-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KxHoUGsAaDOHR36+unNbWdE91mhUv7GlodFEUMpWx5yIG0XscqiR0p/JIxWtDt1m JK2qeoKwRouCONYX+Gd0NA== 0000950133-96-001503.txt : 19960813 0000950133-96-001503.hdr.sgml : 19960813 ACCESSION NUMBER: 0000950133-96-001503 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORBITAL SCIENCES CORP /DE/ CENTRAL INDEX KEY: 0000820736 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 061209561 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18287 FILM NUMBER: 96608264 BUSINESS ADDRESS: STREET 1: 21700 ATLANTIC BOULEVARD CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034065000 MAIL ADDRESS: STREET 1: 21700 ATLANTIC BLVD 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-Q 1 FORM 10-Q FOR PERIOD ENDING JUNE 30, 1996 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended JUNE 30, 1996 ORBITAL SCIENCES CORPORATION Commission file number 0-18287 DELAWARE 06-1209561 - ---------------------------------------- ------------------------------------ (State of Incorporation) (IRS Identification number) 21700 ATLANTIC BOULEVARD DULLES, VIRGINIA 20166 (703) 406-5000 - ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Telephone number) The registrant has (1) 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, and (2) has been subject to such filing requirements for the past 90 days. As of July 31, 1996, 26,974,891 shares of the registrant's common stock were outstanding. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
A S S E T S JUNE 30, DECEMBER 31, 1996 1995 ------------ ------------- CURRENT ASSETS: Cash and cash equivalents $ 14,112 $ 15,317 Short-term investments, at market 10,113 19,713 Receivables, net 129,055 118,358 Inventories, net 38,475 38,527 Deferred income taxes and other assets 5,817 7,330 ------------ ------------- TOTAL CURRENT ASSETS 197,572 199,245 PROPERTY, PLANT AND EQUIPMENT, AT COST, LESS ACCUMULATED depreciation and amortization of $59,074 and $53,067, respectively 94,839 91,512 SATELLITE SYSTEMS, AT COST, LESS ACCUMULATED depreciation of $958 and $547, respectively 19,667 14,363 INVESTMENTS IN AFFILIATES, NET 82,625 74,063 EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, less accumulated amortization of $15,203 and $13,697, respectively 74,660 75,395 DEFERRED INCOME TAXES AND OTHER ASSETS 11,408 12,330 ------------ ------------- TOTAL ASSETS $480,771 $466,908 ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings and current portion of long-term obligations $ 42,513 $ 11,907 Accounts payable 18,548 25,808 Accrued expenses 27,198 29,922 Payable to subcontractors 5,592 11,552 Deferred revenue 31,440 32,503 ------------ ------------- TOTAL CURRENT LIABILITIES 125,291 111,692 LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION 92,351 96,990 OTHER LIABILITIES 17,465 19,740 ------------ ------------- TOTAL LIABILITIES 235,107 228,422 NON-CONTROLLING INTERESTS IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES (875) (422) COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock, par value $.01; 10,000,000 shares authorized: Series A Special Voting Preferred Stock, 1 share authorized and outstanding -- -- Class B Preferred Stock, 10,000 shares authorized and outstanding -- -- Common Stock, par value $.01; 40,000,000 shares authorized, 26,926,758 and 26,766,029 shares outstanding, after deducting 15,735 shares held in treasury 269 268 Additional paid-in capital 248,738 247,580 Unrealized gains (losses) on short-term investments (12) 68 Cumulative translation adjustment (3,771) (3,356) Retained earnings (deficit) 1,315 (5,652) ------------ ------------- TOTAL STOCKHOLDERS' EQUITY 246,539 238,908 ------------ ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $480,771 $466,908 ============ =============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -2- 3 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED JUNE 30, --------------------------------- 1996 1995 -------------- --------------- REVENUES $ 116,512 $ 81,766 COSTS OF GOODS SOLD 83,624 61,036 -------------- --------------- GROSS PROFIT 32,888 20,730 RESEARCH AND DEVELOPMENT EXPENSES 4,953 5,282 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 19,829 15,432 AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED 782 819 -------------- --------------- INCOME (LOSS) FROM OPERATIONS 7,324 (803) NET INTEREST EXPENSE (814) (1,181) EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (2,586) (65) NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES OF CONSOLIDATED SUBSIDIARIES 341 - -------------- --------------- INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES 4,265 (2,049) PROVISION (BENEFIT) FOR INCOME TAXES 426 (423) -------------- --------------- NET INCOME (LOSS) $ 3,839 $ (1,626) ============== =============== NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE $ 0.14 ($0.07) SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE 27,378,722 25,307,950 ============== =============== NET INCOME (LOSS) PER COMMON SHARE, ASSUMING FULL DILUTION $ 0.14 ($0.07) SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON SHARE, ASSUMING FULL DILUTION 31,303,789 29,203,602 ============== ===============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -3- 4 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE SIX MONTHS ENDED JUNE 30, ------------------------------- 1996 1995 ------------ ----------- REVENUES $ 221,406 $ 170,741 COSTS OF GOODS SOLD 156,206 124,498 ------------ ----------- GROSS PROFIT 65,200 46,243 RESEARCH AND DEVELOPMENT EXPENSES 11,331 10,334 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 39,094 30,397 AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED 1,579 1,558 ------------ ----------- INCOME FROM OPERATIONS 13,196 3,954 NET INTEREST EXPENSE (1,449) (2,019) EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (4,604) 362 NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES OF CONSOLIDATED SUBSIDIARIES 598 -- ------------ ----------- INCOME BEFORE PROVISION FOR INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 7,741 2,297 PROVISION FOR INCOME TAXES 774 905 ------------ ----------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 6,967 1,392 CUMULATIVE EFFECT OF ACCOUNTING CHANGES, net of taxes -- (4,160) ------------ ----------- NET INCOME (LOSS) $ 6,967 $ (2,768) ============ =========== NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE: Income Before Cumulative Effect of Accounting Changes $ 0.26 $ 0.06 Cumulative Effect of Accounting Changes -- (0.17) ------------ ----------- $0.26 ($0.11) ============ =========== SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE 27,270,385 25,041,485 ============ =========== NET INCOME (LOSS) PER COMMON SHARE, assuming full dilution: Income Before Cumulative Effect of Accounting Changes $ 0.26 $ 0.06 Cumulative Effect of Accounting Changes -- (0.17) ------------ ----------- $0.26 ($0.11) ============ =========== SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON SHARE, assuming full dilution 31,260,083 28,950,575 ============ ===========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -4- 5 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED; IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, ------------------------- 1996 1995 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME (LOSS) $ 6,967 $ (2,768) ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Depreciation and amortization expense 11,627 10,370 Equity in (earnings) losses of affiliates 4,604 362 Non-controlling interests in earnings (losses) of consolidated subsidiaries (598) -- Gain (loss) on sale of fixed assets and investments (17) -- Cumulative effect of accounting change -- 4,160 Foreign currency translation adjustment (415) 994 CHANGES IN ASSETS AND LIABILITIES: (Increase) decrease in receivables (10,697) 16,237 (Increase) decrease in inventories (55) (2,470) (Increase) decrease in other current assets 1,513 (2,655) (Increase) decrease in other non-current assets 323 1,645 Increase (decrease) in payables and accrued expenses p(16,444) (24,192) Increase (decrease) in deferred revenue (1,449) (2,932) Increase (decrease) in other liabilities (2,275) (1,378) ---------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (6,916) (2,627) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (12,923) (6,918) Investments in satellite systems (5,715) (3,357) Proceeds from sales of fixed assets -- 125 Purchases of investment securities (6,222) (13,083) Sales of investment securities 9,576 4,310 Maturities of investment securities 6,215 -- Investments in affiliates (12,346) (9,689) ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES (21,415) (28,612) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term borrowings (repayments) 30,200 (16,435) Principal payments on long-term obligations (4,114) (2,933) Proceeds from issuance of long-term obligations -- 21,143 Net proceeds from issuances of common stock 1,040 33,246 Adjustment to recast pooled company's year end -- (1,050) ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 27,126 33,971 ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,205) 2,732 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 15,317 27,919 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,112 $ 30,651 ========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -5- 6 ORBITAL SCIENCES CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995 (UNAUDITED) BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited interim financial information reflects all adjustments, consisting of normal recurring accruals, necessary for a fair presentation thereof. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the Securities and Exchange Commission. Although the Company believes that the disclosures provided are adequate to make the information presented not misleading, these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Operating results for the three- and six-month periods ended June 30, 1996 and 1995 are not necessarily indicative of fiscal year performance. Orbital Sciences Corporation is hereafter referred to as "Orbital" or the "Company." (1) 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 or specific identification basis. 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 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. Finished goods inventory consists of fully assembled commercial products awaiting shipment. (2) Common Stock and 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 -6- 7 number of common and common equivalent shares outstanding during the periods plus the effects of an assumed conversion of the Company's 6 3/4% convertible subordinated debentures (the "Convertible Debentures"), after giving effect to all net income adjustments that would result from the assumed conversion. Any reduction of less than three percent in the aggregate has not been considered dilutive in the calculation and presentation of income per common share assuming full dilution. (3) Income Taxes The Company has recorded its interim income tax provision based on estimates of the Company's effective tax rate expected to be applicable for the full fiscal year. Estimated effective rates recorded during interim periods may be periodically revised, if necessary, to reflect current estimates. (4) Stockholders' Equity and Common Stock On July 25, 1996, the Company called all its outstanding Convertible Debentures for redemption on August 14, 1996. Pursuant to the terms of the indenture governing the Convertible Debentures, the holders of the Convertible Debentures may redeem their Debentures for a cash payment of (i) $1,000 in principal, plus (ii) a premium of $47.25, plus (iii) $30.56 of interest accrued from March 1, 1996 to the date of redemption for each $1,000 principal amount of Convertible Debentures. Alternatively, at their option, the holders may convert their Convertible Debentures into Orbital Common Stock at a price of $14.375 per share, or approximately 69.565 shares for each $1,000 principal amount of Convertible Debentures. The Company has entered into a standby underwriting agreement with an investment bank whereby the investment bank has agreed, subject to certain customary conditions, to purchase from the Company shares of its Common Stock to provide proceeds to the Company to satisfy any redemption by the holders of the Convertible Debentures. In June 1996, Magellan Corporation ("Magellan"), a wholly owned subsidiary of the Company, adopted its 1996 Stock Option Plan (the "Magellan Plan"), pursuant to which options to purchase up to 12.3% of Magellan's common stock (on a fully diluted basis) may be granted to Magellan and Orbital employees. In July 1996, options were granted for approximately six million shares of Magellan common stock under the Magellan Plan. -7- 8 (5) Investments in Affiliates On August 7, 1996, ORBCOMM Global, L.P. ("ORBCOMM Global") completed a private financing involving the issuance and sale of $170,000,000 Senior Notes (the "Notes") to certain institutional investors. Net proceeds from the sale of the Notes (approximately $164,500,000) will be applied to (i) the design, construction, launch, operation and marketing of ORBCOMM Global's satellite-based, two-way data communications network (the "ORBCOMM System") and related development, operating and management expenses (including cost contingencies) and (ii) the first two years of fixed interest on the Notes. The obligations of ORBCOMM Global under the Notes are nonrecourse to the Company. The Notes have a term of eight years and generally may not be redeemed prior to August 15, 2001. The Notes bear interest at the fixed rate of 14% per annum. In addition, the Notes provide for revenue participation interest in an aggregate amount of 5% of the ORBCOMM System revenues, payment of which may be deferred by ORBCOMM Global to the extent that certain fixed charge ratios are not met. The obligations under the Notes are guaranteed, jointly and severally, by the Company's majority-owned subsidiary, Orbital Communications Corporation ("OCC"), Teleglobe Mobile Partners ("Teleglobe"), ORBCOMM USA, L.P. and ORBCOMM International, L.P. Such guarantees are also nonrecourse to the Company. Upon closing of the financing, OCC and Teleglobe contributed the balance of their capital commitments in ORBCOMM Global for an aggregate equity investment of approximately $160 million. The Company and Teleglobe have agreed to commit additional capital in an amount up to $15 million each in the event of certain limited contingencies in the future. (6) Debt The Company maintains several short-term borrowing arrangements to meet working capital requirements. During the quarter ended June 30, 1996, the Company modified two of these agreements to provide for additional borrowing capacity. Orbital's demand line of credit was increased from $7 million to $25 million and remains unsecured. Magellan's existing line of credit was increased from approximately $5 million to $10 million and remains collateralized by all of Magellan's assets. Orbital's $20 million unsecured loan agreement with The Northwestern Mutual Life Insurance Company was amended as of July 31, 1996 to waive non-compliance with a financial ratio requirement, as well as to amend certain financial covenants and to permit the completion of the ORBCOMM System financing (see Note (4) above). In connection with this -8- 9 amendment, the interest rate on the note was increased from 10 1/2% to 11 1/2% effective July 1, 1996. (7) Reclassifications Certain reclassifications have been made to the 1995 condensed consolidated financial statements to conform to the 1996 condensed consolidated financial statement presentation. The November 1995 acquisition of MacDonald, Dettwiler and Associates Ltd. was recorded using the pooling of interests method of accounting for business combinations and, accordingly, Orbital's 1995 historical financial statements have been restated to reflect this transaction. -9- 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995 Certain statements included in this discussion constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. In addition, factors such as general economic and business conditions, product performance, market acceptance of products and technologies, and dependence upon long-term contracts with commercial and government customers impact the Company's revenues, expenses and gross profit from period to period. (Refer to Exhibit 99 filed herewith for further discussion of some of these factors.) The Company's products and services are grouped into three business sectors: Space Infrastructure Systems, Satellite Access Products, and Satellite-Provided Services. Space Infrastructure includes Launch Systems, Satellites and Space Systems, Electronics and Sensor Systems, and Ground Systems and Software. The Company's Satellite Access Products sector consists of satellite-based navigation and communications products. The Company's Satellite-Provided Services sector includes satellite-based, two-way mobile data communications services and Earth imagery remote sensing services. REVENUES. Orbital's revenues for the three-month periods ended June 30, 1996 and 1995 were $116,512,000 and $81,766,000, respectively. Revenues for the six-month periods ended June 30, 1996 and 1995 were $221,406,000 and $170,741,000, respectively. Space Infrastructure Systems Revenues from the Company's space infrastructure systems totaled $97,500,000 and $66,385,000 for the three months ended June 30, 1996 and 1995, respectively, and $179,161,000 and $138,497,000 for the six months ended June 30, 1996 and 1995, respectively. Revenues from the Company's launch systems increased to $27,554,000 in the second quarter of 1996, from $17,321,000 in the second quarter of 1995. Launch systems revenues were $46,871,000 for the six months ended June 30, 1996 as compared to $32,182,000 for the comparable 1995 period. The significant increase in revenues in 1996 is attributable primarily to the resumption of production and launch of the Company's Pegasus XL launch vehicle. Orbital has successfully completed all three of its Pegasus launches to date in 1996, consisting of two Pegasus XL launches and one standard Pegasus launch. Additionally, revenues generated from the Company's Taurus launch vehicle also increased as a result of work performed on two orders received -10- 11 subsequent to June 30, 1995. As a result, Orbital expects total 1996 launch systems revenues to continue to exceed 1995's total revenues on a quarterly basis. For the three months ended June 30, 1996, satellite systems revenues increased to $27,982,000 from $14,382,000 in the 1995 quarter. Satellite systems revenues were $50,541,000 for the six months ended June 30, 1996 as compared to $28,901,000 for the comparable 1995 period. The increase in satellite systems sales is primarily due to additional revenues generated from new satellite orders from government and commercial customers, including 1996 sales to ORBCOMM Global, L.P. ("ORBCOMM Global") of $22,835,000 as compared to 1995 sales of $3,395,000. Revenues from electronics and sensors systems were approximately $21,370,000 for the three months ended June 30, 1996 as compared to $17,505,000 for the comparable 1995 period. Electronics and sensors systems revenues were $37,849,000 for the six months ended June 30, 1996 as compared to $37,603,000 for the comparable 1995 period. The increase in revenues in the second quarter is primarily a result of work performed on defense electronics and transportation management systems orders received during 1996. Orbital expects sales of electronics and sensors systems to continue to increase as compared to 1995 levels throughout the remainder of 1996. Revenues from the Company's satellite ground systems and other software products were $20,593,000 in the second quarter of 1996 as compared to $17,177,000 for the comparable 1995 period. Satellite ground systems revenues were $43,899,000 for the six months ended June 30, 1996 as compared to $37,811,000 for the comparable 1995 period. The 1996 increase in revenues reflects work performed on new contract awards and is expected to continue at approximately the same rate throughout 1996. Satellite Access Products Revenues from sales of navigation and communications products increased to $18,688,000 for the second quarter of 1996 as compared to $12,457,000 for the comparable 1995 period, primarily due to a substantial increase in unit sales offset, in part, by lower unit prices, for GPS navigators. Satellite access product revenues were $41,456,000 for the six months ended June 30, 1996 as compared to $25,193,000 for the comparable 1995 period. The Company expects navigation and communications products sales to continue to increase as compared to 1995 levels throughout 1996, although at somewhat lower levels than achieved during the first six months of 1996. Satellite-Provided Services The Company's satellite-based services include communications and information services. In 1993, the Company's majority-owned subsidiary, Orbital Communications Corporation ("OCC") and Teleglobe Mobile Partners ("Teleglobe"), formed ORBCOMM Global for the design, development, construction, integration, testing and operation of a satellite-based, two-way data communications network (the "ORBCOMM System"). OCC and -11- 12 Teleglobe each hold a 50% interest in ORBCOMM Global. Orbital's subsidiary Orbital Imaging Corporation ("ORBIMAGE") is seeking to develop and market a broad range of satellite remote sensing-based information services. The Company's ORBCOMM and ORBIMAGE start-up businesses generated service revenues of approximately $325,000 in the 1996 second quarter, and $790,000 for the six months ended June 30, 1996. Satellite-provided services revenues in 1995 represented sales of ground and network software to ORBCOMM Global of approximately $2,924,000 and $7,050,000 for the three- and six-month periods ended June 30, 1995, respectively; no such sales were made in 1996. 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. The Company's gross profit for the second quarter of 1996 was $32,888,000, as compared to $20,730,000 for the comparable 1995 period. Gross profit margin as a percentage of sales for those periods was approximately 28.2% and 25.4%, respectively. The Company's gross profit for the first half of 1996 was $65,200,000, as compared to $46,243,000 for the first half of 1995. Gross profit margin as a percentage of sales for those periods was approximately 29.4% and 27.1%, respectively. The increased gross profit margin as a percentage of sales in 1996 is primarily attributable to the resumption of Pegasus production after launch failures in June 1994 and June 1995. The Company expects that its gross profit margin for the remainder of 1996 will be slightly higher than 1995 levels. 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 the three-month periods ended June 30, 1996 and 1995 were $4,953,000 and $5,282,000, respectively. Research and development expenses during the six-month periods ended June 30, 1996 and 1995 were $11,331,000 and $10,334,000, respectively. Research and development expenses in 1996 relate primarily to the development of new or improved navigation and communications products, improved launch vehicles and new satellite programs. The Company expects its research and development expenditures for the rest of 1996 to be lower than 1995 expenditures both as a percentage of revenues and in absolute dollar terms. 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 the second quarters of 1996 and 1995 were $19,829,000 (or 17.0% of revenues) and $15,432,000 (or 18.9% of revenues), respectively. Selling, general and administrative expenses for the first halves of 1996 and 1995 were $39,094,000 (or 17.7% of revenues) and $30,397,000 (or 17.8% of revenues), respectively. The increase in selling, general and administrative expenses during 1996 as compared to 1995 is primarily attributable to substantially expanded marketing efforts related to the Company's ORBCOMM System and ORBIMAGE projects. The Company expects selling, general and administrative expenses -12- 13 as a percentage of revenues during the remainder of 1996 to be generally consistent with the percentage attained during the first half of 1996. INTEREST INCOME AND INTEREST EXPENSE. Net interest expense was $814,000 and $1,181,000 for the three months ended June 30, 1996 and 1995, respectively. Net interest expense was $1,449,000 and $2,019,000 for the six months ended June 30, 1996 and 1995, respectively. Interest income for the periods reflects interest earnings on short-term investments. Interest expense is primarily for outstanding amounts on Orbital's revolving credit facility, on the Company's Convertible Debentures and on secured and unsecured debt. Interest expense has been reduced by capitalized interest of $1,682,000 and $1,188,000 in 1996 and 1995, respectively. The Company expects interest expense in the second half of 1996 to be less than that in the first half as a result of the expected conversion of the Convertible Debentures (see Liquidity and Capital Resources). EQUITY IN EARNINGS (LOSSES) OF AFFILIATES AND NON-CONTROLLING INTERESTS IN CONSOLIDATED SUBSIDIARIES. Equity in earnings (losses) of affiliates and non-controlling interests in (earnings) losses of consolidated subsidiaries for the second quarters of 1996 and 1995 were ($2,245,000) and ($65,000), respectively. Equity in earnings (losses) of affiliates and non-controlling interests in (earnings) losses of consolidated subsidiaries for the six-month periods ended June 30, 1996 and 1995 were ($4,006,000) and $362,000, respectively. These amounts primarily represent (i) elimination of 50% of the profits on sales to ORBCOMM Global, (ii) the Company's pro rata share of ORBCOMM Global's and ORBCOMM International Partners L.P.'s ("ORBCOMM International") current period earnings and losses and (iii) non-controlling shareholders' pro rata share of ORBCOMM USA L.P.'s ("ORBCOMM USA") current period earnings and losses. ORBCOMM International and ORBCOMM USA are marketing partnerships for the ORBCOMM System. PROVISION FOR INCOME TAXES. The Company recorded an income tax provision of $426,000 and $774,000 for the three- and six-month periods ended June 30, 1996. The Company recorded an income tax benefit of $423,000 for the three-month period ended June 30, 1995 and an income tax provision of $905,000 for the six-month period ended June 30, 1995. The Company records its interim income tax provisions based on estimates of the Company's effective tax rate expected to be applicable for the full fiscal year. Estimated effective rates recorded during interim periods may be periodically revised, if necessary, to reflect current estimates. At December 31, 1995, Orbital had approximately $100,000,000 and $2,000,000 of net operating loss and tax credit carryforwards, respectively, which are available to reduce future income tax obligations, subject to certain annual limitations and other restrictions. -13- 14 LIQUIDITY AND CAPITAL RESOURCES The Company's growth has required substantial capital to fund both an expanding business base and significant research and development and capital expenditures. Additionally, the Company has historically made strategic acquisitions of businesses and routinely evaluates potential acquisition candidates. The Company expects to continue to pursue potential acquisitions that it believes would augment its marketing, technical, manufacturing or financial capabilities. The Company has funded these requirements to date, and expects to fund its requirements in the future, through cash generated by operations, working capital loan facilities, asset-based financings, joint venture arrangements, and private and public equity and debt offerings. Cash, cash equivalents and short-term investments were $24,225,000 at June 30, 1996, and the Company had short-term and long-term debt obligations outstanding of approximately $134,864,000. The outstanding debt relates primarily to advances under the Company's lines of credit facilities, secured and unsecured notes, fixed asset financings and the Convertible Debentures. On July 25, 1996, the Company called all its outstanding 6 3/4% convertible subordinated debentures (the "Convertible Debentures") for redemption on August 14, 1996. Pursuant to the terms of the indenture governing the Convertible Debentures, the holders of the Convertible Debentures may redeem their Debentures for a cash payment of (i) $1,000 in principal, plus (ii) a premium of $47.25, plus (iii) $30.56 of interest accrued from March 1, 1996 to the date of redemption for each $1,000 principal amount of Convertible Debentures. Alternatively, at their option, the holders may convert their Convertible Debentures into Orbital Common Stock at a price of $14.375 per share, or approximately 69.565 shares for each $1,000 principal amount of Convertible Debentures. The Company has entered into a standby underwriting agreement with an investment bank whereby the investment bank has agreed, subject to customary conditions, to purchase from the Company shares of its Common Stock to provide proceeds to the Company to satisfy any redemption by the holders of the Convertible Debentures. Orbital's $20 million unsecured loan agreement with The Northwestern Mutual Life Insurance Company was amended as of July 31, 1996 to waive non-compliance with a financial ratio requirement, as well as to amend certain financial covenants and to permit the completion of the ORBCOMM System financing. In connection with this amendment, the interest rate on the note was increaseed from 10 1/2% to 11 1/2% effective July 1, 1996. The Company's primary revolving credit facility provides for total borrowings from an international syndicate of six banks of up to $65,000,000, subject to a defined borrowing base comprised of certain contract receivables. Approximately $21,000,000 of borrowings were outstanding under the facility at June 30, 1996, and the available facility limit was approximately $25,000,000. At June 30, 1996, the average interest rate on outstanding borrowings under this facility was approximately 9%. Borrowings are secured by contract receivables and certain other assets. The facility restricts the payment of dividends and contains certain covenants with respect to the Company's working -14- 15 capital, fixed charge ratio, leverage ratio and tangible net worth, and expires in September 1997. The Company (or its subsidiaries) also maintains two additional, smaller revolving credit facilities, under which approximately $14,200,000 was outstanding at June 30, 1996. During the quarter ended June 30, 1996, the Company modified the two additional agreements to increase borrowing capacity from approximately $12,000,000 to approximately $35,000,000. As anticipated, the Company's operations used net cash of approximately $6,916,000 in the first half of 1996. The Company also invested approximately $12,346,000 in ORBCOMM Global, incurred $5,715,000 in capital expenditures related to ORBIMAGE satellite remote sensing systems, and incurred approximately $12,923,000 in capital expenditures for various spacecraft production and test equipment. On August 7, 1996, ORBCOMM Global completed a private financing involving the issuance and sale of $170,000,000 Senior Notes (the "Notes") to certain institutional investors. Net proceeds from the sale of the Notes (approximately $164,500,000) will be applied to (i) the design, construction, launch, operation and marketing of the ORBCOMM System and related development, operating and management expenses (including cost contingencies) and (ii) the first two years of fixed interest on the Notes. The obligations of ORBCOMM Global under the Notes are nonrecourse to the Company. The Notes have a term of eight years and generally may not be redeemed prior to August 15, 2001. The Notes bear interest at the fixed rate of 14% per annum. In addition, the Notes provide for revenue participation interest in an aggregate amount of 5% of the ORBCOMM System revenues, payment of which may be deferred by ORBCOMM Global to the extent that certain fixed charge ratios are not met. The obligations under the Notes are guaranteed, jointly and severally, by OCC, Teleglobe, ORBCOMM USA and ORBCOMM International. Such guarantees also are nonrecourse to the Company. Upon closing of the financing, OCC and Teleglobe contributed the balance of their capital commitments in ORBCOMM Global for an aggregate equity investment of approximately $160 million. The Company and Teleglobe have agreed to commit additional capital in an amount up to $15 million each in the event of certain limited contingencies in the future. Orbital expects to invest up to $15,000,000 in various ORBIMAGE satellite remote sensing projects for all of 1996. Orbital expects that its capital needs for the second half of 1996, including its planned investment in its ORBIMAGE projects, will in part be provided by working capital, cash flows from operations, credit facilities, asset-based financings, customer financings and operating lease arrangements. Orbital believes that it is likely to require additional equity and/or debt financing to fully fund its currently planned operations and capital requirements in 1997. -15- 16 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - A complete listing of exhibits required is given in the Exhibit Index that precedes the exhibits filed with this report. (b) Not applicable. -16- 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ORBITAL SCIENCES CORPORATION DATED: August 12, 1996 By: /s/ David W. Thompson ---------------------------------------- David W. Thompson, President and Chief Executive Officer DATED: August 12, 1996 By: /s/ Jeffrey V. Pirone ---------------------------------------- Jeffrey V. Pirone, Senior Vice President and Principal Financial Officer -17- 18 EXHIBIT INDEX The following exhibits are filed as part of this report.
Exhibit No. Description ----------- ----------- 10.1 Amendment No. 5 to Credit Agreement among Orbital Sciences Corporation, Orbital Imaging Corporation, Fairchild Space and Defense Corporation, the Banks (listed on the signature pages), Morgan Guaranty Trust Company of New York and J.P. Morgan Delaware, dated July 19, 1996 (transmitted herewith). 10.2 Third Amendment to Note Agreement between Orbital Sciences Corporation and The Northwestern Mutual Life Insurance Company, dated July 31, 1996 (transmitted herewith). 10.3 Magellan Corporation 1996 Stock Option Plan (transmitted herewith). 11 Statement re: Computation of Earnings Per Share (transmitted herewith). 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-Q, or otherwise subject to the liabilities of Section 18 of the Securities Exchange Act of 1934) (transmitted herewith). 99 Important Factors Regarding Forward-Looking Statements (transmitted herewith).
-18- EX-10.1 2 AMENDMENT NO. 5 TO CREDIT AGREEMENT 1 Exhibit 10.1 [CONFORMED COPY] AMENDMENT NO. 5 TO CREDIT AGREEMENT AMENDMENT No. 5 dated as of July 19, 1996 among ORBITAL SCIENCES CORPORATION (the "Company"), ORBITAL IMAGING CORPORATION and FAIRCHILD SPACE AND DEFENSE CORPORATION, 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 from time to time, 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 that 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. Changes to Definitions. (a) A new definition of "ORBCOMM Global Guaranty" is added in alphabetical order in Section 1.01 of the Agreement, to read in its entirety as follows: "ORBCOMM Global Guaranty" means the Guaranty by Orbital Communications Corporation and ORBCOMM USA L.P. of the Senior Notes Due 2004 issued by ORBCOMM Global Limited Partnership and ORBCOMM Global Capital Corporation, the proceeds of which Notes are to be applied to develop the ORBCOMM system, such Guaranty being in the form provided to the Banks prior to the date of effectiveness of Amendment No. 5 dated as of July 19, 1996 to this Agreement among the Borrowers, the Banks, the Administrative Agent and the Collateral Agent." (b) The definition of "Consolidated Fixed Charges" set forth in Section 1.01 of the Agreement is amended by deleting the parenthetical "(other than Debt owing to the Company or a Consolidated Subsidiary)" where it appears therein and replacing it with the parenthetical "(other than (i) Debt owing to the Company or a Consolidated Subsidiary and (ii) the ORBCOMM Global Guaranty")". 2 (c) The definition of "Consolidated Leverage Ratio" set forth in Section 1.01 of the Agreement is amended by inserting the parenthetical "(other than the ORBCOMM Global Guaranty") immediately after the term "Consolidated Debt" where it appears therein. SECTION 3. Exception to the Investments Covenant. Section 5.07 of the Agreement is amended by: (i) deleting the parenthetical "(other than Investments described in clause (a) above)" set forth in clause (b) thereof and replacing it with the parenthetical "(other than (x) Investments described in clause (a) above and (y) the ORBCOMM Global Guaranty)"; (ii) renumbering clause (h) thereof as clause (i); and (iii) inserting a new clause (h) immediately following clause (g) thereof, to read in its entirety as follows: "(h) the ORBCOMM Global Guaranty; and" SECTION 4. Exception to the Subsidiary Debt Covenant. The first sentence of Section 5.17 of the Agreement is amended to read in its entirety as follows: "Total Debt of all of the Company's Subsidiaries (excluding (i) Loan and Letter of Credit Liabilities hereunder, (ii) Debt of a Subsidiary to the Company or to a Wholly-Owned Subsidiary of the Company and (iii) the ORBCOMM Global Guaranty) will at no time exceed 50 of Consolidated Tangible Net Worth." SECTION 5. Exception to the Restricted Payments Covenant. Section 5.18 of the Agreement is amended by deleting the period at the end thereof and replacing it with the following phrase "and the redemption in whole of the Debentures on or prior to September 30, 1996 substantially on the terms and conditions described to the Banks prior to the date of effectiveness of Amendment No. 5 dated as of July 19, 1996 to this Agreement among the Borrowers, the Banks, the Administrative Agent and the Collateral Agent." SECTION 6. New York Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts; Effectiveness. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective on the date on which the Administrative Agent shall have received (i) 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) and (ii) evidence reasonably satisfactory to it that ORBCOMM Global 2 3 Limited Partnership and ORBCOMM Global Capital Corporation will have issued the Senior Notes Due 2004, the proceeds of which Notes are to be applied to develop the ORBCOMM system. 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/ Jeffrey V. Pirone ---------------------------- Title: Vice President and Treasurer ORBITAL IMAGING CORPORATION By: /s/ Jeffrey V. Pirone ---------------------------- Title: Vice President and Chief Financial Officer FAIRCHILD SPACE AND DEFENSE CORPORATION By: /s/ Jeffrey V. Pirone ---------------------------- Title: Vice President and Assistant Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Kevin J. O'Brien ---------------------------- Title: Vice President THE BANK OF NOVA SCOTIA By: /s/ J.R. Trimble ---------------------------- Title: Senior Relationship Manager 3 4 SIGNET BANK (formerly known as Signet Bank/Virginia) By: /s/ Ronald K. Hobson --------------------------------- Title: Vice President NATIONSBANK, N.A. By: /s/ James W. Gaittens --------------------------------- Title: Vice President Financial Strategies Group THE BANK OF TOKYO TRUST COMPANY By: --------------------------------- Title: THE SUMITOMO BANK LIMITED By: /s/ Louanne Baily --------------------------------- Title: Vice President and Manager By: /s/ Nancy Z. Reimann --------------------------------- Title: Vice President 4 EX-10.2 3 ORBITAL SCIENCES CORP. THIRD AMEND. TO NOTE AGRMT. 1 Exhibit 10.2 [CONFORMED COPY] ================================================================================ Orbital Sciences Corporation Third Amendment Dated as of July 31, 1996 To Note Agreement Dated as of June 1, 1995 Re: $20,000,000 10.50% Senior Notes, Due June 14, 2001 ================================================================================ 2 THIRD AMENDMENT TO NOTE AGREEMENT This Third Amendment to Note Agreement dated as of July 31, 1996 (the or this "Third Amendment"), is entered into between Orbital Sciences Corporation, a Delaware corporation (the "Company"), and The Northwestern Mutual Life Insurance Company (the "Purchaser"). RECITALS: A. The Company and the Purchaser have heretofore entered into the Note Agreement dated as of June 1, 1995, the First Amendment to Note Agreement dated as of June 30, 1995 and the Second Amendment to Note Agreement dated as of March 15, 1996 (as amended, the "Note Agreement"). B. An Event of Default under the Note Agreement has occurred as a result of the Company's default in the observance of the covenant contained in Section 5.9 of the Note Agreement for the period from January 1, 1996 to and including June 30, 1996. C. On or about August 1, 1996, the Company anticipates that ORBCOMM Global, L.P., a Delaware partnership ("ORBCOMM Partnership"), and ORBCOMM Global Capital Corp., a Delaware corporation ("ORBCOMM Capital"; together with ORBCOMM Partnership, the "Issuers"), will consummate the issuance of $170,000,000 aggregate principal amount of the Issuers' 14% Senior Notes (the "ORBCOMM Notes") and that ORBCOMM (as defined in the Note Agreement) and certain other subsidiaries of the Issuers will guarantee such ORBCOMM Notes upon the terms and conditions contemplated by that certain Preliminary Offering Memorandum dated July 11, 1996 (the "ORBCOMM Notes Offering Memorandum"). The transactions contemplated by the ORBCOMM Notes Offering Memorandum are hereinafter referred to as the "ORBCOMM Notes Issuance". D. The consummation of the ORBCOMM Notes Issuance would be prohibited by the terms of the Note Agreement and in consequence thereof, the Company has requested the Purchaser to amend the application of certain terms of the Note Agreement in order to permit consummation of the ORBCOMM Notes Issuance and to further amend the Note Agreement, upon terms and conditions acceptable to the Purchaser, for the purpose of amending such of the terms of the Note Agreement as would be necessary in order to permit the existence of the ORBCOMM Notes and the guarantees thereof on an ongoing basis. E. The Company and the Purchaser now desire to amend, effective on and as of the opening of business on August 2, 1996 (the "Effective Date"), certain of the terms of the Note Agreement in order to permit the issuance and existence of the ORBCOMM Notes on an ongoing basis within the limitations of the Note Agreement and to waive the existing Event of Default. 3 F. In consideration of the Purchaser's agreeing to amend the Note Agreement as set forth herein, the Company has agreed to increase the interest rate on the Notes outstanding under the Note Agreement. G. Capitalized terms used herein shall have the respective meanings ascribed thereto in the Note Agreement unless herein defined or the context shall otherwise require. H. All requirements of law have been fully complied with and all other acts and things necessary to make this Third Amendment a valid, legal and binding instrument according to its terms for the purposes herein expressed have been done or performed. Now, therefore, the Company and the Purchaser, in consideration of good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, do hereby agree as follows: Section 1. Amendment. Section 1.1. From and after the Effective Date, the Note Agreement shall be and is hereby amended as follows: (i) the references to "10.50%" throughout the Note Agreement, including each of the exhibits thereto, shall be changed to "11.50%"; provided that, the reference to "10.50%" in the definition of "Make-Whole Amount" contained in Section 8.1 of the Note Agreement shall not be changed by this Amendment; (ii) the references to "12.50%" throughout the Note Agreement, including each of the exhibits thereto, shall be changed to "13.50%"; and (iii) the references to "ORBCOMM Development" throughout the Note Agreement shall be changed to "ORBCOMM Partnership". Section 1.2. Section 5.8 of the Note Agreement shall be and is hereby amended in its entirety to read as follows: "Section 5.8. Fixed Charges Coverage Ratio. The Company will at all times keep and maintain the Fixed Charges Coverage Ratio from June 30, 1996 and thereafter at not less than 1.65 to 1.00." -2- 4 Section 1.3. Section 5.9 of the Note Agreement shall be and is hereby amended in its entirety to read as follows: "Section 5.9. Priority Funded Debt Ratio. The Company will not at any time permit the ratio of Consolidated Priority Funded Debt to Consolidated Tangible Net Worth to exceed:
Ratio of Consolidated During the Period Priority Funded Debt to Consolidated Tangible Net Worth July 1, 1996 through September 30, 1996 .30 to 1.00 October 1, 1996 through December 31, 1996 .25 to 1.00 January 1, 1997 through March 31, 1997 .20 to 1.00 April 1, 1997 and thereafter .15 to 1.00"
Section 1.4. Section 5.15 of the Note Agreement shall be and is hereby amended in its entirety to read as follows: "Section 5.15. Transactions with Affiliates. The Company will not, and will not permit any Subsidiary to, enter into or be a party to any transaction or arrangement with any Affiliate (including, without limitation, the purchase from, sale to or exchange of property with, or the rendering of any service by or for, any Affiliate), except in the ordinary course of and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person other than an Affiliate; provided that notwithstanding the foregoing, ORBCOMM and ORBCOMM USA may guarantee the Non-Recourse ORBCOMM Debt upon the terms and conditions contemplated by this Agreement." -3- 5 Section 1.5. Section 8.1 of the Note Agreement shall be and is hereby amended as follows: (a) The definition of "Indebtedness" shall be and is hereby amended in its entirety to read as follows: "Indebtedness" of any Person shall mean and include all obligations of such Person which in accordance with GAAP shall be classified upon a balance sheet of such Person as liabilities of such Person, and in any event shall include all (a) obligations of such Person for borrowed money or which have been incurred in connection with the acquisition of property or assets, (b) obligations secured by any Lien upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (c) obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of property, (d) Capitalized Rentals and (e) Guaranties of obligations of others of the character referred to in this definition; provided that, the foregoing shall not include the Non-Recourse ORBCOMM Debt." (b) The definition of "Reinvestment Rate" contained within the definition of "Make Whole Amount" shall be and is hereby amended in its entirety to read as follows: ""Reinvestment Rate" shall mean (1) the sum of 1.50%, plus the yield reported on page "USD" of the Bloomberg Financial Markets Services Screen (or, if not available, any other nationally recognized trading screen reporting on-line intraday trading in the United States government Securities) at 11:00 A.M. (New York, New York time) for the United States government Securities having a maturity (rounded to the nearest month) corresponding to the remaining Weighted Average Life to Maturity of the principal of the Notes being prepaid or paid (taking into account the application of such prepayment and payments required by Section 2.1) or (2) in the event that no nationally recognized trading screen reporting on-line intraday trading in the United States government Securities is available, Reinvestment Rate shall mean the sum of 1.50%, plus the arithmetic mean of the yields for the two columns under the heading "Week Ending" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the Weighted Average Life to Maturity of the principal of the Notes being prepaid or paid (taking into account the application of such prepayment payments required by Section 2.1). If no maturity exactly corresponds to such Weighted Average Life to Maturity, yields for the two published maturities most closely corresponding to such Weighted Average Life to Maturity shall be -4- 6 calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the "Reinvestment Rate", the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used.": (c) The following definition of "Non-Recourse ORBCOMM Debt" shall be added thereto in alphabetical order: "Non-Recourse ORBCOMM Debt" shall mean Indebtedness evidenced by the guarantee of ORBCOMM and ORBCOMM USA of the Indebtedness for borrowed money of ORBCOMM Partnership and ORBCOMM Capital not to exceed $170,00,0000 in aggregate principal amount, the proceeds of which shall be used to finance the design, development, construction, integration, testing and operation of the satellite-based two-way data and messaging communications of ORBCOMM Partnership, provided that recourse for payment of such Indebtedness for borrowed money is expressly limited to the assets and revenues of ORBCOMM, ORBCOMM USA, ORBCOMM Partnership, ORBCOMM Capital and the subsidiaries thereof, and provided, further, that with respect to such Indebtedness for borrowed money neither the Company nor any other Subsidiary (other than ORBCOMM and ORBCOMM USA), nor any of the property or assets of the Company or any Subsidiary (other than ORBCOMM and ORBCOMM USA) is directly or indirectly liable in any manner whatsoever for the payment thereof." (d) The definition of "ORBCOMM Development" shall be and is hereby deleted therefrom and the following definition of "ORBCOMM Partnership" shall be added thereto in alphabetical order: "ORBCOMM Partnership" shall mean ORBCOMM Global, L.P., a Delaware limited partnership. (e) The following definition of "ORBCOMM Capital" shall be added thereto in alphabetical order: "ORBCOMM Capital" shall mean ORBCOMM Global Capital Corp., a Delaware corporation. (f) The following definition of "ORBCOMM USA" shall be added hereto in alphabetical order: -5- 7 "ORBCOMM USA" shall mean ORBCOMM USA, L.P., a Delaware limited partnership. Section 2. Waiver. Section 2.1. Upon and by virtue of this Third Amendment becoming effective on the Effective Date, the failure of the Company to comply with the provisions of Section 5.9 (Priority Funded Debt Ratio) of the Note Agreement for the period from and including January 1, 1996 through and including June 30, 1996, which failure constitutes an Event of Default under the Note Agreements, shall be deemed to have been waived by the Purchaser. The Company understands and agrees that the waiver contained in this Section 2.1 pertains only to the matters and to the extent herein described and not to any other actions of the Company under, or matters arising in connection with, the Note Agreement or to any rights which the Purchaser has arising by virtue of any such other actions or matters. Section 3. Representations and Warranties of the Company. Section 3.1. To induce the Purchaser to execute and deliver this Third Amendment, the Company represents and warrants to the Purchaser (which representations shall survive the execution and delivery of this Third Amendment) that: (a) this Third Amendment has been duly authorized, executed and delivered by it and this Third Amendment constitutes the legal, valid and binding obligation, contract and agreement of the Company enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (b) the Note Agreement, as amended by this Third Amendment, constitutes the legal, valid and binding obligations, contracts and agreements of the Company enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the execution, delivery and performance by the Company of this Third Amendment (i) has been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) does not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any provision of any material indenture, agreement or other instrument to which it is a party or by which its properties or assets are or may be bound, or (B) result in a breach or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this Section 3.1(C); and -6- 8 (d) as of the date hereof and after giving effect to this Third Amendment, no Default or Event of Default has occurred which is continuing. Section 4. Conditions to Effectiveness of Third Amendment. Section 4.1. This Third Amendment shall not become effective until, and shall become effective when, each and every one of the following conditions shall have been satisfied: (a) executed counterparts of this Third Amendment, duly executed by the Company and the Purchaser, shall have been delivered to the Purchaser; (b) the Purchaser shall have received a new Note in the form of Exhibit A hereto duly executed by the appropriate officer of the Company which reflects the amendment to the interest rate set forth in Section 1.1 hereof; (c) the representations and warranties of the Company set forth in Section 2 hereof shall be true and correct on and with respect to the date hereof; and (d) that certain Indenture dated as of August 7, 1996 between ORBCOMM Global, L.P. and ORBCOMM Global Capital Corp., as issuers, Orbital Communications Corporation, Teleglobe Mobile Partners, ORBCOMM USA, L.P. and ORBCOMM International Partners, L.P., as guarantors, and Marine Midland Bank, N.A., as trustee, shall be in form and substance satisfactory to you and your special counsel and you shall have received a true, correct and complete copy thereof. Upon receipt of all of the foregoing, this Third Amendment shall on the Effective Date become effective. Section 5. Miscellaneous. Section 5.1. Except as modified and expressly amended by this Third Amendment, the Note Agreement is in all respects ratified, confirmed and approved and all of the terms, provisions and conditions thereof shall be and remain in full force and effect. Section 5.2. The Company agrees to pay all reasonable fees and expenses of the Purchaser and its special counsel in connection with the preparation of this Third Amendment. Section 5.3. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Third Amendment may refer to the Note Agreement without making specific reference to this Third Amendment but nevertheless all such references shall include this Third Amendment unless the context otherwise requires. -7- 9 Section 5.4. This Third Amendment shall be governed by and construed in accordance with the laws of the State of Illinois. Section 5.5. This Third Amendment may be executed and delivered in any number of counterparts, each of such counterparts constituting an original, but all together only one Third Amendment. -8- 10 In Witness Whereof, the Company and the Purchaser have caused this instrument to be executed, all as of the day and year first above written. Orbital Sciences Corporation By /s/ Jeffrey V. Pirone ------------------------------------ Vice President -9- 11 Accepted and Agreed to: The Northwestern Mutual Life Insurance Company By /s/ Steven Swanson ------------------------------------- Vice President -10- 12 ORBITAL SCIENCES CORPORATION 11.50% Senior Note Due June 14, 2001 No. R-2 June 14, 1996 $20,000,000 Orbital Sciences Corporation, a Delaware corporation (the "Company"), for value received, hereby promises to pay to The Northwestern Mutual Life Insurance Company or registered assigns on the fourteenth day of June, 2001 the principal amount of Twenty Million Dollars ($20,000,000) and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on the principal amount from time to time remaining unpaid hereon at the rate of 11.50% per annum from the date hereof until maturity, payable semiannually on the fourteenth of June and December in each year (commencing on December 14, 1995) and at maturity. The Company agrees to pay interest on overdue principal (including any overdue required or optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest, at the rate Overdue Rate after the due date, whether by acceleration or otherwise, until paid. "Overdue Rate" shall mean the lesser of (a) the maximum interest rate permitted by law and (b) the greater of (1) 13.50% per annum and (2) the rate which Morgan Guaranty Trust Company of New York, New York City, New York, announces from time to time as its prime lending rate as in effect from time to time, plus 2%. Both the principal hereof and interest hereon are payable at the principal office of the Company in Dulles, Virginia in coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. If any amount of principal, premium, if any, or interest on or in respect of this Note becomes due and payable on any date which is not a Business Day, such amount shall be payable on the immediately preceding Business Day. "Business Day" means any day other than a Saturday, Sunday or other day on which banks in Dulles, Virginia or New York, New York are required by law to close or are customarily closed. EXHIBIT A (to Third Amendment) 13 This Note is one of the 11.50% Senior Notes due June 14, 2001 (the "Notes") of the Company in the aggregate principal amount of $20,000,000 issued or to be issued under and pursuant to the terms and provisions of the Note Agreement dated as of June 1, 1995 as amended by the First Amendment dated as of June 1, 1995, the Second Amendment dated as of March 15, 1996, and the Third Amendment dated as of July 31, 1996 (collectively, the "Note Agreement"), entered into by the Company with the original Purchaser therein referred to and this Note and the holder hereof are entitled equally and ratably with the holders of all other Notes outstanding under the Note Agreement to all the benefits provided for thereby or referred to therein. Reference is hereby made to the Note Agreement for a statement of such rights and benefits. This Note and the other Notes outstanding under the Note Agreement may be declared due prior to their expressed maturity date and certain prepayments are required to be made thereon, all in the events, on the terms and in the manner and amounts as provided in the Note Agreement. The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in the Note Agreement. This Note is registered on the books of the Company and is transferable only by surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of this Note or its attorney duly authorized in writing. Payment of or on account of principal, premium, if any, and interest on this Note shall be made only to or upon the order in writing of the registered holder. This Note and said Note Agreement are governed by and construed in accordance with the laws of Illinois, including all matters of construction, validity and performance. Orbital Sciences Corporation By -------------------------------- Its -------------------------------- -2- EX-10.3 4 MAGELLAN CORPORATION 1996 STOCK OPTION PLAN 1 Exhibit 10.3 MAGELLAN CORPORATION 1996 STOCK OPTION PLAN ARTICLE I PURPOSE OF PLAN The purpose of this 1996 Stock Option Plan is to promote the growth and profitability of Magellan 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 or other entities in which the Company has a significant interest 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: 2.1. Accrued Installment. The term "Accrued Installment" shall mean any vested installment of an Option. 2.2. Board. The term "Board" shall mean the Board of Directors of the Company. 2.3. Committee. The term "Committee" shall mean a committee appointed by the Board pursuant to Section 3.3 and consisting of at least two members. 2.4. Company. The term "Company" shall mean Magellan Corporation, a Delaware corporation (currently doing business as "Magellan Systems Corporation"), or any successor thereof. 2.5. Director. The term "Director" shall mean a member of the Board, or a member of the board of directors of any Participating Company. 2.6. 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. 2.7. Effective Date. The term "Effective Date" shall mean June 20, 1996, the date of adoption by the Board. 2.8. Eligible Person. The term "Eligible Person" shall mean any employee, officer, consultant or advisor of any Participating Company, but shall not include any Director of any Participating Company who is not also an employee, officer, consultant or advisor of a Participating Company. 2 2.9. Entitled Holder. The term "Entitled Holder" shall mean any Optionee or any transferee thereof described in clause (ii) or (iii) of Section 6.7(a). 2.10. Exchange Act. The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. 2.11. 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 valuation of the fair market value of a Share shall be made by the Board after considering a recommendation of Fair Market Value (or range thereof), which recommendation shall have been made no more than one year prior to the Board's determination and shall have been 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; provided, however, that at any time when at least a majority of the voting power of the Company's capital stock is beneficially owned by Orbital, any such determination of Fair Market Value shall only be effective upon the approval of the Audit and Finance Committee of the Board of Directors of Orbital, which approval shall not be unreasonably withheld. Any determination of Fair Market Value made in accordance with this Section 2.11 shall be conclusive and binding on the Company and all Optionees and/or holders of Shares. In each case, Fair Market Value shall be determined in a manner consistent with Section 260.140.50 of Title 10 of the California Code of Regulations. 2.12. I.R.C. The term "I.R.C." shall mean the Internal Revenue Code of 1986, as amended from time to time. 2.13. 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. 2.14. Nonstatutory Stock Option. The term "Nonstatutory Stock Option" shall mean any Option not intended to qualify as an Incentive Stock Option. 2.15. Option. The term "Option" shall mean an option to acquire Shares granted under the Plan. 2.16. Option Shares. The term "Option Shares" shall mean, at any time, all shares acquired upon exercise of Options and then held by Optionees. 2 3 2.17. Optionee. The term "Optionee" shall mean an Eligible Person who has been granted Options. 2.18. Orbital. The term "Orbital" shall mean Orbital Sciences Corporation, a Delaware corporation, or any successor thereof. 2.19. Orbital Common Stock. The term "Orbital Common Stock" shall mean the common stock, $0.01 par value per share, of Orbital. 2.20. Parent Corporation. The term "Parent Corporation" shall mean a "parent corporation" as defined in I.R.C. Section 424(e) and any partnership or other entity that, if it were a corporation, would be a "parent corporation" as defined in I.R.C. Section 424(e). 2.21. Participating Company. The term "Participating Company" shall mean the Company, any Parent Corporation of the Company, and any Subsidiary Corporation of the Company or its Parent Corporation. 2.22. Person. The term "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. Plan. The term "Plan" shall mean this 1996 Stock Option Plan. 2.24. Registration Expenses. The term "Registration Expenses" shall mean all expenses incident to performance of or compliance with Sections 8.5 and 8.6 hereof by the Company and its subsidiaries including, without limitation, all registration and filing fees, all fees and expenses of complying with securities or blue sky laws, all printing expenses, all messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits required by or incident to such performance and compliance, and the fees and disbursements of counsel for the holders on whose behalf Registrable Securities are being registered, but excluding (a) any allocation of salaries of personnel of the Company and its subsidiaries or other general overhead expenses of the Company and its subsidiaries or other expenses for the preparation of financial statements or other data normally prepared by the Company and its subsidiaries in the ordinary course of their business, which shall be borne by the Company in all cases, and (b) underwriting discounts and commissions and applicable transfer taxes, if any. 2.25. Required Holders. The term "Required Holders" shall mean, in connection with any request for registration pursuant to Section 8.5, the holders of Options or Option Shares that in the aggregate represent, as of the date of the Company's notice given pursuant to Section 8.5, at least twenty percent (20%) of the sum of (a) the Option Shares and (b) the Shares issuable pursuant to then exercisable Options. 2.26. Restricted Shareholder. The term "Restricted Shareholder" shall mean an Optionee granted an Incentive Stock Option who, at the time the Incentive Stock Option is 3 4 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). 2.27. Securities Act. The term "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. 2.28. 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. 2.29. Subsidiary Corporation. The term "Subsidiary Corporation" shall mean a "subsidiary corporation" as defined in I.R.C. Section 424(f) and any partnership or other entity that, if it were a corporation, would be a "subsidiary corporation" as defined in I.R.C. Section 424(f). 2.30. 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. 2.31. Termination Date. The term "Termination Date" shall mean the tenth anniversary of the Effective Date or, if earlier, the tenth anniversary of the date the Plan is adopted by the Board. ARTICLE III ADMINISTRATION OF PLAN 3.1. Administration by Board. Subject to Section 3.3, the Plan shall be administered by the Board, which shall have authority to do everything necessary or appropriate to administer the Plan. 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, including whether such Option is an Incentive Stock Option or a Nonstatutory Stock Option (except that Incentive Stock Options may not be granted to any Eligible Person that is not an employee or officer of the Company, any Parent Corporation 4 5 of the Company or any Subsidiary Corporation of the Company or its Parent Corporation); (d) determine the number of Shares that may be issued upon exercise of the Options; and (e) interpret the provisions of this Plan and of any Option. At any time when at least a majority of the voting power of the Company's capital stock is beneficially owned by Orbital, prior to each grant of an Option and each other action taken with respect to the Plan (other than a determination of Fair Market Value) the Board shall consult with the Human Resources and Nominating Committee of Orbital's Board of Directors (except to the extent otherwise authorized by such Human Resources and Nominating Committee) with respect to such intended grant or other action. 3.2. 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. 3.3. Administration by Committee. The Board may 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 7.1. 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. 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. 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 7,000,000. 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 hereunder. In the event that Shares that 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 6.5 hereof) upon the subsequent exercise of an Option or pursuant to Sections 8.3 and 8.4 hereof, such reacquired Shares shall again be available for the granting of Options hereunder. ARTICLE V TERM OF PLAN The Plan shall become effective upon adoption by the Board, subject to approval of the Plan on or before the first anniversary of the Effective Date by the holders of a majority of the outstanding Shares. No option granted prior to such approval shall be exercisable prior to such approval. The Plan shall remain in full force and effect until the later of the Termination Date or the date on which no Options are outstanding; provided, however, that no Option may be granted 5 6 hereunder after the Termination Date; and provided, further, that except as provided therein the provisions of Section 8 shall not terminate prior to the first anniversary of the date on which no Options are outstanding. ARTICLE VI OPTION TERMS 6.1. Form of Option Agreement. Any Option granted under the Plan shall be evidenced by an agreement ("Option Agreement") in the form attached hereto as Exhibit A (for an Incentive Stock Option) or Exhibit B (for a Nonstatutory Stock Option) or in such other 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 that are not inconsistent with the provisions of the Plan. 6.2. 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 in the case of an Incentive Stock Option or less than eighty-five percent (85%) of the Fair Market Value in the case of a Nonstatutory Stock Option (or one hundred and ten percent (110%) of the Fair Market Value in the case of an Option granted to a Restricted Shareholder). 6.3. Vesting and Exercise of Options. Subject to the limitations set forth herein and/or in any applicable Option Agreement entered into hereunder, Options shall vest and be exercisable in accordance with the rules set forth in this Section 6.3: (a) General. Subject to the other provisions of this Section 6.3, Options shall vest and become exercisable at such time and in such installments as the Board shall provide in each individual Option Agreement; provided, however, that each Option shall vest at a rate at least equal to 20% per year commencing on the date of grant. Unless otherwise provided in this Section 6.3, in Section 6.4 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 Disability. In the event that the employment of an Optionee with a Participating Company is terminated for any reason (other than by death, disability, retirement on or after reaching age 60 or an Affiliation Termination (as defined in paragraph (f) below), any installments under an Option held by such Optionee that 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 6 7 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. (e) Death, Disability or Retirement of Optionee. In the event that the employment of an Optionee with a Participating Company is terminated by reason of death, 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, 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, disability or retirement shall expire and become unexercisable as of the employment termination date. (f) Affiliation Termination. 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, 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 effective date of the Affiliation Termination. Any Option installments held by such Optionee that have not accrued as of the effective date of such Affiliation Termination shall expire and become unexercisable as of such effective date. 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 Corporation of the Company or as a Subsidiary Corporation of the Company or its Parent Corporation. 6.4. Exercise of Options. An Option may be exercised 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 6.5. An Option shall be deemed exercised when such written notice of exercise and payment have been received by the Company. No Shares shall be issued until full payment has been made and the Optionee 7 8 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 6.8(a). 6.5. Payment of Option Exercise Price. The entire option exercise price shall be paid at the time the Option is exercised by check or such other means as is deemed acceptable by the Board. Notwithstanding the foregoing, 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 (or, at any time when at least a majority of the voting power of the Company's capital stock is owned by Orbital, shares of Orbital Common Stock), 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 (or Orbital Common Stock), duly endorsed or with a duly signed stock power attached, such Shares (or Orbital Common Stock) to be valued at the Fair Market Value of such Shares (or Orbital Common Stock) on the day immediately preceding the day notice of exercise is received by the Company. 6.6. 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 or pursuant to a qualified domestic relations order, as defined under the I.R.C., and may be exercised during the lifetime of an Optionee only by such Optionee. The person to whom the Option is granted may, by delivering written notice to the Company in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. 6.7. Restrictions on Issuance or Transfer of Shares. (a) Until such time as 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 8.4 hereof, (ii) pursuant to a qualified domestic relations order, as defined under the I.R.C., or (iii) 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 8 9 transfer set forth in this Section 6.7(a). Any attempted transfer of Shares not in accordance with this Section 6.7(a) shall be null and void, and the Company shall not in any way give effect to any such disposition or transfer. (b) The Company shall use all reasonable efforts to obtain all required permits, authorizations and approvals necessary for the lawful issuance and sale of Shares hereunder. However, no Shares shall be issued or delivered upon exercise of an Option unless there shall have been compliance with all applicable requirements of the Securities Act, 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 for so long as 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 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. 6.8. Option Adjustments. (a) If the outstanding Shares 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 that 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 Shares 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 not exercised prior to the effectiveness of such Terminating Transaction (whether or not vested) shall terminate unless 9 10 (i) provision then 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 then otherwise provides 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 (to the extent not prohibited by Section 260.140.41 of Title 10 of the California Code of Regulations) 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 the 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 (to the extent not prohibited by Section 260.140.41 of Title 10 of the California Code of Regulations) 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 6.8 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 6.8 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. 6.9. 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, or with respect to the disposition of Shares acquired pursuant to the exercise of an Option, 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 Participating Company, or requiring an Optionee (or the Optionee's beneficiary or legal representative), as a condition of granting or exercising an Option, to pay 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; provided, however, that the Optionee may elect, at such time and in such manner as the Board may prescribe, to satisfy such 10 11 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. 6.10. 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 6.7 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. 6.11. 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. ARTICLE VII AMENDMENT OR TERMINATION OF PLAN 7.1. 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. 7.2. 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 7.1; 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 written consent of any Optionee holding any such affected Options. 7.3. Substitution of Options. In the Board's discretion, the Board may, with an Optionee's written 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. 11 12 ARTICLE VIII PURCHASE OR REGISTRATION OF OPTION SHARES 8.1. General. Until such time as the Shares are registered under the Exchange Act, each Optionee may elect in the manner provided herein to cause, at the option of the Company, the Company to (i) purchase any or all Option Shares that as of the applicable Valuation Date (as hereinafter defined) have been held by the Optionee at least six (6) months from the date of exercise of the Option (such Shares, in each year, the "Payable Shares") at a price per share equal to the Fair Market Value of a Share on October 31, 1997 and each October 31 in subsequent years (each such date is referred to as a "Valuation Date"), as applicable, or (ii) if requested by the Required Holders, register under the Securities Act the offer and sale of all Option Shares as to which registration is requested, in each case as provided in this Section 8. 8.2. Valuation. Within thirty (30) days after each Valuation Date, the Company shall cause the Fair Market Value of the Shares on such Valuation Date to be determined in accordance with Section 2.11 and shall notify each holder of Payable Shares of such Fair Market Value. 8.3. Request for Repurchase or Registration. Within thirty (30) days after receipt of the notice given under Section 8.2, each such holder of Shares may request the Company to purchase all or any portion of his or her Payable Shares at a price per share equal to such Fair Market Value by submitting to the Company an irrevocable written notice of such request (except that such notice may be revoked as specifically provided in Section 8.4). Within ninety (90) days after the Valuation Date the Company shall notify each requesting holder of Payable Shares (i) that the Company will purchase the Payable Shares requested to be so purchased (in which case the Company shall in that notice specify a closing date not more than fifteen days after the giving of the notice) or (ii) that the Company will, upon the request of the Required Holders, register the offer and sale of Option Shares under the Securities Act. 8.4. Purchase of Payable Shares. The closing for any purchase of Payable Shares pursuant to Section 8.3 shall occur on the specified closing date 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 Payable 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 Orbital Common Stock that have a Fair Market Value (determined in the manner provided in Section 2.11) as of the business day preceding the closing equal to the purchase price of the Shares and that are freely tradable (i.e., not "restricted securities" within the meaning of Rule 144 under the Securities Act), with payment by check for any amount that would otherwise be paid by a fractional share, (iii) by delivery of a subordinated promissory note of the Company in the principal amount of the purchase price of the Payable Shares, bearing interest at a fixed rate equal to the then applicable prime rate (as published in The Wall Street Journal) plus three percent (3.0%), 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, 12 13 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 part of the purchase price for the Payable Shares may be paid by subordinated promissory note unless the Board determines in good faith that payment in cash or Orbital Common Stock would adversely affect the financial condition or liquidity of the Company or adversely affect Orbital (including without limitation because of a pending or contemplated offering or other transaction); and provided, further, that if any portion of the purchase price for the Payable Shares is to be paid by subordinated promissory note the Optionee may revoke his or her request that the Payable Shares be purchased in which case the Payable Shares shall remain held by the Optionee unaffected by the original request. Any payment in Orbital Common Stock shall be subject to all applicable federal and state securities laws restrictions and any other applicable legal restrictions. 8.5. Registration of Payable Shares. If the Company elects pursuant to Section 8.3 not to purchase Payable Shares, the Company shall simultaneous with the notice given by the Company pursuant to Section 8.3 notify all Entitled Holders that the Company will register the offer and sale of all Option Shares as to which registration is requested if the Required Holders notify the Company of their request for such registration within thirty (30) days of receipt of the Company's notice. If the Company receives notices of such request (which notices shall specify the intended method of distribution) from the Required Holders within such thirty (30) day period, the Company will promptly give written notice of such requested registration and intended method of distribution to all Entitled Holders and thereupon will use all reasonable efforts to effect the registration under the Securities Act of the Option Shares (which may include Shares subject to Options intended to be exercised in connection with the registered offering) that the Company has been so requested to register by the original requesting Entitled Holders and by all other Entitled Holders who shall have so requested within 10 days after the giving of such written notice by the Company, to the extent requisite to permit the disposition (in accordance with the intended method thereof specified in the original request) of the Option Shares so to be registered; provided, however, that: (a) the Company may delay the preparation and filing of any registration requested pursuant to this Section 8.5 to the extent (but only to the extent) that the request would require the Company to file a registration statement within 45 days prior to any date as of which the Company regularly prepares audited financial statements in the ordinary course of its business, if the preparation thereof would entail material expense on the part of the Company; (b) the Company may postpone for a period of up to 90 days the filing or the effectiveness of any registration requested pursuant to this Section 8.5 if the Board of Directors of the Company in good faith determines that such registration is likely to have an adverse effect on any plan or proposal by the Company with respect to any financing, acquisition, recapitalization, reorganization or other material transaction; provided, however, that the Company may not exercise such right of postponement more frequently than one time in any one-year period; and (c) the Company shall not be required to effect any registration pursuant to this Section 8.5 if the registration statement would relate to the distribution of Option Shares 13 14 having aggregate gross proceeds (based on the mid-point of the range of expected offering prices reflected in the initial registration statement) of less than $3,000,000. Each Registration requested pursuant to this Section 8.5 shall be effected by the filing of a registration statement on Form S-1 (or any other form which includes substantially the same information as would be required to be included in a registration statement on such form as presently constituted), unless the use of a different form has been agreed to in writing by the holders of at least 66 2/3% of the aggregate principal amount of Option Shares as to which registration has been requested pursuant to this Section 8.5. 8.6. Registration Procedures. If the Company is required to use all reasonable efforts to effect the registration of any Option Shares under the Securities Act as provided in Section 8.5, the Company will: (a) prepare and file with the Commission as soon as reasonably practicable, and in any event within 150 days of the Company's receipt of the request to effect such registration, a registration statement with respect to such Option Shares and use all reasonable efforts to cause such registration statement to become effective as soon as practicable; (b) prepare and file with the Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Option Shares covered by such registration statement until such time as all of such Option Shares have been disposed of by the seller or the sellers thereof in accordance with the intended methods of disposition set forth in such registration statement, but in no event for a period of more than 180 days after such registration statement becomes effective; (c) furnish to each seller of such Option Shares such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits, except that the Company shall not be obligated to furnish any such seller with more than two copies of such exhibits other than incorporated documents), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus) in conformity with the requirements of the Securities Act, such documents incorporated by reference in such registration statement or prospectus, and such other documents, as such seller may reasonably request in order to facilitate the disposition of its Option Shares covered by such registration statement; (d) use all reasonable efforts to register or qualify such Option Shares under such other securities or blue sky laws of such jurisdictions as each seller shall reasonably request, and do any and all other acts and things which may be necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Option Shares covered by such registration statement; provided, however, that the Company shall not for any such purpose be required to (a) qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, (b) subject itself to taxation in any such jurisdiction, or (c) consent to general 14 15 service of process in any such jurisdiction, except to the extent the failure to so register or qualify may have a material adverse effect on such distribution of Option Shares; (e) apply for and use all reasonable efforts to obtain listing of the Shares on The New York Stock Exchange or The American Stock Exchange or the quotation of the Shares on the Nasdaq National Market and include in the registered offering of Option Shares such number of primary Shares as will, when combined with all Option Shares and other secondary Shares to be offered in the registered offering, result in the Company meeting the applicable minimum "market value of publicly held shares" (or comparable successor public float requirement) required for the quotation of the Shares on the Nasdaq National Market; (f) if requested by the underwriters for any underwritten offering of Option Shares pursuant to a registration requested under Section 8.5, enter into an underwriting agreement with such underwriters for such offering, such agreement to contain such representations and warranties by the Company and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnity and contribution to the effect and to the extent provided in Sections 8.7 through 8.10, below; (g) furnish to each underwriter (if any) for each seller of such Option Shares a signed counterpart, addressed to such underwriter, of an appropriate opinion of counsel for the Company covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in opinions of issuer's counsel delivered to underwriters in underwritten public offerings of securities; (h) immediately notify each seller of Option Shares covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such seller prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Option Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (i) give the holders of Option Shares on whose behalf such Option Shares are to be so registered and their underwriters, if any, and counsel and accountants designated by the holders of a majority of the Option Shares to be so registered, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements 15 16 as shall be necessary, in the opinion of such holders and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act; (j) bear all Registration Expenses in connection with any registration requested pursuant to Section 8.5; and (k) otherwise use its best efforts to comply with the Securities Act, the Exchange Act, and all applicable rules and regulations of the Securities and Exchange Commission, and make available to its securities holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first day of the first fiscal quarter after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. 8.7. Indemnification by Company. In connection with any registration under the Securities Act of the offer and sale of any Option Shares pursuant to Section 8.5 hereof, the Company will, and hereby does, indemnify and hold harmless each seller of securities, and each other person who participates on behalf of any such seller as an underwriter, broker or dealer in any such offering or sale of such securities, against any losses, claims, damages or liabilities, joint or several, to which any such seller or participating person may become subject under the Securities Act insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained or incorporated by reference in any registration statement under which securities were registered under the Securities Act, any preliminary prospectus or final prospectus included therein, or any related summary prospectus, or any amendment or supplement thereto, or any document incorporated by reference therein, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse any such seller or participating person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment, supplement or incorporated document in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any such seller or participating person and shall survive any transfer of securities by any such seller. 8.8. Indemnification Procedures. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim of the type referred to in Section 8.7 or 8.10, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided 16 17 herein shall not relieve the indemnifying party of its obligations under Section 8.7 or 8.10, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified patty, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof; provided, however, that (i) if there is a conflict between the positions of such indemnifying party and the indemnified party in conducting the defense of such action, then counsel for the indemnified party shall conduct the defense to the extent reasonably determined by such counsel to be necessary to protect the interests of the indemnified party and such indemnifying party shall employ separate counsel for its own defense, (ii) in any event, the indemnified party shall be entitled to have counsel chosen by such indemnified party participate, at the expense of such indemnified party, in, but not conduct, the defense, (iii) the indemnifying party shall bear the legal expenses incurred in connection with the conduct of, and the participation in, the defense referred to in clause (i) above and (iv) in no event shall the indemnifying party bear, by virtue of clause (iii) hereof, the fees and expenses of more than one counsel other than its own. If within a reasonable time after receipt of the notice, such indemnifying party shall not have elected to assume the defense of the action, such indemnifying party shall be responsible for any legal or other expenses incurred by such indemnified party in connection with the defense of the action, suit, investigation, inquiry or proceeding. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation, and no indemnified party will enter into any settlement without the consent of the indemnifying party. 8.9. Contribution. If the indemnification provided for in Section 8.7 or 8.10 is unavailable to a party that would have been an indemnified party under any such Section in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each party that would have been an indemnifying party thereunder shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and such indemnified party on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions 17 18 or proceedings in respect thereof). The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or such indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company agrees that it would not be just and equitable if contribution pursuant to this Section 8.9 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the preceding sentence. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 8.9 shall include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim (which shall be limited as provided in Section 8.8 hereof if the indemnifying party has assumed the defense of any such action in accordance with the provisions thereof). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 8.10. Indemnification of Company. Each of the Entitled Holders severally (but not jointly) agrees to indemnify and hold harmless the Company, its directors, each of its officers who sign the registration statement filed pursuant to Section 8.5, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act against any and all loss, liability, claim, damage and expense to which the Company or any such director, officer or controlling person may become subject under the Securities Act insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained or incorporated by reference in the registration statement, preliminary prospectus or prospectus, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the registration statement, preliminary prospectus or prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by such Entitled Holder in its capacity as an Entitled Holder (and not in its capacity as a director, officer or employee) expressly for use in the registration statement, preliminary prospectus or prospectus, or any amendment or supplement thereto. The Company may require, as a condition to including any Option Shares in any registration statement filed pursuant to Section 8.5, that the Company shall have received an undertaking satisfactory to it from the prospective seller of such securities, to indemnify and hold harmless (in the same manner and to the same extent as set forth in Sections 8.8, 8.9 and 8.10 above, but only to the extent of any proceeds received by such seller) the Company, each director of the Company, each officer of the Company who shall sign such registration statement and each other person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement in or omission from such registration statement, any preliminary prospectus or final prospectus included therein, or any amendment or supplement thereto, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer of such securities by such seller. 8.11. Limitations on Repurchase or Registration Obligations. Notwithstanding any other provision of this Section 8, the Company shall have no obligations under this Section 8 (i) to the extent the purchase of Payable Shares would not be permitted under applicable law or under the terms of any of (A) the then-existing debt instruments (or agreements governing such debt 18 19 instruments) of the Company or any Parent Corporation of the Company, (B) the then-existing terms of any class of preferred stock of the Company or any Parent Corporation of the Company, or (C) a then-existing stockholders agreement to which the Company or any Parent Corporation of the Company is a party; or (ii) in the event the Shares have been registered under the Exchange Act; provided, however, that in the event that the Company is requested to purchase Payable Shares pursuant to Section 8.3 and is unable to do so within twelve months (other than for the reason described in clause (ii)), upon the request of the Required Holders the Company shall use all reasonable efforts to effect the registration under the Securities Act of the offer and sale of Option Shares in accordance with Section 8.5. ARTICLE IX GENERAL PROVISIONS 9.1. 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. 9.2. 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 mail and, if given by mail, shall be determined to have been given and received five (5) days after such letter containing such notice, properly addressed with postage prepaid, is deposited in the United States mails and, if given otherwise than by 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. 9.3. Title 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. 9.4. 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. 9.5. Proceeds. Proceeds from the sale of Shares pursuant to Options shall constitute general funds of the Company. 9.6. Status of Optionee. Neither an Optionee nor any person to whom an Option is transferred under Section 6.7 shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option unless and until such person has satisfied all requirements for exercise of the Option pursuant to its terms. 9.7. Exculpation. No member of the Board or of the Human Resources and Nominating Committee or Audit Committee of Orbital shall have any personal liability to any 19 20 Optionee and/or holder of Shares for any act or omission in connection with this Plan (including without limitation any determination of Fair Market Value), unless the Optionee and/or holder of Shares shall establish that such determination, act or omission was not made in good faith. 9.8. Lockup Agreements. By its exercise of an Option, the holder thereof agrees that upon the request of the managing underwriter of any underwritten public offering of Shares such holder will enter into a "lockup agreement" with such underwriter in form and substance reasonably satisfactory to the Company and containing provisions generally preventing the sale of Shares by such holder for a period beginning no earlier than seven days prior to filing the registration statement for such offering and ending no later than 90 days (180 days in the case of the Company's initial public offering) after the effectiveness of such registration statement. 9.9. Financial Statements. Throughout the term of any Option, the Company shall deliver to the holder of such Option, not later than one hundred twenty (120) days after the close of each of the Company's fiscal years a balance sheet and an income statement. This section shall not apply when Options are held only by key employees whose duties in connection with the Company assure them access to equivalent information. 20 21 Exhibit A IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. INCENTIVE STOCK OPTION ________________________, Optionee: Magellan Corporation (the "Company"), pursuant to its 1996 Stock Option Plan (the "Plan"), has granted to you, the optionee named above, an option to purchase shares of the common stock of the Company ("Shares"). This option is intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The grant hereunder is in connection with and in furtherance of the Company's compensatory benefit plan for participation of the Company's employees (including officers), directors or consultants and is intended to comply with the provisions of Rule 701 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"). Defined terms not explicitly defined in this agreement but defined in the Plan shall have the same definitions as in the Plan. The details of your option are as follows: 1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of Shares subject to this option is ________________ (_____). 2. VESTING. Subject to the limitations contained herein, ______ of the Shares subject to this Option will vest (become exercisable) each _____ beginning on _________, 19__ until either (i) you cease to provide services to the Company for any reason other than an approved leave of absence described in Section 6.3(d) of the Plan, or (ii) this option becomes fully vested. 3. EXERCISE PRICE AND METHOD OF PAYMENT. 21 22 (a) EXERCISE PRICE. The exercise price of this option is _____________ ($_____) per Share, being not less than the Fair Market Value of a Share on the date of grant of this option. (b) METHOD OF PAYMENT. Payment of the exercise price per share is due in full upon exercise of all or any part of each installment that has accrued to you. You may elect, to the extent permitted by applicable statutes and regulations, to make payment of the exercise price under one of the following alternatives: (i) Payment of the exercise price per share in cash (including check) at the time of exercise; (ii) Payment pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Shares, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds; (iii) Payment by delivery of already-owned Shares, held for at least six (6) months, or shares of Orbital Common Stock, in each case owned free and clear of any liens, claims, encumbrances or security interests, which Shares or shares of Orbital Common Stock shall be valued at their Fair Market Value on the day immediately preceding the day notice of exercise is received by the Company; or (iv) Payment by a combination of the methods of payment permitted by subparagraphs 3(b)(i) through 3(b)(iii) above. 4. WHOLE SHARES. This option may not be exercised for any number of Shares that would require the issuance of anything other than whole Shares. 5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, this option may not be exercised unless the offer and sale of the Shares issuable upon exercise of this option are then registered under the Act or, if not then so registered, the Company has determined that such offer and sale would be exempt from the registration requirements of the Act. 6. TERM. The term of this option commences on _________, 19__, the date of grant, and expires on ________________ (the "Expiration Date," which date shall be no more than ten (10) years from the date this option is granted), unless this option expires sooner as set forth below or in the Plan. In no event may this option be exercised on or after the Expiration Date. In the event of a Terminating Event, an Affiliation Termination, or the termination of your employment with the Company or a Participating Company, this option shall thereafter be exercisable only as provided in the Plan. 7. EXERCISE. 2 23 (a) This option may be exercised, to the extent specified herein and in the Plan, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to the Plan. (b) By exercising this option you agree that: (i) as a precondition to the completion of any exercise of this option, the Company may require you to enter an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the Shares are subject at the time of exercise; or (3) the disposition of Shares acquired upon such exercise. You also agree that any exercise of this option has not been completed and that the Company is under no obligation to issue any Shares to you until such an arrangement is established or the Company's tax withholding obligations are satisfied, as determined by the Company; (ii) you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the Shares issued upon exercise of this option that occurs within two (2) years after the date of this option grant or within one (1) year after such Shares are acquired upon exercise of this option; and (iii) the Company (or a representative of the underwriters) may, in connection with the registration of the first underwritten offering of any securities of the Company under the Act, require that you not sell or otherwise transfer or dispose of any Shares or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date (the "Effective Date") of the registration statement of the Company filed under the Act as may be requested by the Company or the representative of the underwriters. You further agree that the Company may impose stop transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period. 8. TRANSFERABILITY. This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. By delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise this option. 9. OPTION NOT A SERVICE CONTRACT. This option is not an employment contract and nothing in this option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or any Participating Company, or of the Company or any Participating Company to continue your employment with the Company. 10. NOTICES. Any notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, 3 24 addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company. 11. GOVERNING PLAN DOCUMENT. This option is subject to all provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without limitation the provisions of Section 6 of the Plan, and is further subject to all interpretations, amendments, rules and regulations that may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control. Dated the __ day of ________, 19__. Very truly yours, --------------------------------------- By: ------------------------------------ Duly authorized on behalf of the Board of Directors Attachments: Magellan Systems Corporation 1996 Stock Option Plan Regulation 260.141.11 Notice of Exercise 4 25 The undersigned: (a) Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; and (b) Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned optionee and the Company and its Affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of (i) any options previously granted and delivered to the undersigned under stock option plans of the Company, and (ii) the following agreements only: None ---------------- (Initial) Other --------------------------------- --------------------------------- --------------------------------- (c) Acknowledges receipt of copy of Section 260.141.11 of Title 10 of the California Code of Regulations. --------------------------------------- Optionee Address: ---------------------------- ---------------------------- 5 26 Exhibit B IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. NONSTATUTORY STOCK OPTION __________________________, Optionee Magellan Corporation (the "Company"), pursuant to its 1996 Stock Option Plan (the "Plan"), has granted to you, the optionee named above, an option to purchase shares of the common stock of the Company ("Shares"). This option is not intended to qualify and will not be treated as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The grant hereunder is in connection with and in furtherance of the Company's compensatory benefit plan for participation of the Company's employees (including officers), directors or consultants and is intended to comply with the provisions of Rule 701 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"). Defined terms not explicitly defined in this agreement but defined in the Plan shall have the same definitions as in the Plan. The details of your option are as follows: 1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of Shares subject to this option is ___________________ (_________). 2. VESTING. Subject to the limitations contained herein, ______ of the Shares subject to this option will vest (become exercisable) each ______ beginning on _______________, 19__ until either (i) you cease to provide services to the Company for any reason other than an approved leave of absence described in Section 6.3(d) of the Plan, or (ii) this option becomes fully vested. 27 3. EXERCISE PRICE AND METHOD OF PAYMENT. (a) EXERCISE PRICE. The exercise price of this option is __________________ ___________________ ($___________) per share, being not less than 85% of the Fair Market Value of a Share on the date of grant of this option. (b) METHOD OF PAYMENT. Payment of the exercise price per share is due in full upon exercise of all or any part of each installment that has accrued to you. You may elect, to the extent permitted by applicable statutes and regulations, to make payment of the exercise price under one of the following alternatives: (i) Payment of the exercise price per share in cash (including check) at the time of exercise; (ii) Payment pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Shares, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds; (iii) Payment by delivery of already-owned Shares, held for at least six (6) months, or shares of Orbital Common Stock, in each case owned free and clear of any liens, claims, encumbrances or security interests, which Shares or shares of Orbital Common Stock shall be valued at their Fair Market Value on the date of exercise; or (iv) Payment by a combination of the methods of payment permitted by subparagraph 3(b)(i) through 3(b)(iii) above. 4. WHOLE SHARES. This option may not be exercised for any number of shares that would require the issuance of anything other than whole Shares. 5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, this option may not be exercised unless the offer and sale of the Shares issuable upon exercise of this option are then registered under the Act or, if not then so registered, the Company has determined that such offer and sale would be exempt from the registration requirements of the Act. 6. TERM. The term of this option commences on ______________, 19__, the date of grant, and expires on ____________________ (the "Expiration Date," which date shall be no more than ten (10) years from the date this option is granted), unless this option expires sooner as set forth below or in the Plan. In no event may this option be exercised on or after the Expiration Date. In the event of a Terminating Event, an Affiliation Termination, or the termination of your employment with the Company or a Participating Company, this option shall thereafter be exercisable only as provided in the Plan. 2 28 7. EXERCISE. (a) This option may be exercised, to the extent specified herein and in the Plan, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to the Plan. (b) By exercising this option you agree that: (i) as a precondition to the completion of any exercise of this option, the Company may require you to enter an arrangement providing for the satisfaction in accordance with Section 6.9 of the Plan of cash payment of any tax withholding obligation of the Company arising by reason of: (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (3) the disposition of shares acquired upon such exercise. You also agree that any exercise of this option has not been completed and that the Company is under no obligation to issue any Shares to you until such an arrangement is established or the Company's tax withholding obligations are satisfied, as determined by the Company; and (ii) the Company (or a representative of the underwriters) may, in connection with the registration of the first underwritten offering of any securities of the Company under the Act, require that you not sell or otherwise transfer or dispose of any Shares or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date (the "Effective Date") of the registration statement of the Company filed under the Act as may be requested by the Company or the representative of the underwriters. You further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period. 8. TRANSFERABILITY. This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your lifetime only by you. By delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise this option. 9. OPTION NOT A SERVICE CONTRACT. This option is not an employment contract and nothing in this option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or any Participating Company, or of the Company or any Participating Company to continue your employment with the Company. 10. NOTICES. Any notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company. 3 29 11. GOVERNING PLAN DOCUMENT. This option is subject to all the provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without limitation the provisions of Section 6 of the Plan, and is further subject to all interpretations, amendments, rules and regulations that may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control. Dated the ____ day of ______________, 19__. Very truly yours, ----------------------------------- By --------------------------------- Duly authorized on behalf of the Board of Directors ATTACHMENTS: Magellan Systems Corporation 1996 Stock Option Plan Regulation 260.141.11 Notice of Exercise 4 30 The undersigned: (a) Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; and (b) Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned optionee and the Company and its Affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of (i) any options previously granted and delivered to the undersigned under stock option plans of the Company, and (ii) the following agreements only: None --------------- (Initial) Other ----------------------------- ----------------------------- ----------------------------- (c) Acknowledges receipt of a copy of Section 260.141.11 of Title 10 of the California Code of Regulations. --------------------------------------- Optionee Address: ---------------------------- ---------------------------- 5 EX-11 5 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11. STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
THREE MONTH PERIOD ENDED JUNE 30, 1996 - --------------------------------- ---------------------------------- ASSUMING PRIMARY FULL DILUTION --------------- ---------------- WEIGHTED AVERAGE OF OUTSTANDING SHARES 26,888,775 26,888,775 COMMON EQUIVALENT SHARES: OUTSTANDING STOCK OPTIONS 489,947 527,710 OTHER POTENTIALLY DILUTIVE SECURITIES: CONVERTIBLE DEBENTURES N/A 3,887,304 --------------- ---------------- SHARES USED IN COMPUTING NET INCOME PER SHARE 27,378,722 31,303,789 =============== ================ NET INCOME $3,838,801 $3,838,801 ADJUSTMENTS ASSUMING FULL DILUTION: INTEREST EXPENSE, NET OF TAXES N/A 942,975 --------------- ---------------- NET INCOME, ASSUMING FULL DILUTION $3,838,801 $4,781,776 =============== ================ NET INCOME PER SHARE $0.14 $0.15 DILUTION PERCENTAGE ASSUMING FULL DILUTION (1) N/A -8.946% NET INCOME PER SHARE $0.14 $0.14 =============== ================
SIX MONTH PERIOD ENDED JUNE 30, 1996 - --------------------------------- ---------------------------------- ASSUMING PRIMARY FULL DILUTION --------------- ---------------- WEIGHTED AVERAGE OF OUTSTANDING SHARES 26,838,407 26,838,407 COMMON EQUIVALENT SHARES: OUTSTANDING STOCK OPTIONS 431,978 534,372 OTHER POTENTIALLY DILUTIVE SECURITIES: CONVERTIBLE DEBENTURES N/A 3,887,304 --------------- ---------------- SHARES USED IN COMPUTING NET INCOME PER SHARE 27,270,385 31,260,083 =============== ================ NET INCOME $6,966,949 $6,966,949 ADJUSTMENTS ASSUMING FULL DILUTION: INTEREST EXPENSE, NET OF TAXES N/A 1,885,950 --------------- ---------------- NET INCOME, ASSUMING FULL DILUTION $6,966,949 $8,852,899 =============== ================ NET INCOME PER SHARE $0.26 $0.28 DILUTION PERCENTAGE ASSUMING FULL DILUTION (1) N/A -10.852% NET INCOME PER SHARE $0.26 $0.26 =============== ================
NOTES: (1) - PROVIDED THAT DILUTION IS GREATER THAN 3%, THE CONVERTIBLE DEBENTURES ARE CONSIDERED DILUTIVE IN THE CALCULATION AND PRESENTATION OF PER SHARE DATA. EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS AT AND FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000820736 ORBITAL SCIENCES CORP/DE/ 1,000 3-MOS DEC-31-1995 JAN-01-1996 JUN-30-1996 14,112 10,113 129,998 (943) 38,475 197,572 174,538 (60,032) 480,771 125,291 92,351 0 0 269 246,270 480,771 221,406 221,406 156,206 156,206 0 54 1,893 7,741 774 6,967 0 0 0 6,967 0.26 0.26
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