994).+ 10.15 Agreement of Limited Partnership of ORBCOMM U.S. Partners, L.P. dated as of June 30, 1993 between Orbital Communications Corporation and Teleglobe Mobile Partners (incorporated by reference to Exhibit 10.24.3 of the Company's Report on Form 10-Q for the Quarter ended June 30, 1993, dated August 13, 1993). 10.16 Agreement of Limited Partnership of ORBCOMM International Partners, L.P. dated as of June 30, 1993 between Orbital Communications Corporation and Teleglobe Mobile Partners (incorporated by reference to Exhibit 10.24.3 to the Company's Report on Form 10-Q for the Quarter Ended June 30, 1993, dated August 13, 1993). 10.17 ORBCOMM System Construction Agreement dated as of June 30, 1993 between Orbital Communications Corporation and ORBCOMM Development Partners, L.P (incorporated by reference to Exhibit 10.24.5 to the Company's Report on Form 10-Q for the Quarter Ended June 30, 1993, dated August 13, 1993). 10.18 ORBCOMM System Design, Development and Operations Agreement dated as of June 30, 1993 between Orbital Communications Corporation and ORBCOMM Development Partners, L.P. (the "System Design, Development and Operations Agreement") (incorporated by reference to Exhibit 10.24.6 to the Company's Report on Form 10-Q for the Quarter Ended June 30, 1993, dated August 13, 1993).+ 10.18.1 Amendments No. 1 and No. 2 to System Design, Development and Operations Agreement dated March 1, 1994 (incorporated by reference to Exhibit 10.16.6.1 to the Company's Report on Form 10-Q for the Quarter Ended March 31, 1994, dated May 12, 1994).+ 10.18.2 Amendment No. 3 to System Design, Development and Operations Agreement dated April 1, 1994 (incorporated by reference to Exhibit 10.16.6.2 to the Company's Report on Form 10-Q for the Quarter Ended June 30, 1994, dated August 15, 1994).+ 10.19 System Charge and Marketing (U.S.) Agreement dated as of June 30, 1993 between Orbital Communications Corporation and ORBCOMM U.S. Partners, L.P. (incorporated by reference to Exhibit 10.24.8 to the Company's Report on Form 10-Q for the Quarter Ended June 30, 1993, dated August 13, 1993). 10.19.1 Amendment No. 1 to System Charge and Marketing (U.S.) Agreement dated as of June 30, 1994 (transmitted herewith). 10.20 International System Charge and Marketing (Non-U.S.) Agreement dated as of June 30, 1993 among ORBCOMM Development Partners, L.P., Teleglobe Mobile Partners and ORBCOMM International Partners, L.P (incorporated by reference to Exhibit 10.24.8 to Company's Report on Form 10-Q for the Quarter Ended June 30, 1993, dated August 13, 1993). 10.20.1 Amendment No. 1 to International System Charge and Marketing (Non-U.S.) Agreement dated as of June 30, 1993 among ORBCOMM Development Partners, L.P., Teleglobe Mobile Partners and ORBCOMM International Partners, L.P dated as of June 30, 1994 (transmitted herewith). 10.21 Proprietary Information and Non-Competition Agreement dated as of June 30, 1993 among the Company, Orbital Communications Corporation, Teleglobe Inc., Teleglobe Mobile Partners, ORBCOMM Development Partners, L.P., ORBCOMM U.S. Partners, L.P. and ORBCOMM International Partners, L.P (incorporated by reference to Exhibit 10.24.9 to the Company's Report on Form 10-Q for the Quarter Ended June 30, 1993, dated August 13, 1993). 11 Statement re: Computation of Earnings Per Share (transmitted herewith). 13 Portions of the 1994 Annual Report to Stockholders (transmitted herewith). 21 Subsidiaries of the Company (transmitted herewith). 23 Consent of KPMG Peat Marwick LLP (transmitted herewith). 24 Power of Attorney (included on Signature Page). 27 Financial Data Schedule (such schedule is furnished for the information of the Securities and Exchange Commission and is not to be deemed "filed" as part of the Form 10-K, or otherwise subject to the liabilities of Section 18 of the Securities Exchange Act of 1934) (transmitted herewith). ______________________ * Confidential treatment requested pursuant to Rule 24b-2 of the Exchange Act. + Confidential treatment previously granted by the Commission. ** Management Contract or Compensatory Plan or Arrangement. EX-10 2 EXHIBIT 10.5.3 ORBITAL COMMUNICATIONS CORPORATION 1992 STOCK OPTION PLAN ARTICLE I PURPOSE OF PLAN The purpose of this 1992 Stock Option Plan is to promote the growth and profitability of Orbital Communications Corporation by providing, through the ownership of Shares, incentives to attract and retain highly talented persons to provide managerial and administrative services to the Company and to motivate such persons to use their best effort on behalf of the Company. ARTICLE II DEFINITIONS For the purposes of this Plan, the following terms shall have the meanings set forth in this Article II: 2.01 Accrued Installment. The term "Accrued Installment" shall mean any vested installment of an Option. 2.02 Board. The term "Board" shall mean the Board of Directors of the Company. 2.03 Committee. The term "Committee" shall mean a committee appointed by the Board pursuant to Section 3.04 and constituting not less than two (2) members of the Board. 2.04 Company. The term "Company" shall mean Orbital Communications Corporation, a Delaware corporation, or any successor thereof. 2.05 Director. The term "Director" shall mean a member of the Board, or a member of the board of directors of any Participating Company. 2.06 Disinterested Person. The term "Disinterested Person" shall mean any person defined as a disinterested person under Rule 16b-3 of the Securities and Exchange Commission as promulgated under the Exchange Act. 2.07 Effective Date. The term "Effective Date" shall mean September 29, 1992. 2.08 Eligible Person. The term "Eligible Person" shall mean any employee or officer of any Participating Company, but shall not include any Director of any Participating Company who is not also an employee or officer of a Participating Company. 2.09 Exchange Act. The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. 2.10 Fair Market Value. The term "Fair Market Value" shall mean the closing sale price of a Share on the national securities exchange on which Shares are then principally traded or, if that measure of price is not available, on a composite index of such exchanges or, if that measure of price is not available, in a national market system for securities on the date in question. In the event that there are no sales of Shares on any such exchange or market on such date, the fair market value of a Share shall be deemed to be the closing sales price on the next preceding day on which Shares were sold on any such exchange or market. In the event that such Shares are not listed on any such market or exchange on such date, a reasonable valuation of the fair market value of a Share shall be made by the Board. Any determination of fair market value made in good faith by the Board shall be conclusive and binding on the Company and all Optionees and/or holders of Shares. 2.11 I.R.C. The term "I.R.C." shall mean the Internal Revenue Code of 1986, as amended from time to time. 2.12 Incentive Stock Option. The term "Incentive Stock Option" shall mean any Option intended to satisfy the requirements under I.R.C. Section 422(b) as an incentive stock option. 2.13 Nonstatutory Stock Option. The term "Nonstatutory Stock Option" shall mean any Option granted under the Plan that does not qualify as an Incentive Stock Option. 2.14 Option. The term "Option" shall mean an option to acquire Shares granted under the Plan. 2.15 Optionee. The term "Optionee" shall mean an Eligible Person who has been granted Options. 2.16 Parent Corporation. The term "Parent Corporation" shall mean a corporation as defined in I.R.C. Section 424(e). 2.17 Participating Company. The term "Participating Company" shall mean the Company and any Parent Corporation of the Company, any Subsidiary Corporation of the Company and any Subsidiary Corporation of the Parent Corporation. 2.18 Plan. The term "Plan" shall refer to the Stock Option Plan of the Company set forth herein that provides for the granting of Incentive Stock Options and Nonstatutory Stock Options. 2.19 Restricted Shareholder. The term "Restricted Shareholder" shall mean an Optionee granted an Incentive Stock Option who, at the time the Incentive Stock Option is granted, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, with stock ownership determined in accordance with the attribution rules of I.R.C. Section 424(d). 2.20 Shares. The term "Shares" shall mean shares of the Company's authorized Common Stock, $0.01 par value, and may be unissued shares or treasury shares or shares purchased for purposes of the Plan. 2.21 Subsidiary Corporation. The term "Subsidiary Corporation" shall mean a corporation as defined in I.R.C. Section 424(f). 2.22 Terminating Transaction. The term "Terminating Transaction" shall mean any of the following events: (a) the dissolution or liquidation of the Company; (b) a reorganization, merger or consolidation of the Company with one or more other corporations as a result of which the Company goes out of existence or becomes a subsidiary of a corporation other than a corporation that was a Participating Company immediately prior to such event (which shall be deemed to have occurred only if such a corporation shall own, directly or indirectly, eighty percent (80%) or more of the aggregate voting power of all outstanding equity securities of the Company); (c) a sale of all or substantially all of the Company's assets to a person or persons other than a corporation that was a Participating Company immediately prior to such event; or (d) a sale to one person (or two or more persons acting in concert), other than to a corporation that was a Participating Company immediately prior to such event, of equity securities of the Company representing eighty percent (80%) or more of the aggregate voting power of all outstanding equity securities of the Company. As used herein or elsewhere in this Plan, the word "person" shall mean an individual, corporation, partnership, association or other person or entity, or any group of two or more of the foregoing that have agreed to act together. 2.23 Termination Date. The term "Termination Date" shall mean September 29, 2002. 2.24 Total Disability. The term "Total Disability" shall mean a permanent and total disability as that term is defined in I.R.C. Section 22(e)(3). ARTICLE III ADMINISTRATION OF PLAN 3.01 Administration by Board. The Plan shall be administered by the Board. The Board shall have full and absolute power and authority in its sole discretion to (a) determine which Eligible Persons shall receive Options; (b) determine the time when Options shall be granted; (c) determine the terms and conditions, not inconsistent with the provisions of this Plan, of any Option granted hereunder; (d) determine the number of Shares which may be issued upon exercise of the Options; and (e) interpret the provisions of this Plan and of any Option granted under this Plan. 3.02 Rules and Regulations. The Board may adopt such rules and regulations as the Board may deem necessary or appropriate to carry out the purposes of the Plan and shall have authority to do everything necessary or appropriate to administer the Plan. 3.03 Binding Authority. All decisions, determinations, interpretations or other actions by the Board shall be final, conclusive and binding on all Eligible Persons, Optionees, Participating Companies and any successors-in-interest to such parties. 3.04 Administration by Committee. (a) The Board, from time to time, may appoint, and at any time the Company has a class of equity securities registered under the Exchange Act shall appoint, a Committee to administer the Plan and exercise all of the powers, authority and discretion of the Board under the Plan, other than the power and authority to amend and terminate the Plan under Section 7.01. (b) At any time the Company has a class of equity securities registered under the Exchange Act, each member of the Committee must be a Disinterested Person, and the Board may, but is not required to, take such other actions as are deemed necessary or advisable to conform the Plan to the requirements of Rule 16b-3 as promulgated under the Exchange Act. (c) The Committee shall report to the Board the names of Eligible Persons granted Options, the number of Shares covered by each Option, and the terms and conditions of each such Option. (d) Prior to the time that it appoints a Committee to administer the Plan, the Board shall consult with, and obtain the concurrence of, the Human Resources Committee of the Board of Directors of Orbital Sciences Corporation in administering the Plan. ARTICLE IV NUMBER OF SHARES AVAILABLE FOR GRANT Subject to the following provisions of this Article IV, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 700,000. In the event that Options granted under the Plan shall, for any reason, terminate, lapse, be forfeited or expire without being exercised, the Shares subject to such unexercised Options shall again be available for the granting of Options under the Plan. In the event that Shares which were previously issued by the Company, upon exercise of an Option, are reacquired by the Company as part of the consideration received (in accordance with Section 6.05(b) hereof) upon the subsequent exercise of an Option, such reacquired Shares shall again be available for the granting of Options hereunder. ARTICLE V TERM OF PLAN The Plan shall be effective as of the Effective Date and shall terminate on the Termination Date. No Option may be granted hereunder after the Termination Date. ARTICLE VI OPTION TERMS 6.01 Form of Option Agreement. Any Option granted under the Plan shall be evidenced by an agreement ("Option Agreement") in such form as the Board, in its discretion, may, from time to time, approve. Any Option Agreement shall contain such terms and conditions as the Board may deem necessary or appropriate and which are not inconsistent with the provisions of the Plan. 6.02 Option Exercise Price. The option exercise price for Shares to be issued under this Plan shall be determined by the Board in its sole discretion, but in no event shall the option exercise price be less than the Fair Market Value of the Shares in the case of an Incentive Stock Option (or one hundred and ten percent (110%) of such Fair Market Value in the case of an Incentive Stock Option granted to a Restricted Shareholder), or less than eighty-five percent (85%) of the Fair Market Value in the case of a Nonstatutory Stock Option. 6.03 Vesting and Exercisability of Options. Subject to the limitations set forth herein and/or in any applicable Option Agreement entered into hereunder, Options granted under the Plan shall vest and be exercisable in accordance with the rules set forth in this Section 6.03: (a) General. Subject to the other provisions of this Section 6.03, Options shall vest and become exercisable at such time and in such installments as the Board shall provide in each individual Option Agreement. Notwithstanding the foregoing, the Board may, in its sole discretion, accelerate the time at which an Option or installment thereof may be exercised. Unless otherwise provided in this Section 6.03, in Section 6.04(a) or in the Option Agreement pursuant to which an Option is granted, an Option may be exercised when Accrued Installments accrue as provided in such Option Agreement and at any time thereafter until, and including, the day before the Option Termination Date. (b) Termination of Options. All installments of an Option shall expire and terminate on such date as the Board shall determine ("Option Termination Date"), which in no event shall be later than ten (10) years from the date such Option was granted (five (5) years in the case of an Incentive Stock Option granted to a Restricted Shareholder). (c) Termination of Employment other than by Death, Retirement or Total Disability. In the event that the employment of an Optionee with a Participating Company is terminated for any reason (other than death or Total Disability or retirement on or after reaching age 60), any installments under an Option held by such Optionee which have not accrued as of the employment termination date shall expire and become unexercisable as of the employment termination date. All Accrued Installments as of the employment termination date shall expire and become unexercisable as of the earlier of (i) three (3) months following the employment termination date; or (ii) the original Option Termination Date. For purposes of the Plan, an Optionee who is an employee or officer of any Participating Company shall not be deemed to have incurred a termination of his employment so long as such Optionee is an employee or officer of any Participating Company. (d) Leave of Absence. An approved leave of absence shall not constitute a termination of employment under the Plan. An approved leave of absence shall mean an absence approved pursuant to the policy of a Participating Company for military leave, sick leave, or other bona fide leave, not to exceed ninety (90) days or, if longer, as long as the employee's right to re-employment is guaranteed by contract, statute or the policy of a Participating Company. Notwithstanding the foregoing, in no event shall an approved leave of absence operate to make an Option exercisable after the original Option Termination Date. (e) Death, Retirement or Total Disability of Optionee. In the event that the employment of an Optionee with a Participating Company is terminated by reason of death, Total Disability, or retirement on or after reaching age sixty (60), any unexercised Accrued Installments of Options granted hereunder to such Optionee shall expire and become unexercisable as of the earlier of: (i) The applicable Option Termination Date; or (ii) The first anniversary of the date of termination of employment of such Optionee by reason of the Optionee's death, Total Disability or retirement. Any such Accrued Installments of a deceased Optionee may be exercised prior to their expiration only by the person or persons to whom the Optionee's Option rights pass by will or the laws of descent and distribution. Any Option installments under such a deceased, disabled or retired Optionee's Option that have not accrued as of the date of the employee's termination of employment due to death, Total Disability or retirement shall expire and become unexercisable as of the employment termination date. (f) Termination of Affiliation of Participating Company. Notwithstanding the foregoing provisions of this Section 6.03, in the case of an Optionee who is an employee or officer of a Participating Company other than the Company, upon an Affiliation Termination (as defined herein) of such Participating Company other than the Company, such Optionee shall be deemed (for all purposes of the Plan) to have incurred a termination of his employment for reasons other than death, retirement or Total Disability, with such termination to be deemed effective as of the effective date of said Affiliation Termination. As used herein, the term "Affiliation Termination" shall mean, with respect to a Participating Company, the termination of such Participating Company's status as a Parent or Subsidiary Corporation of the Company or of Orbital Sciences Corporation. 6.04 Exercise of Options. (a) Subject to Section 6.09(b), no Options may be exercised by any Optionee until the Board has determined that the value of Orbital Sciences Corporation's share of the Company is equal to at least one hundred twenty-five percent (125%) of the amount of Orbital Sciences Corporation's investment in the Company, or until September 1, 2001, whichever is earlier. For purposes of this Section 6.04(a), (i) the "value of Orbital Sciences Corporation's share of the Company" shall mean the sum of the percentage of the Company's Common Stock owned by Orbital Sciences Corporation multiplied by the then Fair Market Value of the Common Stock of the Company as determined by the Board, plus the principal amount of net intercompany indebtedness owed by the Company to Orbital Sciences Corporation; and (ii) "Orbital Sciences Corporation's investment in the Company" shall mean Orbital Sciences Corporation's investment in, and to the extent not reflected in the computation of such investment, the cumulative total of all unreimbursed expenses incurred, and expenditures made by Orbital Sciences Corporation on behalf of, the Company, net of expenditures that are charged to Independent Research and Development or directly reimbursed by customers. Any such determination of the value of Orbital Sciences Corporation's share of the Company, or of Orbital Sciences Corporation's investment in the Company, made in good faith by the Board shall be conclusive and binding on the Company and all Optionees. (b) Subject to the restrictions in Section 6.04(a), an Option may be exercised in accordance with this Section 6.04 as to all or any portion of the Shares covered by an Accrued Installment of the Option, from time to time during the applicable option period, except that an Option shall not be exercisable with respect to fractions of a Share. Options may be exercised, in whole or in part, by giving written notice of exercise to the Company, which notice shall specify the number of Shares to be purchased and shall be accompanied by payment in full of the purchase price in accordance with Section 6.05. An Option shall be deemed exercised when such written notice of exercise has been received by the Company. No Shares shall be issued until full payment has been made and the Optionee has satisfied such other conditions as may be required by this Plan, as may be required by applicable laws, rules or regulations, or as may be adopted or imposed by the Board. Until the issuance of stock certificates, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to Shares subject to an Option notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other rights for which the record date is prior to the date the stock certificate is issued, except as provided in Section 6.09(a). 6.05 Payment of Option Exercise Price. (a) Except as otherwise provided in Section 6.05(b), the entire option exercise price shall be paid at the time the Option is exercised by cashier's check or such other means as deemed acceptable by the Board. (b) In the discretion of the Board (which, in the case of an Incentive Stock Option, shall be exercised only at the time of grant), an Optionee may elect to pay for all or some of the Optionee's Shares with Shares the Optionee has held for at least six (6) months, subject to all restrictions and limitations of applicable laws, rules and regulations and subject to the satisfaction of any conditions the Board may impose, including, but not limited to, the making of such representations and warranties and the providing of such other assurances that the Board may require with respect to the Optionee's title to the Shares used for payment of the exercise price. Such payment shall be made by delivery of certificates representing Shares, duly endorsed or with duly signed stock power attached, such Shares to be valued at the Fair Market Value of such Shares on the day immediately preceding the day notice of exercise is received by the Company. 6.06 Purchase by the Company of Shares Acquired Pursuant to Exercise of Option. (a) Valuation. Provided that there has not yet been a public offering (within the meaning of the Securities Act of 1933 as amended, and the rules and regulations thereunder) of the Company's Common Stock, all Shares acquired pursuant to exercise of an Option that as of the applicable Valuation Date (as hereinafter defined), have been held by an Optionee at least six (6) months from the date of exercise of the Option (such Shares, in each year, the "Payable Shares"), shall, at the election of the Optionee exercised in the manner set forth herein, be purchased by the Company at a price per share equal to the Fair Market Value of a share of Common Stock on September 1, 1995, and in subsequent years on the annual anniversaries of such date (each such date is referred to as a "Valuation Date"); provided further that on the Valuation Date in 1995 only, no more than fifty percent (50%) of each Optionee's Payable Shares shall become subject to purchase by the Company. Within thirty (30) days after each such Valuation Date, the Company shall cause the Fair Market Value of the Shares to be determined in accordance with Section 6.06(b) and shall notify each holder of Shares acquired pursuant to exercise of an Option of such Fair Market Value. Within thirty (30) days after receipt of such notice, each such holder of Shares may elect to have all or any portion of his or her Payable Shares be purchased by the Company at a price per share equal to such Fair Market Value by submitting to the Committee an irrevocable written notice of such election. The rights of an Optionee under this Section 6.06 may be exercised by the Optionee and any transferee specified in clause (ii) of Section 6.08(a) (in which case all references herein to "Optionee" shall refer to such transferee), but shall not be exercisable by any other holder of Shares, whether or not such holder acquired such Shares in a transfer permitted by Section 6.08(a). (b) Method of Valuation. The value of a Share of Company Common Stock on each Valuation Date shall be determined in good faith by the Board, and any such determination shall be conclusive and binding on the Company and all Optionees and/or holders of Shares. In making any such determination of Fair Market Value, the Board may, but shall not be required to, rely on a determination of Fair Market Value made by an independent appraiser or other appropriate financial professional selected by the Board in its sole discretion and reasonably believed to be competent to make such determination. No member of the Board shall have any personal liability to any Optionee and/or holder of Shares for any determination of Fair Market Value under this Section 6.06, or any act or omission in connection therewith, unless the Optionee and/or holder of Shares shall establish that such determination, act or omission was not made in good faith. (c) Closing of Purchase of Shares. The closing for any purchase of Shares pursuant to this Section 6.06 shall occur on such date within sixty (60) days of the giving by the Company of the notification required by Section 6.06(a) as the Company shall specify by five (5) business days' notice to each selling Optionee, at the offices of the Company at 11:00 a.m. local time, or at such other time and place as the parties to such sale may mutually agree. At the closing, the Optionee shall deliver to the Company a certificate or certificates representing the Shares to be purchased by the Company, duly endorsed for transfer, free and clear of any lien or encumbrance, in exchange for payment of the purchase price (i) by check, (ii) by delivery of certificates representing shares of Common Stock of Orbital Sciences Corporation having a Fair Market Value (determined in the manner provided in Section 2.10) as of the business day preceding the closing equal to the purchase price of the Shares, (iii) by delivery of a subordinated promissory note of the Company in the principal amount of the purchase price of the Shares, bearing interest at a rate equal to the then applicable federal short-term rate (determined pursuant to Section 1274(d) of the I.R.C.), providing for quarterly payments of interest and payment of the full principal amount on the first anniversary of the date of issuance, and containing provisions as approved by the Board in its sole discretion providing for the subordination of such notes to such indebtedness, whether then existing or thereafter created, of the Company as is specified by the Board, including, without limitation, indebtedness for money borrowed or similar indebtedness, or (iv) any combination of the foregoing; provided, however, that no more than fifty percent (50%) of the purchase price for Shares may be paid by subordinated promissory note. Any payment in the form of shares of Orbital Sciences Corporation Common Stock shall be subject to all applicable federal and state securities laws restrictions and all other restrictions. (d) Limitations on Repurchase Obligations. Notwithstanding any other provision of this Section 6.06, the Company shall not be obligated to purchase Payable Shares (i) to the extent such purchase is not permitted under applicable law or under the terms of any of (A) the Company's then-existing debt instruments or agreements governing such debt instruments, (B) the then-existing terms of any class of preferred stock of the Company, or (C) a then-existing stockholders agreement to which the Company is a party; or (ii) in the event there has been a public offering (within the meaning of the Securities Act of 1933 as amended, and the rules and regulations thereunder) of the Company's Common Stock. 6.07 Options Not Transferable. Options granted under this Plan may not be sold, pledged, hypothecated, assigned, encumbered, gifted or otherwise transferred or alienated in any manner, whether voluntarily, by operation of law, pursuant to judicial process or otherwise, other than by will or the laws of descent and distribution, and may be exercised during the lifetime of an Optionee only by such Optionee. 6.08 Restrictions on Issuance or Transfer of Shares. (a) Until such time as the Company shall have consummated an underwritten public offering of Shares involving an aggregate public offering price of at least Five Million Dollars ($5,000,000), or the Shares are registered under the Exchange Act, no Shares issuable upon exercise of an Option shall be sold, assigned, encumbered, pledged, hypothecated, given away or in any other manner disposed of or transferred, whether voluntarily, by operation of law, pursuant to judicial process or otherwise, except (i) to the Company pursuant to Section 6.06 hereof, or (ii) upon the death of the holder thereof, Shares may be transferred and distributed by will or other instrument taking effect at death or by the laws of descent and distribution to such holder's estate, executors, administrators and personal representatives, and then to such holder's heirs, legatees or distributees, provided that no such transfer shall be effective until the recipient has delivered to the Company a written acknowledgment in form and substance reasonably satisfactory to the Company that such Shares are subject to the restrictions on disposition or transfer set forth in this Section 6.08(a). Any attempted transfer of Shares not in accordance with this Section 6.08(a) shall be null and void, and the Company shall not in any way give effect to any such disposition or transfer. (b) No Shares shall be issued or delivered upon exercise of an Option unless and until there shall have been compliance with all applicable requirements of the Securities Act of 1933, as amended, all applicable listing or quotation requirements of any national securities exchange or market on which Shares are then listed or quoted, and any other requirement of law or of any regulatory body having jurisdiction over such issuance and delivery. The inability of the Company to obtain any required permits, authorizations or approvals necessary for the lawful issuance and sale of any Shares hereunder on terms deemed reasonable by the Board shall relieve the Company, the Board and any Committee of any liability in respect of the non-issuance or sale of such Shares as to which such requisite permits, authorizations or approvals shall not have been obtained. (c) As a condition to the granting or exercise of any Option, the Board may require the person receiving or exercising such Option to make any representation and/or warranty to the Company as may be required under any applicable law or regulation, including, but not limited to, a representation that the Option and/or Shares are being acquired only for investment and without any present intention to sell or distribute such Option and/or Shares, if such a representation is required under the Securities Act of 1933, as amended, or any other applicable law, rule or regulation. (d) The exercise of Options under the Plan is conditioned on approval of the Plan by the vote or written consent of a majority of the holders of outstanding Shares of the Company's Common Stock within twelve (12) months of the adoption of the Plan. In the event such stockholder approval is not obtained within such time period, any Options granted hereunder shall be void. 6.09 Option Adjustments. (a) If the outstanding Shares of Common Stock of the Company are increased, decreased, changed into or exchanged for a different number or kind of shares of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split or other similar transaction, the Board shall make a proportionate adjustment in the number or kind of shares and the per-share option price thereof, which may be issued in the aggregate and to individual Optionees upon exercise of Options granted under the Plan; provided, however, that no such adjustment need be made if, upon the advice of counsel, the Board determines that such adjustment may result in the receipt of federally taxable income to holders of Options granted hereunder or the holders of Common Stock or other classes of the Company's securities. (b) Upon the occurrence of a Terminating Transaction, as of the effective date of such Terminating Transaction, the Plan and any then outstanding Options (whether or not vested) shall terminate unless (i) provision is made in writing in connection with such transaction for the continuance of the Plan and for the assumption of such Options, or for the substitution for such Options of new options covering the securities of any successor or survivor corporation in the Terminating Transaction or an affiliate thereof, with such adjustments as the Board deems appropriate with respect to the number and kind of securities and the per-share exercise price under such substituted options, in which event the Plan and such outstanding Options shall continue or be replaced, as the case may be, in the manner and under the terms so provided; or (ii) the Board otherwise shall provide in writing for such adjustments as it deems appropriate in the terms and conditions of the then outstanding Options (whether or not vested), including, without limitation, (A) accelerating the vesting of outstanding Options; and/or (B) providing for the cancellation of Options and their automatic conversion into the right to receive the securities or other properties which a holder of Shares underlying such Options would have been entitled to receive upon the consummation of such Terminating Transaction had such Shares been issued and outstanding (net of the appropriate option exercise prices). If, pursuant to the foregoing provisions of this paragraph (b), the Plan and the Options shall terminate by reason of occurrence of a Terminating Transaction without provision for any of the action(s) described in clause (i) and/or (ii) hereof, then any Optionee holding outstanding Options shall have the right, at such time immediately prior to the consummation of the Terminating Transaction as the Board shall designate, to exercise their Options to the full extent not theretofore exercised, including any installments which have not yet become Accrued Installments. (c) Except to the extent required in order to retain the qualification of an Option as an Incentive Stock Option under I.R.C. Section 422, to the maximum extent possible, any adjustments authorized under this Section 6.09 with respect to any outstanding Options shall be made by means of appropriate adjustments to the number of Shares (or other securities) and the option exercise price therefor under the unexercised portions of such outstanding Options, but without changing the aggregate exercise price applicable to said unexercised portions. In all cases, the nature and extent of adjustments under this Section 6.09 shall be determined by the Board in its sole discretion, and any such determination as to what adjustments shall be made, and the extent thereof, shall be final and binding. No fractional shares of stock shall be issued under the Plan pursuant to any such adjustment. 6.10 Taxes. The Board shall make such provisions and take such steps as it deems necessary or appropriate for the withholding of any federal, state, local and other tax required by law to be withheld with respect to the grant or exercise of an Option under the Plan, or with respect to the disposition of Shares acquired pursuant to the exercise of an Option pursuant to the Plan, including, but without limitation, the deduction of the amount of any such withholding tax from any compensation or other amounts payable to an Optionee by any member of the Participating Companies, or requiring an Optionee (or the Optionee's beneficiary or legal representative), as a condition of granting or exercising an Option, to pay to any member of the Participating Companies any amount required to be withheld, or to execute such other documents as the Board deems necessary or desirable in connection with the satisfaction of any applicable withholding obligation. If permitted by the Board, either at the time of the grant of an Option or the time of exercise, the Optionee and/or holder of Shares may elect, at such time and in such manner as the Board may prescribe, to satisfy such withholding obligation by (i) delivering to the Company Shares owned by such individual having a Fair Market Value equal to such withholding obligation, or (ii) requesting that the Company withhold from the Shares to be delivered upon the exercise a number of Shares having a Fair Market Value equal to such withholding obligation. 6.11 Legends on Options and Stock Certificates. Each Option Agreement and each certificate representing Shares acquired upon exercise of an Option shall be endorsed with all legends, if any, required by applicable federal and state securities laws to be placed on the Option Agreement and/or the certificate, as well as legends setting forth the restrictions contained in Section 6.08(a) hereof. The determination of which legends, if any, shall be placed upon Stock Option Agreements and/or said Shares shall be made by the Board in its sole discretion, and such decision shall be final and binding. 6.12 Employment Rights. Neither the adoption of the Plan nor the grant of Options will confer upon any person any right to continued employment with the Company or any subsidiary or affect in any way the right of the Company or subsidiary to terminate an employment relationship at any time. Except as specifically provided by the Board in any particular case, the loss of existing or potential profit in connection with Options granted under the Plan will not constitute an element of damages in the event of termination of an employment relationship. 6.13 Non-Competition Provisions. In consideration for the grant of Options, the Committee may require that Optionees enter into a non-competition agreement with the Company. ARTICLE VII AMENDMENT OR TERMINATION OF PLAN 7.01 Board Authority. The Board may amend, alter and/or terminate the Plan at any time; provided, however, that no change shall be effective unless approved by the stockholders of the Company if such change would cause the Option Plan to fail to meet the qualification requirements for Incentive Stock Option Plans as set forth in the Internal Revenue Code or, if the Company then has a class of equity security registered under the Exchange Act, to comply with Rule 16b-3 of the Exchange Act or any successor rule under such Act as in effect on the date of such amendment. 7.02 Limitation on Board Authority. The Board may amend the terms of any Option previously granted, prospectively or retroactively, and may amend the Plan in accordance with the provisions of Section 7.01; provided, however, that unless required by applicable law, rule or regulation, no amendment of the Plan or of any Option Agreement shall affect, in a material and adverse manner, Options granted prior to the date of any such amendment without the consent of any Optionee holding any such affected Options. 7.03 Substitution of Options. In the Board's discretion, the Board may, with an Optionee's consent, substitute Nonstatutory Stock Options for outstanding Incentive Stock Options, and any such substitution shall not constitute a new Option grant for the purposes of the Plan, and shall not require a revaluation of the Option exercise price for the substituted Option. Any such substitution may be implemented by an amendment to the applicable Option Agreement or in such other manner as the Board in its discretion may determine. ARTICLE VIII GENERAL PROVISIONS 8.01 Availability of the Plan. A copy of the Plan shall be delivered to the Secretary of the Company and shall be shown by the Secretary to any Eligible Person making reasonable inquiry concerning the Plan. 8.02 Notice. Any notice or other communication required or permitted to be given pursuant to the Plan or under any Option Agreement must be in writing and may be given by registered or certified mail and, if given by registered or certified mail, shall be determined to have been given and received when a registered or certified letter containing such notice, properly addressed with postage prepaid, is deposited in the United States mails and, if given otherwise than by registered or certified mail, shall be deemed to have been given when delivered to and received by the party to whom addressed. Notice shall be given to Eligible Persons at their most recent addresses shown in the Company's records. Notice to the Company shall be addressed to the Company at the address of the Company's principal executive offices, to the attention of the Secretary of the Company. 8.03 Titles and Headings. Titles and headings of sections of the Plan are for convenience of reference only and shall not affect the construction of any provision of the Plan. 8.04 Governing Law. The Plan shall be governed by, interpreted under and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of Delaware, applicable to agreements made and to be performed wholly within the State of Delaware. LEGAL\OPTPLAN.OCC EX-10 3 EXHIBIT 10.6.1 [CONFORMED COPY] AMENDMENT NO. 1 TO CREDIT AGREEMENT AMENDMENT NO. 1 dated as of October 26, 1994 among ORBITAL SCIENCES CORPORATION, ORBITAL IMAGING CORPORATION and FAIRCHILD SPACE AND DEFENSE CORPORATION (collectively, the "Borrowers"), the BANKS listed on the signature pages hereof, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "Administrative Agent"), and J.P. MORGAN DELAWARE, as Collateral Agent. W I T N E S S E T H : WHEREAS, the parties hereto have heretofore entered into an Amended and Restated Credit and Reimbursement Agreement dated as of September 27, 1994 (the "Agreement"); and WHEREAS, the parties hereto desire to amend the Agreement as set forth below; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby. SECTION 2. Definition of Borrowing Base. The definition of "Borrowing Base" contained in Section 1.01 of the Agreement is amended by: (a) changing the phrase "one month" in clause (B) to "two months"; (b) deleting clause (C)(1) in its entirety and renumbering clauses (C)(2) and (C)(3) as (C)(1) and (C)(2), respectively; and (c) deleting clause (D)(1) in its entirety and renumbering clauses (D)(2) and (D)(3) as (D)(1) and (D)(2), respectively. SECTION 3. Amendment of Guaranty. Section 9.06 of the Agreement is amended to read in its entirety as follows: "SECTION 9.06. Subrogation. Upon making any payment with respect to any Borrower hereunder, the Guarantor making such payment shall be subrogated to the rights of the payee against the Borrower with respect to such payment; provided that such Guarantor shall not enforce or accept any payment by way of subrogation until all amounts of principal of and interest on the Notes and all other amounts payable by all Borrowers under the Financing Documents have been paid in full.". SECTION 4. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. Counterparts; Effectiveness. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective as of October 26, 1994 when the Administrative Agent shall have received duly executed counterparts hereof signed by the Borrowers and all the Banks (or, in the case of any party as to which an executed counterpart shall not have been received, the Administrative Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party). IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. ORBITAL SCIENCES CORPORATION By /s/ Carlton B. Crenshaw Title: Sr. V.P./Finance & Administration and Treasurer ORBITAL IMAGING CORPORATION By /s/ Carlton B. Crenshaw Title: Chief Financial Officer and Treasurer FAIRCHILD SPACE AND DEFENSE CORPORATION By /s/ Carlton B. Crenshaw Title: Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Kevin J. O'Brien Title: Vice President THE BANK OF NOVA SCOTIA By /s/ James R. Trimble Title: Sr. Relationship Manager SIGNET BANK/VIRGINIA By /s/ Ronald K. Hobson Title: Vice President NATIONSBANK, N.A. By /s/ Douglas T. Brown Title: Vice President THE BANK OF TOKYO TRUST COMPANY By /s/ J. Andrew Don Title: Vice President THE DAIWA BANK, LIMITED By /s/ Keith W. Rauschenberger Title: Vice President By /s/ Louanne Baily Title: Vice President and Manager EX-10 4 EXHIBIT 10.6.2 [CONFORMED COPY] WAIVER NO. 1 TO CREDIT AGREEMENT WAIVER No. 1 dated as of December 19, 1994 among ORBITAL SCIENCES CORPORATION (the "Company"), ORBITAL IMAGING CORPORATION and FAIRCHILD SPACE AND DEFENSE CORPORATION (together with the Company, the "Borrowers"), the BANKS listed on the signature pages hereof, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "Administrative Agent"), and J.P. MORGAN DELAWARE, as Collateral Agent. W I T N E S S E T H : WHEREAS, the parties hereto have heretofore entered into an Amended and Restated Credit and Reimbursement Agreement dated as of September 27, 1994 (as amended, the "Agreement"); and WHEREAS, the Company has entered into an Agreement and Plan of Merger dated as of November 25, 1994 (as in effect on the date hereof, the "Merger Agreement") with Orbital Acquisition Corporation and Magellan Corporation, a Delaware corporation ("Magellan"), pursuant to which the Company will acquire all of the issued and outstanding capital stock of Magellan (the "Acquisition"); and WHEREAS, pursuant to the Agreement, the Company has agreed for itself and each of its Subsidiaries (as defined in the Agreement) to comply with the covenants set forth in the Agreement; and WHEREAS, in the absence of this Waiver, the consummation of the Acquisition will cause the Company to be in noncompliance with certain of such covenants; and WHEREAS, the Company has asked the Banks, and the Banks are willing, on the terms and conditions set forth below, to waive, among other things, compliance with certain of such covenants and the Defaults (as defined in the Agreement) caused by such noncompliance; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions. Unless otherwise specifically defined herein, each term used herein that is defined in the Agreement shall have the meaning assigned to such term in the Agreement. SECTION 2. Waiver of Certain Misrepresentations. The Banks hereby waive any inaccuracy of the representations and warranties set forth in Section 4.07 or 4.08 of the Agreement, solely to the extent such inaccuracy is attributable to the matters concerning Magellan disclosed in the letter dated December 13, 1994 from the Company to the Banks. SECTION 3. Waiver of Compliance with the Insurance Covenant. The Banks waive (i) compliance by the Company with the terms of Section 5.03(c) and 5.03(d) of the Agreement and (ii) any Default arising under the Agreement by reason of noncompliance with such Sections 5.03(c) and 5.03(d); provided that, the waivers granted under this Section 3 shall be effective solely with respect to any insurance policies maintained by Magellan and subject to a Lien granted by Magellan to Silicon Valley Bank under the Loan and Security Agreement between Magellan and such Bank dated as of December 2, 1990, as amended prior to the date hereof and as in effect on the date hereof. SECTION 4. Waiver of Compliance with the Investments Covenant. The Banks waive (i) compliance by the Company with the terms of Section 5.07 of the Agreement and (ii) any Default arising under the Agreement by reason of noncompliance with such Section 5.07; provided that, the waivers granted under this Section 4 shall be effective only to the extent necessary to permit the Company to make an Investment in an aggregate principal amount not exceeding the aggregate value of 3,300,000 shares of the common stock of the Company (determined at the time the Acquisition is consummated) in order to consummate the Acquisition on the terms and conditions set forth in the Merger Agreement, and provided further that, any such Investment shall not be deemed to be an Investment for purposes of Section 5.07(b), (d) or (e) of the Agreement. SECTION 5. Compliance With Certain Sections Of The Agreement. For purposes of determining compliance by the Company with Sections 5.01 through 5.18, inclusive, of the Agreement, Magellan will be a Subsidiary of the Company as of any date on or after the consummation of the Acquisition. SECTION 6. No Other Waivers. Other than as specifically provided herein, this Waiver shall not operate as a waiver of any right, remedy, power or privilege of the Banks under the Agreement or any other Financing Document or of any other term or condition of the Agreement or any other Financing Document. SECTION 7. New York Law. This Waiver shall be governed by and construed in accordance with the laws of the State of New York. SECTION 8. Counterparts; Effectiveness. This Waiver may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Waiver shall become effective upon (i) receipt by the Administrative Agent of duly executed counterparts hereof signed by the Borrowers and the Required Banks (or, in the case of any party as to which an executed counterpart shall not have been received, the Administrative Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party), (ii) receipt by the Administrative Agent of evidence reasonably satisfactory to it that the Acquisition shall have been consummated on the terms set forth in the Merger Agreement and (iii) receipt by each Bank of a copy of the Merger Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be duly executed as of the date first above written. ORBITAL SCIENCES CORPORATION By /s/ Carlton B. Crenshaw Title: Sr. V.P./Finance & Admin. and Treasurer ORBITAL IMAGING CORPORATION By /s/ Carlton B. Crenshaw Title: Chief Financial Officer and Treasurer FAIRCHILD SPACE AND DEFENSE CORPORATION By /s/ Carlton B. Crenshaw Title: Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Vance B. Barbour Title: Associate THE BANK OF NOVA SCOTIA By /s/ J.R. Trimble Title: Sr. Relationship Mgr. SIGNET BANK/VIRGINIA By /s/ Ronald K. Hobson Title: Vice President NATIONSBANK, N.A. By /s/ Douglas T. Brown Title: Vice President THE BANK OF TOKYO TRUST COMPANY By Title: THE DAIWA BANK, LIMITED By /s/ Keith W. Rauschenberger Title: Vice President By /s/ Louanne Baily Title: Vice President and Mgr. EX-10 5 EXHIBIT 10.10.1 [FAIRCHILD LOGO] FAIRCHILD Joseph A. Boyd Chairman and Chief Executive Officer August 26, 1992 Mr. Jack A. Frohbieter Fairchild Space & Defense Corporation 20301 Century Boulevard Germantown, Maryland 20874 Dear Jack: Although the Company does not intend to extend your Executive Employment Agreement ("Contract"), it recognizes your value as an employee and desires that you continue employment. If you continue employment, you will be provided severance benefits if, prior to your 65th birthday, your employment is terminated by the Company, or any successor, for reason other than for cause. Termination for cause shall mean willful misconduct or conduct involving bad faith. The benefits will include: (1) an amount equal to twice your then current annual base pay; and (2) an amount equal to the sum of the two short-term incentive compensation awards for the two years immediately prior to the termination; however, you will not receive any incentive compensation for the year of the termination. Also, to the extent permitted under the Plans, you will be entitled to continue to participate for a period up to two years in the Company's "welfare" benefit plans (Health, Life, Disability, Insurance, but not Pension or Savings plans or vacation or other fringe benefits) to the same extent as if you were an employee. These benefits will be in lieu of and not in addition to any other Company severance benefits, except that, any severance benefits under this arrangement will be reduced by the amount of termination benefits, if any, that are provided under the Contract. Fairchild Space & Defense Corporation - 20301 Century Boulevard - Germantown, Maryland 20874 - (301) 353-8649 [Fairchild Logo] Jack A. Frohbieter August 26, 1992 Page Two In addition to the above described benefits relating to termination, you will continue during your employment to participate in the Company's Supplemental Executive Retirement Plan as set forth in your Contract. Sincerely, /s/ Joseph A. Boyd Joseph A. Boyd Chairman and CEO JAB/ahe EX-10 6 EXHIBIT 10.13.1.2 CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b-2 AMENDMENT NO. 2 TO MASTER AGREEMENT This Amendment No. 2 to the Master Agreement ("Amendment No. 2") is made and entered into as of this 1st day of October 1994 by and among Orbital Sciences Corporation ("Orbital"), Orbital Communications Corporation ("ORBCOMM"), Teleglobe Inc. ("Teleglobe") and Teleglobe Mobile Partners ("Teleglobe Mobile"). W I T N E S S E T H WHEREAS, Orbital, ORBCOMM, Teleglobe and Teleglobe Mobile previously entered into a Master Agreement dated as of June 30, 1993 (the "Master Agreement") and Amendment No. 1 to the Master Agreement dated as of April 1, 1994; and WHEREAS, Orbital, ORBCOMM, Teleglobe and Teleglobe Mobile desire to further amend and modify the Master Agreement. NOW, THEREFORE, the parties agree as follows: SECTION 1. Terms used but not otherwise defined herein shall have the meanings assigned thereto in the Master Agreement. SECTION 2. Appendix D to the Master Agreement, which Appendix sets forth the Amended and Restated Agreement of Limited Partnership of ORBCOMM Development Partners, L.P. (the "Amended and Restated ORBCOMM Development Partnership Agreement"), is hereby amended and modified as follows: A. A new Section 3.2(e) is added to the Amended and Restated ORBCOMM Partnership Agreement following Section 3.2(d) that reads as follows: "(e) In addition to the capital contributions made or required to be made pursuant to the Original Agreement or specified in this Section 3.2, Teleglobe Mobile hereby agrees to contribute in cash or in immediately available funds up to $250,000 for all international business development activities expenses (actual salary, fringe benefit, travel and related overhead and general and administrative expenses) associated with the ORBCOMM System incurred from September 1, 1994 through the exercise of the Teleglobe Mobile Option (as such term is defined in the Master Agreement)." B. Section 6.9 is hereby deleted in its entirety and replaced with the following: "6.9. The System Charge. The System Charge for any calendar quarter shall be equal to the sum of (a) Output Capacity Charge (as such term is defined in Section 4.1(a) of the System Charge and Marketing (U.S.) Agreement) for such calendar month minus [CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b-2]% of Total Aggregate Revenues and (b) the International Output Capacity Charge (as such term is defined in Section 6.1(a) of the International System Charge and Marketing (Non-U.S.) Agreement) for such calendar month minus [CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b- 2]% of Total Aggregate Revenues. For purposes of this Section 6.9, "Total Aggregate Revenues" shall mean the total aggregate revenues invoiced by both ORBCOMM U.S. and ORBCOMM International to their respective Subscribers, Resellers and Licensees in connection with the operation, marketing and use of the ORBCOMM System in such calendar quarter; provided that revenues invoiced by either ORBCOMM U.S. or ORBCOMM International in connection with the sale of network control centers, gateway earth stations and subscriber communicators shall be excluded from the calculation of total aggregate revenues; and provided further that, within five (5) days of the receipt by the Partnership from ORBCOMM U.S. and ORBCOMM International of the amount of total aggregate revenues invoiced by them during a calendar quarter, the Partnership shall notify each of ORBCOMM and Teleglobe Mobile of the amount of the Total Aggregate Revenues for such quarter. The amount determined pursuant to clause (a) above shall be ORBCOMM's allocated portion of the System Charge and the amount determined pursuant to clause (b) above shall be Teleglobe Mobile's allocated portion of the System Charge. SECTION 3. Article V of the Master Agreement is hereby amended and modified as follows: A. Section 5.2 of the Master Agreement is amended and modified to insert the following new sections immediately following Section 5.2(c): "(d) The ORBCOMM System Construction Agreement shall be amended as provided in Amendment No. 1 to the ORBCOMM System Construction Agreement in the form attached hereto as Appendix G, provided that such Amendment No. 1 shall be dated the date of the exercise of the Teleglobe Mobile Option by Teleglobe Mobile; (e) The System Charge and Marketing (U.S.) Agreement shall be amended as provided in Amendment No. 2 to the System Charge and Marketing (U.S.) Agreement in the form attached hereto as Appendix H, provided that such Amendment No. 2 shall be dated the date of the exercise of the Teleglobe Mobile Option by Teleglobe Mobile; and (f) The International System Charge and Marketing (Non-U.S.) Agreement shall be amended as provided in Amendment No. 2 to the International System Charge and Marketing (Non- U.S.) Agreement in the form attached hereto as Appendix I, provided that such Amendment No. 2 shall be dated the date of the exercise of the Teleglobe Mobile Option by Teleglobe Mobile. B. The following new Section 5.3 shall be inserted in the Master Agreement immediately following Section 5.2 thereof: "5.3 Failure to Exercise Teleglobe Mobile Option. In the event Teleglobe Mobile does not exercise the Teleglobe Mobile Option, the ORBCOMM Development Partnership Agreement shall be amended as provided in the Amendment to the Agreement of Limited Partnership of ORBCOMM Development Partners, L.P. in the form attached hereto as Appendix J, provided that such Amendment shall be numbered and dated accordingly." SECTION 4. The Master Agreement is hereby amended and modified to add Appendixes G, H, I and J thereto in the forms attached to this Amendment No. 2. IN WITNESS WHEREOF, the parties have caused this Amendment No. 2 to be executed as of the day and year first written above. ORBITAL SCIENCES CORPORATION TELEGLOBE INC. By:/s/ Bruce W. Ferguson By: /s/ Guthrie J. Stewart Bruce W. Ferguson Guthrie J. Stewart Executive Vice President Executive Vice President, and General Manager/Communications Corporate Development and and Information Systems Group and Corporate Secretary ORBITAL COMMUNICATIONS CORPORATION TELEGLOBE MOBILE PARTNERS By: Teleglobe Mobile Investment Inc., its Managing Partner By:/s/ Alan L. Parker By:/s/ Guthrie J. Stewart Alan L. Parker Guthrie J. Stewart President Chairman of the Board and Chief Executive Officer APPENDIX G AMENDMENT NO. 1 TO ORBCOMM SYSTEM CONSTRUCTION AGREEMENT This Amendment No. 1 to the ORBCOMM System Construction Agreement ("Amendment No. 1") is made and entered into as of this ______ day of ________ 199_ by and between Orbital Communications Corporation ("ORBCOMM") and ORBCOMM Development Partners, L.P. ("ORBCOMM Development"). W I T N E S S E T H WHEREAS, ORBCOMM and ORBCOMM Development previously entered into the ORBCOMM System Construction Agreement dated as of June 30, 1993 (the "System Construction Agreement"); and WHEREAS, ORBCOMM and ORBCOMM Development desire to amend and modify the System Construction Agreement. NOW, THEREFORE, the parties agree as follows: SECTION 1. Terms used but not otherwise defined herein shall have the meanings assigned thereto in the System Construction Agreement. SECTION 2. Article 2 of the System Construction Agreement is hereby amended and modified as follows: A. Section 2.2(a) of the System Construction Agreement is hereby deleted in its entirety and replaced with the following: "(a) Within ten (10) days of receipt by ORBCOMM of the Output Capacity Charge (as such term is defined in the System Charge and Marketing (U.S.) Agreement) for any calendar quarter, ORBCOMM shall remit to ORBCOMM Development ORCOMM's allocated portion of the system charge (the "System Charge") calculated in accordance with Section 6.9 of the Amended and Restated Agreement of Limited Partnership of ORBCOMM Development Partners, L.P. (the "Amended ORBCOMM Development Partnership Agreement"), provided that if the Output Capacity Charge for such calendar quarter is less than [CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b-2]% of Total Aggregate Revenues (as such term is defined in the Amended ORBCOMM Development Partnership Agreement), then ORBCOMM shall not be required to pay, and it shall not owe ORBCOMM Development, any portion of the System Charge for such calendar quarter." B. Sections 2.2(b), (c) and (d) of the System Construction Agreement are deleted in their entirety. C. Sections 2.2(e) and (f) of the System Construction Agreement are hereby renumbered as Sections 2.2(b) and (c), respectively. IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be executed as of the day and year first above written. ORBITAL COMMUNICATIONS CORPORATION By:________________________________ Alan L. Parker President ORBCOMM DEVELOPMENT PARTNERS, L.P. By: Orbital Communications Corporation, General Partner By:_________________________ Alan L. Parker President By: Teleglobe Mobile Partners, General Partner By: Teleglobe Mobile Investment Inc., its Managing Partner By:__________________________ Guthrie J. Stewart Chairman of the Board and Chief Executive Officer APPENDIX H AMENDMENT NO. 2 TO SYSTEM CHARGE AND MARKETING (U.S.) AGREEMENT This Amendment No. 2 to the System Charge and Marketing (U.S.) Agreement ("Amendment No. 2") is made and entered into as of this ______ day of ________ 199_ by and between Orbital Communications Corporation ("ORBCOMM") and ORBCOMM U.S. Partners, L.P. ("ORBCOMM U.S."). W I T N E S S E T H WHEREAS, ORBCOMM and ORBCOMM U.S. previously entered into the System Charge and Marketing (U.S.) Agreement dated as of June 30, 1993 and Amendment No. 1 thereto dated as of June 30, 1994 (as such agreement has been and may be modified, the "Agreement"); and WHEREAS, ORBCOMM and ORBCOMM U.S. desire to further amend and modify the Agreement. NOW, THEREFORE, the parties agree as follows: SECTION 1. Terms used but not otherwise defined herein shall have the meanings assigned thereto in the Agreement. SECTION 2. Section 4 of the Agreement is hereby amended and modified as follows: A. Section 4.1(a) of the Agreement is hereby deleted in its entirety and replaced with the following: "(a) Within thirty (30) days of the end of each calendar quarter, the Operator shall (i) notify ORBCOMM Development of the Total Aggregate Revenues invoiced by the Operator during such calendar quarter and (ii) remit to ORBCOMM [CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b-2] percent ([CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b-2]%) of the Total Aggregate Revenues invoiced by the Operator in such calendar quarter (the "Output Capacity Charge"). For purposes of this Agreement, "Total Aggregate Revenues" shall mean the total aggregate revenues invoiced by the Operator to its Subscribers, Resellers and Licensees in connection with the operation, marketing and use of the ORBCOMM System in such calendar quarter; provided that revenues invoiced by the Operator in connection with the sale of network control centers, gateway earth stations and subscriber communicators shall be excluded from the calculation of total aggregate revenues. The Operator shall have the sole discretion to set the fees to be paid by its Subscribers, Resellers and Licensees for use of the ORBCOMM System." B. Sections 4.1(b) and (c) of the Agreement are deleted in their entirety. C. Section 4.2 of the Agreement is deleted in its entirety and replaced with the following: "4.2 Payment Terms. The Operator shall remit all Output Capacity Charges in lawful money of the United States pursuant to written instructions to the Operator furnished by ORBCOMM. Payment of the Output Capacity Charge shall be deemed to have been made on the date received in full in collectable funds. If any date on which a payment of the Output Capacity Charge becomes due and payable is not a business day in the State of New York, the Output Capacity Charge payment otherwise due and payable on such date shall be due and payable on the next succeeding business day." IN WITNESS WHEREOF, the parties have caused this Amendment No. 2 to be executed as of the day and year first above written. ORBITAL COMMUNICATIONS CORPORATION By:________________________________ Alan L. Parker President ORBCOMM U.S. PARTNERS, L.P. By: Orbital Communications Corporation, General Partner By:___________________________ Alan L. Parker President By: Teleglobe Mobile Partners, General Partner By: Teleglobe Mobile Investment Inc., its Managing Partner By:___________________________ Guthrie J. Stewart Chairman of the Board and Chief Executive Officer APPENDIX I AMENDMENT NO. 2 TO INTERNATIONAL SYSTEM CHARGE AND MARKETING (NON-U.S.) AGREEMENT This Amendment No. 2 to the International System Charge and Marketing (Non-U.S.) Agreement ("Amendment No. 2") is made and entered into as of this ______ day of ________ 199_ by and among Orbital Development Partners, L.P. ("ORBCOMM Development"), Teleglobe Mobile Partners ("Teleglobe Mobile") and ORBCOMM International Partners, L.P. ("ORBCOMM International"). W I T N E S S E T H WHEREAS, ORBCOMM Development, Teleglobe Mobile and ORBCOMM International previously entered into the International System Charge and Marketing (Non-U.S.) Agreement dated as of June 30, 1993 and Amendment No. 1 thereto dated as of June 30, 1994 (as such agreement has been and may be modified, the "Agreement"); and WHEREAS, ORBCOMM Development, Teleglobe Mobile and ORBCOMM International desire to further amend and modify the Agreement. NOW, THEREFORE, the parties agree as follows: SECTION 1. Terms used but not otherwise defined herein shall have the meanings assigned thereto in the Agreement. SECTION 2. Section 4.1 of the Agreement is hereby deleted in its entirety and replaced with the following: "4.1 Calculation of System Charge. In consideration of the grant to Teleglobe Mobile of the exclusive right to market, sell, lease and franchise all ORBCOMM System output capacity in the Non-U.S. Area, within ten (10) days of receipt by Teleglobe Mobile of the International Output Capacity Charge (as defined in Section 6.1(a)), Teleglobe Mobile shall remit to ORBCOMM Development Teleglobe Mobile's allocated portion of the System Charge calculated in accordance with Section 6.9 of the Amended and Restated Agreement of Limited Partnership of ORBCOMM Development Partners, L.P. (the "Amended ORBCOMM Development Partnership Agreement), provided that if the International Output Capacity Charge for such calendar quarter is less than [CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b-2]% of Total Aggregate Revenues (as such term is defined in the Amended ORBCOMM Development Partnership Agreement), then Teleglobe Mobile shall not be required to pay, and it shall not owe ORBCOMM Development, any portion of the System Charge for such calendar quarter." SECTION 3. Sections 4.2, 4.3 and 4.4 of the Agreement are hereby deleted in their entirety. SECTION 4. Section 4.5 of the Agreement is deleted in its entirety and replaced with the following: "4.5. Payment Terms. Teleglobe Mobile shall remit all System Charges in lawful money of the United States pursuant to written instructions to it furnished by ORBCOMM Development. Payment of the System Charge shall be deemed to have been made on the date received in full in collectable funds. If any date on which a payment of the System Charge becomes due and payable is not a business day in the State of New York, the System Charge payment otherwise due and payable on such date shall be due and payable on the next succeeding business day." SECTION 5. Section 6 of the Agreement is amended and modified as follows: A. Section 6.1(a) of the Agreement is deleted in its entirety and replaced with the following: "(a) Within thirty (30) days of the end of each calendar quarter, the Operator shall (i) notify ORBCOMM Development of the Total Aggregate Revenues invoiced by the Operator during such calendar quarter and (ii) remit to Teleglobe Mobile [CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b-2] percent ([CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b-2]%) of the Total Aggregate Revenues invoiced by the Operator in such calendar quarter (the "International Output Capacity Charge") For purposes of this Agreement, "Total Aggregate Revenues" shall mean the total aggregate revenues invoiced by the Operator to its Subscribers, Resellers and Licensees in connection with the operation, marketing and use of the ORBCOMM System in such calendar quarter; provided that revenues invoiced by the Operator in connection with the sale of network control centers, gateway earth stations and subscriber communicators shall be excluded from the calculation of total aggregate revenues. The Operator shall have the sole discretion to set the fees to be paid by its Subscribers, Resellers and Licensees for use of the ORBCOMM System." B. Sections 6.1(b) and (c) of the Agreement are deleted in their entirety. C. Section 6.2 of the Agreement is deleted in its entirety and replaced with the following: "Section 6.2 Payment Terms. The Operator shall remit all International Output Capacity Charges in lawful money of the United States pursuant to written instructions to the Operator furnished by Teleglobe Mobile. Payment of the International Output Capacity Charge shall be deemed to have been made on the date received in full in collectable funds. If any date on which a payment of the International Output Capacity Charge becomes due and payable is not a business day in the State of New York, the International Output Capacity Charge payment otherwise due and payable on such date shall be due and payable on the next succeeding business day." IN WITNESS WHEREOF, the parties have caused this Amendment No. 2 to be executed as of the day and year first above written. ORBCOMM DEVELOPMENT PARTNERS, L.P. By: Orbital Communications Corporation, General Partner By:___________________________ Alan L. Parker President By: Teleglobe Mobile Partners, General Partner By: Teleglobe Mobile Investment Inc., its Managing Partner By:___________________________ Guthrie J. Stewart Chairman of the Board and Chief Executive Officer TELEGLOBE MOBILE PARTNERS By: Teleglobe Mobile Investment Inc., its Managing Partner By:___________________________ Guthrie J. Stewart Chairman of the Board and Chief Executive Officer ORBCOMM INTERNATIONAL PARTNERS, L.P. By: Orbital Communications Corporation, General Partner By:___________________________ Alan L. Parker President By: Teleglobe Mobile Partners, General Partner By: Teleglobe Mobile Investment Inc., its Managing Partner By:__________________________ Guthrie J. Stewart Chairman of the Board and Chief Executive Officer APPENDIX J AMENDMENT NO. __ TO AGREEMENT OF LIMITED PARTNERSHIP OF ORBCOMM DEVELOPMENT PARTNERS, L.P. This Amendment No. __ to the Agreement of Limited Partnership of ORBCOMM Development Partners, L.P. (the "Amendment") is made and entered into as of this ______ day of ________ 199_ by and among Teleglobe Mobile Partners ("Teleglobe Mobile") and Orbital Communications Corporation ("ORBCOMM"). W I T N E S S E T H WHEREAS, ORBCOMM and Teleglobe Mobile previously entered into the Agreement of Limited Partnership of ORBCOMM Development Partners, L.P. and Amendment No. 1 thereto dated as of April 1, 1994 (the "ORBCOMM Development Partnership Agreement"); and WHEREAS, ORBCOMM and Teleglobe Mobile desire to further amend and modify the ORBCOMM Development Partnership Agreement. NOW, THEREFORE, the parties agree as follows: SECTION 1. Terms used but not otherwise defined herein shall have the meanings assigned thereto in the ORBCOMM Development Partnership Agreement. SECTION 2. The following new Section 3.2(d) shall be inserted in the ORBCOMM Development Partnership Agreement immediately following Section 3.2(c) thereof: "(e) In addition to the capital contributions made or required to be made pursuant to this Agreement, ORBCOMM hereby agrees to contribute in cash or in immediately available funds up to $250,000 for all international business development activities expenses (actual salary, fringe benefit, travel and related overhead and general and administrative expenses) associated with the ORBCOMM System incurred from September 1, 1994 through the earlier of the expiration of the Teleglobe Mobile Option Period (as such term is defined in the Master Agreement) and written notice from Teleglobe Mobile that it will not exercise the Teleglobe Mobile Option (as such term is defined in the Master Agreement)." IN WITNESS WHEREOF, the parties have caused this Amendment No. __ to be executed as of the day and year first above written. ORBITAL COMMUNICATIONS CORPORATION By: ____________________________ Alan L. Parker President TELEGLOBE MOBILE PARTNERS By: Teleglobe Mobile Investment Inc., its Managing Partner By:______________________________ Guthrie J. Stewart Chairman of the Board and Chief Executive Officer EX-10 7 EXHIBIT 10.19.1 AMENDMENT NO. 1 TO SYSTEM CHARGE AND MARKETING (U.S.) AGREEMENT This Amendment No. 1 to the System Charge and Marketing (U.S.) Agreement ("Amendment No. 1") is made and entered into as of this 30th day of June 1994 by and between Orbital Communications Corporation ("ORBCOMM") and ORBCOMM U.S. Partners, L.P. ("ORBCOMM U.S."). W I T N E S S E T H WHEREAS, ORBCOMM and ORBCOMM U.S. previously entered into the System Charge and Marketing (U.S.) Agreement dated as of June 30, 1993 (the "Agreement"); and WHEREAS, ORBCOMM and ORBCOMM U.S. desire to amend and modify the Agreement. NOW, THEREFORE, the parties agree as follows: SECTION 1. Terms used but not otherwise defined herein shall have the meanings assigned thereto in the Agreement. SECTION 2. Section 6.4 of the Agreement is hereby deleted in its entirety and replaced with the following: "6.4 Term of Marketing Services. The Operator shall perform the Marketing Services from the date hereof until the earlier of the expiration of the Teleglobe Mobile Option Period and the exercise by Teleglobe Mobile of the Teleglobe Mobile Option." IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be executed as of the day and year first above written. ORBITAL COMMUNICATIONS CORPORATION By: /s/ Alan L. Parker Alan L. Parker President ORBCOMM U.S. PARTNERS, L.P. By: Orbital Communications Corporation, General Partner By: /s/ Alan L. Parker Alan L. Parker President By: Teleglobe Mobile Partners, General Partner By: Teleglobe Mobile Investment Inc., its Managing Partner By: /s/ Guthrie J. Stewart Guthrie J. Stewart Secretary EX-10 8 EXHIBIT 10.20.1 AMENDMENT NO. 1 TO INTERNATIONAL SYSTEM CHARGE AND MARKETING (NON-U.S.) AGREEMENT This Amendment No. 1 to the International System Charge and Marketing (Non-U.S.) Agreement ("Amendment No. 1") is made and entered into as of this 30th day of June 1994 by and among Orbital Development Partners, L.P. ("ORBCOMM Development"), Teleglobe Mobile Partners ("Teleglobe Mobile") and ORBCOMM International Partners, L.P. ("ORBCOMM International"). W I T N E S S E T H WHEREAS, ORBCOMM Development, Teleglobe Mobile and ORBCOMM International previously entered into the International System Charge and Marketing (Non-U.S.) Agreement dated as of June 30, 1993 (the "Agreement"); and WHEREAS, ORBCOMM Development, Teleglobe Mobile and ORBCOMM International desire to amend and modify the Agreement. NOW, THEREFORE, the parties agree as follows: SECTION 1. Terms used but not otherwise defined herein shall have the meanings assigned thereto in the Agreement. SECTION 2. Section 8.2 of the Agreement is hereby deleted in its entirety and replaced with the following: "8.2 Term of Marketing Services. The Operator shall perform the International Marketing Services from the date hereof until the earlier of the expiration of the Teleglobe Mobile Option Period and the exercise by Teleglobe Mobile of the Teleglobe Mobile Option." IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be executed as of the day and year first above written. ORBCOMM DEVELOPMENT PARTNERS, L.P. By: Orbital Communications Corporation, General Partner By: /s/ Alan L. Parker Alan L. Parker President By: Teleglobe Mobile Partners, General Partner By: Teleglobe Mobile Investment Inc., its Managing Partner By: /s/ Guthrie J. Stewart Guthrie J. Stewart Secretary TELEGLOBE MOBILE PARTNERS By: Teleglobe Mobile Investment Inc., its Managing Partner By: /s/ Guthrie J. Stewart Guthrie J. Stewart Secretary ORBCOMM INTERNATIONAL PARTNERS, L.P. By: Orbital Communications Corporation, General Partner By: /s/ Alan L. Parker Alan L. Parker President By: Teleglobe Mobile Partners, General Partner By: Teleglobe Mobile Investment Inc., its Managing Partner By: /s/ Guthrie J. Stewart Guthrie J. Stewart Secretary EX-11 9 EXHIBIT 11
Exhibit 11. Statement re: Computation of Earnings Per Share Three Month Period Ended December 31, 1994 Twelve Month Period Ended December 31, 1994 Weighted average Weighted average of outstanding shares 17,527,250 17,527,250 of outstanding shares 16,021,978 16,021,978 Weighted average of outstanding Weighted average of outstanding shares issued in pooling shares issued in pooling transaction 2,640,439 2,640,439 transaction 2,640,439 2,640,439 Common equivalent shares: Common equivalent shares: outstanding stock options 480,670 502,082 outstanding stock options 442,010 455,458 Other potentially dilutive securities: Other potentially dilutive securities: Convertible debentures N/A 4,104,335 convertible debentures N/A 4,104,335 Shares used in computing net income per share 20,648,359 24,774,106 Shares used in computing net Net income $1,140,322 $1,140,322 Net income $ 5,388,387 $5,388,387 Adjustments assuming full dilution: Adjustments assuming full dilution: Interest expense, net of taxes N/A 556,399 interest expense, net of taxes N/A 1,053,378 Net income, assuming full Net income, assuming dilution $1,140,322 $1,696,721 full dilution $ 5,388,387 $6,441,765 Net income per share $ 0.06 $ 0.07 Net income per share $ 0.28 $ 0.28 Dilution percentage Dilution percentage assuming full dilution N/A (24.014)% assuming full dilution N/A 1.650% Net income per share used $ 0.06 $ 0.06 Net income per share used $ 0.28 $ 0.28 Notes: - OSC shares issued in Magellan pooling are assumed outstanding for the entire year. - Magellan stock options are assumed outstanding from original grant date. - Provided that dilution is greater than 3%, the convertible debentures are considered dilutive in the calculation and presentation of per share data.
EX-13 10 EXHIBIT 13 FINANCIAL INFORMATION INDEX TO FINANCIAL REVIEW AND DISCUSSION Selected Consolidated Financial Data page 24 Management's Discussion and Analysis of Financial Condition and Results of Operations page 25 Independent Auditors' Report page 31 Consolidated Statements of Earnings page 32 Consolidated Balance Sheets page 33 Consolidated Statements of Stockholders' Equity page 34 Consolidated Statements of Cash Flows page 35 Notes to Consolidated Financial Statements page 36
MARKET INFORMATION The Company's Common Stock is traded on the Nasdaq National Market System under the symbol ORBI. The number of shareholders of record as of March 6, 1995 was 1,414. The Company's Convertible Debentures are traded on the Nasdaq System under the symbol ORBIG. The range of high and low closing sales prices of Orbital Common Stock for 1992 through 1994, as reported on the Nasdaq National Market System, was as follows:
1994 High Low Fourth Quarter $22 1/2 $15 Third Quarter $18 1/2 $14 1/2 Second Quarter $24 1/2 $14 First Quarter $26 1/2 $15 1/4
1993 High Low Fourth Quarter $23 $16 1/2 Third Quarter $19 $12 1/4 Second Quarter $13 3/4 $10 1/4 First Quarter $14 1/4 $10 3/4
1992 High Low Fourth Quarter $15 $12 Third Quarter $15 3/4 $11 1/4 Second Quarter $17 1/2 $11 1/2 First Quarter $19 $13 1/4
twenty-three Orbital Sciences Corporation SELECTED CONSOLIDATED FINANCIAL DATA
(In Thousands, Except Share Data) Years Ended December 31, 1994 1993 1992 1991 1990 --------- ----------------------------------------------------- Operating Data (1): Revenues $ 221,946 $ 223,087 $ 204,190 $ 161,556 $ 122,752 Costs of Goods Sold 157,066 170,204 158,661 127,070 98,302 --------- --------- --------- --------- --------- Gross Profit 64,880 52,883 45,529 34,486 24,450 Research and Development Expenses 14,389 14,885 10,586 7,876 4,850 Selling, General and Administrative Expenses 39,749 25,897 28,615 22,032 19,775 Amortization of Excess of Purchase Price Over Net Assets Acquired 2,045 1,537 1,495 1,495 1,598 Interest Income (Expense), Net 37 356 738 1,011 (414) Equity in Earnings (Losses) of Affiliates (1,264) (2,436) -- -- -- --------- --------- --------- --------- --------- Income (Loss) Before Provision for Income Taxes, Cumulative Effect of Accounting Change and Extraordinary Item 7,470 8,484 5,571 4,094 (2,187) Provision for Income Taxes 2,081 2,288 1,630 2,290 206 --------- --------- --------- --------- --------- Income (Loss) Before Cumulative Effect of Accounting Change and Extraordinary Item 5,389 6,196 3,941 1,804 (2,393) Cumulative Effect of Change in Accounting for Income Taxes -- 200 -- -- -- Extraordinary Item (2) -- -- -- 1,748 -- --------- --------- --------- --------- --------- Net Income (Loss) $ 5,389 $ 6,396 $ 3,941 $ 3,552 $ (2,393) ========= ========= ========= ========= ========= Net Income (Loss) per Common and Common Equivalent Share (3): Income (Loss) Before Cumulative Effect of Accounting Change and Extraordinary Item $ 0.28 $ 0.43 $ 0.27 $ 0.13 $ (0.21) Cumulative Effect of Change in Accounting for Income Taxes -- 0.01 -- -- -- Extraordinary Item -- -- -- 0.13 -- --------- --------- --------- --------- --------- $ 0.28 $ 0.44 $ 0.27 $ 0.26 $ (0.21) --------- --------- --------- --------- --------- Shares Used in Computing Net Income (Loss) Per Common and Common Equivalent Share 19,104,427 14,641,854 14,404,933 13,492,284 11,633,994 ---------- ---------- ---------- ---------- ---------- Net Income (Loss) Per Share, Assuming Full Dilution (4): Income Before Cumulative Effect of Accounting Change and Extraordinary Item $ 0.28 $ 0.38 $ 0.27 $ 0.13 $ (0.21) Cumulative Effect of Change in Accounting for Income Taxes -- 0.01 -- -- -- Extraordinary Item -- -- -- 0.13 -- --------- --------- --------- --------- --------- $ 0.28 $ 0.39 $ 0.27 $ 0.26 $ (0.21) ========= ========= ========= ========= ========= Shares Used in Computing Net Income (Loss) Per Common Share, Assuming Full Dilution 23,222,210 18,256,276 14,404,933 13,492,284 11,633,994 ---------- ---------- ---------- ---------- ---------- Balance Sheet Data (1): Cash and Cash Equivalents and Short-Term Investments $ 33,582 $ 76,671 $ 15,007 $ 38,683 $ 12,669 Net Working Capital 52,303 87,558 37,340 52,660 10,501 Total Assets 402,728 322,099 175,740 168,692 102,729 Short-Term Borrowings 28,160 15,039 5,028 102 3,867 Long-Term Obligations 81,163 61,551 584 171 2,725 Stockholders' Equity $ 202,046 $ 165,652 $ 107,951 $ 103,163 $ 56,505 ========= ========= ========= ========= =========
1/ All historical balances have been restated to reflect the Company's 1994 acquisition of Magellan Corporation. The acquisition was accounted for using the pooling of interests method of accounting. 2/ Represents an income tax benefit from net operating loss carryforwards. 3/ Net income (loss) per common and common equivalent share is calculated using the weighted average number of shares and dilutive equivalent shares outstanding during the periods, after giving effect to various stock splits. 4/ Net income (loss) per share, assuming full dilution, is calculated using the weighted average number of shares and dilutive equivalent shares outstanding during the periods, plus the effect of an assumed conversion of the Company's convertible subordinated debentures, after giving effect to various stock splits. Orbital Sciences Corporation twenty-four MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW A significant portion of the Company's revenues are generated under fixed-price incentive fee, firm fixed-price, and cost-plus-fee contracts with various agencies of the U.S. Government, including NASA, the U.S. Air Force, ARPA, the U.S. Army, the U.S. Navy and the Ballistic Missile Defense Organization ("BMDO"). Orbital recognizes revenues using the percentage of completion method of accounting, whereby revenue is recognized based on actual costs incurred in relation to total estimated costs to complete the contract or based on specific delivery terms and conditions. In the case of fixed-price incentive fee contracts, the final revenue amount can be increased or decreased in accordance with cost incentive provisions that measure actual financial performance against established targets. The incentive fee is included in revenue at the time the amount of such fee can reasonably be determined. In the case of cost-plus award fee contracts, revenues are recognized to the extent of costs incurred plus a proportionate amount of a base fee fixed at the inception of the contract, if any. The award fee is included in revenue as work is performed based on the Company's on-going estimates of the amount of the fee to be awarded. To the extent that estimated costs of completion are adjusted, revenue recognized from a particular contract will be affected in the period of the adjustment. The Company is accounting for its investment in ORBCOMM Development Partners, L.P. ("ORBCOMM Development") using the equity method of accounting and will continue to use the equity method as long as the Company's interest in the profits and losses of ORBCOMM Development does not exceed the current 50%. In accordance with the equity method of accounting, Orbital consolidates 100% of the revenues earned and costs incurred pursuant to contracts with ORBCOMM Development. The Company also recognizes as equity in earnings (losses) of affiliates its pro rata share of ORBCOMM Development's profits and losses. Pending commencement of operation of the ORBCOMM system, ORBCOMM Development is capitalizing substantially all system construction costs, including amounts paid under contracts with the Company. To the extent ORBCOMM Development capitalizes its purchases from Orbital, the Company eliminates as equity in earnings (losses) of affiliates 50% of the Company's profits and losses related to those sales. Orbital acquired Magellan Corporation ("Magellan") on December 28, 1994, in a transaction accounted for as a pooling of interests. Orbital's historical financial information has been restated to reflect the pooling of interests with Magellan as of the earliest period presented. On August 11, 1994, Orbital acquired Fairchild Space and Defense Corporation ("Fairchild"), a subsidiary of Matra Aerospace, Inc., in a transaction accounted for as a purchase business combination. Fairchild's results of operations for the nineteen-week period ended December 31, 1994 have been included in Orbital's consolidated results of operations for the year ended December 31, 1994. Orbital acquired the Applied Science Operation ("ASO"), a business unit of The Perkin-Elmer Corporation, on September 17, 1993, in a transaction accounted for as a purchase business combination. ASO's results of operations for the fourteen-week period ended December 31, 1993 have been included in Orbital's consolidated results of operations for the year ended December 31, 1993. The following table shows the Company's revenues, gross profit or loss and gross profit margin, by major product category, for each of the three years ended December 31, 1994, 1993 and 1992 (in thousands, except percentages): twenty-five Orbital Sciences Corporation
1994 1993 1992 Revenues Gross Profit Margin Revenues Gross Profit Margin Revenues Gross Profit Margin ----------------------------- ---------------------------- ---------------------------- Launch Systems $74,832 $12,648 16.90% $120,410 $20,818 17.29% $150,357 $26,615 17.70% Space launch vehicles 52,200 8,158 15.63% 55,988 7,216 12.89% 42,048 6,133 14.59% Suborbital launch vehicles 22,632 5,690 25.15% 48,990 12,428 25.37% 82,061 17,777 21.66% Orbit transfer vehicles -- (1,200) NA 15,432 1,174 7.61% 26,248 2,705 10.31% Space and Electronics Systems 88,305 24,007 27.19% 31,287 6,519 20.84% 20,715 3,961 19.12% Spacecraft systems and payloads 35,031 9,231 26.35% 25,160 4,907 19.50% 20,715 3,961 19.12% Space sensors and instruments 17,670 4,894 27.70% 3,710 895 24.12% -- -- NA Defense avionics and sensors 35,604 9,882 27.76% 2,417 717 29.66% -- -- NA Communications and Information Systems 58,809 28,225 47.99% 71,390 25,546 35.78% 33,118 14,953 45.15% Navigation and positioning products 38,517 17,802 46.22% 32,900 14,995 45.58% 29,557 14,356 48.57% Satellite-based services 10,154 6,117 60.24% 20,609 3,269 15.86% -- -- NA Satellite tracking systems 10,138 4,306 42.47% 17,881 7,282 40.72% 3,561 597 16.76% -------- ------- ------ -------- ------- ------ -------- ------- ------ $221,946 $64,880 29.23% $223,087 $52,883 23.71% $204,190 $45,529 22.30% ======== ======= ====== ======== ======= ====== ======== ======= ======
RESULTS OF OPERATIONS Orbital's financial information as of and for the years ended December 31, 1994, 1993 and 1992 has been restated to reflect the pooling of interests with Magellan. Revenues. Orbital's revenues for 1994, 1993 and 1992 were $221,946,000, $223,087,000 and $204,190,000, respectively. Revenues in 1994 included approximately $30,000,000 in sales to ORBCOMM Development, as compared to $38,000,000 in 1993. Revenues from the Company's space launch vehicle products decreased from $55,988,000 in 1993 to $52,200,000 in 1994. The unexpected decrease is primarily attributable to a significant delay in production of the Company's Pegasus space launch vehicle products as a result of the June 1994 Pegasus XL launch failure. Orbital believes it has identified the cause of this failure, has implemented what it believes to be the necessary corrective actions and anticipates fully resuming production of its Pegasus products in the first half of 1995. As a result, the Company expects Pegasus revenues to increase in 1995 as it fully resumes its production program and planned launches. Revenues from space launch vehicle products increased in 1993, as compared to 1992, due to work performed on Pegasus contracts awarded in 1992 by BMDO and Brazil's national space agency and initial work performed on the commercial contract awarded by ORBCOMM Development. Revenues from suborbital launch vehicle products decreased to $22,632,000 in 1994 as compared to $48,990,000 in 1993. Revenues from suborbital launch vehicle products also decreased in 1993 from 1992's record revenues of $82,061,000. Revenues from suborbital launch vehicles, which are primarily purchased by various agencies within the Department of Defense for military purposes, have decreased significantly as defense spending by the U.S. Government has been reduced. The Company expects suborbital launch vehicle product revenues in 1995 to remain approximately consistent with 1994 levels. Orbital Sciences Corporation twenty-six The Company's sole contract with NASA for its orbit transfer vehicle product was completed in 1993 after two successful launches. The Company currently does not have firm orders for this product and does not expect significant revenues from new orbit transfer vehicle business in 1995. Space and Electronics Systems revenues increased to $88,305,000 in 1994 as compared to $31,287,000 in 1993, due primarily to a full year of sales of sensors and instruments equal to $28,482,000 following the September 1993 acquisition of ASO and 19 weeks of sales of spacecraft subsystems and defense electronics and avionics equal to $44,998,000 following the August 1994 acquisition of Fairchild. The Company expects its Space and Electronics Systems revenues to increase substantially in 1995 due to a full year of revenues from Fairchild. Space systems revenues increased to $31,287,000 in 1993 from $20,715,000 in 1992, primarily as a result of sales of sensors and instruments, and sales of MicroStar satellites to ORBCOMM Development. Space Systems revenues in 1992 consisted solely of sales of satellite systems to NASA and the U.S. Air Force. Communications and Information Systems revenues decreased to $58,809,000 in 1994 from $71,390,000 in 1993. The decrease is attributable primarily to a decrease in sales to ORBCOMM Development of $10,455,000 as the initial contract for network software nears completion, and a decrease in sales of satellite tracking systems of $8,443,000 as a large contract was completed in 1994. Sales of Magellan's satellite navigation products were $37,144,000 in 1994 as compared to $32,900,000 in 1993 and $29,557,000 in 1992. The increase from 1993 was due to a significant increase in the number of products sold offset, in part, by lower average unit sales prices. Orbital expects Communications and Information Systems revenues to increase in 1995 due to increasing unit sales of satellite navigation projects offset, in part, by lower average unit sales prices, and increasing sales of satellite tracking systems. In 1995, the Company also expects to generate its first service revenues from the ORBCOMM system, currently scheduled to become operational in mid-1995. Communications and Information Systems revenues increased in 1993 as compared to 1992 as a result of sales of network software and satellite tracking systems to ORBCOMM Development under a contract awarded in 1993, and as a result of work performed on a large satellite tracking system contract awarded in 1992. Gross Profit. Gross profit depends on a number of factors, including the Company's mix of contract types and costs incurred thereon in relation to estimated costs. Costs of goods sold include the costs of personnel and materials under the Company's various development and production contracts, including costs of subcontracts. The Company's gross profit for 1994, 1993 and 1992 was $64,880,000, $52,883,000 and $45,529,000, respectively. Gross profit margin as a percentage of sales for those periods was approximately 29.2%, 23.7% and 22.3%, respectively. Gross profit margin during 1994 reflects higher profit margins on ASO and Fairchild products offset, in part, by cost growth on the Taurus space launch vehicle development program, the first product of which was successfully launched in March 1994. Additionally, gross profit margin was decreased by cost growth on the Pegasus program as a result of the June 1994 Pegasus XL launch failure. The Company believes that its gross profit margin in 1995 will increase slightly as compared to 1994 as a result of a full year of revenues from Fairchild, among other factors. twenty-seven Orbital Sciences Corporation Research and Development Expenses. Research and development expenses represent Orbital's self-funded product development activities, and exclude direct customer-funded development. Research and development expenses during 1994, 1993 and 1992 were $14,389,000, $14,885,000 and $10,586,000, respectively. Research and development spending during 1994 and 1993 reflected Orbital's continued development of its Pegasus XL and Taurus space launch vehicles and development of lower-cost satellite navigation products. In 1994, Orbital incurred approximately $2,500,000 of unexpected research and development costs related to the failure of its Pegasus XL vehicle. The Company expects its research and development expenditures, primarily related to development of new spacecraft programs and continued research in developing lower-cost satellite navigation products, to decrease in 1995, but still remain above 1992 levels. Selling, General and Administrative Expenses. Selling, general and administrative expenses include the costs of marketing, advertising, promotional and other selling expenses, as well as the costs of the finance, administrative and general management functions of the Company. Selling, general and administrative expenses for 1994, 1993 and 1992 were $39,749,000 (or 17.9% of revenues), $25,897,000 (or 11.6% of revenues) and $28,615,000 (or 14.0% of revenues), respectively. The significant increase in selling, general and administrative expenses and its related percentage of revenues in 1994 is attributable to a full year of ASO's expenses ($4,666,000, or 16.8% of ASO's revenues), nineteen weeks of Fairchild's expenses ($6,409,000, or 14.0% of Fairchild's revenues) and significant selling, general and administrative expenses related to initial marketing and other activities for the Company's ORBCOMM project ($5,470,000 in 1994, with revenues first expected in mid-1995) offset, in part, by significant Company-wide cost reduction initiatives adopted during 1994 and 1993. Orbital expects its selling, general and administrative expenses (as a percentage of revenues) in 1995 to roughly approximate 1994 levels. Interest Income and Interest Expense. Net interest income was $37,000, $356,000 and $738,000 for 1994, 1993 and 1992, respectively. Interest income reflects interest earnings on short-term investments reduced by interest expense (net of capitalized interest of $5,500,000, $3,500,000 and $850,000 in 1994, 1993 and 1992, respectively) for outstanding amounts on Orbital's revolving credit facility, on the public debentures and on debt incurred in 1994 related to the Fairchild acquisition. Equity in Earnings (Losses) of Affiliates. Equity in earnings (losses) of affiliates in 1994 and 1993 primarily represents elimination of $1,264,000 and $2,436,000, respectively, of profits on sales to ORBCOMM Development, due to ORBCOMM Development's capitalization of its purchases from the Company. There were no sales to ORBCOMM Development prior to 1993. Provision for Income Taxes. The Company adopted Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), effective January 1, 1993. The cumulative effect on prior years of this change in accounting principle increased net income for 1993 by approximately $200,000. The effect of adopting SFAS 109 on income from operations for 1993 was not material. The Company recorded income tax provisions of $2,081,000, $2,288,000 and $1,630,000 for 1994, Orbital Sciences Corporation twenty-eight 1993 and 1992, respectively. The Company's effective tax rate for these periods of approximately 28% is primarily a result of non-tax deductible goodwill amortization related to its acquisition of Space Data Corporation in 1988 and Fairchild in 1994, offset by tax-exempt interest earnings and Federal research and experimental tax credits. At December 31, 1994 and primarily as a result of the Fairchild acquisition, Orbital had approximately $50,000,000 of net operating loss carryforwards and $900,000 of Federal research and experimental tax credit carryforwards for tax reporting purposes that, subject to certain annual limitations, are available to reduce certain future income tax obligations. Orbital has provided a valuation allowance against the entire net operating loss carryforward at December 31, 1994. LIQUIDITY AND CAPITAL RESOURCES In June 1991, Orbital completed a public offering of approximately 2,100,000 primary shares of its common stock, receiving net proceeds of approximately $34,500,000. At December 31, 1992, the Company had cash and cash equivalents of approximately $15,007,000 and had short- and long-term debt obligations outstanding of approximately $5,612,000, relating primarily to advances under its line of credit facility. During the first quarter of 1993, Orbital completed its public offering of the convertible debentures, receiving net proceeds of approximately $57,000,000. During the fourth quarter of 1993, Orbital completed a public offering of approximately 2,923,000 primary shares of its common stock, receiving net proceeds of approximately $45,300,000. At December 31, 1993, cash, cash equivalents and short-term investments were approximately $76,671,000, and Orbital had approximately $76,590,000 of short- and long-term debt outstanding. Orbital's current ratio improved from 1.6 at December 31, 1992 to 2.0 at December 31, 1993. The Company's operations provided net cash of approximately $10,700,000 in 1993. During 1993, the Company invested approximately $40,300,000 in ORBCOMM Development and invested approximately $36,000,000 in capital assets to support its launch vehicle and spacecraft products. The Company's operations provided net cash of approximately $7,410,000 in 1994. During 1994, Orbital invested approximately $15,200,000 in ORBCOMM Development and invested approximately $27,100,000 in capital assets to support its launch vehicle and spacecraft products. Additionally, Orbital used approximately $40,700,000 in cash to acquire Fairchild in August 1994; the Company issued long-term debt of approximately $24,200,000 to satisfy a portion of this cash requirement. At December 31, 1994, cash, cash equivalents and short-term investments were approximately $33,582,000 and Orbital had approximately $109,323,000 of short- and long-term debt outstanding. Additionally, at December 31, 1994, Orbital had approximately $8,000,000 of cash reserved against outstanding letters of credit and was guarantor on approximately $5,000,000 of debt held by ORBCOMM Development. Orbital's current ratio was 1.5 at December 31, 1994. The Company maintains a line of credit facility that provides for total borrowings from an international syndicate of six banks of up to $65,000,000, subject to a defined borrowing base composed of certain contract twenty-nine Orbital Sciences Corporation receivables. Approximately $22,500,000 of borrowings were outstanding against the facility at December 31, 1994, against an available facility limit of approximately $24,800,000. The interest rate charged under the facility is a variable rate based on Morgan Guaranty Trust Company of New York's prime rate, the Federal Funds rate, or Adjusted LIBOR. At December 31, 1994, the interest rate under this facility was approximately 7.75%. Borrowings are secured by contract receivables and other assets such as insurance policies and proceeds, and certain books and records. The facility restricts the payment of dividends and contains certain covenants with respect to the Company's working capital, fixed charge ratio, leverage ratio and tangible net worth, and expires in September 1997. Orbital's capital expenditures for 1995 are expected to approximate 1994 and 1993 levels, including continued investments in space and suborbital launch vehicle and spacecraft production, test, airborne and ground support equipment. Additionally, in 1995 the Company expects to invest approximately $5,000,000 to $10,000,000 in new ORBIMAGE remote sensing and monitoring products and services and approximately $10,000,000 in ORBCOMM Development. Orbital expects that its 1995 capital needs, including its investment in the ORBCOMM system, will in part be provided by working capital, cash flows from operations, credit facilities, customer financing and operating lease arrangements, but will also require proceeds from equity and/or debt offerings that the Company is actively pursuing. Orbital Sciences Corporation thirty INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Orbital Sciences Corporation: We have audited the accompanying consolidated balance sheets of Orbital Sciences Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Magellan Corporation, a wholly-owned subsidiary, which statements reflect total assets constituting six percent at December 31, 1993 and total revenues constituting 15 percent and 14 percent in 1993 and 1992, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Magellan Corporation, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Orbital Sciences Corporation and subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Notes 1 and 11 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," as of January 1, 1993. KPMG Peat Marwick LLP Washington, D.C. February 6, 1995 thirty-one Orbital Sciences Corporation CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands, Except Share Data) For the years ended December 31, 1994 1993 1992 --------- ----------------------- Revenues $ 221,946 $ 223,087 $ 204,190 Costs of Goods Sold 157,066 170,204 158,661 --------- --------- --------- Gross Profit 64,880 52,883 45,529 Research and Develoment Expenses 14,389 14,885 10,586 Selling, General and Administrative Expenses 39,749 25,897 28,615 Amortization of Excess of Purchase Price Over Net Assets Acquired 2,045 1,537 1,495 --------- --------- --------- Income from Operations 8,697 10,564 4,833 Interest Income, net of interest expense of $1,459, $1,009 and $91, respectively 37 356 738 Equity in Earnings (Losses) of Affiliates (1,264) (2,436) -- --------- --------- --------- Income Before Provision for Income Taxes and Cumulative Effect of Accounting Change 7,470 8,484 5,571 Provision for Income Taxes 2,081 2,288 1,630 --------- --------- --------- Income Before Cumulative Effect of Accounting Change 5,389 6,196 3,941 Cumulative Effect of Change in Accounting for Income Taxes -- 200 -- --------- --------- --------- Net Income $ 5,389 $ 6,396 $ 3,941 ========= ========= ========= Net Income per Common and Common Equivalent Share: Income before cumulative effect of accounting change $ 0.28 $ 0.43 $ 0.27 Cumulative effect of change in accounting for income taxes -- 0.01 -- --------- --------- --------- $ 0.28 $ 0.44 $ 0.27 ========= ========= ========= Shares Used in Computing Net Income Per Common and Common Equivalent Share 19,104,427 14,641,854 14,404,933 ========== ========== ========== Net Income Per Common Share, Assuming Full Dilution: Income before cumulative effect of accounting change $ 0.28 $ 0.38 $ 0.27 Cumulative effect of change in accounting for income taxes -- 0.01 -- --------- --------- --------- $ 0.28 $ 0.39 $ 0.27 ========= ========= ========= Shares Used in Computing Net Income Per Common Share, Assuming Full Dilution 23,222,210 18,256,276 14,404,933 ========== ========== ==========
See accompanying notes to consolidated financial statements. Orbital Sciences Corporation thirty-two CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data) December 31, December 31, ASSETS 1994 1993 --------- --------- Current Assets: Cash and cash equivalents $ 21,156 $ 49,458 Short-term investments, at market 12,426 27,213 Receivables, net 94,236 82,488 Inventories, net 26,098 13,797 Other current assets 5,914 5,983 --------- --------- Total current assets 159,830 178,939 Property, Plant and Equipment, at cost, less accumulated depreciation and amortization of $33,432 and $21,317, respectively 102,061 67,304 Investments in Affiliates, net 54,721 40,307 Excess of Purchase Price Over Net Assets Acquired, less accumulated amortization of $10,042 and $7,971, respectively 68,878 25,560 Deferred Income Taxes and Other Assets, net 17,238 9,989 --------- --------- Total Assets $ 402,728 $ 322,099 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term borrowings and current portion of long-term obligations $ 28,160 $ 15,039 Accounts payable 14,961 15,866 Accrued expenses 37,439 22,996 Payable to subcontractors 13,695 12,126 Deferred revenue 13,272 25,354 --------- --------- Total current liabilities 107,527 91,381 Long-Term Obligations, net of current portion 81,163 61,551 Deferred Income Taxes and Other Liabilities 11,992 3,515 --------- --------- Total Liabilities 200,682 156,447 Commitments and Contingencies Stockholders' Equity: Preferred stock, par value $.01; 10,000,000 shares authorized, no shares issued or outstanding -- -- Common stock, par value $.01; 40,000,000 shares authorized, 20,170,196 and 17,638,567 shares outstanding, after deducting 15,735 shares held in treasury 202 176 Additional paid-in capital 201,328 168,737 Unrealized gains (losses) on short-term investments (462) 12 Retained earnings (deficit) 978 (3,273) --------- --------- Total stockholders' equity 202,046 165,652 --------- --------- Total Liabilities and Stockholders' Equity $ 402,728 $ 322,099 ========= =========
See accompanying notes to consolidated financial statements. thirty-three Orbital Sciences Corporation CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data) Unrealized Gains (Losses) Retained Common Stock Additional on Short-Term Earnings Shares Amount Paid-In Capital Investments (Deficit) Total --------------------------------------------------------------------------------- Balance, December 31,1991, as previously reported 11,615,368 $ 116 $ 102,739 $ -- $(13,298) $ 89,557 Adjustment for pooling of interests 2,640,441 26 13,892 -- (312) 13,606 ---------- ----- --------- --------- -------- -------- Balance, December 31, 1991, restated 14,255,809 142 116,631 -- (13,610) 103,163 Shares issued to employees 55,284 1 435 -- -- 436 Transactions of pooled company -- -- 411 -- -- 411 Net income -- -- -- -- 3,941 3,941 ---------- ----- --------- --------- -------- -------- Balance, December 31, 1992 14,311,093 143 117,477 -- (9,669) 107,951 Shares issued to employees and directors 84,474 1 1,012 -- -- 1,013 Shares issued in purchase business combination 320,000 3 4,997 -- -- 5,000 Transactions of pooled company -- -- 7 -- -- 7 Net proceeds from public offering 2,923,000 29 45,244 -- -- 45,273 Net income -- -- -- -- 6,396 6,396 Unrealized gains on short-term investments -- -- -- 12 -- 12 ---------- ----- --------- --------- -------- -------- Balance, December 31, 1993 17,638,567 176 168,737 12 (3,273) 165,652 Shares issued to employees 107,387 2 1,619 -- -- 1,621 Shares issued in purchase business combination 2,424,242 24 30,976 -- -- 31,000 Transactions of pooled company -- -- (4) -- -- (4) Adjustment to recast year end of pooled company -- -- -- -- (1,138) 1,138 Net income -- -- -- -- 5,389 5,389 Unrealized losses on short-term investments -- -- -- (474) -- (474) ---------- ----- --------- --------- -------- -------- Balance, December 31, 1994 20,170,196 $ 202 $ 201,328 $ (462) $ 978 $202,046 ========== ===== ========= ========= ======== ========
See accompanying notes to consolidated financial statements. Orbital Sciences Corporation thirty-four CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands) For the years ended December 31, 1994 1993 1992 --------- ----------------------- Cash Flows From Operating Activities: Net income $ 5,389 $ 6,396 $ 3,941 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 14,250 7,866 7,659 Equity in (earnings) losses of affiliates 1,264 2.436 -- Cumulative effect of accounting change -- (200) -- Changes in assets and liabilities: (Increase) decrease in receivables 10,402 (1,868) (13,447) (Increase) decrease in inventories (3,643) (2,950) 2,430 (Increase) decrease in other current assets 3,000 (3,308) 432 (Increase) decrease in other non-current assets (4,938) (2,742) (767) Increase (decrease) in payables and accrued expenses (8,999) (9,130) 1,966 Increase (decrease) in deferred revenue (15,651) 13,635 (5,969) Increase (decrease) in deferred income taxes and other liabilities 6,336 596 1,154 --------- --------- --------- Net cash provided by (used in) operating activities 7,410 10,731 (2,601) --------- --------- --------- Cash Flows From Investing Activities: Capital expenditures (27,096) (35,584) (41,740) Proceeds from sales of fixed assets -- 10,335 14,443 Purchase of investment securities (8,916) (51,299) (13,011) Sales of investment securities 23,229 24,098 17,222 Investments in affiliates (15,208) (40,307) -- Payment for purchase business combination (40,718) (794) -- --------- --------- --------- Net cash provided by (used in) investing activities (68,709) (93,551) (23,086) --------- --------- --------- Cash Flows From Financing Activities: Net short-term borrowings 9,405 10,006 4,000 Principal payments on long-term obligations (1,089) (1,028) (625) Proceeds from issuances of long-term obligations 24,200 62,000 1,964 Proceeds from issuances of common stock 1,619 46,293 847 Adjustment to recast pooled company's year end (1,138) -- -- --------- --------- --------- Net cash provided by (used in) financing activities 32,997 117,271 6,186 --------- --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents (28,302) 34,451 (19,501) Cash and Cash Equivalents, beginning of period 49,458 15,007 34,508 --------- --------- --------- Cash and Cash Equivalents, end of period $ 21,156 $ 49,458 $ 15,007 --------- --------- ---------
See accompanying notes to consolidated financial statements. thirty-five Orbital Sciences Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994, 1993 AND 1992 1/ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Orbital Sciences Corporation (together with its subsidiaries, "Orbital" or the "Company"), a Delaware corporation, is a space technology company that designs, manufactures, operates and markets a broad range of space products and services that are grouped into three categories, Launch Systems, Space and Electronics Systems, and Communications and Information Systems. Launch Systems include space and suborbital launch vehicles and orbit transfer vehicles; Space and Electronics Systems include satellites, space sensors and instruments, and space payloads and experiments, as well as avionics and other electronics equipment; and Communications and Information Systems include satellite-based mobile data communications, navigation products and Earth observation services, along with satellite tracking systems and environmental monitoring products. Approximately 60%, 70% and 80% of the Company's 1994, 1993 and 1992 revenues, respectively, were generated under contracts with the U.S. Government and its agencies or under subcontracts with the U.S. Government's prime contractors. Presentation Certain reclassifications have been made to the 1993 and 1992 financial statements to conform to the 1994 financial statement presentation. The acquisition of Magellan Corporation (see Note 4) was recorded using the pooling of interests method of accounting for business combinations and, accordingly, Orbital's 1993 and 1992 historical financial statements have been restated to reflect this transaction. Principles of Consolidation The consolidated financial statements include the accounts of Orbital, its wholly- and majority-owned subsidiaries, and partnerships in which Orbital directly or indirectly controls a majority of the general partner interests. All material transactions and accounts among consolidated entities have been eliminated in consolidation. Revenue Recognition Revenues on cost-plus-fee contracts are recognized to the extent of costs incurred plus a proportionate amount of fee earned. Revenues on long-term fixed-price contracts are recognized using the percentage-of-completion method of accounting based on costs incurred in relation to total estimated costs or based on specific delivery terms and conditions. Anticipated contract losses are recognized as they become known. Revenues from sales of commercial products and services are generally recognized when the product is shipped or the service is performed. Research and Development Research and development expenses include self-funded product development activities and exclude direct customer-funded development and are expensed as incurred. Research and development expenses are allocated, when appropriate, to Government contracts under Government-mandated cost accounting procedures. Depreciation and Amortization Depreciation and amortization are provided using the straight-line or units of production methods as follows: Buildings 18 to 20 years Machinery, Equipment and Software 3 to 10 years, or units of production Leasehold Improvements shorter of estimated useful life or lease term Income Taxes During 1992, the Company recorded its provisions for Federal and state income taxes using the deferred method of accounting as prescribed by Accounting Principles Board's Opinion No. 11, "Accounting for Income Taxes" ("APB 11"). Under the deferred method, provisions for Federal and state income taxes were Orbital Sciences Corporation thirty-six computed at current tax rates on reported financial statement income. Deferred income tax provisions represented the tax effect of significant "timing differences" between financial statement income and current taxable earnings. In 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which requires a change from the deferred method to the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under SFAS 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The Company adopted SFAS 109 effective January 1, 1993. The cumulative effect on prior years of this change in accounting principle of approximately $200,000 is reported in the 1993 consolidated statement of earnings. The effect of adopting SFAS 109 on income from continuing operations for 1993 was not material. Prior year financial statements have not been restated to apply the provisions of SFAS 109. Income Per Share Income per common and common equivalent share is calculated using the weighted average number of common and common equivalent shares, to the extent dilutive, outstanding during the periods. Income per common share assuming full dilution is calculated using the weighted average number of common and common equivalent shares outstanding during the periods, plus the effects of an assumed conversion of the Company's convertible subordinated debentures, after giving effect to all net income adjustments that would result from the assumed conversion. Any reduction of less than 3% in the aggregate has not been considered dilutive in the calculation and presentation of income per common share assuming full dilution. Common equivalent shares are comprised solely of stock options. Cash and Cash Equivalents and Short-Term Investments Orbital considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Investments in securities that do not meet the definition of cash equivalents are classified as short-term investments. Since Orbital does not intend to hold its investments in debt and equity securities until maturity and does not actively trade the securities to maximize trading gains, Orbital classifies these securities as "available for sale" and, accordingly, reports such securities at fair value plus accrued interest. Any temporary excess (deficiency) of market value over (under) the underlying cost of the short-term investment is excluded from current period earnings and is reported as unrealized gains (losses) as a separate component of stockholders' equity. At December 31, 1994 and 1993, the Company had approximately $7,800,000 and $5,800,000, respectively, of cash restricted in support of outstanding letters of credit. Inventories Inventories consist of components inventory, work-in-process inventory and finished goods inventory and are generally stated at the lower of cost or net realizable value on a first-in, first-out ("FIFO") or specific identification basis. Inventories consisted of the following at December 31, 1994 and 1993 (in thousands):
1994 1993 ------- ------- Components and raw materials $13,421 $11,212 Work-in-process 11,922 1,936 Finished goods, net 755 649 ------- ------- Total $26,098 $13,797 ======= =======
Components inventory consists primarily of components and raw materials purchased to support future production efforts. Work-in-process inventory consists primarily of (i) costs incurred under U.S. Government fixed-price contracts accounted for using the percentage-of-completion method of accounting applied on a thirty-seven Orbital Sciences Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS units of delivery basis, and (ii) partially assembled commercial products, and generally includes direct production costs and certain allocated indirect costs (including an allocation of general and administrative costs). Work-in-process inventory has been reduced by contractual progress payments received of $4,122,000 and $1,547,000 at December 31, 1994 and 1993, respectively. Finished goods inventory consists of fully assembled commercial products awaiting shipment. Investments in Affiliates The Company uses the equity method of accounting for its investments in and earnings of affiliates in which the Company has the ability to significantly influence, but not control, an affiliate's financial operations. In accordance with the equity method of accounting, the Company's carrying amount of an investment in an affiliate is initially recorded at cost and is increased to reflect its share of the affiliate's income and is reduced to reflect its share of the affiliate's losses. Orbital's investment is also increased to reflect contributions to, and decreased to reflect distributions received from, the affiliate. Any difference between the amount of Orbital's investment and the amount of the underlying equity in each affiliate's net assets is amortized over a period of 20 years. The Company uses the cost method of accounting for investments in which it cannot significantly influence operations. The Company provides a valuation allowance against an investment when it is determined that recovery of the investment is not probable. At December 31,1994, approximately $3,100,000 of allowance had been provided against certain investments acquired in conjunction with Fairchild Space and Defense Corporation (see Note 4). No such allowance was provided at December 31, 1993. Excess of Purchase Price Over Net Assets Acquired The Company amortizes the excess of purchase price over net assets acquired related to prior business combinations on a straight-line basis over their estimated useful life, generally 20-40 years. Orbital periodically assesses and evaluates the recoverability of such assets based on current facts and circumstances and the operational viability of its acquired businesses. During the three months ended June 30, 1994, as a result of obtaining additional information subsequent to the September 1993 acquisition of the Applied Science Operation (see Note 4), the purchase price was reallocated to reflect a more accurate valuation of assets and liabilities acquired. As a result of the reallocation, the value of net tangible and identifiable intangible assets acquired increased by approximately $3,000,000, with a resulting decrease to the excess of purchase price over net assets acquired. During the three months ended December 31, 1994, as a result of obtaining additional information subsequent to the August 1994 acquisition of Fairchild Space and Defense Corporation (see Note 4), the purchase price was reallocated to reflect a more accurate valuation of assets and liabilities acquired. As a result of the reallocation, the value of net tangible and identifiable intangible assets acquired increased by approximately $10,000,000, with a resulting decrease to the excess of purchase price over net assets acquired. Additionally, at the date of the acquisition, Fairchild had certain contingencies relating primarily to the appropriateness and allowability of certain severance costs charged to its U.S. Government contracts from 1989 through 1992, to which a reasonable estimate of fair value could not be determined and assigned at the date of acquisition. During 1995, Orbital expects to revise the allocation of purchase price based on the final determination of fair values of the assets and liabilities acquired and ultimate outcome of pre-acquisition contingencies. Warranties The Company occasionally accepts warranty clauses in its commercial and government contracts. In the event the Company does not purchase insurance coverage to protect itself in connection with such warranty clauses, the Company records a liability for warranty claims Orbital Sciences Corporation thirty-eight when it determines that a specific material liability exists. Orbital has not recorded any liability for potential warranty claims on its existing contracts because these expenses, if any, are not expected to have a material adverse impact on the Company's financial condition or results of operations. The Company at times provides limited warranties on certain commercial products and accrues an estimate of expected warranty costs based on historical experience. 2/ TRANSACTIONS WITH HERCULES INCORPORATED Development and Production Agreement In 1988, Orbital and Hercules Incorporated ("Hercules") entered into an agreement relating to the development and production of the Pegasus launch vehicle (the "Agreement"), which provides that each party will bear the development costs arising from the performance of its responsibilities pursuant to the Agreement. Under the terms of the Company's Pegasus contracts, the Company is the prime contractor and Hercules is a subcontractor and, accordingly, 100% of Pegasus sales and costs of sales have been included in Orbital's consolidated statements of earnings. Initially, profits and losses on Pegasus sales will be shared on an equal basis until Hercules' development costs have been recovered, at which time the Company will receive 60% and Hercules will receive 40% of such profits and losses. During 1994, 1993 and 1992, the Company made payments to Hercules of approximately $11,013,000, $23,767,000 and $12,134,000, respectively, representing Hercules' share of contract payments received on Pegasus contracts. From time to time, issues have arisen between the Company and Hercules regarding various matters relating to the Agreement. In 1993, Hercules commenced arbitration proceedings against the Company relating to certain insurance proceeds obtained by the Company in connection with a Pegasus mission. The arbitration was decided in Orbital's favor in August 1994. In July 1994, Hercules filed a lawsuit against the Company seeking monetary and other damages arising out of Orbital's alleged breach of fiduciary duty and breach of contract in the determination of its recoverable costs and other matters pursuant to the Agreement. Orbital believes that this lawsuit is without merit and will not have a material adverse effect on the financial condition of the Company, and Orbital plans to dispute vigorously Hercules' claims. Stock Purchase Agreement Hercules acquired 1,606,842 shares of the Company's Common Stock in 1988 pursuant to a stock purchase agreement and subsequently sold all of its shares in the Company's second public offering in 1991 (see Note 12). Hercules has filed a lawsuit against the Company seeking unspecified damages in an amount up to $15 million arising out of a dispute concerning its 1988 investment. The complaint alleges breaches of certain representations and warranties by Orbital in the 1988 stock purchase agreement. Orbital believes that the claims are without merit and will not have a material adverse effect on the financial condition of the Company, and Orbital plans to dispute vigorously Hercules' claims. Orbital believes that regardless of the outcome of these lawsuits, the claims do not affect Hercules' obligations under the Agreement. 3/ INVESTMENTS IN AFFILIATES In 1993, the Company's majority-owned subsidiary, Orbital Communications Corporation ("OCC"), and Teleglobe Mobile Partners ("Teleglobe Mobile"), an affiliate of Teleglobe Inc., formed a partnership, ORBCOMM Development Partners, L.P. ("ORBCOMM Development"), for the design, development, construction, integration and test of a low-Earth orbit satellite communications system (the "ORBCOMM System"). OCC and Teleglobe Mobile also formed two marketing partnerships to market the ORBCOMM System in the United States and internationally. OCC is an 85% general partner in each of the marketing partnerships. thirty-nine Orbital Sciences Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Pursuant to the terms of the partnership agreement, OCC and Teleglobe Mobile are each 50% general partners in ORBCOMM Development and share equal responsibility for the operational and financial affairs of ORBCOMM Development. OCC also has a nonparticipating limited partnership interest in ORBCOMM Development. Neither OCC nor Teleglobe Mobile is able to control, but both are able to exercise significant influence over, ORBCOMM Development's operating and financial policies. Accordingly, the Company is accounting for its investment in ORBCOMM Development using the equity method of accounting. Orbital and OCC are the primary suppliers of communications satellites, launch vehicles, ground tracking systems, system software and integration services to ORBCOMM Development and have entered into long-term contracts for providing these goods and services. During 1994 and 1993, Orbital recorded contract revenues on sales to ORBCOMM Development of approximately $30,000,000 and $38,000,000, respectively, and eliminated as equity in earnings (losses) of affiliates 50% of its profits on those sales since ORBCOMM Development is capitalizing substantially all of its purchases from Orbital and OCC. At December 31, 1994, Orbital had approximately $7,900,000 in unbilled receivables from ORBCOMM Development arising under these contracts. At December 31, 1994, ORBCOMM Development had total assets, total liabilities and total partners' capital of $73,647,000, $15,137,000 and $58,510,000, respectively. During the construction phase of the project and prior to the commencement of planned operations, ORBCOMM Development is capitalizing substantially all construction-related costs and is expensing as incurred all selling, general and administrative costs as period costs. ORBCOMM Development had no revenues in 1994 and had a net loss of approximately $9,000 during the period. 4/ BUSINESS COMBINATIONS On September 17, 1993, Orbital acquired the Applied Science Operation ("ASO"), a business unit of The Perkin-Elmer Corporation (the "ASO Acquisition"). As a result of the ASO Acquisition, the Company now produces and markets sensors and instruments primarily for agencies of the U.S. Government and commercial aerospace companies. The ASO Acquisition has been accounted for using the purchase method of accounting and, accordingly, the purchase price of approximately $5,800,000 (consisting of 320,000 shares of the Company's Common Stock, $600,000 in cash and $200,000 in transaction expenses) was allocated to assets and liabilities acquired based on estimates of fair values as of the date of acquisition. The excess of purchase price over net assets acquired is being amortized on a straight-line basis over 20 years. On August 11, 1994, the Company acquired all of the outstanding common stock of Fairchild Space and Defense Corporation ("Fairchild") from Matra Aerospace, Inc. ("MAI") (the "Fairchild Acquisition"). Immediately prior to the Fairchild Acquisition, Fairchild transferred its environmental controls systems and air turbine operations to a subsidiary of MAI, and transferred certain real estate to other subsidiaries of MAI. Fairchild's operations now consist of its space systems operations and its advanced electronics and data management systems operations. As a result of the Fairchild Acquisition, the Company has expanded its spacecraft systems and payload product lines and enhanced its spacecraft production capabilities. The Fairchild Acquisition has been accounted for using the purchase method of accounting and, accordingly, the purchase price of approximately $71,000,000 (consisting of 2,424,242 shares of the Company's Common Stock, $40,000,000 in cash and approximately $800,000 in transaction expenses) was allocated to assets and liabilities acquired based on estimates of fair values as of the date of the acquisition. The excess of Orbital Sciences Corporation forty purchase price over net assets acquired is being amortized on a straight-line basis over 40 years. The following supplemental financial information presents Orbital's consolidated results of operations on a pro forma basis as though the Company had acquired ASO and Fairchild on January 1, 1993 (in thousands, except per share data):
Years Ended December 31, 1994 1993 (unaudited) (unaudited) ----------- ----------- Revenues $280,000 $379,000 Net income 5,275 4,838 Earnings per share: Primary .26 .27 Assuming full dilution .26 .27
ASO's results of operations for the 14-week period ended December 31, 1993 are included in Orbital's 1993 consolidated results of operations and Fairchild's results of operations for the 19-week period ended December 31, 1994 are included in Orbital's 1994 consolidated results of operations. On December 28, 1994, the Company acquired all of the outstanding common stock of Magellan Corporation ("Magellan") from Magellan's former shareholders (the "Magellan Acquisition") in a tax-free merger. As a result of the Magellan Acquisition, Orbital now manufactures, markets and sells satellite-based navigation equipment for consumer and industrial markets worldwide and has expanded its GPS satellite-based navigation applications. The Magellan Acquisition was consummated by exchanging 2,640,441 shares of the Company's Common Stock for all of Magellan's outstanding common stock. The Company also granted 409,556 options to acquire Orbital Common Stock (see Note 12) to Magellan employees who, at the date of the acquisition, held options to acquire Magellan common stock. The Magellan Acquisition is accounted for using the pooling of interests method of accounting and, accordingly, Orbital's historical consolidated financial statements have been restated to include Magellan's financial position, results of operations and cash flows. Merger expenses relating to the Magellan Acquisition of approximately $500,000 were charged to earnings during the three months ended December 31, 1994. Prior to the acquisition, Magellan's financial results were prepared on a June 30 fiscal year basis. Orbital's restated consolidated financial statements for 1993 and 1992 include Magellan's historical financial results for its fiscal years ended June 30, 1994 and 1993, respectively. Orbital's consolidated financial statements for the year ended December 31, 1994 include Magellan's financial results for the twelve-month period ended December 31, 1994. The effect of recasting Magellan's year end for 1994 has been charged to Orbital's retained earnings as of January 1, 1994. The charge to retained earnings eliminates the effect of including Magellan's results of operations for the six-month period ended June 30, 1994 of $1,138,000 in Orbital's 1994 and 1993 consolidated results of operations. Magellan's revenues for the same six-month period were approximately $18,500,000. The following table reconciles Orbital's previously reported operating results to operating results restated to reflect the pooling of interests with Magellan (in thousands):
Nine Months Ended Years Ended September 30, December 31, 1994 1993 1992 (unaudited) ----------- ---------------------- Revenues, as previously reported $ 130,142 $ 190,186 $ 174,633 Magellan revenues 26,738 32,901 29,557 --------- --------- --------- Revenues, restated $ 156,880 $ 223,087 $ 204,190 ========= ========= ========= Net income, as previously reported $ 3,178 $ 4,640 $ 3,824 Magellan net income 1,071 1,756 117 --------- --------- --------- Net income, restated $ 4,249 $ 6,396 $ 3,941 --------- --------- ---------
forty-one Orbital Sciences Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5/ SHORT-TERM INVESTMENTS The following sets forth the aggregate amortized cost, aggregate fair value and gross unrealized gains and losses for Orbital's short-term investments in debt and equity securities at December 31, 1994 and 1993 (in thousands):
Amortized Fair Unrealized 1994 Cost Value Gains Losses ------------------------------------------- Debt securities and political subdivisions $ 8,755 $ 8,663 $ -- $ 92 Equity securities - preferred stock 4,133 3,763 -- 370 ------- ------- ------- ---- Total $12,888 $12,426 $ -- $462 ======= ======= ======= ==== 1993 Debt securities and political subdivisions $23,198 $23,178 $ 11 $ 32 Equity securities - preferred stock 4,003 4,035 33 -- ------- ------- ------- ---- Total $27,201 $27,213 $ 44 $ 32 ======= ======= ======= ====
Orbital recognized approximately $353,000 in realized losses on sales of short-term investments in 1994. Debt securities (at fair value) with contractually scheduled maturities scheduled to mature in 1995, 1996 through 1999, and beyond 1999 are in the amounts of $4,557,000, $3,123,000 and $983,000, respectively. 6/ RECEIVABLES The components of receivables are as follows (in thousands):
December 31, 1994 1993 -------- -------- Billed and billable $ 39,085 $ 36,409 Recoverable costs and accrued profit not billed 47,720 40,270 Retainages due upon contract completion 8,109 5,974 Allowance for doubtful accounts (678) (165) -------- -------- Total $ 94,236 $ 82,488 ======== ========
Recoverable costs and accrued profit not billed and retainages due upon contract completion are amounts primarily due after one year and will be billed on the basis of contract terms and delivery schedules. Additionally, provisions of certain of the Company's agreements with subcontractors provide for payments to subcontractors on the basis of contract terms and delivery schedules, which are primarily due after one year. The accuracy and appropriateness of Orbital's direct and indirect costs and expenses under its government contracts, and therefore its receivables recorded pursuant to such contracts, are subject to extensive regulation and audit by the Defense Contract Audit Agency or by other appropriate agencies of the U.S. Government, which have the right to challenge Orbital's cost estimates or allocations with respect to any such contract. Additionally, a substantial portion of the payments to the Company under U.S. Government contracts are provisional payments that are subject to potential adjustment upon audit by such agencies. In the opinion of management, any adjustments likely to result from inquiries or audits of its contracts will not have a material adverse impact on the Company's financial condition or results of operations. At December 31, 1994 and 1993, $8,121,000 and $3,244,000, respectively, were receivable from foreign customers. 7/ PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following (in thousands):
December 31, 1994 1993 -------- -------- Land $ 1,349 $ 937 Buildings and leasehold improvements 12,979 9,673 Machinery and equipment 71,818 41,822 Assets under construction 44,050 31,139 Purchased software and technical drawings 5,297 5,050 Accumulated depreciation and amortization (33,432) (21,317) -------- -------- Total $102,061 $ 67,304 ======== ========
Approximately $11,000,000 of machinery and equipment used to support the Company's orbit transfer vehicle product is being depreciated on a units of production method based on estimated missions of that vehi- Orbital Sciences Corporation forty-two cle. During 1992, the Company changed its estimate of expected missions, resulting in $1,200,000 of additional annual depreciation expense beginning in 1992. Interest expense of approximately $5,500,000, $3,500,000 and $850,000 was capitalized during 1994, 1993 and 1992, respectively, as part of the historical cost of assets under construction and investments in affiliates. 8/ ACCRUED EXPENSES Accrued expenses consist of the following (in thousands):
December 31, 1994 1993 -------- -------- Payroll, payroll taxes and fringe benefits $15,451 $ 9,112 Accrued contract costs 9,176 3,910 Deferred income taxes 4,083 5,280 Other accrued expenses 8,729 4,694 ------- ------- Total $37,439 $22,996 ======= =======
9/ SHORT-TERM BORROWINGS The Company has a revolving credit facility that provides for total borrowings from an international syndicate of six banks of up to $65,000,000, subject to a defined borrowing base composed of certain contract receivables. At December 31, 1994, approximately $22,500,000 of borrowings were outstanding against an available facility limit of approximately $24,800,000. Borrowings of $13,000,000 were outstanding at December 31, 1993. The interest rate charged under the facility is a variable rate based on the prime rate, the Federal Funds rate or adjusted LIBOR. As of December 31, 1994, the interest rate on outstanding borrowings under this facility was approximately 7.75%. Borrowings are secured by contract receivables and other assets such as insurance policies and proceeds, and certain books and records. The facility restricts the payment of dividends and contains certain covenants with respect to the Company's working capital, fixed charge ratio, leverage ratio and tangible net worth, and expires in September 1997. 10/ LONG-TERM OBLIGATIONS The following sets forth the Company's long-term obligations, excluding capital lease obligations (see Note 13), at December 31, 1994 and 1993 (in thousands):
December 31, 1994 1993 -------- -------- 7.00% Secured Note, principal and interest due monthly through December 1998 $ 2,422 $ 3,000 7.74-9.35% Secured Notes, principal and interest due monthly through September 1997-October 1999 23,065 -- 8.50% Secured Note, principal and interest due monthly through May 1994 -- 408 8.95% Secured Bank Note, principal and interest due monthly through September 1999 2,336 -- 6.75% Convertible Subordinated Debentures, interest due semi-annually, principal due March 2003 59,000 59,000 ------- ------- 86,823 62,408 Less current portion (5,798) (942) ------- ------- Total $81,025 $61,466 ======= =======
The 7.00% secured note is collateralized by certain equipment located at the Company's Pomona, California facility. The 7.74-9.35% secured notes are collateralized by certain equipment located at the Company's Germantown, Maryland facility. The 8.95% secured bank note is collateralized by the Company's satellite integration and test facility located in Dulles, Virginia. Additionally, Orbital is guarantor on approximately $5,000,000 of debt incurred by ORBCOMM Development. In February 1993, the Company completed a public offering of $59,000,000 in convertible subordinated debentures (the "Convertible Debentures"). The Convertible Debentures mature in March 2003, are convertible into the Company's Common Stock at any time prior to maturity at a conversion price of $14 3/8 forty-three Orbital Sciences Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS per share, and bear interest payable semi-annually in arrears at 6.75%. The Convertible Debentures are redeemable at the option of the Company, in whole or in part, at any time on or after March 1, 1996 at certain defined redemption prices, plus accrued interest to the date of redemption. Upon a defined change in control, each holder of Convertible Debentures has the right to require the Company to repurchase the Convertible Debentures for the principal amount, plus accrued interest. The Convertible Debentures are subordinated to all existing and future defined senior indebtedness of the Company. The fair value of Orbital's long-term obligations at December 31, 1994 and 1993 is estimated at approximately $107,000,000 and $93,000,000, respectively, based on quoted market prices or on current rates offered for debt of similar remaining maturities. Scheduled maturities of long-term debt for 1995, 1996, 1997, 1998 and 1999 are $5,419,000, $5,901,000, $5,813,000, $5,041,000 and $5,278,000, respectively. 11/ INCOME TAXES The Company adopted SFAS 109 effective January 1, 1993. Prior to 1993, the Company provided for income taxes pursuant to APB 11. The provisions for income taxes for 1994, 1993 and 1992 consist of the following (in thousands):
Years Ended December 31, 1994 1993 1992 ------ ------------------ Current provision Federal $ 563 $ 599 $ 123 State 732 502 1 Deferred provision Federal 342 1,006 1,029 State 444 181 477 ------ ------ ------ Total $2,081 $2,288 $1,630 ====== ====== ======
The income tax provisions are different from those computed using the statutory Federal income tax rate as set forth below:
Years Ended December 31, 1994 1993 1992 ------ ------------------ Statutory rate 34.0% 34.0% 34.0% Tax-exempt interest ( 5.7) ( 5.5) ( 3.0) Non-deductible depreciation -- -- 4.1 Intangible amortization 9.2 8.0 9.4 Federal tax credits ( 7.2) (13.1) (20.9) State income taxes, net of Federal benefits 2.3 2.0 5.7 Foreign sales corporation ( 1.3) ( 0.1) -- Other, net ( 3.4) 1.7 -- ----- ----- ----- Effective rate 27.9% 27.0% 29.3% ===== ===== =====
The tax effects of significant temporary differences at December 31, 1994 and 1993 are as follows (in thousands):
December 31, 1994 1993 -------- -------- Tax Assets: Non-deductible financial statement accruals $ 12,867 $ 4,537 Federal net operating loss carryforward 24,485 156 Federal tax credit carryforward 942 2,023 38,294 6,716 Valuation allowance (32,120) ( 285) -------- ------- Tax assets, net $ 6,174 $ 6,431 ======== ======= Tax Liabilities: Percentage of completion accounting $ 512 $ 3,001 Excess tax depreciation 4,288 2,495 Excess deductions for tax reporting purposes 1,851 1,842 Other 1,867 1,117 -------- ------- Tax liabilities $ 8,518 $ 8,445 ======== =======
The Company established deferred tax assets in connection with its September 1993 and August 1994 purchase business combinations (see Note 4) in the amounts of $2,425,000 and $35,446,000, respectively, and deferred tax liabilities of $2,175,000 and $2,337,000, respectively. The Company also established a valuation allowance of approximately $33,109,000 against certain deferred tax assets acquired in connection with the Fairchild Acquisition. Orbital Sciences Corporation forty-four Components of the 1992 deferred tax provision are set forth below (in thousands): Percentage of completion accounting $ (204) Contract cost reserves (716) Excess tax depreciation -- Non-deductible accruals (406) Federal tax credits (1,100) Net operating loss carryforward 4,049 Other (117) ------- Total $ 1,506 =======
The Company had Federal net operating loss and tax credit carryforwards of approximately $50,000,000 and $900,000, respectively, at December 31, 1994 that may be utilized through the year 2004, subject to certain annual limitations and other restrictions, and that expire beginning in 2001. 12/ COMMON STOCK, STOCK OPTIONS AND OTHER COMPENSATION PLANS In December 1993, the Company completed its third public offering of Common Stock consisting of 2,923,000 primary shares, receiving net proceeds of approximately $45,300,000. The Company's 1990 Stock Option Plan (the "1990 Plan") provides for grants of either incentive or non-qualified stock options to officers, employee directors and general employees of the Company and its subsidiaries. Under the terms of the 1990 Plan, incentive stock options may not be granted at less than 100% of the fair market value at the date of option grant, and non-qualified options may not be granted at less than 85% of the fair market value at the date of option grant. Each option under the 1990 Plan vests at a rate set forth by the Board of Directors in each individual option agreement, generally in one-third increments over a three-year period following the date of grant. Options expire no more than ten years following the grant date. The 1990 Plan currently provides for the granting of up to 2,000,000 shares of the Company's Common Stock. The following summarizes the option activity under the 1990 Plan for the last three years:
Outstanding Number of Option Price and Shares Per Share Exercisable --------------------------------------------------- Outstanding, December 31, 1991 637,619 $ 7.50-$20.00 347,786 Grants 249,900 $ 10.20-$13.71 Exercised (55,284) $ 7.50-$14.50 Cancelled/Expired (24,367) $ 10.50-$15.30 --------- -------------- Outstanding, December 31, 1992 807,868 $ 7.50-$20.00 424,201 Grants 168,750 $ 9.90-$11.50 Exercised (84,474) $ 7.50-$15.30 Cancelled/Expired (44,989) $ 10.50-$20.00 --------- -------------- Outstanding, December 31, 1993 847,155 $ 7.50-$20.00 481,880 Grants 720,700 $ 12.96-$22.00 Exercised (107,387) $ 7.50-$15.30 Cancelled/Expired (78,409) $ 10.20-$22.00 --------- -------------- Outstanding, December 31, 1994 1,382,059 $ 7.50-$22.00 545,435 ========= ============== =======
Pursuant to the terms of the Magellan Acquisition (see Note 4), Orbital granted 409,556 options to acquire Orbital Common Stock to Magellan employees who held Magellan options at the date of the acquisition (the "Replacement Options"). Approximately 266,000 of the Replacement Options are fully vested and the remaining vest over a four-year period. The Replacement Options have an exercise price of $3.51 per share and are excluded from the above table. The Company also maintains the 1990 Stock Option Plan for Non-Employee Directors, which provides solely for automatic grants of non-qualified stock options to purchase shares to eligible non-employee directors of the Company. Of the 82,000 options issued under this plan, 64,000 were exercisable as of December 31, 1994 at prices ranging from $10.20 to $13.92 per share. ORBCOMM adopted a stock option plan in 1992 (the "ORBCOMM Plan"). The ORBCOMM Plan provides for grants of incentive and non-qualified stock options to purchase ORBCOMM common stock to officers and employees of ORBCOMM and the Company. Under the terms of the ORBCOMM Plan, incentive stock options may not be granted at less than 100% of the fair forty-five Orbital Sciences Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS market value at the date of option grant and non-qualified options may be granted at not less than 85% of the fair market value of ORBCOMM common stock at the date of option grant as determined by the ORBCOMM Board of Directors. The options vest at a rate set forth by the Board of Directors in each individual option agreement, generally in one-fourth increments over a four-year period. Certain provisions of the ORBCOMM Plan may require ORBCOMM to repurchase the common stock acquired pursuant to the options beginning in 1995 if a public market for ORBCOMM common stock has not been established. During 1994, 1993 and 1992, 118,650, 99,500 and 413,650 options, respectively, were granted under the ORBCOMM Plan at prices ranging from $1.50 to $14.00 per share. At December 31, 1994, 1993 and 1992, 599,074, 496,274 and 413,650 options, respectively, were outstanding, and 298,657 options were exercisable at December 31, 1994. Compensation expense of approximately $234,000, $356,000 and $372,000 related to various option grants under the Company's plans was recognized for the years ended December 31, 1994, 1993 and 1992, respectively. As of December 31, 1994, and as a result of the Fairchild and Magellan acquisitions, the Company now has four Deferred Salary Profit-Sharing Plans (the "Plans") in accordance with Section 401(k) of the Internal Revenue Code of 1986, as amended. Generally, all full-time employees are eligible for participation in the Plans. Company contributions to the Plans are made based on certain Plan provisions and at the discretion of the Board of Directors, and were approximately $2,991,000, $2,418,000 and $2,048,000 in 1994, 1993 and 1992, respectively. As part of the Fairchild Acquisition, the Company also acquired a defined benefit plan covering substantially all Fairchild employees. Shortly after the Fairchild Acquisition, Orbital curtailed the defined benefit plan by "freezing" future participation in the plan. The approximate $2,500,000 excess of fair value of plan assets over the projected benefit obligation at the date of curtailment was recorded in the allocation of the purchase price. As a result of the curtailment, periodic pension cost was not material in 1994 and is not expected to be material in the future. Also as part of the Fairchild Acquisition, the Company acquired a post-retirement health care plan covering employees retiring from Fairchild on or after attaining age 55 who have rendered at least 10 years of service. Orbital also curtailed the post-retirement plan by "freezing" future participation in the plan. The approximate $2,800,000 unfunded accumulated post-retirement benefit obligation at the date of curtailment was recorded in the allocation of the purchase price. As a result of the curtailment, post-retirement benefit cost was not material in 1994 and is not expected to be material in the future. Additionally, Fairchild had a supplemental executive retirement plan and a deferred compensation plan for certain key employees. Orbital terminated both of these plans shortly after the Fairchild Acquisition. 13/LEASE COMMITMENTS Aggregate minimum rental commitments under non-cancelable operating and capital leases (primarily for office space and equipment) as of December 31, 1994, are as follows (in thousands):
Operating Capital --------------------- 1995 $10,300 $100 1996 8,300 100 1997 5,900 60 1998 8,300 -- 1999 5,300 -- 2000 and thereafter 31,600 -- ------- ---- $69,700 $260 ======= Less: Interest portion at 11% (40) ---- 220 Less: Current portion (80) ---- Total $140 ====
In 1992, the Company purchased an L-1011 carrier aircraft to be used with its Pegasus launch vehicle for approximately $9,100,000 in cash and a two-year note of approximately $1,800,000. Orbital paid off the loan in full in 1994 (see Note 10). In 1992, the Company sold the aircraft for approximately $10,900,000 Orbital Sciences Corporation forty-six and entered into an operating lease arrangement with the buyer. The ten-year lease requires approximately $1,700,000 in annual rentals and obligates the Company to maintain a letter of credit of approximately $5,700,000 for at least the first five years of the lease. Rent expense under operating leases for 1994, 1993 and 1992 was $8,399,000, $7,526,000 and $4,639,000, respectively. 14/ SUPPLEMENTAL CASH FLOW DISCLOSURES Supplemental cash flow disclosures related to the ASO and Fairchild purchase business combinations for the years ended December 31, 1994 and 1993 are as follows (in thousands):
Fairchild ASO 1994 1993 --------- ------- Fair value of assets acquired $ 95,000 $11,037 Liabilities assumed or established (23,200) (5,437) Value of common stock issued to seller (31,000) (5,000) Cash paid for acquisition $ 40,800 $ 600
Cash payments for interest and income taxes for 1994, 1993 and 1992 were as follows (in thousands):
Years ended December 31, 1994 1993 1992 ------ ------------------ Interest paid $5,990 $4,733 $1,137 Income taxes paid, net of refunds $1,630 $1,718 $2,092
15/ SUMMARY SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of selected quarterly financial data for the years ended December 31, 1994 and 1993 (in thousands, except share data), restated to reflect the Magellan Acquisition:
Quarter Ended 1994 Mar 31 Jun 30 Sep 30 Dec 31 -------------------------------------------- Revenues, as previously reported $41,388 $38,734 $50,020 $ NA Magellan revenues 8,922 9,631 8,185 NA Revenues, restated 50,310 48,365 58,205 65,068 Income (loss) from operations, as previously reported 2,304 (336) 3,573 NA Magellan income (loss) from operations 599 699 (169) NA Income from operations, restated 2,903 363 3,404 2,026 Net income (loss), as previously reported $ 1,660 $ (62) $ 1,580 $ NA Magellan net income (loss) 515 623 (67) NA Net income, restated 2,175 561 1,513 1,140 Earnings per share, as previously reported: primary .11 .00 .10 NA fully diluted .09 .00 .10 NA Earnings per share, restated: primary .12 .03 .08 .06 fully diluted .10 .03 .09 .06 1993 Revenues, as previously reported 44,263 52,306 48,741 44,876 Magellan revenues 6,236 8,112 8,922 9,631 Revenues, restated 50,499 60,418 57,663 54,507 Income from operations, as previously reported 1,115 4,001 2,053 1,392 Magellan income from operations 46 659 599 699 Income from operations, restated 1,161 4,660 2,652 2,091 Net income before cumulative effect of accounting change, as previously reported 807 1,116 1,156 1,361 Magellan net income before cumulative effect of accounting change 46 572 515 623 Net income before cumulative effect of accounting change, restated 853 1,688 1,671 1,984 Net income, as previously reported 1,007 1,116 1,156 1,361 Magellan net income 46 572 515 623 Net income, restated 1,053 1,688 1,671 1,984 Earnings per share, as previously reported: primary .09 .10 .10 .11 fully diluted .09 .09 .08 .09 Earnings per share, restated: primary .07 .12 .12 .13 fully diluted .08 .10 .10 .11
forty-seven Orbital Sciences Corporation CORPORATE INFORMATION COMPANY OFFICES Headquarters Orbital Sciences Corporation 21700 Atlantic Boulevard Dulles, VA 20166 (703) 406-5000 Other Major Facilities: Orbital Germantown Operations 20301 Century Boulevard Germantown, MD 20874 (301) 428-6000 Orbital Chandler Operations 3380 South Price Road Chandler, AZ 85248 (602) 899-6000 Orbital Pomona Operations 2771 North Garey Avenue Pomona, CA 91767 (909) 593-3581 Orbital San Dimas Operations 960 Overland Court San Dimas, CA 91773 (909) 394-5000 Orbital Greenbelt Facility 7500 Greenway Center Drive Suite 700 Greenbelt, MD 20770 (301) 220-5600 Orbital Huntsville Facility 620 Discovery Drive Suite 120 Huntsville, AL 35806 (205) 971-0800 INDEPENDENT AUDITORS KPMG Peat Marwick LLP Washington, D.C. TRANSFER AGENT The First National Bank of Boston Shareholders may obtain information with respect to share position, transfer requirements, lost certificates and IRS Form 1099 by writing or telephoning: The First National Bank of Boston Stock Transfer Department 100 Federal Street P.O. Box 644 Boston, MA 02102 Telephone: (617) 575-2900 INVESTOR AND PUBLIC RELATIONS General inquiries from investors, analysts, media or the general public should be directed to: Orbital Sciences Corporation 21700 Atlantic Boulevard Dulles, Virginia 20166 (703) 406-5000 Attention: Investor Relations or Attention: Public Relations FORM 10-K REPORT A copy of the Company's report on Form 10-K can be obtained by writing or telephoning the Company's headquarters. ANNUAL MEETING The annual meeting of Orbital Sciences Corporation will be held on April 27, 1995 at 9:00 a.m. at the Company's headquarters. DIVIDENDS Orbital has never paid a cash dividend on its Common Stock. The Company currently intends to retain earnings primarily for working capital and product development and therefore does not anticipate paying dividends in the forseeable future. In addition, the Company is subject to certain contractual restrictions on its ability to pay dividends. EQUAL EMPLOYMENT OPPORTUNITY Orbital Sciences Corporation is an equal opportunity employer. Orbital Sciences Corporation forty-eight EX-21 11 EXHIBIT 21 EXHIBIT 21 ORBITAL SCIENCES CORPORATION LIST OF SUBSIDIARIES Orbital Communications Corporation Orbital Imaging Corporation Orbital Services Corporation Fairchild Space and Defense Corporation Magellan Corporation EX-23 12 EXHIBIT 23 Exhibit 23 CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Orbital Sciences Corporation: We consent to incorporation by reference in the registration statements on Form S-3 (No. 33-85058) and Form S-8 (No. 33-84296) of our reports dated February 6, 1995, relating to the consolidated balance sheets of Orbital Sciences Corporation as of December 31, 1994 and 1993, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994, and the related consolidated financial statement schedule, which reports appear in the December 31, 1994 Annual Report on Form 10-K of Orbital Sciences Corporation. KPMG Peat Marwick LLP Washington, D.C. March 28, 1995 EX-27 13 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS AT AND FOR THE YEAR ENDED DECEMBER 31, 1994 AND SCHEDULE VIII AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000820736 ORBITAL SCIENCES CORP /DE/ 1,000 YEAR DEC-31-1994 DEC-31-1994 21,156 12,426 94,914 (678) 26,098 5,914 135,493 (33,432) 402,728 107,527 81,163 202 0 0 201,844 402,728 221,946 221,946 157,066 157,066 0 136 1,459 7,470 2,081 5,389 0 0 0 5,389 .28 .28
-----END PRIVACY-ENHANCED MESSAGE-----