-----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, G9kc6y/oZp7Mvog5qVyrlunLeIEMFTflbHsszXsm2jGpf03YQnyGILy9FfwCrGnK QoFqNrzcoBmUhT/fvCDuxA== /in/edgar/work/0000950133-00-004576/0000950133-00-004576.txt : 20001116 0000950133-00-004576.hdr.sgml : 20001116 ACCESSION NUMBER: 0000950133-00-004576 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORBITAL SCIENCES CORP /DE/ CENTRAL INDEX KEY: 0000820736 STANDARD INDUSTRIAL CLASSIFICATION: [3812 ] IRS NUMBER: 061209561 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14279 FILM NUMBER: 769112 BUSINESS ADDRESS: STREET 1: 21700 ATLANTIC BLVD 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 w42187e10-q.txt QUARTERLY REPORT 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 SEPTEMBER 30, 2000 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 November 2, 2000, 37,547,457 shares of the registrant's common stock were outstanding. 2 PART 1 FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------------ ------------------ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 42,942 $ 74,524 Restricted cash and short-term investments, at market 35,458 34,630 Receivables, net 184,278 295,315 Inventories, net 70,708 54,483 Deferred income taxes and other current assets 24,554 17,187 ------------------ ------------------ TOTAL CURRENT ASSETS 357,940 476,139 PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and amortization of $138,845 and $122,129, respectively 157,421 137,622 INVESTMENTS IN AND ADVANCES TO AFFILIATES 37,244 141,273 GOODWILL, less accumulated amortization of $53,714 and $42,515, respectively 307,624 278,309 DEFERRED INCOME TAXES AND OTHER ASSETS 48,727 59,569 ------------------ ------------------ TOTAL ASSETS $ 908,956 $1,092,912 ================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings and current portion of long-term obligations $ 126,014 $ 131,073 Accounts payable 136,306 83,566 Accrued expenses 96,064 138,613 Due to joint venture partner -- 28,418 Deferred revenues 119,124 133,499 ------------------ ------------------ TOTAL CURRENT LIABILITIES 477,508 515,169 LONG-TERM OBLIGATIONS, net of current portion 241,375 239,672 OTHER LIABILITIES 12,774 16,208 ------------------ ------------------ TOTAL LIABILITIES 731,657 771,049 MINORITY INTERESTS IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES 46,073 15,071 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock, par value $.01; 10,000,000 shares authorized, none outstanding -- -- Common Stock, par value $.01; 80,000,000 shares authorized, 37,524,497 and 37,400,814 shares outstanding, respectively 375 374 Additional paid-in capital 514,259 497,923 Accumulated other comprehensive loss (7,086) (5,159) Accumulated deficit (376,322) (186,346) ------------------ ------------------ TOTAL STOCKHOLDERS' EQUITY 131,226 306,792 ------------------ ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 908,956 $ 1,092,912 ================== ==================
See accompanying notes to condensed consolidated financial statements. 2 3 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, -------------------------------------- 2000 1999 ----------------- ----------------- REVENUES $ 208,052 $ 228,994 Costs of goods sold 185,323 184,478 ----------------- ----------------- GROSS PROFIT 22,729 44,516 Research and development expenses 8,080 10,675 Selling, general and administrative expenses 36,169 31,753 Amortization of goodwill 4,174 3,861 Provision for doubtful ORBCOMM accounts 54,948 -- ----------------- ----------------- INCOME (LOSS) FROM OPERATIONS (80,642) (1,773) Net investment income (expense) (10,358) (6,697) Equity in earnings (losses) of affiliates (51,438) (30,896) Minority interests 1,531 2,082 Gain on sale of subsidiary stock 30,724 -- ----------------- ----------------- LOSS BEFORE PROVISION FOR INCOME TAXES (110,183) (37,284) Provision for income taxes 11,139 2,282 ----------------- ----------------- NET LOSS $ (121,322) $ (39,566) ================= ================= NET LOSS PER COMMON AND DILUTIVE SHARE $ (3.23) $ (1.06) ================= ================= Shares used in computing net loss per common and dilutive share 37,518,656 37,384,519 ================= =================
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 NINE MONTHS ENDED SEPTEMBER 30, -------------------------------------- 2000 1999 ----------------- ----------------- REVENUES $ 663,068 $ 655,649 Costs of goods sold 554,468 520,829 ----------------- ----------------- GROSS PROFIT 108,600 134,820 Research and development expenses 24,168 31,375 Selling, general and administrative expenses 97,774 89,189 Amortization of goodwill 11,470 9,960 Provision for doubtful ORBCOMM accounts 54,948 -- ----------------- ----------------- INCOME (LOSS) FROM OPERATIONS (79,760) 4,296 Net investment income (expense) (22,467) (15,404) Equity in earnings (losses) of affiliates (95,861) (82,618) Minority interests 3,088 7,536 Litigation settlement (11,500) -- Gain of sale of subsidiary stock 30,724 -- ----------------- ----------------- LOSS BEFORE PROVISION FOR INCOME TAXES (175,776) (86,190) Provision for income taxes 14,200 5,610 ----------------- ----------------- NET LOSS $ (189,976) $ (91,800) ================= ================= NET LOSS PER COMMON AND DILUTIVE SHARE $ (5.07) $ (2.47) ================= ================= Shares used in computing net loss per common and dilutive share 37,445,408 37,240,742 ================= =================
See accompanying notes to condensed consolidated financial statements. 4 5 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------------------------- 2000 1999 ----------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: NET LOSS $(189,976) $ (91,800) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization expenses 37,199 36,330 Amortization of prepaid financing costs 4,500 1,664 Equity in losses of affiliates 95,861 82,618 Minority interests (3,088) (7,536) Loss on sale of fixed assets and investments 995 992 Gain on sale of subsidiary stock (30,724) -- Deferred income tax valuation allowance 9,886 -- Provision for doubtful ORBCOMM accounts 54,948 -- Provision for ORBCOMM inventory 2,753 -- CHANGES IN ASSETS AND LIABILITIES, NET OF BUSINESSES ACQUIRED: (Increase) decrease in current assets 44,100 (26,236) (Increase) decrease in non-current assets (2,053) 2,165 Increase (decrease) in current liabilities 11,848 45,365 Increase (decrease) in non-current liabilities (3,434) (4,415) ----------------- ---------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 32,815 39,147 ----------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (30,016) (36,242) Payment for business combinations, net of cash acquired (31,400) (26,374) Net proceeds from sale of subsidiary equity 54,698 -- Purchase of other assets -- (14,006) Purchases of available-for-sale investment securities (12,196) (8,276) Sales of available-for-sale investment securities 10,969 -- Maturities of available-for-sale investment securities 1,348 -- Investments in and advances to affiliates, net (2,025) (79,074) ----------------- ---------------- NET CASH USED IN INVESTING ACTIVITIES (8,622) (163,972) ----------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term borrowings (repayments) 1,944 135 Principal payments on long-term obligations (71,886) (90,476) Net proceeds from issuances of long-term obligations 39,418 205,000 Advances (repayments) from/to joint venture partner (28,418) 1,589 Net proceeds from issuances of common stock 1,054 6,115 ----------------- ---------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (57,888) 122,363 ----------------- ---------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 2,113 1,711 ----------------- ---------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (31,582) (751) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 74,524 15,268 ----------------- ---------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 42,942 $ 14,517 ================= ================
See accompanying notes to condensed consolidated financial statements. 5 6 ORBITAL SCIENCES CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) (1) 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 in the United States have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the Securities and Exchange Commission (the "Commission"). The company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim condensed consolidated financial statements are read in conjunction with the company's Annual Report on Form 10-K for the year ended December 31, 1999. Orbital's consolidated results of operations include the results of operations of its subsidiaries, including but not limited to MDA Holdings Corporation and MacDonald, Dettwiler and Associates Ltd. ("MDA"), which are separate and distinct entities in all respects. Operating results for the three- and nine-month periods ended September 30, 2000 are not necessarily indicative of the results expected for the full year. Orbital Sciences Corporation, together with its subsidiaries, is hereafter referred to as "Orbital" or the "company." (2) PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management periodically assesses and evaluates the sufficiency and/or deficiency of estimated liabilities recorded for various operational and business risks and uncertainties. Actual results could differ from these estimates. Certain reclassifications have been made to the 1999 financial statements and footnote disclosures to conform to the 2000 financial statement presentation. All financial amounts are stated in U.S. dollars unless otherwise indicated. (3) INVENTORIES Inventories consist of components and raw materials inventory, work-in-process inventory and finished goods inventory and are generally stated at the lower of cost or net realizable value on a first-in, first-out or specific identification basis, net of allowances for estimated obsolescence. Components and raw materials are purchased to support future production efforts. Work-in-process inventory consists primarily of (i) costs incurred under long-term fixed-price contracts accounted for using the percentage-of-completion method of accounting applied on a units of 6 7 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 available for sale. (4) INDUSTRY SECTOR INFORMATION Orbital designs, manufactures, operates and markets a broad range of space-related products and services that are grouped into three sectors: space and ground infrastructure systems, satellite access products and satellite services. Space and ground infrastructure systems include launch vehicles and advanced programs, satellites and related space systems, electronics and sensor systems and transportation management systems, and satellite ground systems, space robotics, and mapping and land information services. Satellite access products include satellite-based navigation, positioning and communications products. Satellite services include satellite-based mobile data communications, satellite-based remote imaging services, satellite-based automotive information systems and other satellite-based services. Orbital reports industry sector information in conformance with Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 established standards for reporting information about operating segments in financial statements and requires selected information about operating segments. Reportable segments within the space and ground infrastructure systems sector have been determined generally based upon product lines. Certain operating business units within this sector have been aggregated as they exhibit similar long-term financial performance characteristics and do not meet certain quantitative thresholds. At December 31, 1999, the company recast the composition of its reportable segments as a result of new reporting mechanisms and operating decision-making procedures. The corresponding quarterly segment information for 1999 has been reclassified to conform to the 2000 presentation. The following table presents operating information for the three and nine months ended September 30, 2000 and 1999 and identifiable assets at September 30, 2000 and December 31, 1999 by reportable segment. Intersegment and intersector sales are accounted for based on prices negotiated by the parties. In the second quarter of 2000, certain receivables from ORBCOMM that had in the past been included in launch vehicles and advanced programs, satellites and related space systems, electronics and sensor systems and transportation management systems and satellite access products were reclassified to investment in and advances to ORBCOMM which is reflected in the satellite services sector. In the third quarter of 2000, the company recorded reserves against its investment in and advances to ORBCOMM and wrote down the investment in and advances to ORBCOMM to the estimated realizable value of the related receivables and inventory (see note 7). There were no other significant sales or transfers between segments. 7 8
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------------- -------------------------------- (In thousands) 2000 1999 2000 1999 ---- ---- ---- ---- LAUNCH VEHICLES AND ADVANCED PROGRAMS: Revenues $ 27,090 $ 37,648 $ 100,713 $ 117,157 Operating income (loss) (1) (836) 3,125 7,271 6,326 Identifiable assets (2) 109,131 125,157 109,131 125,157 Capital expenditures 1,420 2,165 2,690 8,439 Depreciation and amortization 1,636 1,759 4,795 5,301 SATELLITES AND RELATED SPACE SYSTEMS: Revenues $ 37,572 $ 70,500 $ 167,830 $ 207,400 Operating income (loss) (1) (33,344) (1,753) (39,571) 16,136 Identifiable assets (2) 43,576 58,153 43,576 58,153 Capital expenditures 2,155 150 6,302 3,626 Depreciation and amortization 1,454 1,296 4,468 4,304 ELECTRONICS AND SENSOR SYSTEMS AND TRANSPORTATION MANAGEMENT SYSTEMS: Revenues $ 46,253 $ 34,557 $ 124,793 $ 107,174 Operating income (loss) (1) (4,280) 228 (165) (367) Identifiable assets (2) 105,021 114,765 105,021 114,765 Capital expenditures 482 550 1,496 2,315 Depreciation and amortization 1,056 1,052 3,194 2,898 SATELLITE GROUND SYSTEMS, SPACE ROBOTICS, MAPPING AND LAND INFORMATION SERVICES: Revenues $ 71,018 $ 55,497 $ 186,415 $ 132,742 Operating income (loss) 3,434 3,818 9,763 11,125 Equity in earnings (losses) of affiliates (108) -- (313) -- Identifiable assets (2) 269,859 213,301 269,859 213,301 Capital expenditures 2,038 4,957 6,029 8,212 Depreciation and amortization 4,240 1,902 11,139 4,307 TOTAL SPACE AND GROUND INFRASTRUCTURE SYSTEMS: Revenues $ 181,933 $ 198,202 $ 579,751 $ 564,473 Operating income (loss) (35,026) 5,418 (22,702) 33,220 Equity in earnings (losses) of affiliates (108) -- (313) -- Identifiable assets (2) 527,587 511,376 527,587 511,376 Capital expenditures 6,095 7,822 16,517 22,592 Depreciation and amortization 8,386 6,009 23,596 16,810 SATELLITE ACCESS PRODUCTS: Revenues $ 22,448 $ 26,524 $ 72,805 $ 79,471 Operating income (loss) (1) (3) (6,892) (4,452) (12,395) (12,167) Identifiable assets (2) 105,260 92,939 105,260 92,939 Capital expenditures 291 741 1,368 2,112 Depreciation and amortization 1,601 1,885 4,905 5,769 SATELLITE SERVICES: Revenues $ 3,671 $ 4,268 $ 10,512 $ 11,705 Operating income (loss) 641 (537) 1,044 (7,115) Equity in earnings (losses) of affiliates (51,330) (30,896) (95,548) (82,618) Identifiable assets (2) 52,799 147,072 52,799 147,072 Capital expenditures 327 1,574 931 3,114 Depreciation and amortization 318 320 933 804 CORPORATE AND OTHER: Operating income (loss) $ (39,365) $ (2,202) $ (45,707) $ (9,642) Minority interest 1,531 2,082 3,088 7,536 Gain on sale of subsidiary equity 30,724 -- 30,724 -- Identifiable assets (2) 223,310 341,525 223,310 341,525 Capital expenditures 1,894 1,191 11,200 8,424 Depreciation and amortization 2,642 5,682 7,765 12,947
8 9 CONSOLIDATED: Revenues $ 208,052 $ 228,994 $ 663,068 $ 655,649 Operating income (loss) (80,642) (1,773) (79,760) 4,296 Equity in earnings (losses) of affiliates (51,438) (30,896) (95,861) (82,618) Minority interest 1,531 2,082 3,088 7,536 Gain on sale of subsidiary equity 30,724 -- 30,724 -- Identifiable assets (2) 908,956 1,092,912 908,956 1,092,912 Capital expenditures 8,607 11,328 30,016 36,242 Depreciation and amortization 12,947 13,896 37,199 36,330
(1) The $54,948,000 provision for doubtful ORBCOMM accounts negatively impacted operating income for the three and nine months ended September 30, 2000 as follows (in thousands): Launch Vehicles and Advanced Programs $ 3,730 Satellites and Related Space Systems 17,940 Electronics and Sensor Systems and Transportation Management Systems 2,236 Satellite Access Products 214 Corporate 30,828 ------ CONSOLIDATED $54,948 =======
(2) Identifiable assets are as of September 30, 2000 and December 31, 1999. (3) A $2,753,000 reserve for ORBCOMM-related inventory increased Satellite Access Products' loss for the three and nine months ended September 30, 2000. (5) EARNINGS PER SHARE Net income (loss) per common share is calculated using the weighted average number of common shares outstanding during the periods. Net income (loss) per common share, assuming dilution, is calculated using the weighted average number of common and common equivalent shares outstanding during the periods, plus the effects of an assumed conversion of the company's convertible notes, after giving effect to all net income adjustments that would result from the assumed conversion. In periods of net loss, the assumed conversion of convertible notes and stock options is anti-dilutive. Accordingly, fully diluted per-share losses are the same as basic losses per share disclosed on the accompanying statements of operations. If the company had reported net income, the number of shares used in calculating diluted earnings per share for the three and nine months ended September 30, 2000, would have been 41,115,013 and 41,129,790, respectively, and 41,569,899 and 41,749,105 for the three and nine months ended September 30, 1999, respectively. 9 10 (6) COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) and associated differences are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, (In thousands) 2000 1999 2000 1999 ---- ---- ---- ---- Differences between net loss, as reported, and comprehensive loss: Net loss, as reported $ (121,322) $ (39,566) $ (189,976) $ (91,800) Translation adjustments (2,059) (59) (3,308) 1,106 Unrealized gains on investments 1,784 -- 1,381 -- ------------- ------------- ------------- ------------- Comprehensive loss $ (121,597) $ (39,625) $ (191,903) $ (90,694) ============== ============== ============== ============== Accumulated differences between net loss, as reported, and comprehensive loss: Beginning of period $ (6,811) $ (5,984) $ (5,159) $ (7,149) Translation adjustments (2,059) (59) (3,308) 1,106 Unrealized gains on investments 1,784 -- 1,381 -- ------------- ------------- ------------- ------------- End of period $ (7,086) $ (6,043) $ (7,086) $ (6,043) ============== ============== ============== ==============
(7) INVESTMENTS IN AND ADVANCES TO ORBCOMM In 1993, the company's subsidiary, Orbital Communications Corporation ("OCC"), and Teleglobe Mobile Partners ("Teleglobe Mobile"), an affiliate of Teleglobe Inc. ("Teleglobe"), formed a partnership, ORBCOMM Global, L.P. ("ORBCOMM"), for the design, development, construction, integration, testing and operation of a low-Earth orbit satellite communications system (the "ORBCOMM System"). Through December 31, 1999, OCC and Teleglobe Mobile were both 50% general partners in ORBCOMM. Additionally, through December 31, 1999, OCC was a 2% general partner in ORBCOMM USA, L.P. ("ORBCOMM USA") and Teleglobe Mobile was a 2% general partner in ORBCOMM International Partners, L.P. ("ORBCOMM International"), two partnerships formed to market the ORBCOMM System. ORBCOMM was a 98% general partner in each of the two marketing partnerships through December 31, 1999. These partnership agreements were amended as of January 1, 2000, as discussed below. Pursuant to the terms of the partnership agreements, through December 31, 1999, (i) OCC and Teleglobe Mobile shared equal responsibility for the operational and financial affairs of ORBCOMM, (ii) OCC controlled and consolidated the operational and financial affairs of ORBCOMM USA, and (iii) Teleglobe Mobile controlled the operational and financial affairs of ORBCOMM International. Since OCC was unable to control, but was able to exercise significant influence over ORBCOMM's and ORBCOMM International's operational and financial affairs, the company accounted for its investments in ORBCOMM and ORBCOMM International using the equity method of accounting. 10 11 In January 2000, Orbital entered into an agreement (the "Omnibus Agreement") with ORBCOMM, Teleglobe, OCC, and Teleglobe Mobile pursuant to which: - - Teleglobe Mobile became ORBCOMM's sole general partner and majority owner, with an interest of approximately 68% as of September 30, 2000; - - OCC remained as a limited partner of ORBCOMM, with a minority ownership interest of approximately 32% as of September 30, 2000; and - - Orbital received a payment plan from ORBCOMM to settle deferred invoice amounts. As a result of the Omnibus Agreement and the related reduction in the company's ownership interest in ORBCOMM, the company's share of ORBCOMM's total capital exceeded the book value of Orbital's investment in ORBCOMM. Accordingly, Orbital recorded a $15,367,000 increase in additional paid-in capital in the first half of 2000 as a result of this transaction. A deferred tax obligation of $7,790,000 was established with a corresponding reduction in the deferred tax valuation allowance. As part of the Omnibus Agreement, on January 26, 2000, OCC and Teleglobe Mobile each contributed its 2% direct participation interest in ORBCOMM USA and ORBCOMM International, respectively, to ORBCOMM. As a result of this contribution, these companies ceased doing business as separate entities and ORBCOMM assumed their business operations. Consequently, Orbital no longer consolidates ORBCOMM USA's financial statements. The contribution of ORBCOMM USA to ORBCOMM resulted in a decrease in Orbital's investments in affiliates of $9,008,000 and non-cash changes to balance sheet accounts as follows (in thousands): Decrease in accounts receivable and other current assets $ (742) Decrease in accounts payable and other accrued liabilities 414 Decrease in amounts due to affiliates 17,992 Increase in non controlling interest in net assets of consolidated subsidiary (8,656) ---------- Net $ 9,008 ==========
Through December 31, 1999, the company had deferred invoicing ORBCOMM for approximately $91,000,000. Additionally, approximately $33,000,000 (including interest) of these amounts was advanced against the invoiced amounts by an affiliate of Teleglobe to Orbital. As part of the Omnibus Agreement, Orbital, Teleglobe and ORBCOMM agreed, among other things, to settle the deferred invoicing and related cash advances. In January 2000, using funds contributed for this purpose by Teleglobe, ORBCOMM paid the company approximately $33,000,000 in cash, which was then used by the company to repay the advances from Teleglobe. In addition, in March 2000, Orbital converted approximately $33,000,000 of its deferred invoices into partnership interests of ORBCOMM. Also, in January 2000, the company converted $2,962,000 of invoices due to Orbital from ORBCOMM pursuant to an administrative services agreement into an equity contribution to ORBCOMM. Finally, of the remaining $25,000,000 owed to Orbital, ORBCOMM, using funds contributed for this purpose by Teleglobe, paid one-third of the balance in the first quarter of 2000. During the second quarter of 2000, ORBCOMM failed to meet payment obligations to Orbital under the ORBCOMM system procurement agreement. Accordingly, effective June 2000, the company ceased recognizing revenue on the ORBCOMM system procurement agreements. 11 12 In September 2000, ORBCOMM and its subsidiaries commenced a reorganization proceeding under Chapter 11 of the U.S. Federal Bankruptcy Code and are currently operating as debtors-in-possession under that Chapter. ORBCOMM is in default on its $170,000,000 Senior Notes (the "Notes"). Teleglobe Mobile and OCC are guarantors of the Notes. OCC's guarantee is non-recourse to Orbital. In August 2000, Teleglobe Inc. ("Teleglobe"), ORBCOMM's general partner, informed ORBCOMM that they would discontinue any further equity funding to ORBCOMM, but agreed to provide ORBCOMM with $17,000,000 in additional cash, through pre-bankruptcy secured financing and/or debtor-in-possession financing. ORBCOMM has indicated that these funds should support operations through the end of 2000. ORBCOMM is in the process of seeking additional equity investors, seeking to sell certain assets and seeking to restructure the Notes. There can be no assurances that additional equity will be available, that an asset sale will be completed, or that the Notes will be restructured on a timely basis or at all. Consequently, Orbital recorded non-cash charges totaling $107,268,000 in the third quarter of 2000 to fully reserve the $50,576,000 investment in ORBCOMM balance at June 30, 2000, and to write down $54,948,000 of ORBCOMM-related receivables and $2,753,000 of ORBCOMM-related inventory, less minority interest of $1,009,000, to their estimated realizable values. The estimated realizable value of all remaining ORBCOMM receivables and inventory of $12,801,000 at September 30, 2000 has been classified as investments in and advances to ORBCOMM. Although management believes that these reserves are sufficient to cover the company's current exposure, such reserves do not include any additional charges that might result should any litigation related to ORBCOMM arise. (8) INVESTMENTS IN AND ADVANCES TO ORBIMAGE During the second quarter of 2000, Orbital agreed to advance in January 2001, $20,000,000 to ORBIMAGE from amounts previously paid by ORBIMAGE under its procurement agreement with Orbital, provided, however, that such obligation is terminated if Orbital successfully brokers a renegotiation of ORBIMAGE's license agreement for RadarSat-2 satellite distribution rights with MDA, to, among other things, eliminate ORBIMAGE's future RadarSat-2 payments to MDA. A preliminary agreement between ORBIMAGE and MDA has been reached. There can be no assurance, however, that the final terms of such agreement will satisfy all the conditions necessary to relieve Orbital of its obligations with respect to the advance. Equity in earnings (losses) of affiliates includes Orbital's 100% share of ORBIMAGE's losses, including preferred stock dividends, totaling $8,054,000, through June 30, 2000. During the second quarter of 2000, Orbital's investment balance was reduced to zero, and Orbital suspended recognition of additional equity losses at that time. Additionally, Orbital did not recognize losses in the third quarter of 2000, and will not recognize additional equity losses in future periods from its investment in ORBIMAGE absent a future change in Orbital's funding obligations. Presently the company has no intention to provide further equity funding to ORBIMAGE. Had the company continued to recognize equity accounting losses for ORBIMAGE, additional losses of $7,606,000 and $12,423,000 would have been recorded for the three and nine month periods ended September 30, 2000. Orbital's share of future income from ORBIMAGE, if any, will not be recognized until such income exceeds previously unrecognized losses. 12 13 ORBIMAGE management currently estimates that ORBIMAGE has sufficient resources to meet its capital and operating requirements through January 2001. ORBIMAGE is seeking additional capital from third parties as well as its existing shareholders. There can be no assurance that such capital will be available on a timely basis or at all. As a result of ORBIMAGE's current financial condition, Orbital ceased recognizing revenues on the ORBIMAGE system procurement contract during the third quarter of 2000. Should ORBIMAGE be unsuccessful in its efforts to raise additional capital, approximately $6,300,000 of Orbital's inventory related to ORBIMAGE could be impaired. (9) BUSINESS COMBINATIONS In April 2000, MDA acquired certain of the assets and liabilities of the DataQuick Products division of Acxiom Corporation for approximately $56,000,000. MDA paid $31,400,000 of the purchase price in cash at closing, with the remaining amount paid in October 2000. MDA accounted for the acquisition using the purchase method of accounting. The purchase price exceeded the fair value of the net tangible assets and identifiable intangible assets by approximately $43,400,000, which is being amortized on a straight-line basis over twenty years. (10) GAIN ON SALE OF SUBSIDIARY STOCK In July 2000, MDA completed an initial public offering on the Toronto Stock Exchange of 6,600,000 shares of common stock (including shares issued pursuant to the underwriters' overallotment option), raising gross proceeds of approximately $37,500,000 for itself, $18,800,000 for Orbital and $5,600,000 for other selling shareholders. The company recorded a $30,724,000 gain on the sale of such stock in the third quarter 2000. Orbital made payments in July to reduce its primary credit facility by $8,000,000 with the proceeds raised from the MDA public offering. As a result of the public offering, Orbital's ownership interest in MDA was approximately 52% at September 30, 2000. (11) DEBT OBLIGATIONS Orbital's primary credit facility provided for total borrowings from an international syndicate of banks of up to $157,000,000, all of which was drawn and outstanding as of September 30, 2000, at a weighted average interest rate of 10.5%. These borrowings are collateralized by accounts receivable, intellectual property and certain other assets, including the stock of the company's wholly owned subsidiaries, which include MDA Holdings Corporation, the holder of all shares of MDA that we beneficially own. The facility prohibits the payment of cash dividends, contains certain covenants with respect to our working capital levels, fixed charges ratio, leverage ratio and net worth, and expires in December 2002. The bank group requires that the company pay down the outstanding balance of the credit facility with 55% of the net cash proceeds received from any equity offering, asset sale or debt issuance by us or our domestic wholly owned subsidiaries. As a result, the company paid down $8,000,000 with proceeds from the sale of MDA shares in the third quarter of 2000. In October 2000, the company paid down $46,000,000 with proceeds from the sale of the Fairchild Defense 13 14 electronics division (see Note 16). These payments satisfied a requirement to reduce the total balance of the facility to $125,000,000 by December 31, 2000. The outstanding balance of the credit facility was $111,000,000 as of November 1, 2000. Orbital has until July 1, 2001 to reduce the outstanding balance of the credit facility to $85,000,000. Orbital now has the ability to borrow up to $4,000,000 under the credit facility. Orbital amended this facility several times this year to waive noncompliance with certain financial covenants and to amend other covenants, including net worth, leverage (including senior leverage), fixed charges, capital expenditures and subsidiary debt. The company is in compliance with these amended covenants. The company's 12% note payable restricts the payment of cash dividends and contains certain covenants with respect to fixed charges ratio, leverage ratio and tangible net worth, and includes certain cross-default provisions. In June 2000, the company agreed that if it were to prepay the remaining principal amount of $6,666,000, which matures June 2001, on or prior to October 31, 2000, the interest rate on the balance of the note would be adjusted retroactively to 13% for the period June 1 through August 31, 2000 and to 14% from September 1, 2000 until it is repaid. The company did not prepay the note in October. MDA has a credit facility with a syndicate of six banks that provides for total availability to MDA and its subsidiaries of approximately $126,000,000, of which approximately $37,256,000 was outstanding as of September 30, 2000, and includes certain operational and financial covenants including certain restrictions on the payment of dividends. The amount available includes a program-specific letter of credit facility of $33,178,000. MDA's credit facility is non-recourse to Orbital. (12) COMMITMENTS AND CONTINGENCIES In July 2000, the company reached an agreement to settle the outstanding consolidated class-action lawsuit filed on May 28, 1999 in the U.S. District Court for the Eastern District of Virginia against the company, a former officer and an officer/director alleging violations of federal securities laws, on behalf of purchasers of the company's stock and call options during the period from April 27, 1997 through October 29, 1999. The settlement agreement provides for the plaintiffs to receive a cash payment of $11,000,000 to be made by the company's insurance carrier, and warrants to be issued by the company having an aggregate fair value of $11,500,000 that are exercisable for the company's common stock at a ten percent discount to the market price at the time the settlement is approved by the court. Consequently, an expense and liability of $11,500,000 were recorded in the second quarter of 2000. A hearing on the final settlement documentation is scheduled for mid-December and the company anticipates that final court approval could occur before year-end 2000. In the first quarter of 2000, PT Media Citra Indostar, an Indonesian company ("PT-MCI"), commenced arbitration seeking a refund of $163,000,000 PT-MCI asserts it paid in connection with a communications satellite constructed by CTA INCORPORATED ("CTA") under a contract that was assigned to Orbital in connection with its 1997 acquisition of CTA. PT-MCI's allegations include fraud and multiple breaches of contract. The company's claims against PT-MCI for unpaid invoices in the approximate amount of $14,000,000 are also part of the 14 15 arbitration proceedings. Orbital believes that PT-MCI's allegations are without merit and intends to vigorously defend against such allegations. In addition, under the terms of the CTA acquisition, Orbital believes it is entitled to indemnification from CTA for all or a part of any damages arising from the PT-MCI litigation and that CTA retains liability for certain fraud claims being made by PT-MCI. There can be no assurances, however, that CTA will meet its indemnification obligations. The eventual outcome of the foregoing matter is uncertain and could have a material adverse impact on the company's results of operations and financial condition. The company is currently arbitrating a claim by Thomas van der Heyden alleging that Orbital is in actual or anticipatory breach of obligations allegedly imposed on Orbital in a decision in a previous arbitration proceeding brought by Mr. van der Heyden against CTA. Mr. van der Heyden claims that he is entitled to a sum exceeding $30,000,000 from Orbital, as successor-in-interest to CTA. The company believes that the allegations in these proceedings are without merit and intends to vigorously defend against such allegations. In addition, under the terms of the CTA acquisition, Orbital believes that it is entitled to indemnification from CTA for all or a part of any damages arising from this litigation. There can be no assurances, however, that CTA will meet its indemnification obligations. The eventual outcome of the foregoing matter is uncertain and could have a material adverse impact on the company's results of operations and financial condition. In July 1999, a class action complaint was filed on behalf of a class comprised of purchasers and lessees of a high precision GPS product manufactured by Magellan (as a successor to Ashtech Inc.) against Sokkia Corporation and certain of its affiliates, Magellan and others. In October 2000, the case was dismissed pursuant to a summary judgment motion. In August 2000, the company was notified by a customer of its intent to terminate a transportation management systems contract alleging default on the part of the company. During the third quarter of 2000, the company recorded a $4,000,000 accrual to cover management's estimate of Orbital's liability related to this matter, in addition to approximately $3,500,000 of reserves for related receivables and contract cost increases. Any potential insurance recovery has not been considered in recording such accruals. In addition, the company and its subsidiaries are parties to certain other litigation or proceedings arising in the ordinary course of business. In the opinion of management, the probability is remote that the outcome of any such litigation or other proceedings will have a material adverse effect on our results of operations or financial position. (13) INCOME TAXES Due to the pretax losses for the first nine months of 2000, the company determined that a full valuation allowance should be recorded against the deferred tax asset. Accordingly, the tax provision for the third quarter of 2000 included an expense of $9,886,000 to fully reserve the company's U. S. deferred tax assets. (14) RISKS AND UNCERTAINTIES Orbital's growth has required substantial capital to fund investments in and advances to affiliates, business acquisitions, expanding working capital needs, new business initiatives, research and development and capital expenditures. Orbital's liquidity has been, and continues to be, constrained because the company has been unable to access capital markets due to uncertainty surrounding the restatement of its financial results and the company and its affiliates' financial prospects. During 2000, the company has funded capital requirements for operations through cash from operations combined with cash on hand and the proceeds from the disposition of certain of our MDA shares and the Fairchild Defense electronics division. The company anticipates that in 2001 cash flow from operations will be insufficient to cover capital requirements, operating requirements and debt service, including the company's obligation to 15 16 reduce the outstanding balance of the company's primary credit facility as described in Note 11. To meet the company's capital and operating requirements, management's plans include additional sales of certain assets, the possibility of raising additional equity and/or debt capital, restructuring business operations and refinancing the company's credit facility. Management expects that such plans will generate sufficient additional liquidity to satisfy the company's required obligations; however, no assurance can be given that the company will be successful in achieving such plans. (15) RECENT ACCOUNTING PRONOUNCEMENTS In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" which amends SFAS No. 133 to (i) expand the scope of the "normal sales and normal purchases" exception; (ii) introduce the benchmark interest rate that may be hedged; (iii) permit a recognized foreign currency denominated asset to be hedged; and (iv) allow certain intercompany derivatives that are offset net to be designated as hedging instruments. The company does not anticipate that SFAS No. 138 will have a material impact on its financial statements. In December 1999, the Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," to provide guidance regarding the recognition, presentation and disclosure of revenue in the financial statements. While management is continuing to make further assessments, the company does not anticipate that the adoption of SAB 101 will have a material impact on its financial statements. (16) SUBSEQUENT EVENTS On October 30, 2000, the company sold its Fairchild Defense electronics business to a U.S. subsidiary of Smiths Industries plc for approximately $100,000,000 in cash, subject to a working capital adjustment that will be finalized in early 2001. The company expects to record a gain in the range of $40,000,000 - $45,000,000 in the fourth quarter of 2000 as a result of this sale. Fairchild had revenues of $21,937,000 and $55,069,000 for the three and nine months ended September 30, 2000. The proceeds of the sale were used to reduce Orbital's overall debt by approximately $61,000,000, of which $46,000,000 reduced outstanding amounts under the company's primary credit facility. The company intends to use the remaining amount for general corporate purposes. On November 3, 2000, MDA acquired all the assets of Atlantic Technologies, LLC, a Huntsville, Alabama-based supplier of land information products. The aggregate purchase price was $14,500,000, with approximately $8,500,000 paid in cash and up to approximately $6,000,000 in MDA shares to be issued over three years. 16 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW With the exception of historical information, certain statements included in this discussion relating to capital requirements, growth, liquidity, new business, operational performance, schedules, sources and uses of funds, backlog, financing plans, and the performance of our affiliates, Orbital Imaging Corporation ("ORBIMAGE") and ORBCOMM Global L.P. ("ORBCOMM"), are forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, achievements or investments to differ materially from any future results, performance, achievements, or investments expressed or implied by such forward-looking statements. Such factors include: general and economic business conditions, launch results, product performance, governmental or regulatory changes, risks associated with government contracts, the introduction of products and services by competitors, risks associated with acquired businesses, availability of required capital for Orbital and its affiliates, the financial condition of major customers, market acceptance of products and technologies, risks associated with long-term contracts and licensing agreements with commercial and government customers, lack of control over certain subsidiaries and affiliates, the effects of pending or possible litigation or government investigations and other factors more fully described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook: Issues and Uncertainties" included in our Annual Report on Form 10-K for the year ended December 31, 1999. We assume no obligation to update any such forward-looking statements. Our products and services are grouped into three business sectors: space and ground infrastructure systems, satellite access products and satellite services. The space and ground infrastructure systems sector consists of several reportable segments, including launch vehicles and advanced programs, satellites and related space systems, electronics and sensor systems and transportation management systems, and satellite ground systems, space robotics, mapping and land information services. Our satellite access products sector consists of satellite-based navigation, positioning and communications products. Satellite services include the following services conducted by our affiliates, ORBCOMM, ORBIMAGE and, for 1999, CCI International NV ("CCI"), and our subsidiaries Radarsat International Inc. ("RSI") and Orbital Navigation Corporation, which holds our 60% interest in Navigation Solutions LLC ("NavSol"): satellite-based two-way mobile data communications services, remote imaging services, satellite-based automotive information services and satellite-based voice communications services. We do not control the operational or financial affairs of ORBCOMM, ORBIMAGE and CCI and consequently their financial results are not consolidated with our results. RECENT DEVELOPMENTS On October 30, 2000, the company sold its Fairchild Defense electronics business to a U.S. subsidiary of Smiths Industries plc for approximately $100,000,000 in cash, subject to a working capital adjustment that will be finalized in early 2001. The price was determined based on a bidding process. The assets sold included property, plant, equipment, inventory, contracts and 17 18 intellectual property. The company expects to record a gain in the range of $40,000,000 - $45,000,000 in the fourth quarter of 2000 as a result of this sale. Fairchild had revenues of $21,937,000 and $55,069,000 for the three and nine months ended September 30, 2000, respectively. The proceeds of the sale were used to reduce Orbital's overall debt by approximately $61,000,000, including $46,000,000 to reduce outstanding amounts under the company's primary credit facility. We intend to use the remaining amount for general corporate purposes. On November 3, 2000, MDA acquired all the assets of Atlantic Technologies, LLC ("ATI"), a Huntsville, Alabama-based supplier of land information products. The aggregate purchase price was $14,500,000, with approximately $8,500,000 paid in cash and up to approximately $6,000,000 in MDA shares to be issued over three years. RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 In September 2000, ORBCOMM and its subsidiaries commenced a reorganization proceeding under Chapter 11 of the U.S. Federal Bankruptcy Code and are currently operating as debtors-in-possession under that Chapter. ORBCOMM is in default on its $170,000,000 Senior Notes (the "Notes"). Teleglobe Mobile and OCC are guarantors of the Notes. OCC's guarantee is non-recourse to us in August 2000, Teleglobe Inc. ("Teleglobe"), ORBCOMM's general partner, informed ORBCOMM that they would discontinue any further equity funding to ORBCOMM, but agreed to provide ORBCOMM with $17,000,000 in additional cash, through pre-bankruptcy secured financing and/or debtor-in-possession financing. ORBCOMM has indicated that these funds should support operations through the end of 2000. ORBCOMM is in the process of seeking additional equity investors, seeking to sell certain assets and seeking to restructure the Notes. There can be no assurances that additional equity will be available, that an asset sale will be completed, or that the Notes will be restructured on a timely basis or at all. Consequently, we recorded non-cash charges totaling $107,268,000 in the third quarter of 2000 to fully reserve the $50,576,000 investment in ORBCOMM balance at June 30, 2000, and to write down $54,948,000 of ORBCOMM-related receivables and $2,753,000 of ORBCOMM-related inventory, less minority interest of $1,009,000, to their estimated realizable value. The estimated realizable value of all remaining ORBCOMM receivables and inventory of $12,801,000 at September 30, 2000 has been classified as investments in and advances to ORBCOMM. Although management believes that these reserves are sufficient to cover the company's current exposure, such reserves do not include any additional charges that might result should any litigation related to ORBCOMM arise. During the second quarter of 2000, ORBCOMM failed to meet its payment obligations to us under the ORBCOMM system procurement agreement. Accordingly, effective June 2000, the company ceased recognizing revenue on the ORBCOMM system procurement agreements. The suspension of ORBCOMM-related space systems work had a significant adverse impact on revenues, gross profit and operating income for the three and nine months ended September 30, 2000 as described below. 18 19 ORBIMAGE management currently estimates that ORBIMAGE has sufficient resources to meet its capital and operating requirements through January 2001. ORBIMAGE is seeking additional capital from third parties as well as its existing shareholders. There can be no assurance that such capital will be available on a timely basis or at all. As a result of ORBIMAGE's current financial condition, Orbital ceased recognizing revenues on the ORBIMAGE system procurement contract during the third quarter of 2000. While our revenues were adversely impacted, gross profit and operating income were not affected since this contract had been in a loss position and losses had previously been accrued. REVENUES. Our consolidated revenues for the three-month periods ended September 30, 2000 and 1999 were $208,052,000 and $228,994,000, respectively. Our consolidated revenues for the nine-month periods ended September 30, 2000 and 1999 were $663,068,000 and $655,649,000, respectively. Revenues for the three months ended September 30, 2000 and 1999 include sales to non-controlled and unconsolidated affiliates of $8,015,000 and $21,257,000, respectively. Revenues for the nine months ended September 30, 2000 and 1999 include sales to non-controlled and unconsolidated affiliates of $48,139,000 and $84,127,000, respectively. Space and Ground Infrastructure Systems. Revenues from our space and ground infrastructure product lines were as follows:
Three Months Nine Months Ended Ended September 30, September 30, ---------------------------------- ------------------------------ (In thousands) 2000 1999 2000 1999 - -------------- ---- ---- ---- ---- Launch Vehicles and Advanced Programs (1) $27,090 $ 37,648 $100,713 $117,157 Satellites and Related Space Systems (2) 37,572 70,500 167,830 207,400 Electronics and Sensor Systems and Transportation Management Systems (3) 46,253 34,557 124,793 107,174 Satellite Ground Systems, Space Robotics, Mapping and Land Information Services (4) 71,018 55,497 186,415 132,742 -------- -------- -------- ---------- TOTAL SPACE AND GROUND INFRASTRUCTURE SYSTEMS $181,933 $198,202 $579,751 $564,473 ======== ======== ======== ==========
(1) The decrease in revenues from launch vehicles and advanced programs in 2000 as compared to last year is primarily attributable to suspending work under contracts with ORBCOMM and the deferral of revenues associated with certain other customer-requested launch schedule delays. In addition, launch vehicle revenues in 2000 declined as a result of suspending ORBIMAGE revenue recognition in the third quarter of 2000. (2) The decrease in revenues from satellites and related space systems in 2000 as compared to last year is largely due to suspending revenue recognition under the ORBCOMM and ORBIMAGE procurement contracts. Additionally, the cost estimates to complete certain contracts increased during the third quarter of 2000 resulting in a reduction in the percentage of completion and the corresponding revenue recognizable on these contracts. 19 20 (3) The increase in electronics and sensor systems and transportation management systems revenues in 2000 as compared to 1999 is primarily attributable to growth in transportation management systems revenues under existing and new contracts. Revenues from this sector as a whole will decrease significantly beginning in the fourth quarter of 2000 as a result of the sale of the Fairchild Defense electronics business in October 2000. (4) The revenue growth in satellite ground systems, space robotics, mapping and land information services in 2000 as compared to 1999 is primarily attributable to the acquisitions of the DataQuick Products division of Acxiom Corporation ("DataQuick") in April 2000, the space robotics division of Spar Aerospace Ltd. in May 1999 and the BC Online license in May 1999, in addition to orders received in late 1999 for several satellite ground systems and system upgrades. Satellite Access Products. Revenues from sales of satellite-based navigation, positioning and communications products in the third quarter of 2000 were $22,448,000 as compared to $26,524,000 for the third quarter of 1999. Revenues for the nine months ended September 30, 2000 were $72,805,000 as compared to $79,471,000 for the same period last year. The decrease in sector revenues is attributable to reduced sales of high-precision industrial navigation and positioning products due to increased competition in the market. In addition, revenues in the consumer products sector decreased because our Magellan subsidiary discontinued several products in the third quarter of 2000, and successor products were unavailable for shipment until the fourth quarter. Satellite Services. Revenues from satellite services declined to $3,671,000 in the third quarter of 2000 as compared to $4,268,000 in the third quarter of 1999. Revenues for the nine months ended September 30, 2000 were $10,512,000 as compared to $11,705,000 for the same period last year. Revenues in 2000 and 1999 include those generated by our consolidated subsidiary, RSI. In 1999, sector revenues also included ORBCOMM's domestic operation, ORBCOMM USA, L.P. ("ORBCOMM USA"), which we consolidated in 1999. Effective January 1, 2000, ORBCOMM USA was merged into ORBCOMM and we no longer consolidate ORBCOMM USA's results of operations. GROSS PROFIT/COSTS OF GOODS SOLD. Costs of goods sold include the costs of personnel, materials, subcontracts and overhead related to commercial products and under various development and production contracts. Gross profit depends on a number of factors, including the mix of contract types and costs incurred thereon in relation to estimated costs. Our consolidated gross profit for the third quarter of 2000 was $22,729,000 (11% of revenues) as compared to $44,516,000 (19% of revenues) for the third quarter of 1999. Our gross margins for the nine months ended September 30, 2000 were $108,600,000 (16% of revenues) as compared to $134,820,000 (21% of revenues) for the nine months ended September 30, 1999. Space and Ground Infrastructure Systems. Gross profit from our space and ground infrastructure systems totaled $20,685,000 (11% of sector revenues) and $34,628,000 (17% of sector revenues) for the quarters ended September 30, 2000 and 1999, respectively. Gross profit totaled 20 21 $86,254,000 (15% of sector revenues) and $105,209,000 (19% of sector revenues) for the nine months ended September 30, 2000 and 1999, respectively. Gross profit and margins for our space and ground infrastructure product lines were as follows:
Three Months Ended September 30, ----------------------------------------------------------------- (In thousands) 2000 1999 -------------- ---- ---- Gross % of Gross % of Profit Revenue Profit Revenue ------ -------- ------ -------- Launch Vehicles and Advanced Programs (1) $ 8,047 30% $ 9,038 24% Satellites and Related Space Systems (2) (9,835) (26)% 4,244 6% Electronics and Sensor Systems and Transportation Management Systems (3) 9,167 20% 9,350 27% Satellite Ground Systems, Space Robotics, Mapping and Land Information Services (4) 13,306 19% 11,996 22% ------- --- ------- --- TOTAL SPACE AND GROUND INFRASTRUCTURE SYSTEMS $20,685 11% $34,628 17% ======= === ======= ===
Nine Months Ended September 30, ---------------------------------------------------------------- (In thousands) 2000 1999 -------------- ---- ---- Gross % of Gross % of Profit Revenue Profit Revenue ------ -------- ------ -------- Launch Vehicles and Advanced Programs (1) $25,787 26% $ 20,061 17% Satellites and Related Space Systems (2) (5,366) (3)% 29,201 14% Electronics and Sensor Systems and Transportation Management Systems (3) 27,951 22% 28,014 26% Satellite Ground Systems, Space Robotics, Mapping and Land Information Services (4) 37,882 20% 27,933 21% ------- --- -------- --- TOTAL SPACE AND GROUND INFRASTRUCTURE SYSTEMS $86,254 15% $105,209 19% ======= === ======== ===
(1) The improved gross margin for launch vehicles and advanced programs in 2000 is primarily due to completing work in 1999 on certain less profitable space and suborbital launch vehicle contracts. (2) The negative gross margin for satellites and related space systems in 2000 is primarily due to the suspension of work on profitable ORBCOMM contracts, and cost growth and schedule delays on several satellite construction programs. Also, certain of these programs contain a significant amount of lower margin, external subcontract effort, as well as substantial non-recurring engineering costs incurred in developing these products to meet a range of specific customer requirements. (3) The decrease in gross margins in 2000 for electronics and sensor systems and transportation management systems is due to an increase in lower margin, subcontract work and to lower margins on certain international defense contracts and cost growth on certain transportation management systems contracts. In addition, we accrued costs related to the termination of a 21 22 transportation management systems contract in the third quarter of 2000. (4) The decrease in gross margins for satellite ground systems, space robotics, mapping and land information services in the third quarter of 2000 is primarily due to lower margins on land information products and changes in the mix of products sold. Satellite Access Products. Gross profit for our satellite access products sector was $4,822,000 and $22,905,000 for the three and nine months ended September 30, 2000, respectively, as compared to $8,012,000 and $26,032,000 for the three and nine months ended September 30, 1999, respectively. Gross margins for satellite access products decreased to 21% of revenues for the third quarter of 2000 as compared to 30% for the third quarter of 1999. Gross margins decreased to 31% for the nine months ended September 30, 2000 as compared to 33% for the comparable period of 1999. The decrease in satellite access products' gross margins for the three and nine months ended September 30, 2000 is primarily due to the write down of $2,753,000 inventory in the third quarter of 2000 as a result of ORBCOMM's Chapter 11 filing. Satellite Services. Our satellite services sector had gross profit of $1,271,000 during the third quarter of 2000, which reflects a decrease from $1,876,000 of gross profit for the third quarter of 1999 due to industry pricing reductions. Gross profit for this sector was $3,490,000 for the nine months ended September 30, 2000 as compared to $3,578,000 for the nine months ended September 30, 1999. Substantially all of the positive gross profit in this sector is generated by RSI. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses represent self-funded product development activities, and exclude direct customer-funded development. Research and development expenses during the three months ended September 30, 2000 and 1999 were $8,080,000 (4% of revenues) and $10,675,000 (5% of revenues), respectively. Research and development expenses during the nine month periods ended September 30, 2000 and 1999 were $24,168,000 (4% of revenues) and $31,375,000 (5% of revenues), respectively. Research and development expenses relate primarily to the development of new or improved satellite access products, improved launch vehicles and new satellite and robotics systems. PROVISION FOR DOUBTFUL ORBCOMM ACCOUNTS. As previously noted, as a result of ORBCOMM's Chapter 11 filing, we recorded charges totaling $107,268,000 in the third quarter of 2000. Included in the total charges were reserves of $54,948,000 to write down ORBCOMM receivables to their net realizable value. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses include the costs of marketing, advertising, promotional and other selling expenses as well as the costs of our finance, legal, administrative and general management functions. Selling, general and administrative expenses for the three months ended September 30, 2000 and 1999 were $36,169,000 (17% of revenues) and $31,753,000 (14% of revenues), respectively. Selling, general and administrative expenses for the nine months ended September 30, 2000 and 1999 were $97,774,000 (15% of revenues) and $89,189,000 (14% of revenues), respectively. The increase in such expenses for the third quarter of 2000 as compared to the third quarter of 1999 22 23 was primarily related to a $4,000,000 accrual for a claim related to a transportation management systems contract. The increase for the nine months ended September 30, 2000 as compared to the same period last year was also attributable to the acquisitions of DataQuick and Spar Aerospace and higher corporate general and administrative expenses. INCOME (LOSS) FROM OPERATIONS. Losses from operations for the three months ended September 30, 2000 and 1999 were $80,642,000 and $1,773,000, respectively. The loss from operations for the nine months ended September 30, 2000 was $79,760,000 which compares to income from operations of $4,296,000 for the same period in 1999. Charges totaling $57,701,000 related to the ORBCOMM write-off recorded in the third quarter of 2000 represent the most significant portion of the decline in the operating income. Also, the other primary factor contributing to the increase in the operating loss for the third quarter 2000 as compared to the comparable period in 1999 were the decreases in revenues due to the suspension of ORBCOMM-related space systems production work and cost growth and schedule delays on several satellite construction programs. NET INVESTMENT INCOME (EXPENSE). Interest expense, net of investment income and net of interest capitalized, increased to $10,358,000 from $6,697,000 for the three months ended September 30, 2000 and 1999, respectively, and to $22,467,000 from $15,404,000 for the nine months ended September 30, 2000 and 1999, respectively. The increase in net interest expense is a result of higher average borrowings and higher rates in 2000 as well as decreases in investment income as a result of lower investment balances in 2000. Interest capitalized totaled $326,000 and $687,000 in the third quarter of 2000 and 1999, respectively, and $1,452,000 and $2,283,000 for the nine months ended September 30, 2000 and 1999, respectively. Investment income was $600,000 and $1,238,000 for the three months ended September 30, 2000 and 1999, respectively, and $3,712,000 and $3,052,000 for the nine months ended September 30, 2000 and 1999, respectively. Investment income includes interest earnings on short-term investments and realized gains and losses on investments. EQUITY IN EARNINGS (LOSSES) OF AFFILIATES. Equity in losses of affiliates for the three months ended September 30, 2000 and 1999 were $51,438,000 and $30,896,000, respectively, and $95,861,000 and $82,618,000 for the nine months ended September 30, 2000 and 1999, respectively. These amounts primarily represent (i) a $50,576,000 write down of our investment in ORBCOMM in the third quarter of 2000, (ii) elimination of proportionate profits or losses on sales of infrastructure products to ORBCOMM and ORBIMAGE, (iii) our proportionate share of ORBCOMM, ORBIMAGE and NavSol current period earnings and losses, and (iv) preferred dividends and beneficial conversion rights to other investors in ORBIMAGE prior to June 2000. Equity in earnings (losses) of affiliates includes Orbital's 100% share of ORBIMAGE's losses, including preferred stock dividends, totaling $8,054,000, through June 30, 2000. During the second quarter of 2000, Orbital's investment balance was reduced to zero, and Orbital suspended recognition of additional equity losses at that time. Additionally, Orbital did not recognize losses in the third quarter of 2000, and will not recognize additional equity losses in future periods from its investment in ORBIMAGE absent a future change in Orbital's funding obligations. Presently the company has no intention to provide further equity funding to ORBIMAGE. Had the company continued to recognize equity accounting losses for ORBIMAGE, additional losses of 23 24 $7,606,000 and $12,423,000 would have been recorded for the three and nine month periods ended September 30, 2000, respectively. Orbital's share of future income from ORBIMAGE, if any, will not be recognized until such income exceeds previously unrecognized losses. ORBIMAGE management currently estimates that ORBIMAGE has sufficient resources to meet its capital and operating requirements through January 2001. ORBIMAGE is seeking additional capital from third parties as well as its existing shareholders, however, there can be no assurance that such capital will be available on a timely basis or at all. Our proportionate share of ORBCOMM's losses declined beginning the first quarter of 2000 due to a reduction in our ownership interest in ORBCOMM from 50% in 1999 to approximately 34%, 33% and 32% in the first, second and third quarters, respectively, of 2000. In the second quarter of 2000, ORBCOMM recorded a provision to write down inventory. Our pro rata share of this write down was $3,335,000. MINORITY INTERESTS. Minority interests in losses of consolidated subsidiaries for the three months ended September 30, 2000 and 1999 were $1,531,000 and $2,082,000, respectively, and $3,088,000 and $7,536,000 for the nine months ended September 30, 2000 and 1999, respectively. These amounts primarily represent minority stockholders' proportionate share of Magellan's losses and MDA's earnings for the three and nine months ended September 30, 2000. For the three and nine months ended September 30, 1999, these amounts were primarily minority stockholders' proportionate share of Magellan's and ORBCOMM USA's losses. LITIGATION SETTLEMENT. A litigation settlement loss of $11,500,000 was recorded in the second quarter of 2000 as a result of a settlement agreement reached in July 2000 related to the consolidated shareholder class action lawsuit. The settlement provides for the plaintiffs to receive a cash payment of $11,000,000 to be made by our insurance carrier and warrants issued by us having an aggregate fair value of $11,500,000. GAIN ON SALE OF SUBSIDIARY STOCK. In July 2000, MDA completed an initial public offering on the Toronto Stock Exchange of 6,600,000 shares of common stock (including shares issued pursuant to the underwriters' overallotment option), raising gross proceeds of approximately $37,500,000 for itself, $18,800,000 for Orbital and $5,600,000 for other selling shareholders. We recorded a $30,724,000 gain on the sale of such stock in the third quarter 2000. PROVISION FOR INCOME TAXES. We recorded an income tax provision of $11,139,000 and $2,282,000 for the three month periods ended September 30, 2000 and 1999, respectively, and $14,200,000 and $5,610,000 for the nine month periods ended September 30, 2000 and 1999, respectively. The provision in the three and nine month periods ended September 30, 2000 included an expense of $9,886,000 to fully reserve our U. S. deferred tax assets. Due to the pretax losses for the first nine months of 2000, it was determined that a full valuation allowance should be recorded against the deferred tax asset. The remaining provision in 2000 and the provision in 1999 was due to foreign taxes attributable to our Canadian operations. Our interim income tax provision is based on an estimate of our full-year provision. Estimated provisions 24 25 recorded during interim periods may be periodically revised, if necessary, to reflect current estimates. NET LOSS. Our consolidated net loss for the three months ended September 30, 2000 and 1999 was $121,322,000 and $39,566,000, respectively, and $189,976,000 and $91,800,000 for the nine months ended September 30, 2000 and 1999, respectively. ENTERPRISE REVENUE. Enterprise revenue was $222,676,000 and $239,888,000 for the three months ended September 30, 2000 and 1999, respectively, and $699,769,000 and $689,163,000 for the nine months ended September 30, 2000 and 1999, respectively. Enterprise revenue consists of Orbital's consolidated revenues and 100% of the revenues of Orbital's unconsolidated affiliates, NavSol, ORBCOMM and ORBIMAGE. EBITDA. The following table sets forth earnings before interest, taxes, depreciation, amortization, and equity in earnings (losses) of affiliates ("EBITDA") on a consolidated basis and for our business sectors.
Three Months Ended September 30, ------------------------------------------------------------------------ (In thousands) 2000 (1) 1999 -------------- ---- ---- Space and Ground Infrastructure Systems $(63,750) $11,700 Satellite Access Products (3,373) 1,651 Satellite Services 958 852 --------- ------- CONSOLIDATED $(66,165) $14,203 ========== =======
(1) Includes the ORBCOMM write-off in the third quarter of 2000. EBITDA is provided because it is a measure often used in the industry. EBITDA should not be considered as an alternative to operating or net income (as determined in accordance with generally accepted accounting principles), as indicative of performance, as an alternative to cash flow from operations (as determined in accordance with generally accepted accounting principles), or as a measure of liquidity. BACKLOG. Orbital's contract backlog is primarily attributable to its space and ground infrastructure business. Our firm backlog at September 30, 2000, was $1,338,000,000. Firm backlog consists of aggregate contract values for firm product orders, excluding the portion previously included in operating revenues on the basis of percentage of completion accounting, and including government contract orders not yet funded. Total backlog was $4,498,000,000 at September 30, 2000. Total backlog includes firm backlog in addition to unexercised options, undefinitized orders, certain outstanding bids, indefinite quantity contracts, and the projected revenue stream related to an exclusive government license. In addition to the ordinary course fluctuations in backlog due to revenue recognition and changes and cancellations of orders, firm backlog decreased from the second quarter of 2000 primarily as a result of the ORBCOMM writeoff, the reclassification of certain e-commerce backlog into option backlog and certain other adjustments. Firm and total backlog at September 30, 2000 included approximately 25 26 $125,000,000 and $140,000,000, respectively, attributable to the Fairchild Defense unit that was sold in October 2000. Firm and total backlog at September 30, 2000 does not give effect to new orders received since that date or the termination for convenience of an approximately $260,000,000 contract that occurred after the end of the quarter. LIQUIDITY AND CAPITAL RESOURCES Historically, our growth has required substantial capital to fund investments in and advances to affiliates, business acquisitions, expanding working capital needs, new business initiatives, research and development and capital expenditures. Our liquidity has been, and continues to be, constrained because we have been unable to access capital markets due to uncertainty surrounding the restatement of our financial results and our and our affiliates' financial prospects. During 2000, we have funded our capital requirements for operations through cash from operations combined with cash on hand and the proceeds from the disposition of certain of our MDA shares and the Fairchild Defense electronics division. We anticipate that in 2001 cash flow from operations will be insufficient to cover our capital requirements, operating requirements and debt service, including our obligation to reduce the outstanding balance of our primary credit facility as described below. To meet our capital and operating requirements, management's plans include additional sales of certain assets, the possibility of raising additional equity and/or debt capital, restructuring business operations and refinancing our credit facility. Management expects that such plans will generate sufficient additional liquidity to satisfy our required obligations; however, no assurance can be given that we will be successful in achieving such plans. Cash and investments were $78,400,000 and total debt obligations were $367,389,000 at September 30, 2000. Orbital's outstanding debt at September 30, 2000 included our $100,000,000 convertible 5% subordinated notes due in 2002, advances under several credit facilities, including our $157,000,000 primary credit facility and MDA's $126,000,000 facility that is non-recourse to us, secured and unsecured notes, and asset-based financings. Cash and investments at September 30, 2000 included approximately $17,410,000 restricted to support bank covenants and outstanding letters of credit. Our current ratio was 75% at September 30, 2000 as compared to 92% at December 31, 1999. Our ratio of total debt less cash and investments to total debt plus total stockholders' equity was approximately 58% at September 30, 2000 as compared to 38% at December 31, 1999. Our primary credit facility provided for total borrowings from an international syndicate of banks of up to $157,000,000, all of which was drawn and outstanding as of September 30, 2000, at a weighted average interest rate of 10.5%. These borrowings are collateralized by accounts receivable, intellectual property and certain other assets, including the stock of our wholly owned subsidiaries, which includes MDA Holdings Corporation, the holder of all shares of MDA that we beneficially own. The facility prohibits the payment of cash dividends, contains certain covenants with respect to our working capital levels, fixed charges ratio, leverage ratio and net worth, and expires in December 2002. Our bank group requires us to pay down the outstanding balance of our credit facility with 55% of the net cash proceeds that we receive from any equity offering, asset sale or debt issuance by 26 27 us or our domestic wholly owned subsidiaries. As a result, we paid down $8,000,000 with proceeds from the sale of our MDA shares in the third quarter. In October, we paid down $46,000,000 with proceeds from the sale of our Fairchild Defense electronics division. These payments satisfied a requirement to reduce the total balance of the facility to $125,000,000 by December 31, 2000, and the outstanding balance of the credit facility was $111,000,000 as of November 1, 2000. We have until July 1, 2001 to reduce the outstanding balance of the credit facility to $85,000,000. We now have the ability to borrow up to $4,000,000 under the credit facility. We amended this facility several times this year to waive noncompliance with certain financial covenants and to amend other covenants, including net worth, leverage (including senior leverage), fixed charges, capital expenditures, and subsidiary debt. Our most recent amendment in November 2000 permitted MDA's acquisition of ATI and adjusted financial ratios to take into account the effect of our non-cash charges related to ORBCOMM. In June 2000, we made a scheduled payment of principal on the 12% note payable reducing the outstanding balance from $13,333,000 to approximately $6,666,000. At that time, we agreed that if we did not prepay the remaining principal amount, which matures June 2001, on or prior to October 31, 2000, the interest rate on the balance of the note would be retroactively increased to 13% for the period June 1 through August 31, 2000 and to 14% from September 1, 2000 until it is repaid. We did not prepay the balance in October 2000, and our waiver of noncompliance of covenants under that note expires on December 31, 2000. Rather than extend or renegotiate the waiver, the noteholder may require us to prepay the note at that time. In October 2000, we sold our Fairchild Defense electronics business unit for approximately $100,000,000. In addition to paying down $46,000,000 on our primary credit facility as described above, we also repaid approximately $15,000,000 of debt that had been secured by assets of the Fairchild Defense unit. The balance will be used to fund general operations. We invested approximately $30,016,000 in capital expenditures for various satellites, launch vehicle and other infrastructure production, manufacturing and test equipment, buildings and leasehold improvements and office equipment in the nine months ended September 30, 2000. Our operations provided net cash of $32,815,000 during the nine months ended September 30, 2000. During the second quarter of 2000, we agreed to advance in January 2001, $20,000,000 to ORBIMAGE from amounts previously paid by ORBIMAGE under its procurement agreement with us, provided, however, that such obligation is terminated if Orbital successfully brokers a renegotiation of ORBIMAGE's license agreement for RadarSat-2 satellite distribution rights with the company's MDA subsidiary to, among other things, eliminate ORBIMAGE's future Radarsat-2 payments to MDA. A preliminary agreement between ORBIMAGE and MDA has been reached. There can be no assurances, however, that the final terms of such agreement will satisfy all the conditions necessary to relieve us of our obligations with respect to the advance. ORBIMAGE management currently estimates that ORBIMAGE has sufficient resources to meet its capital and operating requirements through January 2001. ORBIMAGE is seeking additional capital from third parties as well as its existing shareholders. There can be no assurance that such capital will be available on a timely basis or at all. As a result of ORBIMAGE's current financial 27 28 condition, Orbital ceased recognizing revenues on the ORBIMAGE system procurement contract during the third quarter of 2000. In July 2000, MDA completed an initial public offering on the Toronto Stock Exchange of 6,600,000 shares of common stock (including shares issued pursuant to the underwriters' overallotment option), raising gross proceeds of approximately $37,500,000 for itself, $18,800,000 for us and $5,600,000 for other selling shareholders. Also, as a result of the public offering, our ownership interest in MDA has declined to approximately 52%. MDA has a credit facility with a syndicate of six banks, which is non-recourse to us. The facility provides for total availability of approximately $126,000,000 (of which approximately $37,256,000 was outstanding at September 30, 2000) and includes certain operational and financial covenants including certain restrictions on the payment of dividends. The total available amount includes a program-specific letter of credit facility of $33,178,000. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company does not have any material exposure to interest rate changes, commodity price changes, foreign currency fluctuation, or similar market risks, although we do enter into forward exchange contracts to hedge against specific foreign currency fluctuations, principally with respect to the Canadian dollar and Japanese yen. At September 30, 2000, the majority of the company's long-term debt consisted of its $100,000,000 5% convertible subordinated notes, due 2002. The fair market value of these convertible securities fluctuates with the company's stock price, and was $57,000,000 at September 30, 2000. 28 29 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In July 1999, a class action complaint was filed on behalf of a class comprised of purchasers and lessees of a high precision GPS product manufactured by Magellan (as a successor to Ashtech Inc.) against Sokkia Corporation and certain of its affiliates, Magellan and others in the Circuit Court of Henry County, Alabama. The complaint alleged breach of contract and warranty claims and seeks unspecified compensatory and punitive damages. In October 2000, the case was dismissed pursuant to a summary judgment motion. In addition, the company and its subsidiaries are parties to certain other litigation or proceedings arising in the ordinary course of business. In the opinion of management, the probability is remote that the outcome of any such litigation or other proceedings would have a material adverse effect on our results of operations or financial positions. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES In August 2000, ORBCOMM Global L.P. ("ORBCOMM") defaulted on its $170,000,000 14% senior notes due 2004. Orbital Communications Corporation, a wholly owned subsidiary of Orbital, is a guarantor on the senior notes. The guarantee is non-recourse to Orbital. In September 2000, ORBCOMM commenced a reorganization proceeding under Chapter 11 of the U.S. Federal Bankruptcy Code. 29 30 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) Reports on Form 8-K. Not applicable. 30 31 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: November 14, 2000 By: /s/ David W. Thompson ----------------------------------- David W. Thompson Chief Executive Officer DATED: November 14, 2000 By: /s/ Garrett E. Pierce ----------------------------------- Garrett E. Pierce Executive Vice President, Chief Financial Officer 31 32 EXHIBIT INDEX The following exhibit is filed as part of this report.
Exhibit No. Description - ----------- ----------- 2 Asset Sale and Purchase Agreement dated as of September 26, 2000 by and between Orbital Sciences Corporation, Sijag Acquisitions, Inc., a subsidiary of Smiths Industries Aerospace & Defense Systems Inc. and Smiths Industries Aerospace & Defense Systems Inc. (transmitted herewith). 10.1 Amendment No. 12 dated as of November 1, 2000 to Third Amended and Restated Credit and Reimbursement Agreement by and between Orbital Sciences Corporation and Morgan Guaranty Trust Company of New York (transmitted herewith). 10.2 Severance Agreement dated as of August 2, 2000 by and between Orbital Sciences Corporation and Jeffrey V. Pirone (transmitted herewith). 10.3 Executive Employment Agreement dated as of August 9, 2000 by and between Orbital Sciences Corporation and Garrett E. Pierce (transmitted herewith). 10.4 Executive Employment Change of Control Agreement dated as of August 9, 2000 by and between Orbital Sciences Corporation and Garrett E. Pierce (transmitted herewith). 10.5 Performance Share Agreement dated as of August 9, 2000 by and between Orbital Sciences Corporation and Garrett E. Pierce (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).
32 EX-2 2 w42187ex2.txt ASSET SALE & PURCHASE AGREEMENT 1 EXECUTION COPY ASSET SALE AND PURCHASE AGREEMENT BY AND BETWEEN ORBITAL SCIENCES CORPORATION, SIJAG ACQUISITION INC., A SUBSIDIARY OF SMITHS INDUSTRIES AEROSPACE & DEFENSE SYSTEMS INC. AND SMITHS INDUSTRIES AEROSPACE & DEFENSE SYSTEMS INC. 2 TABLE OF CONTENTS
Page ---- 1. SALE AND PURCHASE OF ASSETS; ASSUMPTION OF LIABILITIES................1 1.1. Agreement to Sell and Purchase.................................1 1.2. Purchased Assets...............................................1 1.3. Excluded Assets................................................3 1.4. Assumption of Liabilities......................................3 2. CLOSING; DELIVERIES...................................................4 2.1. Closing........................................................4 2.2. Deliveries at the Closing......................................4 3. PURCHASE PRICE........................................................5 3.1. Purchase Price.................................................5 3.2. Payment of Purchase Price......................................5 3.3. Risk of Loss...................................................5 3.4. Closing Date Working Capital Adjustment........................5 3.5. Post-Closing Adjustment........................................6 4. REPRESENTATIONS AND WARRANTIES OF SELLER..............................7 4.1. Organization...................................................7 4.2. Corporate Authority............................................7 4.3. No Conflict....................................................8 4.4. Consents.......................................................8 4.5. Financial Statements...........................................8 4.6. Taxes..........................................................9 4.7. Absence of Changes.............................................9 4.8. Litigation; Disputes..........................................10 4.9. Legal Compliance; Governmental Approvals and Consents.........11 4.10. Assets........................................................11 4.11. Seller Contracts..............................................11 4.12. Government Contracts..........................................13 4.13. Inventories...................................................14 4.14. Product Warranties............................................14 4.15. Intellectual Property.........................................14 4.16. Environmental Matters.........................................15 4.17. Employees.....................................................16 4.18. Pension and Benefit Plans.....................................16 4.19. Transactions with Related Parties.............................17 4.20. No Broker.....................................................17
- i - 3 4.21. Disclaimer....................................................18 4.22. Notes and Accounts Receivable.................................18 4.23. Insurance.....................................................18 4.24. Customers and Suppliers.......................................18 5. REPRESENTATIONS AND WARRANTIES OF BUYER..............................18 5.1. Organization..................................................18 5.2. Corporate Authority...........................................19 5.3. No Conflict...................................................19 5.4. Consents......................................................19 5.5. Litigation....................................................19 5.6. Brokers.......................................................19 5.7. Solvency......................................................20 5.8. Inspections; Limitations on Seller's Warranties...............20 5.9. Financing.....................................................20 5.10. Disclaimer....................................................20 6. COVENANTS OF SELLER PENDING CLOSING..................................20 6.1. Conduct of Business...........................................20 6.2. Forbearances..................................................21 6.3. Updates.......................................................21 7. ADDITIONAL COVENANTS AND AGREEMENTS..................................21 7.1. Access and Confidential Information...........................21 7.2. Consents; Satisfaction of Closing Conditions..................22 7.3. Assignment of Contracts and Rights............................22 7.4. Letters of Credit; Surety Bonds...............................23 7.5. Employment; Employee Benefits.................................24 7.6. Tax Returns...................................................26 7.7. Liability for Transfer Taxes..................................26 7.8. Orbital Name..................................................27 7.9. Post Closing Receipts; Cooperation............................27 7.10. Books and Records.............................................28 7.11. Noncompetition................................................28 8. MUTUAL CONDITIONS PRECEDENT TO OBLIGATIONS TO CLOSE..................29 8.1. Absence of Litigation.........................................29 8.2. Statutory Requirements........................................29 9. CONDITIONS TO BUYER'S OBLIGATION TO CLOSE............................29 9.1. Representations and Warranties................................29 9.2. Performance...................................................29 9.3. Seller Consents...............................................29 9.4. No Material Adverse Effect....................................29 9.5. Sublease......................................................30
- ii - 4 9.6. Services Agreement and Manufacturing Agreement................30 9.7. Assignment and Assumption of Leases...........................30 9.8. Seller's Closing Documents....................................30 10. CONDITIONS TO SELLER'S OBLIGATIONS TO CLOSE..........................30 10.1. Representations and Warranties................................30 10.2. Performance...................................................31 10.3. Sublease......................................................31 10.4. Services Agreement and Manufacturing Agreement................31 10.5. Assignment and Assumption of Leases...........................31 10.6. Buyer's Closing Documents.....................................31 11. ACTION TO BE TAKEN AT CLOSING........................................31 11.1. Action to be Taken by Seller..................................31 11.2. Action to be Taken by Buyer...................................32 11.3. Payment of Purchase Price.....................................32 11.4. Effective Time................................................32 12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES...........................32 13. INDEMNIFICATION......................................................33 13.1. Indemnification of Buyer......................................33 13.2. Indemnification of Seller.....................................33 13.3. Matters Involving Third Parties...............................34 13.4. Limitation of Liability.......................................34 13.5. Exclusive Remedy..............................................35 13.6. Treatment of Indemnification Payments.........................35 14. TERMINATION..........................................................35 14.1. Termination...................................................35 14.2. Effect of Termination.........................................36 15. MISCELLANEOUS........................................................36 15.1. Certain Definitions...........................................36 15.2. Written Agreement to Govern...................................43 15.3. Severability..................................................43 15.4. Notices and Other Communications..............................43 15.5. Counterparts..................................................44 15.6. Law to Govern.................................................44 15.7. Successors and Assigns........................................44 15.8. Interpretation................................................44 15.9. Schedules and Exhibits........................................45 15.10. Publicity.....................................................45 15.11. Modification..................................................45 15.12. Waiver of Provisions..........................................45 15.13. Expenses......................................................45 15.14. Further Assurances............................................45 15.15. Bulk Transfer Laws............................................46 15.16. Parent Guarantee..............................................46
- iii - 5 SCHEDULES AND EXHIBITS SCHEDULE 1.2(a) Tangible Property SCHEDULE 1.2(d) Real Property SCHEDULE 1.2(h) Software SCHEDULE 1.2(i) Licenses SCHEDULE 1.3(d) Excluded Software and Intellectual Property SCHEDULE 1.3(f) Excluded Seller Contracts SCHEDULE 1.3(i) Miscellaneous Excluded Assets SCHEDULE 1.4 Intercompany Accounts Payable SCHEDULE 4.3 Conflicting Agreements SCHEDULE 4.4 Consents SCHEDULE 4.5 Financial Statements SCHEDULE 4.6(a) Contested Taxes SCHEDULE 4.6(c) Taxes Under Audit SCHEDULE 4.7 Absence of Changes SCHEDULE 4.8 Litigation SCHEDULE 4.9(b) Governmental Approvals SCHEDULE 4.10(a) Assets - Title SCHEDULE 4.10(b) Assets - Operation of Business SCHEDULE 4.10(c) Assets - Condition SCHEDULE 4.11(a) Seller Contracts SCHEDULE 4.11(b) Pending Seller Contracts SCHEDULE 4.12(a) Government Contracts SCHEDULE 4.12(b) Pending Government Contracts SCHEDULE 4.12(e) Claims SCHEDULE 4.12(f) Loss Bids SCHEDULE 4.14 Product Warranties SCHEDULE 4.15(a) Intellectual Property SCHEDULE 4.15(b) Intellectual Property Consents SCHEDULE 4.15(c) Intellectual Property Claims SCHEDULE 4.16 Environmental Matters SCHEDULE 4.17(a) Existing Employees SCHEDULE 4.18(a) Plans and Other Arrangements SCHEDULE 4.19 Transactions with Related Parties SCHEDULE 4.23 Insurance Policies SCHEDULE 7.4 Letters of Credit and Surety Bonds SCHEDULE 7.5(f) Retention Plans EXHIBIT A Form of Assumption Agreement EXHIBIT B Form of Bill of Sale EXHIBIT C Form of Sublease EXHIBIT D Form of Services Agreement EXHIBIT E Form of Assignment and Assumption of Lease EXHIBIT F Form of Manufacturing Agreement
- iv - 6 ASSET SALE AND PURCHASE AGREEMENT THIS ASSET SALE AND PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of this 26th day of September, 2000 by and between ORBITAL SCIENCES CORPORATION, a Delaware corporation ("ORBITAL" or "SELLER"), SIJAG ACQUISITION INC., a Delaware corporation ("BUYER") and wholly owned subsidiary of Smiths Industries Aerospace & Defense Systems Inc., and SMITHS INDUSTRIES AEROSPACE & DEFENSE SYSTEMS INC. ("PARENT"). RECITALS WHEREAS, Seller, among other things, conducts a business through its Fairchild Defense division pursuant to which it designs, produces and integrates sophisticated electronics, avionics and mission management systems in Germantown, Maryland for use in military aircraft, helicopters and land vehicles (the "DIVISION"); WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, all of the properties, assets, business operations, liabilities and goodwill of Seller used in the Division, except for the Excluded Assets and Excluded Liabilities (as defined in SECTIONS 1.3 and 1.4, respectively) (the "BUSINESS"); and WHEREAS, defined terms used in this Agreement have the meanings ascribed to them by definition in SECTION 15.1, except as otherwise expressly provided. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. SALE AND PURCHASE OF ASSETS; ASSUMPTION OF LIABILITIES 1.1. AGREEMENT TO SELL AND PURCHASE. Subject to the terms and conditions hereof and in reliance upon the representations, warranties, covenants and agreements contained herein, at the Closing, Seller shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase from Seller, the Purchased Assets. 1.2. PURCHASED ASSETS. For purposes of this Agreement, "PURCHASED ASSETS" means all right, title, benefit and interest of Seller, relating primarily to the Division, to the extent set forth below, subject to SECTION 1.3, wherever situated and as the same exists on the Closing Date (as defined in ARTICLE 2), including, without limitation: (a) all the furniture, fixtures, furnishings, machinery, computers, equipment (mobile or otherwise), inventory, office materials and other tangible property of every kind and description used primarily in the Business, including, without limitation, those described in SCHEDULE 1.2(a); (b) (i) all Contracts relating primarily to the Business, including, without limitation, those described in SCHEDULES 4.11(a) and 4.12(a); 7 (ii) all accounts receivable, notes receivable, prepaid expenses, and deposits from customers of the Business, all purchase orders placed by customers for services or products of the Business to the extent the same remain unfulfilled on the Closing Date and all orders for materials and supplies which were placed by Seller for the Business with suppliers and which remain unfulfilled on the Closing Date; (iii) Seller's rights under all pending written bids for all contracts relating primarily to the Business, including, without limitation, those described in SCHEDULE 4.11(a) (collectively, "BIDS"); (c) all know-how, formulas, technical information, engineering and technical data, trade secrets, working knowledge, unpatented inventions, research and development data, designs, techniques, technologies and procedures used primarily in the Business (the "KNOW-HOW") and all Seller's rights under Contracts with any present or past employees, independent contractors or consultants with respect to (i) the non-disclosure of Know-How, or (ii) the assignment to Seller of such Person's rights to any Know-How; (d) all the real property used in the Business, including the Fairchild Leases, leaseholds, leases, subleases, easements and other interests of every kind and description in real property, buildings, structures, fixtures, appurtenances (including appurtenant rights in and to all streets, roads and public places, open or proposed), towers and antennae, and other improvements thereon, as set forth in SCHEDULE 1.2(d) (collectively, the "REAL PROPERTY"); (e) all rights and claims of Seller related primarily to the Business, whether known or unknown, absolute or contingent, matured or unmatured, or otherwise, against third parties, whether in tort, contract, or otherwise, including, without limitation, causes of action, unliquidated rights and claims under or pursuant to all warranties, representations and guarantees made by manufacturers, suppliers or vendors; (f) to the maximum extent permitted by Applicable Law, permits, approvals, orders, authorizations, consents, licenses, certificates, franchises, exemptions of, or filings or registrations with, any Governmental Authority in any jurisdiction, which have been issued or granted to or are owned or used by Seller primarily in connection with the Business and all pending applications therefor as described in SCHEDULE 4.9(b); (g) goodwill and going concern value and all client and supplier lists related primarily to the Business; (h) all computer software, other than COTS, used primarily in connection with the Business, wherever situated and as the same exists on the Closing Date, including the computer software described and set forth in SCHEDULE 1.2(h), including all databases, software codes (both source and object), functional and design documentation, maintenance documentation, all programmers' notes with respect thereto, all automated test software code, and all training manuals and other information relating thereto and all licenses of computer software held by Seller, including without limitation, those described and set forth in SCHEDULE 1.2(h) (the "SOFTWARE"); and (i) all Intellectual Property relating primarily to the Business, including, without limitation, all rights of Seller to the Fairchild Defense name and all Intellectual Property described in - 2 - 8 SCHEDULE 4.15(a), subject to rights held by the U.S. Government and any other third parties that have been licensed by Seller prior to the Closing Date. 1.3. EXCLUDED ASSETS. Notwithstanding SECTION 1.2 or anything to the contrary in this Agreement, the following assets of Seller related to the Division (collectively, the "EXCLUDED ASSETS") shall be excluded from the definition of Purchased Assets and retained by Seller to the extent in existence at 12:01 a.m. (Eastern Standard Time) on the Closing Date: (a) all claims for refunds of any Taxes for all periods ending on or prior to the Closing Date; (b) the articles of incorporation, by-laws, minute books, stock transfer records and other corporate records of Seller; (c) all insurance policies and any unearned premiums thereunder or other rights to refunds thereunder; (d) all Orbital Name Rights (as defined in SECTION 7.8) and the computer software and Intellectual Property set forth on SCHEDULE 1.3(d); (e) all COTS; (f) the Seller Contracts and Government Contracts (or portions thereof) set forth on SCHEDULE 1.3(f); (g) cash, cash equivalents and marketable securities; (h) all books, records, accounts, checks, payment records, personnel files, Tax records (including payroll, unemployment, real estate and other Tax records) and other similar books, records and information of Seller; and (i) the assets set forth on SCHEDULE 1.3(i). 1.4. ASSUMPTION OF LIABILITIES. (a) Subject to the terms and conditions set forth herein, at the Closing, Buyer shall assume and shall agree to pay, honor and discharge when due those liabilities relating to the Division and existing at or arising on or after 12:01 a.m. (Eastern Standard Time) on the Closing Date set forth below (collectively, the "ASSUMED LIABILITIES"): (i) any and all liabilities, obligations and commitments relating to the Business or the Purchased Assets that are (i) reflected on the Interim Balance Sheet or (ii) incurred after the Interim Balance Sheet Date (as defined in SECTION 4.5) in the ordinary course of business, consistent with past practice and in accordance with the terms of this Agreement; - 3 - 9 (ii) any and all liabilities, obligations and commitments arising out of the Fairchild Leases, the Sublease, Seller Contracts and Government Contracts included as part of the Purchased Assets; and (iii) liabilities for Transferred Employees to the extent accrued on the Financial Statements or specifically assumed by Buyer pursuant to SECTION 7.5, including, without limitation, retention bonuses for senior management in the amount of $726,846. The Assumed Liabilities shall be assumed at the Closing by Buyer's execution and delivery of a document of assumption in the form attached hereto as EXHIBIT A. (b) Except as specifically provided in this SECTION 1.4, Buyer shall not assume or be responsible for any liabilities or obligations of Seller, including, without limitation, any liability or obligation (A) for Taxes relating to, arising out of, occurring, or with respect to any period on or prior to the Closing Date, (B) relating to employees or employee benefit plans except to the extent accrued on the Financial Statements or specifically assumed by Buyer pursuant hereto, (C) for intercompany accounts payable which do not represent trade accounts payable and are set forth on SCHEDULE 1.4, (D) whether known or unknown, arising out of or relating to any Hazardous Substance, any violation of any Environmental Law or any Environmental Permit or any other environmental matter, in each case, to the extent existing prior to the Closing, except with respect to the Fairchild Leases, (E) for any of the matters required by SECTION 4.8 to be disclosed on SCHEDULE 4.8, except that Buyer shall have the benefit of any settlement with respect to the matter described on such schedule involving Lemelson Medical, Education & Research Foundation, Limited Partnership and (F) for any indebtedness related to the Business other than trade indebtedness incurred in the ordinary course of business and the long term capital lease obligations described on the Interim Balance Sheet (collectively, the "EXCLUDED LIABILITIES"). 2. CLOSING; DELIVERIES 2.1. CLOSING. The consummation of the transactions contemplated in ARTICLE 1 (the "CLOSING") shall take place at 10:00 a.m. on the date three business days following the satisfaction or waiver of the conditions set forth in ARTICLE 8, ARTICLE 9, ARTICLE 10 and ARTICLE 11 (or at such other time and date as the parties hereafter agree in writing) (the "CLOSING DATE"). The parties hereto shall use commercially reasonable efforts to cause the Closing Date to occur not later than the close of business on October 30, 2000. The Closing shall be effective as of 12:01 a.m. on the Closing Date. 2.2. DELIVERIES AT THE CLOSING. At the Closing, (i) Seller will deliver to Buyer the various certificates, instruments, and documents referred to in SECTION 11.1, (ii) Buyer will deliver to Seller the various certificates, instruments, and documents referred to in SECTION 11.2, and (iii) Buyer will deliver to Seller the consideration specified in SECTION 3.1 in accordance with SECTION 3.2. - 4 - 10 3. PURCHASE PRICE 3.1. PURCHASE PRICE. For and in consideration of the conveyances and assignments described herein and in addition to the assumption of Assumed Liabilities as provided in SECTION 1.4 hereof, Buyer agrees to pay to Seller, and Seller agrees to accept from Buyer, an aggregate cash purchase price equal to One Hundred Million U.S. Dollars (U.S. $100,000,000) (as such purchase price may be adjusted pursuant to SECTIONS 3.3, 3.4 and/or 3.5 the "PURCHASE PRICE"). 3.2. PAYMENT OF PURCHASE PRICE. Buyer agrees to pay to Seller the Purchase Price by bank draft, certified check or by wire transfer or delivery of immediately available U.S. funds to a bank account designated by Seller at the Closing; provided, however, that Buyer shall retain $2,000,000 of the Purchase Price (the "RETENTION") until a final determination of the Final Net Working Capital Amount. Seller agrees to provide to Buyer wire transfer instructions for payment of the Purchase Price not less than five (5) business days prior to the Closing Date. 3.3. RISK OF LOSS. The risk of loss or damage by fire or other casualty or cause to the Purchased Assets or the Business until the Closing Date shall be upon Seller. In the event of such loss or damage prior to the Closing Date, Seller shall promptly give Buyer notice thereof and Buyer will have the option: (a) to reduce the Purchase Price by an amount equal to the cost of repair or, if appropriated, expropriated, seized, destroyed or damaged beyond repair, by an amount equal to the replacement cost of such assets and to complete the purchase, in which event, Seller shall be entitled to all proceeds of insurance and all proceeds and claims relating to the applicable event; (b) to reduce the Purchase Price by an amount equal to the deductible amounts of the relevant insurance policies and to complete the purchase, in which event, all proceeds of insurance paid to Seller and all right and claims of Seller to any such amounts not paid by the Closing Date shall be assigned to Buyer; or (c) to terminate the Agreement if there is a Material Adverse Effect on the Business. 3.4. CLOSING DATE WORKING CAPITAL ADJUSTMENT. No later than five business days prior to the Closing Date, Seller shall deliver to Buyer a good faith estimate of the Net Working Capital of the Business as of the Closing Date (the "ESTIMATED NET WORKING CAPITAL AMOUNT"), together with documentation to support the numbers proposed. In the event that the Estimated Net Working Capital Amount exceeds, or is less than, the Target Working Capital, then the Purchase Price payable on the Closing Date shall be increased or reduced, as applicable, by the amount the Estimated Net Working Capital Amount exceeds or is less than the Target Working Capital. - 5 - 11 3.5. POST-CLOSING ADJUSTMENT. (a) Within ninety (90) days after the Closing Date, Seller will prepare (with the assistance of its independent certified public accountants if Seller so elects ("SELLER'S AUDITORS")) and present to Buyer a calculation of the Net Working Capital of the Business as of the Closing Date (the "PROPOSED NET WORKING CAPITAL AMOUNT"), which shall be prepared consistent with the Target Working Capital so that it presents fairly the Net Working Capital of the Business as of the Closing Date using accounting methods, practices and procedures as used in the preparation of the Target Working Capital. Buyer and, if Buyer elects, a firm of independent certified public accountants selected by Buyer (the "BUYER'S AUDITORS"), shall be given, together with the Proposed Net Working Capital Amount, the workpapers and access to the books, records and personnel of Seller and, if applicable, Seller's Auditors (the "WORKPAPERS"), utilized in preparing the Proposed Net Working Capital Amount for purposes of verifying the accuracy thereof. The Proposed Net Working Capital Amount shall be binding upon the parties to this Agreement unless Buyer gives written notice of disagreement with any of the values or amounts contained therein to Seller within thirty (30) days after its receipt of the Proposed Net Working Capital Amount and the Workpapers specifying in reasonable detail the nature and extent of such disagreement. If Seller and Buyer mutually agree upon the Proposed Net Working Capital Amount within thirty (30) days after Buyer's delivery of such notice of disagreement, such agreement shall be binding upon the parties hereto for purposes of this Agreement. If Seller and Buyer are unable to resolve any such disagreement within such period, the disagreement shall be referred for final determination to Ernst & Young L.L.P. (the "FIRST CHOICE") or, if such firm is not available, such other independent accounting firm of national reputation selected by the mutual agreement of Seller and Buyer (the "SELECTED FIRM") and the resolution of the disagreement by the First Choice or the Selected Firm, as the case may be, shall be final and binding upon the parties hereto for purposes of this Agreement. If Seller and Buyer cannot agree on the Selected Firm, it shall be chosen by the First Choice and shall be a nationally recognized firm other than any accounting firm that has audited or been engaged to audit the financial statements of Buyer or Seller within the two years preceding the date of this Agreement. The Proposed Net Working Capital Amount as finally determined is referred to herein as the "FINAL NET WORKING CAPITAL AMOUNT." The fees and disbursements, if any, of Buyer's Auditors incurred in the preparation of the Proposed Net Working Capital Calculation shall be paid by Buyer. Seller shall pay the fees and disbursements, if any, of the Seller's Auditors. The fees and disbursements, if any, of the First Choice or the Selected Firm, as the case may be, shall be paid by Buyer and Seller, as the First Choice or the Selected Firm, as the case may be, shall determine based upon its assessment of the relative merits of the positions taken by each in any disagreement presented to such firm. (b) In the event the Final Net Working Capital Amount exceeds the Estimated Working Capital Amount by more than $250,000, then within five (5) business days after the final determination of the Final Net Working Capital Amount, Buyer shall pay to Seller the difference between the Final Net Working Capital Amount and the Estimated Net Working Capital Amount plus the Retention (together with interest thereon at a rate of interest of three-month LIBOR as in effect on the Closing Date from the Closing Date until the date of such reimbursement) in immediately available funds by wire transfer to a bank account designated in writing by Seller prior to the due date thereof. (c) In the event the Estimated Net Working Capital Amount exceeds the Final Net Working Capital Amount by more than $250,000, then within five (5) business days after the final determination of the Final Net Working Capital Amount, (i) Seller shall pay to Buyer the difference between the Estimated Working Capital Amount and the Final Net Working Capital Amount and (ii) Buyer shall pay to Seller the Retention (in the case of clauses (i) and (ii) above, together with interest thereon at a rate of interest of three-month LIBOR as in effect on the Closing Date from the Closing Date - 6 - 12 until the date of such reimbursement), in immediately available funds by wire transfer to a bank account designated in writing by Buyer prior to the due date thereof. 3.6. PURCHASE PRICE ALLOCATION. (a) Buyer and Seller shall agree upon an allocation of the Purchase Price among the Purchased Assets consistent with Section 1060 of the Code and the Treasury Regulations thereunder within 30 days after the Closing Date. If Buyer and Seller cannot agree on any such allocation, such dispute shall be resolved in accordance with SECTION 3.5(b). The allocation required by this SECTION 3.6 shall be revised based on any adjustment to the Purchase Price pursuant to SECTION 3.6 within ten days after the final determination of the Final Net Working Capital Amount. Each of Buyer and Seller agrees to file Form 8594 as required by Section 1060 of the Code, and all federal, state, local and foreign Tax Returns, in accordance with any such agreed allocation as adjusted as provided herein. Each of Buyer and Seller shall report the transactions contemplated by this Agreement for federal Tax and all other Tax purposes in a manner consistent with any such allocation determined pursuant to this SECTION 3.6. Each of Buyer and Seller agrees to provide the other promptly with any information required to complete the Form 8594. Buyer and Seller shall notify and provide the other with reasonable assistance in the event of an examination, audit or other proceeding regarding any allocation of the Purchase Price determined pursuant to this SECTION 3.6. Buyer and Seller shall not take any position in any Tax Return, Tax proceeding or audit that is inconsistent with such allocation. (b) In the event that a dispute arises between Seller and Buyer as to any allocation of Purchase Price under SECTION 3.6(a), Buyer and Seller shall attempt in good faith to resolve such dispute. If such dispute is not resolved within 30 days thereafter, Buyer and Seller shall submit the dispute to the First Choice or the Selected Firm, as the case may be, for resolution with each party presenting its position, which resolution shall be final, conclusive and binding on Buyer and Seller. Notwithstanding anything in this Agreement to the contrary, the fees and expenses of the First Choice or the Selected Firm, as the case may be, in resolving the dispute shall be borne equally by Buyer and Seller. 4. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer, on the date hereof and on the Closing Date, as follows: 4.1. ORGANIZATION. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Seller has all necessary corporate power and authority to own its properties and to carry on its business and to enter into and perform its obligations under this Agreement, the other Seller Documents and the transactions contemplated hereby and thereby. 4.2. CORPORATE AUTHORITY. The execution, delivery and performance by Seller of this Agreement and the other Seller Documents and the consummation by Seller of the transactions contemplated hereby and thereby have been or will be duly authorized by all requisite corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller and constitutes, and upon execution and - 7 - 13 delivery of each of the other Seller Documents, such other Seller Documents will constitute, the legal, valid and binding obligation of Seller enforceable in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and subject to general principles of equity. 4.3. NO CONFLICT. Except as set forth in SCHEDULE 4.3, neither the execution and delivery by Seller of this Agreement or the other Seller Documents nor the consummation of the transactions contemplated hereby or thereby will (a) conflict with, result in a breach of any of the provisions of, or constitute a default under, the Certificate of Incorporation or by-laws of Seller as amended to date, or (b) result in a breach of any of the provisions of, or constitute a default under any Contract to which Seller or any of the Purchased Assets is bound, which individually or in the aggregate would cause a Material Adverse Effect, (c) result in the violation of any Applicable Law to which Seller or any of the Purchased Assets is subject, or (d) result in or require the creation or imposition of or result in the acceleration of any material indebtedness or of any Lien of any nature upon, or with respect to, any of the Purchased Assets. 4.4. CONSENTS. Except as disclosed in SCHEDULE 4.3 or SCHEDULE 4.4, no consent, approval or authorization of, or declaration or filing with, any Governmental Authority is required in connection with the execution, delivery or performance of this Agreement or the other Seller Documents by Seller. Except as disclosed in SCHEDULE 4.3 or SCHEDULE 4.4, no approval, consent or authorization of any customer, supplier, lender, lessor, bondholder or other person or entity is required in order for Seller to consummate the transactions contemplated hereby or by the other Seller Documents except for any such consents, approvals or authorizations the failure of which to obtain would not have a Material Adverse Effect. 4.5. FINANCIAL STATEMENTS. The (i) unaudited financial statements of the Division (including the balance sheet and statement of revenue less direct and allocated expenses before income taxes) for the fiscal year ended December 31, 1999 (the "YEAR END FINANCIAL STATEMENTS") and (ii) the unaudited balance sheet of the Division as of July 30, 2000 (the "INTERIM BALANCE SHEET") and the unaudited statement of revenue less direct and allocated expenses before income taxes for the seven-month period then ended (collectively, the "INTERIM FINANCIAL STATEMENTS") (the Year End Financial Statements and the Interim Financial Statements, being collectively referred to herein as the "FINANCIAL STATEMENTS" and the date of the Interim Balance Sheet being referred to herein as the "INTERIM BALANCE SHEET DATE"), true and complete copies of each of which are attached hereto as SCHEDULE 4.5, in each case, except as disclosed on SCHEDULE 4.5, (w) are complete and correct in all material respects, (x) have been prepared in accordance with the books and records of the Business, (y) present fairly the financial position of the Division and the results of operations before income taxes as of and for the respective dates and time periods in accordance with GAAP and allocated all costs between Seller and the Division consistent with past practice, and (z) fairly reflect the costs to complete of Contracts existing as of such dates in the aggregate. - 8 - 14 4.6. TAXES. (a) Taxes Accruing Prior to Closing. All Tax Returns relating to the Division ("COVERED RETURNS") required to be filed on or before the Closing Date have been (or will be as of the Closing Date) duly and timely filed. All Covered Returns are true and correct in all material respects. All Taxes relating to the Division for periods through the Closing Date have been (or, in the case of Taxes not yet due, will be) paid, except for any such Taxes that are currently being contested in good faith and are listed on SCHEDULE 4.6(a). All Taxes required to be withheld in connection with amounts paid or owing to any employee, independent contractor, creditor or other party with respect to the Division ("WITHHOLDING TAXES") have been withheld, and such Withholding Taxes have either been duly and timely paid to the proper Governmental Authority or set aside in accounts for such purpose, except for any such Taxes that are currently being contested in good faith and are listed on SCHEDULE 4.6(a). There are no Liens on any of the Purchased Assets that arose in connection with any failure or alleged failure to pay any Taxes. (b) Extensions and Waivers. No agreement or other document extending, or having the effect of extending, the period of assessment or collection of any Taxes due on or before the Closing Date or any Taxes relating to the Division for periods through the Closing Date which are not due until after the Closing Date ("COVERED TAXES") or Withholding Taxes, and no power of attorney with respect to any such Taxes, has been filed with the Internal Revenue Service or any other Governmental Authority. (c) Disputes and Audits. Except as set forth on SCHEDULE 4.6(c), no Covered Taxes and no Withholding Taxes are currently under audit by any Governmental Authority. Neither the Internal Revenue Service nor any other Governmental Authority is now asserting or, to the knowledge of Seller, threatening to assert against Seller any deficiency or claim for additional Covered Taxes or any adjustment of Covered Taxes that would, if paid by Buyer, have a Material Adverse Effect, and there is no reasonable basis for any such assertion. (d) Tax Agreements. The Seller is not party to any Tax allocation or sharing agreement that would affect Taxes attributable to the Division. 4.7. ABSENCE OF CHANGES. Except as set forth in SCHEDULE 4.7, since the Interim Balance Sheet Date, Seller has conducted the Business only in the ordinary course consistent with prior practice and has not, on behalf of, in connection with or relating primarily to the Business or the Purchased Assets: (a) suffered any Material Adverse Effect; (b) incurred any obligation, commitment or liability, except current liabilities for trade or business obligations incurred in connection with the purchase of goods or services in the ordinary course of business consistent with prior practice, none of which obligations, commitments or liabilities, individually or in the aggregate, has had a Material Adverse Effect; (c) discharged or satisfied any Lien other than those then required to be discharged or satisfied, or paid any obligation, commitment or liability, known or unknown, absolute or contingent, matured or unmatured, or otherwise, whether due or to become due, other than current liabilities shown on the Interim Balance Sheet and current liabilities incurred since the date thereof in the ordinary course - 9 - 15 of business consistent with prior practice or failed to pay or discharge when due any material obligation, commitment or liability; (d) mortgaged, pledged or subjected to any Lien (other than Permitted Liens), any of the Purchased Assets other than in the ordinary course of business consistent with prior practice; (e) sold, transferred, leased to others or otherwise disposed of any of the Purchased Assets, except for inventory sold in the ordinary course of business, or canceled or compromised any debt or claim relating to the Business, or waived or released any right of substantial value; (f) received any show cause notice or any notice of termination (whether by default or otherwise) of any material Contract or group of Contracts; (g) suffered any damage, destruction or loss (whether or not covered by insurance) which, individually or in the aggregate, has had a Material Adverse Effect; (h) transferred or granted any rights under, or entered into any settlement regarding the breach or infringement of, any Intellectual Property, or modified any existing rights with respect thereto, except for complying with its obligations under the Seller Contracts and the Government Contracts; (i) failed to replenish inventories and supplies in a normal and customary manner consistent with prior practice; (j) made any capital expenditure or capital addition or improvement which individually involves an amount in excess of $50,000; (k) instituted, settled or agreed to settle any litigation, action or proceeding before any Governmental Authority other than in the ordinary course of business consistent with past practice but not in any case involving amounts in excess of an aggregate of $10,000; (l) made any change in any accounting procedures or practices other than as required by GAAP or Applicable Law; or (m) taken any action or omitted to take any action that would result in the occurrence of any of the foregoing. 4.8. LITIGATION; DISPUTES. Except as set forth in SCHEDULE 4.8, there is no action, claim, demand, suit, proceeding, arbitration, grievance, citation, summons, subpoena, inquiry or investigation of any nature, civil, criminal, regulatory or otherwise, in law or in equity, pending or, to the knowledge of Seller, threatened against or relating to Seller in connection with the Purchased Assets or the Business or against or relating to the transactions contemplated by this Agreement. The Business is not operating under, subject to or in default with respect to any order, award, writ, injunction, decree or judgment of any Governmental Authority. - 10 - 16 4.9. LEGAL COMPLIANCE; GOVERNMENTAL APPROVALS AND CONSENTS. (a) Compliance with Laws. Seller has complied in all material respects with all Applicable Laws related to the Business and the Purchased Assets and Seller is not in violation of any such Applicable Law, other than bulk sales or similar laws, nor has Seller received any notice alleging any material conflict with, violation of, breach of or default under any such Applicable Law. (b) Governmental Approvals. Except as set forth in SCHEDULE 4.9(b), all material Governmental Approvals and other material consents necessary for the conduct of the Business have been duly obtained and are in full force and effect, and Seller is in compliance with each of such material Governmental Approvals and other material consents held by it with respect to the Purchased Assets and the Business. 4.10. ASSETS. (a) Title. Except as disclosed in SCHEDULE 4.10(a), Seller is the sole and exclusive legal and equitable owner of, and has good title to or a valid leasehold in, all the Purchased Assets, free and clear of any and all Liens other than Permitted Liens. On the Closing Date, Buyer will acquire good title to, or a valid leasehold interest in, as applicable, and all right, title and interest in, the Purchased Assets, free and clear of any and all Liens other than Permitted Liens. (b) Sufficiency to Conduct of Business. Except for use and occupancy services provided pursuant to the Sublease, administrative and support services provided pursuant to the Services Agreement or as disclosed on SCHEDULE 4.10(b), the Purchased Assets comprise all assets required for the conduct of the business of the Division as now being conducted by Seller. Except for use and occupancy services provided pursuant to the Sublease, administrative and support services provided pursuant to the Services Agreement or as disclosed on SCHEDULE 4.10(b), the Purchased Assets constitute all the properties and assets relating to or used or held for use in connection with the business of the Division as of the date of the Interim Financial Statements (except inventory sold, cash disposed of, accounts receivable collected, prepaid expenses realized, Contracts fully performed, properties or assets replaced by equivalent or superior properties or assets or otherwise disposed of, in each case, in the ordinary course of business). (c) Condition. The Purchased Assets are in reasonably good repair and operating condition (subject to normal wear and tear) and, to the knowledge of Seller, except as disclosed on SCHEDULE 4.10(c), there are no facts or conditions affecting the Purchased Assets, which could, individually or in the aggregate, interfere in any material respect with the use, occupancy or operation thereof as currently used, occupied or operated. 4.11. SELLER CONTRACTS. (a) Disclosure. Except for Government Contracts, SCHEDULE 4.11(a) contains a complete and correct list of all Contracts to which Seller is party as of the date of this Agreement primarily in connection with the Business of the types described below (the "SELLER CONTRACTS"): (i) leases, licenses, permits, franchises, insurance policies, Governmental Approvals and other Contracts concerning or relating to any real property used by the Business; - 11 - 17 (ii) employment, consulting, agency, collective bargaining or other similar Contracts relating to or for the benefit of current, future or former employees, officers, directors, sales representatives, distributors, dealers, agents, independent contractors or consultants, the performance of which will extend over a period of more than one year or involve consideration in excess of $50,000; (iii) loan agreements, indentures, letters of credit, mortgages, security agreements, pledge agreements, deeds of trust, bonds, notes, guarantees, and other Contracts relating to the borrowing of money or obtaining of or extension of credit, or under which it has granted a security interest on any of its assets; (iv) licenses, licensing arrangements and other Contracts providing in whole or in part for the use of, or limiting the use of, any Intellectual Property; (v) brokerage or finder's Contracts; (vi) joint venture, partnership and similar Contracts; (vii) orders and other Contracts for the purchase or sale of materials, supplies, products or services, each of which involves open commitments in excess of $10,000; (viii) Contracts with respect to which the aggregate amount that could reasonably be expected to be paid or received thereunder in the future exceeds $50,000 per annum or Contracts that are otherwise material to the Business; (ix) sales agency, manufacturer's representative, installation, maintenance, marketing or distributorship Contracts; (x) Contracts with respect to the representation of the Business in foreign countries; (xi) lease Contracts providing for the leasing of personal property primarily used in, or held for use primarily in connection with, the Business; (xii) Contracts with any employee, director, officer, stockholder or Affiliate involved in the Business; (xiii) any Contract concerning confidentiality, noncompetition or otherwise limiting the conduct of the Business; (xiv) any profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance or other plan or arrangement for the benefit of current or former directors, officers, employees or consultants; and (xv) written bids, with respect to potential Government Contracts in excess of $500,000. (b) Inspection. Seller has made available to Buyer current and complete and correct copies of all written Seller Contracts, together with all amendments thereto, except for the UAE Offset - 12 - 18 Agreement. Except as set forth on SCHEDULE 4.11(b), there are no current or pending negotiations with respect to the renewal or repudiation or cancellation of, or material amendment to, any Seller Contract. (c) Validity. All Seller Contracts are valid and binding and in full force and effect against Seller. Except as set forth on SCHEDULE 4.11(b), Seller has not, nor to Seller's knowledge has any other party, violated any provision of or committed or failed to perform any act which with notice, lapse of time or both would constitute a material default under any Seller Contract. 4.12. GOVERNMENT CONTRACTS. (a) Disclosure. SCHEDULE 4.12(a) sets forth all Contracts with Governmental Authorities of the United States and subcontracts (at any tier) under prime contracts with Governmental Authorities of the United States to which Seller is party primarily in connection with the Business and having contract value in excess of $100,000 (collectively, "GOVERNMENT CONTRACTS"). (b) Inspection. Seller has delivered to Buyer or provided to Buyer access to current and complete and correct copies of all of Government Contracts, together with all amendments thereto. Except as set forth in SCHEDULE 4.12(b), there are no current or pending negotiations with respect to the renewal or repudiation or cancellation of any Government Contract. (c) Validity; Compliance. All Government Contracts are valid and binding and in full force and effect against Seller. Except as set forth on SCHEDULE 4.12(b), Seller has not violated any provision of or committed or failed to perform any act which with notice, lapse of time or both would constitute a material default under any Government Contract. Neither Seller nor, to the knowledge of Seller, any other party, has terminated, canceled or waived any term of any such Government Contract. Seller is in compliance in all material respects with all national security obligations, including, without limitation, those specified in the National Industrial Security Program Operating Manual, DOD 5220.22-M (January 1995). (d) Federal Government Actions. Seller has not received any notice or other written communication from the federal government within the last three (3) years regarding any actual or threatened disqualification, suspension or debarment of Seller or any of its officers or principals (as defined in FAR 52.209-5) with respect to contracting with or receiving financial assistance from any Governmental Authority and, to the knowledge of Seller, no such action is threatened. (e) Claims. To the knowledge of Seller, there is no: (i) pending investigation for fraud relating to any Government Contracts; (ii) other than in the ordinary course of business, existing or proposed cost disallowance or pricing adjustment relating to any Government Contract; or (iii) except as disclosed on SCHEDULE 4.12(e), termination for default, cure notice or show cause notice currently in effect, relating to any Government Contract. (f) Bids. Except as disclosed to Buyer by written notice or as disclosed on SCHEDULE 4.11(a), Seller has not submitted any Bid in excess of $500,000 relating to the Business which remains outstanding. Except as disclosed on SCHEDULE 4.12(f), in the reasonable judgment of the senior management of Seller based upon existing facts and Seller's current standards and practices, no Bids currently outstanding are expected to be completed at a loss. - 13 - 19 (g) FAR. Seller's accounting system meets the requirements of FAR and Federal Cost Accounting Standards in all material respects. To the knowledge of Seller, there are no written reports resulting from financial contract audits or other investigations by the U.S. Government of any Government Contract (past or present) that conclude that Seller engaged in overcharging or other defective pricing practices or in other practices in violation of the FAR which, if established, could result in fines, penalties or other sanctions which would materially and adversely affect the business or financial condition of the Business. To the knowledge of Seller, there are no financial contract audits or other investigations by U.S. Government officials of any Government Contract (past or present) which are either ongoing or have been completed but the report of which has not yet been issued (and is expected to be issued) and which are expected to recommend fines, penalties or other sanctions which would materially and adversely affect the Business. (h) Assignment. Seller has not assigned or otherwise conveyed or transferred, or agreed to assign, to any Person, any Government Contracts to which it is a party, or any account receivable relating thereto, whether as a security interest or otherwise. 4.13. INVENTORIES. All inventories included in the Purchased Assets are of good, usable and merchantable quality and fit for the purpose for which they were procured or manufactured and do not include obsolete or discontinued items, subject to the reserve for residual material included in the Interim Balance Sheet. 4.14. PRODUCT WARRANTIES. Except as set forth in SCHEDULE 4.14, there are no pending or, to the knowledge of Seller, threatened claims with respect to any breach of product or service warranty extended by Seller and currently in effect with respect to the Business, and Seller is not aware of any liability with respect to any such warranty, except for claims which, individually or in the aggregate, may not reasonably be expected to have a Material Adverse Effect. 4.15. INTELLECTUAL PROPERTY. (a) Title. SCHEDULE 4.15(a) contains a complete and correct list of all registered Intellectual Property and all material unregistered Intellectual Property that is owned, licensed or used by Seller exclusively for the conduct of the Business (the "INTELLECTUAL PROPERTY ASSETS"). Except as set forth on SCHEDULE 4.15(a), Seller owns or has sufficient rights to make, sell and use all Intellectual Property Assets, free from any Liens (other than Permitted Liens). (b) Transfer. Except as set forth in SCHEDULE 4.15(b), immediately after the Closing, Buyer will own all of the Intellectual Property Assets owned by Seller and will have sufficient rights to make, sell and use the other Intellectual Property Assets, free from any Liens (other than Permitted Liens) on the same terms and conditions as in effect prior to the Closing. Except as set forth in SCHEDULE 4.15(b), no consent on the part of any other Person is required to transfer the Intellectual Property Assets to Buyer. (c) No Infringement. Except as set forth on SCHEDULE 4.15(c), (i) the products, services and conduct of the Business do not infringe or misappropriate any rights of any Person in the United States or, to the knowledge of Seller, elsewhere in respect of any Intellectual Property, and (ii) to - 14 - 20 the knowledge of Seller, none of the Intellectual Property Assets is being infringed or is otherwise used or available for use, by any other Person. (d) Confidentiality. Seller has taken all commercially reasonable steps that are required to protect Seller's rights in confidential information and trade secrets of Seller or provided by any other Person to Seller with respect to the Business. 4.16. ENVIRONMENTAL MATTERS. (a) Permits. Seller has been duly issued, and currently has and will maintain through the Closing Date all Environmental Permits. Seller has not been notified by any relevant Governmental Authority that any Environmental Permit will be modified, suspended, canceled or revoked, or cannot be renewed in the ordinary course of business. (b) No Violations or Liabilities. In connection with the Business, Seller has complied and is in ompliance in all respects with all Environmental Permits and all applicable Environmental Laws, except for such non-compliance as would not reasonably be expected to cause a Material Adverse Effect. (c) No Actions. There are no pending or, to the knowledge of Seller, threatened actions, suits, orders, claims, legal proceedings or other proceedings, based on, and neither Seller nor any officer or director thereof has directly or indirectly received any written notice of any complaint, order, directive, citation, notice of violation, notice of responsibility, notice of potential responsibility, or information request or any other written communication from any Governmental Authority or any other Person arising out of or attributable to: (i) the current or past presence, Release, or threatened Release of Hazardous Substances at or from any part of any real property currently or formerly owned, leased or operated in connection with the Business or the Purchased Assets; (ii) the off-site disposal or treatment of Hazardous Substances originating on or from such properties or the Business or the Purchased Assets; or (iii) any violation of Environmental Laws or Environmental Permits in connection with the Business or the Purchased Assets. (d) Listings. None of the real property currently or formerly owned, leased, or operated by Seller in connection with the Business is listed or proposed to be listed on the National Priorities List or CERCLIS or on any equivalent state or local database or list of properties that require cleanup under Environmental Laws. (e) Environmental Information. Seller has made available to Buyer all information, including without limitation all audits, studies, analyses and test results, in the possession, custody or control of Seller relating to (i) the environmental conditions on, under or about any real property owned, leased or used by Seller in connection with the Business, and (ii) Hazardous Substances used, managed, handled, transported, treated, generated, stored or Released by in connection with the Business. (f) Underground Storage Tanks, etc. Except as disclosed on SCHEDULE 4.16 to the knowledge of Seller, there are no (i) underground storage tanks, active or abandoned, (ii) polychlorinated biphenyl-containing equipment or (iii) asbestos-containing material, at any property currently owned, leased or operated in connection with the Business or the Purchased Assets. (g) Releases. Except as disclosed on SCHEDULE 4.16, no Releases of Hazardous Substances have occurred at, from, in, to, on or under any property currently owned, leased or operated in - 15 - 21 connection with the Business or the Purchased Assets, except in accordance with Environmental Laws and except as would not have a Material Adverse Effect. (h) Other Representations. (i) Seller has conducted no activity or operations with respect to the property subject to the Fairchild Leases and Seller has provided a true and complete copy of the Phase I Environmental Report prepared for Seller with respect to the properties subject to the Fairchild Leases. (ii) Notwithstanding anything to the contrary in this SECTION 4, (A) this SECTION 4.16 contains the sole and exclusive representation and warranty of Seller with respect to environmental matters and (B) none of the representations set forth in this SECTION 4.16 (other than in this SECTION 4.16(h)) are being made with respect to the Fairchild Leases. 4.17. EMPLOYEES. (a) Existing Employees. SCHEDULE 4.17(a) lists the name of each employee of Seller that devotes substantially all of his or her time to the Business (an "EXISTING EMPLOYEE"). Substantially all of Existing Employees devote all of their time to the Business. With respect to each such Existing Employee, Seller has provided to Buyer such Existing Employee's position with Seller, initial employment date and such Existing Employee's fiscal year 2000 and current salary or hourly wage, bonus or incentive compensation, total taxable compensation, accrued vacation and other employment benefits. Except as disclosed in SCHEDULE 4.17(a), no oral understandings currently exist between any executive officer or other representative of Seller authorized to enter into such understandings on behalf of Seller and any Existing Employee regarding changes in compensation, promotion or any other change in status. (b) Labor Relations. Seller is not party to any collective bargaining or similar agreement with respect to the employees involved in the Business. There is no strike, labor, dispute, slowdown, stoppage or other material interference with or impairment by labor of the Business actually pending or, to Seller's knowledge, threatened against Seller with respect to the Business. Seller has complied in all material respects with all Applicable Laws relating to employment or the workplace, including, without limitation, provisions relating to wages, hours, collective bargaining, safety and health, work authorization, equal employment opportunity, immigration, withholding, unemployment compensation, workers compensation, employee privacy and right to know. 4.18. PENSION AND BENEFIT PLANS. (a) Plans and Other Arrangements. Except as set forth in SCHEDULE 4.18(a), Seller (i) neither maintains nor has ever maintained any Plan or Other Arrangement relating to the Existing Employees, (ii) neither is nor has ever been a party to any Plan or Other Arrangement relating to the Existing Employees and (iii) has no obligations under any Plan or Other Arrangement relating to the Existing Employees. (b) Disclosure. Seller has furnished to Buyer true and complete copies of each of the following documents for each Plan relating to the Existing Employees: (i) the documents setting forth the terms of each Plan, including but not limited to plan documents, amendments, summary plan descriptions; (ii) all related trust agreements for each Plan; (iii) for the three most recent plan years, all - 16 - 22 annual reports (Form 5500 series) on Plans that have been filed with any Governmental Authority; (iv) all DOL opinions on any Plan and all correspondence relating to the request for and receipt of each opinion; and (v) all Internal Revenue Service determination letters, rulings, opinions or technical advice relating to any Plan and all correspondence relating to the request for and receipt of each ruling, opinion or technical advice. (c) Excluded Plan Types. Except for the Retirement Plan for Employees of the Fairchild Space and Defense Corporation, which is not being transferred to Buyer, no Plan is a Multiemployer Plan, an ESOP, a Defined Benefit Plan or a funded Welfare Plan. (d) Legal Compliance. With respect to the Existing Employees, Seller has complied in all material respects with all applicable provisions of the Code, ERISA, the National Labor Relations Act, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Fair Labor Standards Act, the Securities Act, the Exchange Act, and all other Applicable Laws pertaining to the Plans, Other Arrangements and other employee or employment related benefits, and all premiums and assessments relating to all Plans or Other Arrangements. Seller has no material liability for any delinquent contributions within the meaning of Section 515 of ERISA (including, without limitation, related attorneys' fees, costs, liquidated damages and interest) or for any arrearages of wages with respect to the Existing Employees. Seller has no material pending unfair labor practice charges, contract grievances under any collective bargaining agreement, other administrative charges, claims, grievances, lawsuits, applications for remedial relief or other proceedings of any kind before any Governmental Authority arising under any applicable law governing any Plan with respect to the Existing Employees, and, to the knowledge of Seller, there exist no facts that could give rise to such a claim. (e) 401k Plan. Seller's 401(k) plan (referenced in SECTION 7.5(g) below) is a Qualified Plan and has been administered at all times in material compliance with its terms and Applicable Law, including but not limited to requirements for the timely remittance of employee and employer contributions. There are no claims, suits or proceedings by an Existing Employee for benefits from Seller's 401(k) plan. (f) Liens. No Purchased Asset is subject to any lien under Code section 401(a)(29), ERISA section 4068, ERISA section 302(f) or Code section 412(n). Neither Seller nor any trade or business (whether or not incorporated) which is a member of a controlled group with Seller or which is under common control with Seller within the meaning of Code section 414 has incurred any liability which could subject the Purchased Assets to liability under sections 4062, 4063, 4064 or 4069 of ERISA. 4.19. TRANSACTIONS WITH RELATED PARTIES. Except as set forth in SCHEDULE 4.19, neither any present or former officer, director, stockholder or Affiliate of Seller, nor any Affiliate thereof, is currently a party to any transaction or Contract with Seller relating to the Business, including, without limitation, any Contract providing for the employment of, furnishing of services by, rental of the Purchased Assets from or to, or otherwise requiring payments to, any such officer, director, stockholder or Affiliate. 4.20. NO BROKER. Except for the fees of First Union Securities, Inc., which are the responsibility of Seller, Seller has no liability or obligation to pay any broker or finder or investment banker entitled to any - 17 - 23 brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller for which Buyer could become liable or obligated. 4.21. DISCLAIMER. Notwithstanding anything to the contrary contained in this ARTICLE 4 or any other provision of this Agreement or a Seller Document, Buyer acknowledges that Seller is making no representation or warranty whatsoever, express or implied, beyond those expressly given in this Agreement or any Seller Document, including but not limited to any implied warranty or representation as to condition, merchantability, fitness or suitability for a particular purpose as to any of the Purchased Assets. Except as otherwise specifically provided in this Agreement, the Purchased Assets are being sold on an "as is" basis. 4.22. NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of the Division which are reflected on the Interim Financial Statements have arisen only from bona fide transactions in the ordinary course of business. Seller has no knowledge of any facts or circumstances (other than general economic conditions) which would result in any material increase in the uncollectability of such receivables in excess of the reserves therefor set forth on the Interim Financial Statements. The entries shown on the Interim Financial Statements have been computed in a manner consistent with past practice. 4.23. INSURANCE. SCHEDULE 4.23 is a list of all insurance policies (specifying the insurer, the amount of coverage, the type of insurance and the annual premium) maintained by Seller with respect to the Business. Such policies are owned solely by Seller and will be outstanding and in effect until the Closing. 4.24. CUSTOMERS AND SUPPLIERS. Seller has used its reasonable business efforts to maintain and, to the knowledge of Seller, currently maintains good working relationships with all of its customers and suppliers with respect to the Business. 5. REPRESENTATIONS AND WARRANTIES OF BUYER Each of Buyer and Parent, as applicable, hereby represents and warrants to Seller, on the date hereof and on the Closing Date, as follows: 5.1. ORGANIZATION. Each of Buyer and Parent is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Each of Buyer and Parent has all necessary corporate power, authority, and capacity to own its property, to carry on its business, and to enter into and perform - 18 - 24 its obligations under this Agreement and the other Buyer Documents and to carry out the transactions contemplated hereby and thereby. 5.2. CORPORATE AUTHORITY. The execution, delivery and performance by each of Buyer and Parent of this Agreement and the other Buyer Documents to which it is a party and the consummation by Buyer and Parent of the transactions contemplated hereby or thereby have been duly authorized by all requisite corporate action on the part of Buyer and Parent, as applicable. This Agreement has been duly executed and delivered by each of Buyer and Parent and constitutes, and upon execution and delivery by each of Buyer and Parent of each of the other Buyer Documents to which it is a party, such Buyer Documents will constitute, the legal, valid and binding obligation of Buyer and Parent, as applicable, enforceable against Buyer and Parent in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and subject to general principles of equity. 5.3. NO CONFLICT. Neither the execution or delivery by Buyer or Parent of this Agreement or the other Buyer Documents to which it is a party, nor the consummation of the transactions contemplated hereby or thereby will (a) conflict with or result in a breach of any of the provisions of, or constitute a default under, the charter, by-laws, or other organizational document of Buyer or Parent, as amended to date, (b) result in a breach of any of the provisions of, or constitute a default under any material contract to which Buyer or Parent is bound, or (c) result in a violation of any Applicable Law to which Buyer or Parent or its property is subject. 5.4. CONSENTS. Except for the consents contemplated by SECTION 8.2, no consent, approval or authorization of, or declaration or filing with, any Governmental Authority is required in connection with the execution, delivery or performance by Buyer or Parent of this Agreement or the other Buyer Documents to which it is a party. No approval, consent or authorization of any lender, lessor or other person is required in order for Buyer to consummate the transactions contemplated hereby or thereby. 5.5. LITIGATION. There is no action, claim, demand, suit, proceeding, arbitration, grievance, citation, summons, subpoena, inquiry or investigation of any nature, civil, criminal, regulatory or otherwise, in law or in equity, pending or, to the knowledge of Buyer, threatened against or relating to Buyer which seeks to enjoin or rescind the transactions contemplated by this Agreement or otherwise prevent Buyer from complying with the terms and provisions of this Agreement. 5.6. BROKERS. No broker or finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Buyer or Parent for which Seller could become liable or obligated. - 19 - 25 5.7. SOLVENCY. Parent currently is, and following the Closing, Parent will continue to be able to pay its debts and fulfill its obligations as the same come due. 5.8. INSPECTIONS; LIMITATIONS ON SELLER'S WARRANTIES. Buyer is an informed and sophisticated participant in the transactions contemplated by this Agreement. Buyer acknowledges that no representation or warranty, express or implied, of Seller or any of its advisors, including, without limitation, First Union Securities, Inc., or any of their respective Affiliates or representatives, with respect to the Business, including, without limitation, (i) the information set forth in the Fairchild Confidential Information Memorandum provided in July 2000, (ii) any other information provided to Buyer pursuant to the Confidentiality Agreement, dated July 11, 2000, between Buyer and Seller or SECTION 7.1 or (iii) any financial projection or forecast delivered to Buyer with respect to the revenues or profitability which may arise from the operation of the Business either before or after the Closing Date, shall (except as otherwise expressly represented to in this Agreement) form the basis of any claim against Seller or any of its advisors including, without limitation, First Union Securities, Inc. or any of their respective Affiliates with respect thereto or with respect to any related matter. Nothing contained in this SECTION 5.8 will be construed as a waiver of or defense to claims for fraud. With respect to any projection or forecast delivered by or on behalf of Seller to Buyer, Buyer acknowledges that (i) there are uncertainties inherent in attempting to make such projections and forecasts and (ii) it is familiar with such uncertainties. 5.9. FINANCING. Buyer will have on the Closing Date sufficient cash to pay the Purchase Price and to make all other payments necessary in connection with the transactions contemplated by this Agreement. 5.10. DISCLAIMER. Notwithstanding anything to the contrary contained in ARTICLE 5 or any other provision of this Agreement or any Buyer Document, Seller hereby acknowledges that each of Buyer and Parent is making no representation or warranty whatsoever, express or implied, beyond those expressly given in this Agreement or any other Buyer Document. 6. COVENANTS OF SELLER PENDING CLOSING 6.1. CONDUCT OF BUSINESS. Except as otherwise contemplated by this Agreement, during the period from the date hereof through the Closing Date, Seller will conduct the operations of the Business in the ordinary and usual course, consistent with past and current practices, to keep the Business and the Purchased Assets substantially intact, including its present operations, physical facilities, working conditions, and relationships with lessors, licensors, suppliers, customers and employees, all to the extent the officers, directors and management employees of Seller reasonably determine such actions to be in the best interests (including the future prospects) of the Business. Seller shall maintain in full force and effect all - 20 - 26 existing casualty, liability and other insurance through the day following the Closing Date in amounts not less than those in effect on the date hereof, except for changes in such insurance that are made in the ordinary course of business consistent with past practice. 6.2. FORBEARANCES. Except as contemplated by this Agreement or consented to by Buyer in writing (which consent shall not be unreasonably withheld), with respect to the Business during the period from the date hereof through the Closing Date Seller shall not engage in any practice, take any action, or enter into any transaction outside of the ordinary course of business. Without limiting the generality of the foregoing, Seller will not (i) take any action, or enter into any transaction with respect to the Purchased Assets or Assumed Liabilities outside the ordinary course of business, the primary purpose or effect of which is to generate or preserve cash, (ii) otherwise engage in any practice, take any action or enter into any transaction which would cause the representations set forth in SECTION 4.7 to be untrue on the Closing Date; or (iii) take any action or fail to take any action that would cause any of the other representations, warranties or covenants contained herein to be untrue or incorrect or incapable of being performed or satisfied on the Closing Date. 6.3. UPDATES. Seller shall promptly notify Buyer of the occurrence after the date of this Agreement and prior to the Closing Date of any fact or condition that would, as of the time of such occurrence, constitute a breach of any representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. 7. ADDITIONAL COVENANTS AND AGREEMENTS 7.1. ACCESS AND CONFIDENTIAL INFORMATION. Seller shall afford to Buyer and its representatives reasonable access during normal business hours beginning on the date hereof to the books, records, offices, Contracts, officers, employees, consultants and contractors of the Business and to such other information relating to the Business as Buyer shall reasonably request. If the Closing shall not occur, Buyer shall return to Seller all written material containing or reflecting any such information, and Buyer shall not retain any copies, extracts or other reproductions in whole or in part of such written material and shall destroy all documents, memoranda, notes and other writings (or portions of any such writings, if applicable) prepared by Buyer or any of its advisors based on such information and upon written request provide a certification to Seller that such destruction has occurred. All information furnished or to be furnished by Seller or its agents to Buyer shall be kept confidential (notwithstanding any termination of this Agreement); provided, however, that such confidentiality obligation shall not apply to (a) disclosure to the extent necessary to meet the requirements of Applicable Law (subject to giving Seller notice as promptly as possible of the intention to make such disclosure and providing Seller the opportunity to seek a protective order), or (b) any information which (i) was already in Buyer's possession from a source other than Seller and without an obligation of confidentiality prior to the disclosure thereof by Seller or its agents, (ii) was generally known to the public prior to the disclosure thereof, (iii) became known to the public through no fault of Buyer, or (iv) was disclosed to Buyer by a third party not known by Buyer to be bound by an obligation of confidentiality. - 21 - 27 7.2. CONSENTS; SATISFACTION OF CLOSING CONDITIONS. (a) Prior to Closing. Except as provided in SECTION 7.3(b), Seller shall use all reasonable efforts to obtain, with the cooperation of the Buyer, prior to Closing, all consents, waivers and other approvals which shall be required in order to effectuate the transactions contemplated hereby, including, without limitation, those consents set forth in SCHEDULE 4.3 and 4.4. Seller and Buyer shall use all reasonable efforts to satisfy promptly the conditions to the Closing specified in this Agreement. Seller and Buyer shall furnish to each other and to each other's counsel all such information as may be reasonably required in order to effectuate the foregoing actions. (b) Hart-Scott Rodino and Exon-Florio Filings. As promptly as practicable following the execution of this Agreement, Seller and Buyer shall file with the CFIUS pursuant to the Exon-Florio Provision all requisite documents and notifications, if any, which are required in connection with this Agreement and the transactions contemplated hereby, and Seller and Buyer shall complete any filing required pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), or shall mutually agree that no such filing is required. Buyer shall be responsible for all filing fees owing to any Governmental Authority in connection with filings contemplated by this SECTION 7.2(b). Seller and Buyer shall diligently take, or fully cooperate in the taking of, all necessary and proper steps, and provide any additional information reasonably requested in order to comply with, the requirements under the Exon-Florio Provision and the HSR Act. (c) Subsequent to Closing. From and after the Closing Date, Seller shall cooperate with Buyer to obtain any consents, waivers and other approvals which shall not have been obtained prior to the Closing Date. In the event Seller is unable to obtain as of the Closing any consent, waiver or approval that is required in order to transfer or assign any Purchased Asset, including any Contract included in the Purchased Assets, the parties shall enter into such mutually acceptable arrangement as is necessary to provide Buyer with the benefits thereof and, with respect to any such Contracts, Buyer shall pay and perform all obligations of Seller thereunder after the Closing Date. 7.3. ASSIGNMENT OF CONTRACTS AND RIGHTS. (a) Noncontravention. Anything in this Agreement to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign any Contract or any claim, right or benefit arising thereunder or resulting therefrom if an attempted assignment thereof, without the consent of a third party thereto, would constitute a breach or other contravention thereof, be ineffective with respect to any party thereto or in any way adversely affect the rights of Buyer or Seller thereunder. (b) Government Contract Assignments and Novations. With respect to any Government Contract and any claim, right or benefit arising thereunder or resulting therefrom, Seller and Buyer will use reasonable good faith efforts to obtain as expeditiously as possible, if required, the written consent of the other parties to such Government Contract for the assignment or, if required, novation thereof to Buyer or, alternatively, written confirmation from such parties reasonably satisfactory in form and substance to Buyer and Seller that such consent is not required. In furtherance of the foregoing, (i) with respect to the Prime Government Contracts to which Seller is a party, as soon as practicable following the Closing, Buyer and Seller shall submit to the relevant Responsible Contracting Officer a written request that the relevant Governmental Authority enter into a Government Contract Novation with Buyer with respect to such Prime Government Contracts; and (ii) with respect to each Government Contract that is not a Prime Government Contract, Buyer and Seller shall, as soon as practicable - 22 - 28 following the date hereof, submit to the other party or parties thereto documentation seeking the written waiver or approval of such other contracting party or parties thereto to the transfer and assignment of all of Seller's claims, rights, benefits and liabilities thereunder to Buyer. In this regard, Seller and Buyer shall take all actions required or customary under any FAR provision (or applicable equivalent regulation). (c) Buyer Responsibility. Notwithstanding any other provision of this Agreement, the failure by the parties to obtain any required Government Contract Novation, or any similar consent, waiver, confirmation, novation or approval with respect to any Government Contract, shall not relieve either party from its obligation to consummate at the Closing the transactions contemplated by this Agreement. Buyer acknowledges that (i) a substantial portion of the Government Contracts will require the consent or, in the case of Prime Government Contracts, Government Contract Novation, of the other party or parties thereto by virtue of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby and (ii) with respect to any Bids submitted by Seller before the Closing, the responsible contracting office might not, after the Closing, award a contract to Buyer based on such Bid until such responsible contracting officer determines that Buyer, as a result of its purchase of the Business, is Seller's successor in interest to such Bid. Buyer agrees and acknowledges that it shall be the obligation of Buyer (and not Seller) to obtain the consents and authorizations described in this SECTION 7.3(c). Seller will, however, use commercially reasonable efforts to assist Buyer in obtaining such consents. (d) Subcontract and Other Arrangements. If any Government Contract Novation or any consent, waiver, confirmation, novation or approval described in this SECTION 7.3 is not obtained with respect to any Contract, then Seller and Buyer will cooperate to establish an arrangement reasonably satisfactory to Buyer and Seller under which Buyer would obtain, to the extent practicable, the claims, rights and benefits and assume the corresponding liabilities and obligations thereunder in accordance with this Agreement (including by means of any subcontracting, sublicensing or subleasing arrangement) or under which Seller would enforce for the benefit of Buyer, with Buyer assuming and agreeing to pay Seller's obligations, any and all claims, rights and benefits of Seller against a third party thereto. 7.4. LETTERS OF CREDIT; SURETY BONDS. On or prior to the Closing Date, Buyer and Seller will use commercially reasonable efforts to ensure that Seller and its Affiliates are released from all obligations under all letters of credit, surety and performance bonds, guarantees and other financial support arrangements relating to the Business that either (a) are set forth in SCHEDULE 7.4 or (b) are provided or otherwise become effective after the date of this Agreement and not in contravention of the terms of this Agreement (the "LETTERS OF CREDIT"). If Buyer is unable to obtain any such release from any such arrangement by the Closing, at and after the Closing Date, Buyer and Seller will continue to use commercially reasonable efforts to ensure that Seller and its Affiliates are released from such arrangements. In the event such release is not obtained within 90 days after the Closing Date, Buyer shall provide replacement irrevocable letters of credit from a bank reasonably acceptable to Seller (and Parent shall guarantee such letters of credit, if necessary) and containing terms and conditions reasonably acceptable to Seller pursuant to which the beneficiaries thereof are indemnified against all of their respective obligations under any such arrangement from which such beneficiary is not so released on the Closing Date. - 23 - 29 7.5. EMPLOYMENT; EMPLOYEE BENEFITS. (a) Existing Employees. Prior to the Closing, Buyer shall extend an offer of employment to each Existing Employee for a comparable position at the same salary or hourly wage as in effect with respect to such employee on the Closing Date. (For purposes of this Agreement, any such Existing Employee who accepts an offer of employment is referred to as a "TRANSFERRED EMPLOYEE.") Subject to the other provisions of this SECTION 7.5, the Transferred Employees shall be employed after the Closing in accordance with, and subject to, Buyer's usual terms, conditions and policies of employment. (b) Transferred Employee Benefit Plans. (i) Except as otherwise set forth in this SECTION 7.5(b), immediately following the Closing Date, the Transferred Employees, during such time as their employment with Buyer is continued, shall be eligible to participate in Buyer's employee benefit plans ("BUYER BENEFIT PLANS") on the same terms and conditions as similarly situated employees of Buyer are eligible to participate therein. Specifically, Buyer shall make available to each of the full-time Transferred Employees (i) life, accidental death and dismemberment, long-term disability and short-term disability insurance benefit plans to become effective on the Closing Date and (ii) medical, dental and vision insurance benefit plans to become effective not later than December 31, 2000. Buyer shall cause the Buyer Benefit Plans to recognize prior service of Transferred Employees under corresponding Seller's benefit plans prior to the Closing as service with Buyer and its Affiliates for purposes of (i) any Buyer Benefit Plan that is not a Pension Plan for purposes of any waiting period and eligibility requirements and (ii) any Buyer Benefit Plan that is a Pension Plan, for purposes of eligibility (including eligibility for early retirement benefits) and vesting (but not benefit accrual) thereunder. Seller shall continue to provide benefit coverage to all Transferred Employees under Seller's benefit plans until the Closing. Buyer shall assume the liabilities specifically reflected on the Interim Balance Sheet that are attributable to the Transferred Employees. Except as otherwise set forth in this SECTION 7.5(b), Buyer shall assume all liabilities, responsibilities and obligations under the Buyer Benefit Plans with respect to the Transferred Employees for the provision of any benefits otherwise available under such plans, including, without limitation, comprehensive health, dental or drug welfare benefits otherwise payable with respect to any covered health, dental, and/or covered services and/or materials and/or supplies and/or expenses, which were provided to or are incurred after the Closing. (ii) Seller shall provide continued health and medical coverage to the extent required under Section 4980B of the Code, Part 6 of Title I of ERISA or any other applicable federal, state or local law or ordinance ("COBRA COVERAGE") to all Transferred Employees (including their eligible dependents and beneficiaries) with respect to whom a "qualifying event" (as such term is defined under Sections 4980B(f)(3) of the Code or 603 of ERISA) or other triggering event described under the applicable federal, state or local laws or ordinances occurs on or before the Closing; provided that Buyer shall pay Seller all premiums in respect of COBRA Coverage for the Transferred Employees as such premiums become due. In addition to such premiums, Buyer shall promptly reimburse Seller for (i) any claims paid by Seller under Seller's dental or medical benefit plans to Transferred Employees for claims incurred by Transferred Employees (including their eligible dependents and beneficiaries) during the period beginning on the Closing Date and ending on and including the last day of the calendar month in which the Closing occurs and (ii) all out-of-pocket expenses associated with Seller's provision of COBRA Coverage to the Transferred Employees (including their eligible dependents and beneficiaries) for the period commencing on the Closing Date and ending on December 31, 2000. - 24 - 30 (c) Other Buyer and Seller Responsibilities. Seller agrees that on and after the Closing, Buyer shall assume no liability, obligation or commitment with respect to Seller's benefit plan or any benefits or other amounts payable or provided under any Seller's benefit plan or any notice (including, but not limited to, notice required by the WARN Act (except with respect to Transferred Employees or COBRA)), or any Contract relating to employment or termination of employment between Seller and any of its employees or former employees, including the Transferred Employees, except with respect to any contracts arising between Buyer and any Transferred Employee. Buyer agrees that on and after the Closing, Seller shall assume no liability, obligation or commitment with respect to any benefit plan of Buyer or any benefits or other amounts payable or provided under any Buyer's benefit plan or any contract relating to employment or termination of employment between Buyer and any of its Affiliates and any of their employees or former employees, including the Transferred Employees. (d) Further Assurances. Seller and Buyer shall take such further action (before, at or after the Closing Date), if any, as reasonably may be necessary or convenient to implement the intent of their agreements contained in this SECTION 7.5. Seller shall make available to Buyer such information as Buyer may reasonably request to enable Buyer to determine such matters relating to employment and salary histories for purposes of the Buyer Benefit Plans. (e) No Third Party Beneficiary. No provision of this SECTION 7.5 shall create any third party beneficiary rights in any employee or former employee (including any beneficiary or dependent thereof) in respect of continued employment (or resumed employment) or any other matters and no provision of this SECTION 7.5 shall create any such rights in any such persons in respect of any benefit plan or arrangement. (f) Retention Plans. Set forth on SCHEDULE 7.5(f) is a description of Seller's employee retention plans (the "RETENTION PLANS"). Effective upon the Closing, Buyer shall assume and continue to maintain the Retention Plans for those employees of Seller (and former employees of Seller) covered thereby at the Closing Date who are Existing Employees and pay all amounts to which any such individuals may become entitled thereunder after the Closing Date. (g) 401(k) Plan. As soon as administratively practicable after the Closing Date, Seller shall cause the trustee of Seller's 401(k) plan to transfer to the trustee of Buyer's 401(k) Plan, in a trustee-to-trustee transfer, cash, securities, outstanding loan balances, or a combination thereof equal to the account balances of all Transferred Employees. Buyer shall cause the trustee of its 401(k) plan to accept the transfer from the trustee of Seller's 401(k) plan, and Buyer shall credit the accounts for the Transferred Employees under its 401(k) Plan with the amounts on a fully vested basis, if any, transferred on their behalf. The transfers required by this SECTION 7.5(g) shall comply with Section 414(l) of the Internal Revenue Code and the requirements of ERISA and the regulations promulgated thereunder. (h) Spending Accounts. This Section shall apply if Buyer shall maintain a plan or plans under Section 125 and Section 129 of the Internal Revenue Code in which Transferred Employees are eligible to participate during the 2000 calendar year ("BUYER'S SECTION 125 PLAN") and such Transferred Employees also participated in the corresponding plans of the Seller (the "SELLER'S SECTION 125 PLAN") during the 2000 calendar year. At the end of the 2000 year, the following adjustments shall be made between Buyer and Seller: (i) If the aggregate amount contributed by Transferred Employees for 2000 to the Transferred Employees' spending accounts under Seller's Section 125 Plan exceeds the aggregate claims paid by Seller for 2000 with respect to the Transferred Employees' spending accounts, Seller shall - 25 - 31 pay Buyer an amount in cash equal to such excess to the extent that the aggregate amount contributed by Transferred employees for 2000 to their spending accounts under Buyer's Section 125 Plan is less than the aggregate claims paid by Buyer for 2000 with respect to the Transferred Employees' spending accounts. (ii) If the aggregate amount contributed by Transferred Employees for 2000 to their spending accounts under Seller's Section 125 Plan is less than the aggregate claims paid by Seller for 2000 with respect to the Transferred Employees' spending accounts, Buyer shall pay Seller an amount in cash equal to such deficit, to the extent that the aggregate amount contributed by Transferred Employees for 2000 to the Transferred Employees' spending accounts under Buyer's Section 125 Plan exceeds the aggregate claims paid by Buyer for 2000 with respect to the Transferred Employees' spending accounts. (iii) The foregoing payments shall be made as soon as practicable after all claims have been paid for the 2000 year. 7.6. TAX RETURNS. (a) Seller Returns Prior to Closing. Seller shall prepare or cause to be prepared and file all Tax Returns and pay all Taxes with respect to Taxes constituting Excluded Liabilities for all taxable periods beginning on or prior to the Closing Date and ending on or after the Closing Date when such Tax Returns or Taxes are due, even though such Tax Returns or Taxes are not due until after the Closing Date. Such Tax Returns shall be prepared and filed in a manner consistent with prior returns. (b) Cooperation After Closing. After the Closing Date, Seller and Buyer shall, as may be reasonably requested by Buyer, on the one hand, or Seller, on the other hand: (i) assist the other party in preparing any Tax Returns or reports which such other party or parties is or are responsible for preparing and filing with respect to the Business; (ii) cooperate fully in preparing for any audits of, or any disputes with taxing authorities regarding, any Tax Returns of or including the Business; and (iii) retain and make available to the other party and to any taxing authority all information, records and documents reasonably requested relating to Taxes of the Business. 7.7. LIABILITY FOR TRANSFER TAXES. Buyer shall be responsible for the timely payment of, and shall indemnify and hold harmless Seller and its Affiliates against, all sales (including, without limitation, bulk sales), use, value added, documentary, stamp, gross receipts, registration, transfer, conveyance, excise, recording, license and other similar Taxes and fees ("TRANSFER TAXES") arising out of or in connection with or attributable to the transactions affected pursuant to this Agreement. Buyer shall prepare and timely file all Tax Returns required to be filed in respect of Transfer Taxes. Buyer's preparation of any such Tax Returns shall be subject to Seller's approval, which approval shall not be withheld unreasonably. Seller shall file all required sales tax notifications as promptly as practicable following the date hereof and shall provide to Buyer copies of any such filings. Seller and Buyer shall use all reasonable efforts to minimize the amount of all Transfer Taxes and cooperate in providing each other with the information necessary to prepare and review such Tax Returns. - 26 - 32 7.8. ORBITAL NAME. Within 90 days after the Closing Date, Buyer shall remove all references to the names "Orbital Sciences Corporation" and "Orbital" or any derivation of a name, mark, trade name or trademark incorporating such names or any derivation therefrom or any corporate symbols or logos incorporating such names either alone or in combinations (collectively, the "ORBITAL NAME RIGHTS") from any advertisements, web sites, mail addresses, domain name services, datalinks or other property used by the Business, other than internal workpapers, drawings, memoranda or similar property that is not released to third parties in the ordinary course. During the 180 day period following the Closing, Seller and Buyer shall clearly identify to third parties after the Closing that the Purchased Assets and the Business are owned and operated by Buyer. 7.9. POST CLOSING RECEIPTS; COOPERATION. (a) Administration of Accounts. If at any time following the Closing, Seller or Buyer receives, or comes into possession of, any of the Purchased Assets or Excluded Assets or any receipts, proceeds, checks, securities or other property of any kind comprising, arising out of or derived from the Purchased Assets or the Business or Excluded Assets (including any check, notes or cash in payment of any account receivable or other intangible constituting part of the Purchased Assets or Excluded Assets), Seller or Buyer, as applicable, shall immediately deliver the same to the appropriate party, with such endorsements, transfers or assignments as may be necessary or desirable to ensure that such party receives the immediate and full benefit thereof. (b) Shared Assets. Without limiting the definition of the Purchased Assets or Buyer's rights to the Purchased Assets hereunder, Seller and Buyer shall cooperate in good faith to resolve any disputes as to whether any specific assets owned by Seller, other than the Purchased Assets, that relate to the Business and another business of Seller are used in or relate to the Business. Further, without limiting the foregoing, with respect to any asset presently used in connection with the Business that is also used by Seller in connection with a business of Seller other than the Business, (i) the parties shall cooperate in good faith to determine which business predominantly uses such asset, (ii) if appropriate, the parties shall agree to transfer title to that asset to the party that owns the business that predominantly uses such asset, (iii) without limiting Seller's continued use, if appropriate, the parties shall otherwise coordinate the nonexclusive use of the asset by Buyer, and (iv) with respect to any proprietary Know-How and Intellectual Property (other than the Excluded Assets) used by Seller in the Business but not included in the Purchased Assets, Seller hereby grants Buyer a nonexclusive perpetual, nonassignable (other than to Smiths Industries plc or subsidiaries thereof) royalty-free license to use such Know-How and Intellectual Property on an as is basis. With respect to any Contract applicable to both the Business and such other business of Seller, Seller and Buyer shall cooperate to structure contractual arrangements to such agreement providing both Seller and Buyer with appropriate rights and obligations for shared use. Such contractual arrangements may take the form of a subcontract, sublicense or two separate agreements. (c) Audits. Following the Closing Date, Seller and Buyer shall cooperate reasonably with each other in connection with any audit or review by any Governmental Authority or other party with respect to the Business. Upon reasonable request, at the expense of the party requesting assistance, each party will make available appropriate personnel and provide pertinent records to enable the other party to assist in any such audit or review. - 27 - 33 (d) Other Cooperation. The parties shall cooperate from and after the Closing Date, and take all reasonable steps to provide for a smooth and orderly transition of the Business to Buyer, including, without limitation, the transition of the employees, payroll, management information systems, e-mail, computer systems, customers and Contracts, and other assets. 7.10. BOOKS AND RECORDS. On or prior to the Closing Date, Seller shall provide copies of the books, records and files of Seller retained by Seller and described in SECTION 1.3(h). Following the Closing Date, Seller shall make such records available to Buyer as may be reasonably requested by Buyer for purposes of compliance with Applicable Laws; provided, however, that Seller shall not be liable to Buyer in the event of any destruction of such records unless Seller fails to maintain such records with the same degree of care with which Seller maintains other similar records. 7.11. NONCOMPETITION. (a) Nonsolicitation. Seller agrees that it will not, and will cause its subsidiaries not to, at any time during the period of two (2) years following the Closing Date, directly or indirectly, solicit for employment or retention of, in any capacity, any Transferred Employee; provided that this covenant shall not apply to the general advertisement of employment opportunities. Buyer and Parent agree that they will not, and will cause their subsidiaries not to, at any time during the period of two (2) years following the Closing Date, directly or indirectly, solicit for employment or retention of, in any capacity, any employee of Seller; provided that this covenant shall not apply to the general advertisement of employment opportunities. (b) Noncompetition. Seller will not, and will cause its subsidiaries not to, for a period of three (3) years following the Closing Date, directly or indirectly, engage in the design or production of sophisticated electronics, avionics and mission management systems for use in military aircraft, helicopters and land vehicles of the type currently designed or produced in or by the Business (a "COMPETING BUSINESS"); provided that this SECTION 7.11 shall not (i) prevent Seller or any of any of its subsidiaries from engaging in any activities that Seller or any of its subsidiaries is engaged in outside of the Business immediately before the Closing Date, (ii) prohibit the acquisition (by merger or otherwise) of the securities or assets of a business where the gross revenues of such business attributable to a Competing Business constitute less than twenty percent (20%) of the total gross revenue of such business or (iii) prevent MacDonald, Dettwiler and Associates Ltd. from engaging in any business. (c) Enforceability. Seller and Buyer acknowledge and agree that in view of the nature of the Business and the business objectives of Buyer and Seller in the transactions contemplated by this Agreement, the foregoing limitation is reasonable and properly required for the adequate protection of Buyer and Seller and that in the event that such limitation is deemed to be unreasonable, then such limitations shall be automatically reduced to the maximum extent permitted by a court of competent jurisdiction and, as reduced, the limitation shall be enforced. (d) Equitable Remedies. Seller and Buyer acknowledge that a violation of this SECTION 7.11 may cause irreparable injury to the non-breaching party and that the non-breaching party shall be entitled, in addition to any other rights and remedies it may have, to injunctive relief without being required to prove actual damages or post bond. - 28 - 34 8. MUTUAL CONDITIONS PRECEDENT TO OBLIGATIONS TO CLOSE Unless waived by Seller and Buyer, the obligations of the parties hereto to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction, on or before the Closing Date, of each of the following conditions: 8.1. ABSENCE OF LITIGATION. No order, injunction, judgment or decree by any Governmental Authority shall be in effect which enjoins, restrains or prohibits the consummation of the transactions contemplated by this Agreement. 8.2. STATUTORY REQUIREMENTS. All applicable waiting periods, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have expired or been terminated and any review and investigation by CFIUS under the Exon-Florio Provision shall have been completed. 9. CONDITIONS TO BUYER'S OBLIGATION TO CLOSE The obligations of Buyer to consummate the transactions contemplated by this Agreement are subject to the satisfaction, on or before the Closing Date, of each of the following conditions, unless otherwise waived in writing by Buyer: 9.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of Seller contained herein or in any Seller Document shall be true and correct as of the date hereof and on and as of the Closing Date in all material respects. 9.2. PERFORMANCE. Seller shall have duly performed or complied in all material respects with all of the covenants, acts and obligations to be performed or complied with by Seller hereunder at or prior to the Closing. 9.3. SELLER CONSENTS. Except for the consents described in SECTION 7.3, Seller shall have obtained, and shall have delivered evidence thereof to Buyer, all material consents, waivers and other approvals set forth on SCHEDULES 4.3 AND 4.4. 9.4. NO MATERIAL ADVERSE EFFECT. No event, occurrence, fact, condition, change, development or effect shall have occurred, exist or come to exist since the Interim Balance Sheet Date that, individually or in the aggregate, has - 29 - 35 constituted or resulted in, or could reasonably be expected to constitute or result in, a Material Adverse Effect. 9.5. SUBLEASE. Seller shall have entered into a Sublease Agreement with respect to certain premises in Germantown, Maryland, such sublease to have payment terms consistent with current cost allocations to the Business and space usage consistent with the usage by the Business prior to the Closing, including an allocation of common spaces, but with reconfiguration to segregate the operations of Seller and Buyer to the extent practicable, substantially in the form of EXHIBIT C (the "SUBLEASE"). 9.6. SERVICES AGREEMENT AND MANUFACTURING AGREEMENT. Seller shall have entered into (a) a Services Agreement for (i) services such as information systems, security, facilities management, human resources, duplication, graphics and metrology to be provided on a cost-no-fee basis and (ii) engineering services and hardware manufacturing and testing, to be provided at prices based on Seller's current cost/pricing methodology, but with a 10% fee on labor, in each case, for a period of one year following the Closing, substantially in the form of EXHIBIT D (the "SERVICES AGREEMENT") and (b) a Manufacturing Agreement substantially in the form of EXHIBIT F (the "MANUFACTURING AGREEMENT"). 9.7. ASSIGNMENT AND ASSUMPTION OF LEASES. Seller shall have entered into an Assignment and Assumption of Lease with respect to each of the Fairchild Leases, which shall include an unconditional release of Seller as tenant under the Fairchild Leases, substantially in the form of EXHIBIT E (collectively, the "ASSIGNMENT AND ASSUMPTION OF LEASES"). 9.8. SELLER'S CLOSING DOCUMENTS. Seller shall have delivered all other Contracts and documents required to be delivered by Seller at the Closing, including without limitation, those described in SECTION 11.1. 10. CONDITIONS TO SELLER'S OBLIGATIONS TO CLOSE The obligations of Seller to consummate the transactions contemplated by this Agreement are subject to the satisfaction, on or before the Closing Date, of each of the following conditions, unless otherwise waived in writing by Seller. 10.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of Buyer contained herein or in any document delivered pursuant hereto shall be true and correct as of the date hereof and on and as of the Closing Date in all material respects. - 30 - 36 10.2. PERFORMANCE. Buyer shall have performed or complied in all material respects with all covenants, acts and obligations to be performed or complied with by Buyer hereunder at or prior to the Closing. 10.3. SUBLEASE. Buyer shall have entered into the Sublease. 10.4. SERVICES AGREEMENT AND MANUFACTURING AGREEMENT. Buyer shall have entered into (i) the Services Agreement and (ii) the Manufacturing Agreement. 10.5. ASSIGNMENT AND ASSUMPTION OF LEASES. Buyer shall have entered into the Assignment and Assumption of Leases and all letter of credit obligations of Seller relating to the Fairchild Leases shall have been released. 10.6. BUYER'S CLOSING DOCUMENTS. Buyer shall have delivered all other Contracts and documents required to be delivered by it at the Closing, including without limitation, those described in SECTION 11.2. 11. ACTION TO BE TAKEN AT CLOSING 11.1. ACTION TO BE TAKEN BY SELLER. At the Closing, Seller shall deliver to Buyer the following: (a) executed documents of assumption, dated the Closing Date, transferring the Assumed Liabilities, substantially in the form attached hereto as EXHIBIT A; (b) an executed bill of sale and assignment, dated as of the Closing Date, conveying all of the Purchased Assets substantially in the form attached hereto as EXHIBIT B; (c) all such other general instruments of transfer, assignment and conveyance, assignments, evidences of consent, waiver or other approval, and other instruments or documents in form and substance satisfactory to Buyer, as shall be necessary to evidence or perfect the sale, assignment, transfer and conveyance of the Purchased Assets to Buyer and effectively vest in Buyer all right, title and interest in the Purchased Assets free and clear of any and all Liens (other than Permitted Liens), together with possession (or constructive possession, in the case of intangibles) thereof, all in accordance with the terms and conditions of this Agreement; (d) a certificate of an executive officer of Seller, dated the Closing Date, certifying that (i) the representations and warranties of Seller contained herein or in any certificate or other Seller - 31 - 37 Document are true and correct on and as of the Closing Date as if made again on and as of such date and (ii) all covenants, acts and obligations to be performed or complied with by such Seller hereunder at or prior to the Closing, including the covenants contained in ARTICLE 9, have been duly performed and complied with by such Seller; (e) a certified copy of the resolutions adopted by the Board of Directors of Seller authorizing or ratifying this Agreement and authorizing the consummation by Seller of the transactions contemplated hereby and by the other Seller Documents; (f) evidence of the release of the liens described on SCHEDULE 4.10(a); and (g) such other certificates, instruments, opinions or documents as Buyer may reasonably request in order to effect and document the transactions contemplated hereby. 11.2. ACTION TO BE TAKEN BY BUYER. At the Closing, Buyer shall deliver to Seller the following: (a) executed documents of assumption, dated the Closing Date, assuming the Assumed Liabilities, substantially in the form attached hereto as EXHIBIT A; (b) a certified copy of the resolutions duly adopted by Board of Directors of Buyer authorizing or ratifying this Agreement and authorizing the consummation by such Buyer of the transactions contemplated hereby and by the other Buyer Documents; and (c) a certificate by an executive officer of Buyer, dated the Closing Date, certifying that (i) the representations and warranties of Buyer contained herein or in any certificate or other writing delivered pursuant hereto or in connection herewith are true and correct on and as of the Closing Date as if made again on and as of such date and (ii) all covenants, acts and obligations to be performed or complied with by Buyer hereunder at or prior to the Closing have been duly performed and complied with by Buyer. 11.3. PAYMENT OF PURCHASE PRICE. Upon delivery of the documents pursuant to SECTIONS 11.1 and 11.2, Buyer shall pay the Purchase Price to Seller in accordance with SECTION 3.2. 11.4. EFFECTIVE TIME. The effective time of the Closing shall be the close of business on the Closing Date or as otherwise agreed by the parties. 12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES (a) Survival Period. The representations and warranties contained in this Agreement shall survive the Closing and continue in full force and effect for a period of 12 months following the Closing Date; provided, however, that (a) any claim that is based on fraud shall survive until the date - 32 - 38 ninety days following the expiration date of the statute of limitations applicable to any indemnified liability with respect thereto and any extensions or waivers thereof, (b) the representations and warranties set forth in SECTION 4.16 shall survive for a period of three (3) years, (c) all representations and warranties set forth in SECTIONS 4.6 and 4.18 survive the Closing for the period of the applicable statute of limitations plus any extensions or waivers thereof, and (d) all representations and warranties set forth in SECTIONS 4.2 and 5.2 shall survive the Closing without limitation. (b) Effect of Expiration. Notwithstanding the foregoing, if written notice of a claim for indemnification has been given during the applicable survival period under this SECTION 12, all relevant representations, and warranties and the obligation to indemnify therefor shall survive for the purposes of such claim until such claim has been finally resolved. 13. INDEMNIFICATION 13.1. INDEMNIFICATION OF BUYER. Seller shall defend, and hold Buyer and its Affiliates and their respective officers, directors, employees, agents, advisors and representatives (collectively, the "BUYER INDEMNITEES") harmless from and against any and all costs, expenses, losses, damages, fines or liabilities (including, without limitation, reasonable attorneys' fees and expenses) ("BUYER DAMAGES") suffered, sustained, incurred or paid by any Buyer Indemnitee in connection with, resulting from, or arising out of: (a) a breach or violation of any of the representations or warranties of Seller contained in this Agreement or in any Seller Document delivered pursuant hereto; (b) a breach or violation of any of the covenants or agreements of Seller contained in this Agreement or any Seller Document delivered pursuant hereto; (c) any liability or obligation arising out of or related to the Excluded Assets or the Excluded Liabilities; (d) any failure of Seller to comply with applicable bulk sales laws or similar laws relating to notices to creditors; or (e) any liability or obligation asserted against Buyer arising out of any violation of any Environmental Law or Environmental Permit or arising out of any other environmental matter, in each case to the extent existing prior to the Closing in respect of the Business, other than with respect to the property subject to the Fairchild Leases. 13.2. INDEMNIFICATION OF SELLER. Buyer shall indemnify, defend and hold Seller and its Affiliates and their respective officers, directors, employees, agents, advisors and representatives (collectively, the "SELLER INDEMNITEES") harmless from and against any and all costs, expenses, losses, damages, or liabilities (including, without limitation, reasonable attorneys' fees and expenses) ("SELLER DAMAGES") suffered, sustained, incurred or paid by any Seller Indemnitee in connection with, resulting from, or arising out of: - 33 - 39 (a) a breach or violation of any of the representations or warranties of Buyer contained in this Agreement or in any Buyer Document delivered pursuant hereto; (b) a breach or violation of any of the covenants or agreements of Buyer contained in this Agreement or in any Buyer Document delivered pursuant hereto; (c) any liability or obligation arising out of the Assumed Liabilities; (d) except to the extent that any such Seller Damages relate to a pre-Closing matter for which Buyer would be entitled to indemnification from Seller pursuant to SECTION 13.1, the operation of the Business by Buyer, or Buyer's ownership, use or operation (or failure to operate) of the Purchased Assets after the Closing Date; or (e) any liabilities arising out of events occurring after the Closing relating to any Transferred Employees other than those expressly retained herein by Seller; or (f) any liability or obligation arising out of any Letters of Credit after the Closing. 13.3. MATTERS INVOLVING THIRD PARTIES. Upon obtaining knowledge of the institution of any action, proceeding, or other event which could give rise to a claim of indemnity against any party (the "INDEMNIFYING PARTY") hereunder, the party seeking indemnification (the "INDEMNIFIED PARTY") shall promptly notify the Indemnifying Party thereof; provided that the failure to give such notice shall not affect the rights of the Indemnified Party hereunder except to the extent that the Indemnifying Party shall have suffered actual damage by reason of such failure. If such claim or demand relates to a claim or demand asserted by a third party (a "THIRD PARTY CLAIM"), the Indemnifying Party shall have the right to employ counsel of its choice reasonably satisfactory to the Indemnified Party to defend such Third Party Claim; provided that the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the claim. If the Indemnifying Party elects not to assume the defense of such Third Party Claim or within a reasonable time after notice of such claim, fails to defend such claim, the Indemnified Party shall (upon further notice) have the right to undertake the defense thereof by counsel or other representatives designated by it, such representation (including the compromise or settlement of such Third Party Claim) to be undertaken on behalf of and for the account and risk of the Indemnifying Party. 13.4. LIMITATION OF LIABILITY. (a) Seller Liability. No liability for indemnification shall arise on the part of Seller under this ARTICLE 13 with respect to any claim for indemnification based upon clause (a) of SECTION 13.1 until the aggregate amount of Buyer Damages for which indemnification is available under such clause (a) exceeds $500,000 (the "BUYER THRESHOLD"), whereupon Buyer Indemnitees shall be entitled to seek indemnification for the amount of such Buyer Damages (including without limitation those included in the Buyer Threshold); provided, however, that such limitation shall not apply to any liability for indemnification with respect to any claim for indemnification based upon (i) fraud, (ii) any misrepresentation or breach of a warranty which was actually known to be untrue by Seller when made, or (iii) any misrepresentation or breach of a warranty contained in SECTION 4.6 (Taxes). Notwithstanding the foregoing, in no event shall the aggregate liability of Seller under this ARTICLE 13 with respect to any - 34 - 40 claim for indemnification based upon clause (a) or clause (b) of SECTION 13.1 exceed fifteen percent (15%) of the Purchase Price. (b) Buyer Liability. No liability for indemnification shall arise on the part of Buyer under this ARTICLE 13 with respect to any claim for indemnification based upon clause (a) of SECTION 13.2 until the aggregate amount of Seller Damages for which indemnification is available under such clause (a) exceeds $500,000 (the "SELLER THRESHOLD"), whereupon Seller Indemnitees shall be entitled to seek indemnification for the amount of such Seller Damages (including without limitation those included in the Seller Threshold); provided, however, that such limitation shall not apply to any liability for indemnification with respect to any claim for indemnification based upon (i) fraud, or (ii) any misrepresentation or breach of a warranty which was actually known to be untrue by Buyer when made. Notwithstanding the foregoing, in no event shall the aggregate liability of Buyer under this ARTICLE 13 with respect to any claim for indemnification based upon clause (a) or clause (b) of SECTION 13.2 exceed fifteen percent (15%) of the Purchase Price; provided that such 15% limit shall not apply to (and in determining if such cap has been met, shall not take into account) any claim based on the failure of Buyer to comply with its obligations to (A) pay the Purchase Price pursuant to Section 3, or (B) pay Transfer Taxes pursuant to SECTION 7.7. 13.5. EXCLUSIVE REMEDY. The parties acknowledge that, except in the case of fraud, their sole remedy after the Closing for any breach of any representation or warranty contained in this Agreement shall be the indemnification provisions set forth in this ARTICLE 13. Without limiting the generality of the foregoing, Buyer and Seller hereby waive any statutory, equitable or common law rights relating to any Environmental Liabilities and Costs. 13.6. TREATMENT OF INDEMNIFICATION PAYMENTS. All indemnification payments made pursuant to this ARTICLE 13 shall be treated as an adjustment to the Purchase Price. 14. TERMINATION 14.1. TERMINATION. Subject to the provisions of SECTION 14.2, this Agreement may be terminated at any time before the Closing under any one or more of the following circumstances: (a) by mutual consent of Seller and Buyer; (b) by Buyer, upon written notice to Seller, if there has been a breach by Seller of any material representation, warranty, covenant or agreement contained herein, or any such representation or warranty shall have become untrue, and such breach has not been cured within thirty (30) days following receipt by Seller of written notice of such breach; (c) by Seller, upon written notice to Buyer, if there has been a breach by Buyer of any representation, warranty, covenant or agreement contained herein, or any such representation or - 35 - 41 warranty shall have become untrue, and such breach or condition has not been promptly cured within thirty (30) days following receipt by Buyer of written notice of such breach; (d) by Buyer, upon written notice to Seller, if Seller shall have failed to obtain all material consents required to be obtained by Seller in order to permit the consummation of the transactions contemplated in this Agreement, including, without limitation, any consent required in accordance with SECTION 7.2 of this Agreement; (e) by Seller, upon written notice to Buyer, if Buyer has failed to obtain all material consents required to be obtained by Buyer in order to permit the consummation of the transactions contemplated in this Agreement; or (f) by Seller or Buyer, if the Closing has not occurred on or before November 15, 2000, by reason of the failure of any condition precedent under ARTICLES 8, 9 or 10 through no fault of the terminating party, except that if the Closing is delayed as a result of a second request for information pursuant to the HSR Act, such date shall be extended to the date which is 60 days after the date of such second request. 14.2. EFFECT OF TERMINATION. In the event of termination of this Agreement, as provided above, this Agreement shall forthwith become void and there shall be no liability hereunder on the part of Seller or Buyer, except for any party's liability resulting from such party's breach of any representation, warranty, covenant or agreement in this Agreement and except that the agreements with respect to confidentiality contained in SECTION 7.1 and the agreement respecting expenses contained in SECTION 15.13 shall survive the termination hereof. 15. MISCELLANEOUS 15.1. CERTAIN DEFINITIONS. As used herein, the following terms have the meanings set forth below: "AFFILIATE" shall mean a Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the first Person. "Control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a person, whether through the ownership of voting securities, by contract or credit arrangement, as trustee or executor, or otherwise. "APPLICABLE LAW" shall mean all applicable provisions of all (i) constitutions, treaties, statutes, laws (including the common law), rules, regulations, ordinances, codes or orders of any Governmental Authority, (ii) Governmental Approvals and (iii) orders, decisions, injunctions, judgments, awards and decrees of or agreements with any Governmental Authority. "ASSIGNMENT AND ASSUMPTION OF LEASES" has the meaning given to it in SECTION 9.7. - 36 - 42 "ASSUMED LIABILITIES" has the meaning given to it in SECTION 1.4. "BID" has the meaning given to it in SECTION 1.2(b). "BUSINESS" has the meaning given to it in the Recitals. "BUYER BENEFIT PLANS" has the meaning given to it in SECTION 7.5(b). "BUYER DOCUMENTS" shall mean, collectively, this Agreement, the Assumption Agreement, the Sublease, the Assignment and Assumption of Leases, the Manufacturing Agreement, the Services Agreement and all exhibits and schedules attached hereto or thereto. "BUYER DAMAGES" has the meaning given to it in SECTION 13.1. "BUYER INDEMNITEES" has the meaning given to it in SECTION 13.1. "CERCLA" the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. Section 9601 et. seq. "CFIUS" shall mean the Committee on Foreign Investment in the United States under the Exon-Florio Provision. "CLOSING" has the meaning given to it in SECTION 2.1. "CLOSING DATE" has the meaning given to it in SECTION 2.1. "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, P.L. 99-272, as amended. "CODE" means the Internal Revenue Code of 1986, as amended, and all laws and regulations promulgated pursuant thereto or in connection therewith. "CONTRACTS" means all agreements, contracts, leases, commitments, understandings and other instruments and arrangements by which any of the Purchased Assets are bound or to which Seller is a party or by which Seller is bound primarily in connection with the Business or the Purchased Assets. "COPYRIGHTS" has the meaning given to it in the definition of Intellectual Property. "COTS" means commercial off-the-shelf software licenses and related services that are commercially available. "COVERED RETURNS" has the meaning given to it in SECTION 4.6(a). "DEFINED BENEFIT PLAN" means a Plan that is or was a "defined benefit plan" as such term is defined in Section 3(35) of ERISA. "DIVISION" has the meaning given to it in the Recitals. "DOL" means the Department of Labor or its successors. - 37 - 43 "ENVIRONMENTAL LAWS" means all Applicable Laws relating to the protection of the environment, to human and worker health and safety, or to any emission, discharge, generation, processing, generation, treatment, storage, abatement, remediation, manufacture, distribution, disposal, Release, threatened Release or transportation of any Hazardous Substances, including, without limitation, CERCLA, the Resource Conservation and Recovery Act, and similar state laws, "ENVIRONMENTAL PERMITS" means any federal, state and local permit, license, registration, consent, order, administrative consent order, certificate, approval or other authorization with respect to Seller necessary for the conduct of the Business as currently conducted under any Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and all Applicable Laws promulgated pursuant thereto or in connection therewith. "ESOP" means any "employee stock ownership plan" as such term is defined in Section 407(d)(6) of ERISA or Section 4975(e)(7) of the Code. "ESTIMATED NET WORKING CAPITAL AMOUNT" has the meaning given to it in SECTION 3.4. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and all Applicable Laws promulgated pursuant thereto or in connection therewith. "EXCLUDED ASSETS" has the meaning given to it in SECTION 1.3. "EXCLUDED LIABILITIES" has the meaning given to it in SECTION 1.4. "EXISTING EMPLOYEE" has the meaning given to it in SECTION 4.17(a). "EXON-FLORIO PROVISION" shall mean the Exon-Florio provisions of the Omnibus Trade and Competitiveness Act of 1988 as amended by the Defense Authorization Act for Fiscal Year 1993, as amended. "FAIRCHILD LEASES" means, collectively, (i) the Lease Agreement, dated June 2, 2000, between Seller and Westphalia Center II Limited Partnership, relating to an office building in the Seneca Meadows Corporate Center in Montgomery County, Maryland and (ii) the Lease Agreement, dated June 2, 2000, between Seller and Westphalia Center II Limited Partnership, relating to a manufacturing building in the Seneca Meadows Corporate Center in Montgomery County, Maryland. "FAR" means the Federal Acquisition Regulation, Title 48, Chapter 1 of the Code of Federal Regulations. "FINANCIAL STATEMENTS" has the meaning given to it in SECTION 4.5. "FIRST CHOICE" has the meaning given to it in SECTION 3.5(a). "GAAP" means generally accepted accounting principles in the United States applied on a basis consistent with past practice. "GOVERNMENT CONTRACT" has the meaning given to it in SECTION 4.12. - 38 - 44 "GOVERNMENT CONTRACT NOVATION" means a legal instrument executed by Seller, Buyer, and a Governmental Authority or the holder of a Government Contract, by which, among other things, Seller guarantees performance of a Government Contract, Buyer assumes all obligations under the Government Contract, and the Governmental Authority or the holder of the Government Contract recognizes the transfer of the Government Contract and related assets. "GOVERNMENTAL APPROVAL" means any permit, approval, order, consent, license, certificate, franchise, exemption or other authorization of, with or to any Governmental Authority. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any government authority, agency, department, board, commission or instrumentality of the United States, any State of the United States or any political subdivision thereof, and any tribunal or arbitrator(s) of competent jurisdiction, and any self-regulatory organization. "HAZARDOUS SUBSTANCES" means any hazardous or toxic wastes, substances, radiation, or materials (whether solids, liquids or gases) which are listed or regulated under any Environmental Law, including but not limited to asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum or petroleum-derived substances or wastes, radon gas or related materials. "HSR ACT" has the meaning given to it in SECTION 7.2. "INDEMNIFIED PARTY" has the meaning given to it in SECTION 13.3. "INDEMNIFYING PARTY" has the meaning given to it in SECTION 13.3. "INTELLECTUAL PROPERTY" means any and all United States and foreign: (i) patents and patent applications (including docketed patent disclosures awaiting filing, reissues, reexaminations, renewals, provisionals, divisions, continuations-in-part and extensions); (ii) trademarks, service marks, trade names, trade dress, logos, business and product names, slogans, and registrations and applications for registration thereof (the "TRADEMARKS"); (iii) copyrights (including software and data compilations) and registrations thereof ("COPYRIGHTS"); and (iv) inventions, processes, designs, formulae, computer software, trade secrets, know-how, industrial models, confidential and technical information, manufacturing, engineering and technical drawings, product specifications and confidential business information. "INTELLECTUAL PROPERTY ASSETS" has the meaning given to it in SECTION 4.15(a). "INTERIM BALANCE SHEET" has the meaning given to it in SECTION 4.5. "INTERIM BALANCE SHEET DATE" has the meaning given to it in SECTION 4.5. "INTERIM FINANCIAL STATEMENTS" has the meaning given to it in SECTION 4.5. "KNOW-HOW" has the meaning given to it in SECTION 1.2(c). "KNOWLEDGE" will be deemed to be present with respect to Seller or Buyer when the matter in question was brought to the attention of or, if due diligence had been exercised, would have - 39 - 45 been brought to the attention of, any executive officer of Seller, the Deputy General Manager of the Division or the employees of Seller listed on SCHEDULE 7.5 on the one hand, or any executive officer of Buyer, on the other hand. "LETTERS OF CREDIT" has the meaning given to it in SECTION 7.4. "LIEN" means any mortgage, pledge, hypothecation, right of others, claim, security interest, encumbrance, lease, sublease, license, occupancy agreement, adverse claim or interest, easement, covenant, encroachment, burden, title defect, title retention agreement, voting trust agreement, interest, equity, option, lien, right of first refusal, charge or other restrictions or limitations of any nature whatsoever, including but not limited to such as may arise under any Seller Contracts or Government Contracts. "MATERIAL ADVERSE EFFECT" means any event, occurrence, fact, condition, change or effect that is materially adverse to the business, operations, results of operations, financial condition, properties, assets or liabilities of the Purchased Assets or the Business. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as such term is defined in Section 3(37) of ERISA. "NET WORKING CAPITAL" means, as of any date, the amount by which (a) the current assets (excluding cash) of the Business on such date are greater than (b) the sum of the long term capital lease obligation and the current liabilities of the Business on such date, in each such case as determined using accounting methods, practices and procedures as used in the preparation of the Target Working Capital. If, as of any date, the amount referred to in clause (b) of the first sentence of this paragraph is greater than the amount referred to in clause (a) of such sentence, the amount of Net Working Capital as of such date shall be a negative number. "OTHER ARRANGEMENT" means a benefit program or practice providing for bonuses, incentive compensation, vacation pay, severance pay, insurance, restricted stock, stock options, employee discounts, company cars, tuition reimbursement or any other perquisite or benefit (including, without limitation, any fringe benefit under Section 132 of the Code) to employees, officers or independent contractors of Seller that is not a Plan. "MANUFACTURING AGREEMENT" has the meaning given to it in SECTION 9.6. "PENSION PLAN" means an "employee pension benefit plan" as such term is defined in Section 3(2) of ERISA. "PERMITTED LIENS" means (i) Liens reserved against in the Interim Balance Sheet, to the extent so reserved, except for Liens relating to, arising out of or with respect to any Excluded Liabilities or Excluded Assets, (ii) Liens for Taxes not yet due and payable or which are being contested in good faith and by appropriate proceedings, (iii) liens created by, arising out of, or specifically contemplated or permitted by this Agreement, or (iv) materialmen's, mechanics', workmen's, repairmen's, employees' or other like liens arising in the course of construction or in the ordinary course of operation or maintenance, in each such case securing obligations which are not delinquent or which are being contested in good faith and for which adequate reserves are included in the Interim Balance Sheet or securing obligations which are bonded in a reasonable manner. - 40 - 46 "PERSON" means any natural person, firm, partnership, association, corporation, company, trust, business trust, Governmental Authority or other entity. "PLAN" means any plan, program or arrangement, whether or not written, that is or was an "employee benefit plan" as such term is defined in Section 3(3) of ERISA and (a) which was or is established or maintained by Seller; (b) to which Seller contributed or was obligated to contribute or to fund or provide benefits; or (c) which provides or promises benefits to any person who performs or who has performed services for Seller and because of those services is or has been (i) a participant therein or (ii) entitled to benefits thereunder. "PRIME GOVERNMENT CONTRACTS" means a contract or contractual action entered into by a Governmental Authority for the purpose of obtaining supplies, materials, equipment, or services of any kind. "PURCHASE PRICE" has the meaning given to it in SECTION 3.1. "PURCHASED ASSETS" has the meaning given to it in SECTION 1.2, as modified by SECTION 1.3. "QUALIFIED PLAN" means a Pension Plan that satisfies the requirements for Tax qualification described in Section 401 of the Code. "REAL PROPERTY" has the meaning given to it in SECTION 1.2(d). "RELEASE" means any releasing, disposing, discharging, injecting, spilling, leaking, leaching, pumping, dumping, emitting, escaping, emptying, seeping, dispersal, migration, transporting, placing and the like, including without limitation, the moving of any materials through, into, or upon, any land, soil, surface water, ground water or air, or otherwise entering into the environment. "REMEDIAL ACTION" means all actions to (i) clean up, remove, treat, or in any other way remediate any Hazardous Substances; (ii) prevent or mitigate the Release of Hazardous Substances; or (iii) sample, study, investigate, or monitor any such Hazardous Substances. "RESPONSIBLE CONTRACTING OFFICER" means, with respect to any Prime Government Contract, the Person identified as such with respect thereto in FAR Section 42.1202(a) or applicable equivalent provision. "RETENTION" has the meaning given to it in SECTION 3.2. "SECURITIES ACT" means the Securities Act of 1933, as amended, and all Applicable Laws promulgated pursuant thereto or in connection therewith. "SELECTED FIRM" has the meaning given to it in SECTION 3.5(a). "SELLER CONTRACTS" has the meaning given to it in SECTION 4.11(a). "SELLER DOCUMENTS" shall mean, collectively, this Agreement, the Bill of Sale, the Assumption Agreement, the Sublease, the Assignment and Assumption of Leases, the Manufacturing Agreement and the Services Agreement and all exhibits and schedules attached hereto or thereto. - 41 - 47 "SELLER DAMAGES" has the meaning given to it in SECTION 13.2. "SELLER INDEMNITEES" has the meaning given to it in SECTION 13.2. "SERVICES AGREEMENT" has the meaning given to it in SECTION 9.6. "SOFTWARE" has the meaning given to it in SECTION 1.2(h). "SUBLEASE" has the meaning given to it in SECTION 9.5. "TARGET WORKING CAPITAL" means $22,625,000. "TAX" any federal, state, provincial, local, foreign, or any other income, alternative, minimum, accumulated earnings, personal holding company, franchise, capital stock, net worth, capital, profits, windfall profits, gross receipts, value added, sales, use, goods and services, excise, customs duties, transfer, conveyance, mortgage, registration, stamp, documentary, recording, premium, severance, environmental (including taxes under Section 59A of the Code), real property, personal property, ad valorem, intangibles, rent, occupancy, license, occupational, employment, unemployment insurance, social security, disability, workers' compensation, payroll, health care, withholding, estimated or other similar tax, duty or other governmental charge or assessment or deficiencies thereof, (including all interest and penalties thereon and additions thereto whether disputed or not). "TAX RETURN" any return, report declaration, form, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "THIRD PARTY CLAIM" has the meaning given to it in SECTION 13.3. "TITLE I PLAN" means a Plan that is subject to Title I of ERISA. "TRADEMARKS" has the meaning given to it in the definition of Intellectual Property. "TRANSFER TAXES" has the meaning given to it in SECTION 7.7. "TRANSFERRED EMPLOYEE" has the meaning given to it in SECTION 7.5(a). "U.S. GOVERNMENT" means the United States Government, including any agencies, commissions, branches, instrumentalities and departments thereof. "WARN ACT" means the Worker Adjustment and Retraining Notification Act, and all Applicable Laws promulgated pursuant thereto or in connection therewith. "WELFARE PLAN" means an "employee welfare benefit plan" as such term is defined in Section 3(1) of ERISA. "WITHHOLDING TAXES" has the meaning given to it in SECTION 4.6(a). "YEAR END FINANCIAL STATEMENTS" has the meaning given to it in SECTION 4.5. - 42 - 48 15.2. WRITTEN AGREEMENT TO GOVERN. Except for the Confidentiality Agreement, dated July 11, 2000, between Buyer and Seller, this Agreement (together with the Schedules and Exhibits hereto and the other instruments and documents delivered pursuant hereto) sets forth the entire understanding and supersedes all prior oral and written agreements among the parties relating to the subject matter contained herein, and merges all prior discussions among them. 15.3. SEVERABILITY. The parties expressly agree that it is not their intention to violate any public policy, statutory or common laws, rules, regulations, treaties or decisions of any Governmental Authority. If any provision of this Agreement is judicially or administratively interpreted or construed as being so in violation, such provision shall be inoperative and the remainder this Agreement shall remain binding upon the parties hereto. 15.4. NOTICES AND OTHER COMMUNICATIONS. Any notice or other communication required, contemplated or permitted by this Agreement by any party shall be in writing and shall be deemed served (a) when personally delivered, (b) when transmitted via facsimile machine to the party for whom it is intended at the number shown below, (c) on the next business day after delivery to a reputable overnight courier for next business day delivery, or (d) five business days after deposit in the mail, registered or certified mail, return receipt requested, postage prepaid, addressed, in the case of deliveries made pursuant to clause (c) or (d), as follows: If to Buyer: Smiths Industries plc 765 Finchley Road London NW11 8DS, England Attention: Alan Smith Fax No.: 011-44-208-458-8412 With copies (which shall not constitute notice) to: Morgan, Lewis & Bockius LLP 1701 Market Street Philadelphia, Pennsylvania 19103 Attention: Michael J. Pedrick Fax No.: (215) 963-5299 - 43 - 49 If to Seller: Orbital Sciences Corporation 21700 Atlantic Boulevard Dulles, Virginia 20166 Attn: Legal Department Fax No.: (703) 406-5572 With a copy (which shall not constitute notice) to: Hogan & Hartson L.L.P. 555 Thirteenth Street, N.W. Washington, D.C. 20004-1109 Attn: Eve N. Howard, Esq. Fax No.: (202) 637-5910 or to such other address or addresses as any addressee may designate for itself by written notice served in accordance herewith. 15.5. COUNTERPARTS. This Agreement may be executed in any number of counterparts, and each counterpart shall constitute an original instrument, but all such separate counterparts shall constitute one and the same agreement. 15.6. LAW TO GOVERN. The validity, construction and enforceability of this Agreement shall be governed in all respects by the laws of the State of New York, without regard to its conflict of law rules. 15.7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that no party may assign its rights and obligations hereunder without the prior written consent of the other party hereto. 15.8. INTERPRETATION. The masculine, feminine or neuter pronouns used herein shall be interpreted without regard to gender, and the use of the singular or plural shall be deemed to include the other whenever the context so requires. The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of this Agreement. Unless otherwise expressly stated herein, all references herein to Articles, Sections and paragraphs are to Articles, Sections and paragraphs in this Agreement and all references herein to Schedules and Exhibits are to Schedules and Exhibits to this Agreement. The phrase "including" shall mean "including, without limiting the generality of the foregoing." The parties have each been represented by counsel in connection with the negotiation of this Agreement. The fact that any provision hereof may have been drafted by counsel for a given party shall not be taken into consideration in interpreting such provision. - 44 - 50 15.9. SCHEDULES AND EXHIBITS. The Schedules and Exhibits referred to herein and attached to this Agreement are incorporated herein by such reference as if fully set forth in the text hereof. 15.10. PUBLICITY. No party shall announce or disclose publicly the terms or provisions of this Agreement or the transactions contemplated hereby without the prior written approval of all other parties, except as such disclosure may be required by Applicable Law (subject to giving the other parties notice as promptly as possible of the intention to make such disclosure) and except that this provision shall not prohibit any party from disclosing such terms or provisions to its attorneys, accountants, lenders, bankers, financial advisors or any other advisor or consultant. 15.11. MODIFICATION. The parties to this Agreement may, by mutual written consent, executed by the authorized officers of Buyer and Seller, modify or supplement this Agreement in such manner as may be mutually agreed upon by them in writing. 15.12. WAIVER OF PROVISIONS. The terms, covenants, representations, warranties and conditions of this Agreement may be waived only by a written instrument executed by the party waiving compliance. The failure of any party at any time to require performance of any provisions hereof shall, in no manner, affect the right at a later date to enforce the same. No waiver by any party of any condition, or breach of any provision, term, covenant, representation or warranty contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or of the breach of any other provision, term, covenant, representation or warranty of this Agreement. 15.13. EXPENSES. Except as otherwise provided in this Agreement, each party shall bear its own expenses incident to this Agreement and the transactions contemplated hereby, including without limitation, all fees of counsel, accountants and consultants provided that, if any party breaches this Agreement any non-breaching party shall be entitled to reimbursement from the breaching party of its reasonable attorneys' fees incurred in connection with the enforcement of its rights hereunder (whether or not judicial proceedings are instituted). 15.14. FURTHER ASSURANCES. At any time on or after the Closing, the parties hereto shall each perform such acts, execute and deliver such instruments, assignments, endorsements and other documents and do all such other things consistent with the terms of this Agreement as may be reasonably necessary to accomplish the transactions contemplated in this Agreement or otherwise carry out the purpose of this Agreement and the other Buyer Documents and Seller Documents. - 45 - 51 15.15. BULK TRANSFER LAWS. Notwithstanding any other provision of this Agreement, Buyer hereby waives compliance by Seller with the provisions of any so-called Bulk Transfer Law of any jurisdiction in connection with the transactions contemplated hereby. 15.16. PARENT GUARANTEE. Smiths Industries Aerospace & Defense Systems Inc., the direct or indirect holder of 100% of the capital stock of Buyer, hereby unconditionally guarantees, irrevocably and continually, all the rights, duties and obligations of Buyer hereunder and under the other Buyer Documents, and the financial obligations under this Agreement and the other Buyer Documents shall be joint and several obligations of Buyer and Smiths Industries Aerospace & Defense Systems Inc. (SIGNATURES APPEAR ON THE FOLLOWING PAGE) - 46 - 52 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf by its officer thereunto duly authorized, all on or as of the day and year first above written. SELLER ORBITAL SCIENCES CORPORATION By: /s/ David W. Thompson ---------------------------------- Name: David W. Thompson Title: Chairman of the Board and Chief Financial Officer BUYER SIJAG ACQUISITION INC., a subsidiary of Smiths Industries Aerospace & Defense Systems, Inc. By: /s/ Robin J. Taunt --------------------------------- Name: Robin J. Taunt Title: Authorized Signatory PARENT SMITHS INDUSTRIES AEROSPACE & DEFENSE SYSTEMS INC. (SOLELY WITH RESPECT TO THE OBLIGATIONS SET FORTH IN SECTIONS 7.4, 7.11 AND 15.16 OF THIS AGREEMENT) By: /s/ Robin J. Taunt --------------------------------- Name: Robin J. Taunt Title: Authorized Signatory EX-10.1 3 w42187ex10-1.txt AMENDMENT NO.12, DATED AUGUST 2, 2000 1 CONFORMED COPY AMENDMENT NO. 12 TO THIRD AMENDED AND RESTATED CREDIT AND REIMBURSEMENT AGREEMENT AMENDMENT No. 12 dated as of November 1, 2000 among ORBITAL SCIENCES CORPORATION (the "COMPANY"), the BANKS listed on the signature pages hereof and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "ADMINISTRATIVE AGENT") and as Collateral Agent (the "COLLATERAL AGENT"). WITNESSETH: WHEREAS, the parties hereto have heretofore entered into a Third Amended and Restated Credit and Reimbursement Agreement dated as of December 21, 1998 (as amended from time to time, the "CREDIT AGREEMENT"); and WHEREAS, the Company and the Banks wish to amend the Credit Agreement as set forth herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definition; References. Unless otherwise specifically defined herein, each term used herein that is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall from and after the Amendment No. 12 Effective Date (as defined in Section 9 below) refer to the Credit Agreement as amended hereby. SECTION 2. Amendments to the Definitions. (a) Section 1.01 of the Credit Agreement is amended by adding therein the following definitions in alphabetical order: "AMENDMENT NO. 12 EFFECTIVE DATE" means the date of effectiveness of Amendment No. 12 to this Agreement. 2 "ATI" means Atlantic Technologies LLC, an Alabama limited liability company, and its successors. "ATI ACQUISITION" means the acquisition by MDAT of substantially all of the assets of ATI on the terms and conditions set forth in the ATI Asset Purchase Agreement. "ATI ACQUISITION DATE" means the date of consummation of the ATI Acquisition. "ATI ASSET PURCHASE AGREEMENT" means the Asset Purchase Agreement dated as of October 6, 2000 among ATI, Atlantic Photogrammetric Technologies, L.P., an Alabama limited partnership (collectively, the "VENDORS") and MDAT (the "PURCHASER") distributed to the Banks prior to the Amendment No. 12 Effective Date. "MDAT" means MD Atlantic Technologies, Inc., a Delaware corporation, and its successors. "ORBCOMM" means, collectively, OCC, ORBCOMM Global and ORBCOMM Global Capital Corp. "ORBCOMM WRITE-DOWN" means, collectively, non-recurring write-downs not in excess of $125,500,000 in the aggregate relating to the Company's Investment in ORBCOMM and ORBCOMM-related balance sheet items. (b) The following definitions set forth in Section 1.01 of the Credit Agreement are amended to read in their entirety as follows: "CONSOLIDATED EBITDA" means, for any period, Consolidated Net Income for such period plus, to the extent deducted in determining such Consolidated Net Income, without duplication, the aggregate amount of (i) consolidated interest expense, (ii) income tax expense, (iii) depreciation, amortization and other similar non-cash charges, (iv) one-time accounting charges resulting in adjustments to earnings for each of the fiscal quarters of the fiscal year ended December 31, 1998, up to an aggregate amount equal to $35,600,000, (v) write-offs with respect to the investment made by the Company in CCI International N.V. for any fiscal quarter ended prior to December 31, 1999, up to an aggregate amount equal to $21,400,000, (vi) solely for any period ended on or prior to February 22, 2000, Excluded Charges, up to an aggregate amount equal to $5,000,000, (vii) solely for the fiscal quarter ended June 30, 2000, non-cash charges with respect to the settlement of shareholder litigation in an aggregate amount not to exceed $11,500,000 and (viii) the ORBCOMM Write-down. 2 3 "CONSOLIDATED LOSS RATIO" means, for any calendar month, the percentage equivalent of a fraction (i) the numerator of which is the gross credit write offs of Receivables by all the Borrowers during such month, other than gross credit write offs included in the ORBCOMM Write-down not to exceed $71,600,000 and (ii) the denominator of which is the amount of Receivables of all the Borrowers outstanding at the end of such month. "CONSOLIDATED NET WORTH" means, at any date, the consolidated stockholders' equity of the Company and its Consolidated Subsidiaries as of such date plus the amount by which such consolidated stockholders' equity shall have been reduced by reason of the ORBCOMM Write-down. "EARNINGS AVAILABLE FOR FIXED CHARGES" means, for any period, Consolidated Net Income for such period (excluding therefrom (i) any extraordinary items of gain or loss, (ii) any gain or loss of any other Person accounted for pursuant to the equity method, except in the case of gain to the extent of cash distributions received from such Person during the relevant period), plus the extent of aggregate amounts deducted in determining Consolidated Net Income for such period in respect of (i) interest and rental expense, (ii) income taxes, (iii) write-offs with respect to the investment made by the Company in CCI International N.V. for any fiscal quarter ended prior to December 31, 1999, up to an aggregate amount equal to $21,400,000, (iv) Excluded Charges, up to an aggregate amount equal to $5,000,000, (v) one-time accounting charges resulting in adjustments to earnings for each of the fiscal quarters of the fiscal year ended December 31, 1998, up to an aggregate amount equal to $35,600,000, (vi) non-cash asset impairment charges incurred on or prior to December 31, 1999 up to an aggregate amount equal to $17,027,000, non-cash write-downs up to an aggregate amount equal to $14,820,000 incurred on or prior to December 31, 1999 and other non-cash charges similar to depreciation and amortization (but not including depreciation or amortization), (vii) solely for the fiscal quarter ended June 30, 2000, non-cash charges with respect to the settlement of shareholder litigation in an aggregate amount not to exceed $11,500,000 and (viii) the ORBCOMM Write-down. SECTION 3. Amendments of the Information Covenant. (a) Section 5.01(i) of the Credit Agreement is hereby amended to read in its entirety as follows: (x) no later than November 22, 2000, a statement of projected domestic cash flows of the Company and its Consolidated Subsidiaries for each month in the six month period from and including December 2000 to and including May 2001 and (y) no later than the 22nd day after the end of each calendar month (starting December 2000 and ending December 2001) a statement 3 4 of projected domestic cash flows of the Company and its Consolidated Subsidiaries for each month in the immediately succeeding six month period setting forth in each case (a) at least the financial information set forth in the projected statement of domestic cash flows of the Company and its Consolidated Subsidiaries for the fourth fiscal quarter of the fiscal year 2000, a copy of which has been delivered to the Banks prior to the Amendment No. 12 Effective Date, (b) accounts receivable at the last day of the most recently ended calendar month, (c) available domestic cash on hand and amounts available for borrowing under this Agreement at the last day of the most recently ended calendar month, and (d) the actual domestic cash flows of the Company and its Consolidated Subsidiaries for the most recently ended calendar month setting forth operating cash flow as a single line item and cash flows from financing and investing activities as separate line items; (b) Section 5.01 of the Credit Agreement is further amended by (i) deleting the word "and" at the end of clause (k) thereof, (ii) redesignating clause (l) thereof as clause (m) and (iii) adding the following new clause (l) immediately after clause (k): (l) simultaneously with the delivery of each set of financial statements referred to in clauses 5.01(a) and 5.01(b) above in respect of a fiscal period ending on or prior to December 31, 2001, a reconciliation of financial results for the fiscal quarter ended at the date of such financial statements to the projected financial results for such fiscal quarter delivered pursuant to Section 5.22, specifying for each of the Company and MDA (i) consolidated cash flows and consolidated income, detailing separately revenues, gross profit, operating income, interest expense, income tax, depreciation, amortization and non-cash charges for each such fiscal quarter and (ii) summary financial information with respect to each division of the Company and its Subsidiaries; provided that such summary information (x) will detail separately revenues, gross profit, and operating income with respect to each such division and (y) will be in such detail as shall be necessary in order to permit a reconciliation of such information with the information set forth in the projected statements of income delivered by the Company pursuant to Section 5.22; and SECTION 4. Amendment of the Investments Covenant to Permit the ATI Acquisition. Section 5.07 of the Credit Agreement is amended by (i) deleting the word "and" immediately following clause (x) in the last paragraph thereof, (ii) 4 5 adding the word "; and" immediately following clause (y) in the last paragraph thereof and (iii) inserting the following new clause immediately following clause (y) of the last paragraph thereof: (z) on and after the Amendment No. 12 Effective Date, the Company will not and will not permit any Subsidiary to, consummate any acquisition of any other Person or all of the components of an entire line of business or division of any other Person (whether by purchase of stock or assets, by merger, consolidation or otherwise) without the prior written consent of the Required Banks, other than the DataQuick Acquisition, the Cooler Acquisition and the ATI Acquisition. SECTION 5. Change in the Additional Financial Information Covenant. Section 5.22 of the Credit Agreement is hereby amended to read in its entirety as follows: The Company will deliver to each of the Banks, on or prior to November 15, 2000 (i) quarterly projected financial statements for the Company and its Consolidated Subsidiaries for each of the five fiscal quarters ending December 31, 2001, and annual projected financial statements for the Company and its Consolidated Subsidiaries for each of the three fiscal years ending December 31, 2004, including the consolidated income statements, consolidated balance sheets, and consolidated cash flows for each such fiscal quarter or year and (ii) summary financial information with respect to each division of the Company and its Subsidiaries; provided that such summary information (x) will include in any event revenues, gross profit, operating income, selling, general and administrative expenses and capital expenditures with respect to each such division and (y) will be in such detail as shall be necessary in order to permit a reconciliation of such information with the information set forth in the projected statements of income, balance sheets and cash flows delivered by the Company pursuant to clause (i). SECTION 6. Change in the Events of Default. Sections 6.01 of the Credit Agreement is amended by (i) adding the words "(other than ORBCOMM)" immediately after the words "the Company or any Subsidiary" in clauses (h) and (i) thereof and (ii) adding the words "(other than ORBCOMM)" immediately after the words "Company and/or any of its Subsidiaries" in clause (k) thereof. SECTION 7. Representations and Warranties. The Company represents and warrants that the representations and warranties set forth in Section 4.06(c), 5 6 except for developments relating to ORBCOMM as previously disclosed to the Banks, and Section 4.12 of the Credit Agreement are true and correct on and as of the Amendment No. 12 Effective Date except that, in the case of Section 4.12, such representation and warranty shall not apply to the original financial statements for the fiscal years ended December 31, 1997, 1998 and 1999 delivered by the Company to the Banks pursuant to the Credit Agreement (but with respect to financial statements for such fiscal years, shall apply to the restated financial statements for such fiscal years delivered by the Company to the Banks on or about April, 2000). SECTION 8. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 9. Counterparts, Effectiveness. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective on the date (the "AMENDMENT NO. 12 EFFECTIVE DATE") on which the following conditions shall have been satisfied: (i) receipt by the Administrative Agent of duly executed counterparts hereof signed by the Company and the Required Banks (or, in the case of any party as to which an executed counterpart shall not have been received, the Administrative Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (ii) the fact that the Fairchild Sale shall have been consummated and proceeds of the Fairchild Sale shall have been applied in accordance with Section 2.10 of the Credit Agreement; (iii) receipt by the Administrative Agent of an amendment fee for the account of each Bank from which the Administrative Agent shall have received a signed counterpart hereof (or satisfactory confirmation of its signing a counterpart hereof) not later than the date of satisfaction of the condition in clause (i) in an amount equal to 20 basis points of such Bank's Commitment; and (iv) payment in full of all expenses payable by the Company pursuant to Section 10.03 of the Credit Agreement with respect to which the Company shall have received invoices prior to October 30, 2000. 6 7 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/ Kenneth H. Sunshine ---------------------------------------- Title: Senior Vice President and Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Renee Toft ---------------------------------------- Title: Vice President THE BANK OF NOVA SCOTIA By /s/ Todd S. Meller ---------------------------------------- Title: Managing Director BANK OF AMERICA, N.A., f/k/a NATIONSBANK, N.A. By /s/ Michael J. Landini ---------------------------------------- Title: Senior Vice President 7 8 FIRST UNION COMMERCIAL CORPORATION By /s/ Scott Santa Cruz ---------------------------------------- Title: Vice President DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLAND BRANCHES By /s/ Marguerite Sutton ---------------------------------------- Title: Vice President By /s/ Paddy Dowling ---------------------------------------- Title: Vice President KEYBANK NATIONAL ASSOCIATION By /s/ Marianne T. Meil ---------------------------------------- Title: Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY By /s/ John R. Blasi ---------------------------------------- Title: Vice President 8 9 WACHOVIA BANK, N.A. By /s/ Roberts A. Bass ---------------------------------------- Title: Senior Vice President CHEVY CHASE BANK By /s/ Gill Waller ---------------------------------------- Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent and as Collateral Agent By /s/ Renee Toft ---------------------------------------- Title: Vice President Acknowledged by: ENGINEERING TECHNOLOGIES, INC. By /s/ Kenneth H. Sunshine --------------------------------------------- Title: Senior Vice President and Treasurer ORBITAL SPACE SYSTEMS, INC. By /s/ Kenneth H. Sunshine --------------------------------------------- Title: Senior Vice President and Treasurer 9 10 ORBITAL COMMERCIAL SYSTEMS, INC. By /s/ Kenneth H. Sunshine --------------------------------------------- Title: Senior Vice President and Treasurer ORBITAL INTERNATIONAL, INC. By /s/ Kenneth H. Sunshine --------------------------------------------- Title: Senior Vice President and Treasurer ORBITAL SERVICES CORPORATION By /s/ Kenneth H. Sunshine --------------------------------------------- Title: Senior Vice President and Treasurer ORBITAL NAVIGATION CORPORATION By /s/ David W. Thompson --------------------------------------------- Title: President ORBLINK LLC By /s/ Kenneth H. Sunshine --------------------------------------------- Title: Senior Vice President and Treasurer 10 EX-10.2 4 w42187ex10-2.txt SEVERANCE AGREEMENT 1 August 2, 2000 Mr. Jeffrey V. Pirone 6418 Tilden Lane N. Bethesda, Maryland 20852 Dear Jeff: As we discussed, this letter agreement (the "Agreement") reflects the terms of your employment at Orbital Sciences Corporation ("Orbital") effective July 21, 2000. All necessary consents and approvals required of Orbital to enter into this Agreement have been obtained. 1. Employment Effective July 21, 2000, you agree to resign from your position as Executive Vice President and Chief Financial Officer of Orbital and as a director and/or officer of Orbital and each of its subsidiaries and affiliates where you hold such a position. From July 21, 2000 through the earlier of (i) July 21, 2002, or (ii) such date that you accept a full-time position with another employer (such earlier date, the "Employment Termination Date"), you will remain employed by Orbital as Vice President, Special Projects, reporting to the Chief Executive Officer. In such capacity, you agree to make yourself reasonably available to provide reasonable assistance on an ad hoc part-time basis on such matters relating to Orbital's business as shall be reasonably requested by the Chief Executive Officer. In addition, you agree to make yourself reasonably available to provide reasonable assistance in order to support the transition of your duties, responsibilities, current assignments and projects to your successor. You agree to provide prompt written notice to Orbital of your acceptance of a full-time position with another employer within three business days of acceptance of such employment. In addition, you agree to make yourself reasonably available and to reasonably cooperate with Orbital in any litigation, investigation, action, suit or claim of whatever nature that may be brought by or against Orbital, its subsidiaries, affiliates, officers, directors or employees relating to or arising in connection with matters with which you were involved or of which you had knowledge during your employment with Orbital. After your Employment Termination Date, such availability and cooperation shall be subject to reasonable accommodation for the requirements of your new position. You shall not conduct any activities on behalf of Orbital or hold yourself out as representing Orbital except at the direction of the Chief Executive Officer. 2 Jeffrey V. Pirone August 2, 2000 Page Two 2. Compensation Orbital agrees to pay you your full base salary through July 21, 2000. Any unpaid salary through such date shall be paid by direct deposit into your account no later than August 4, 2000. In lieu of any further salary payments to you after that date and as severance compensation for your past performance, Orbital agrees to pay you on or before August 10, 2000 by wire transfer in accordance with wiring instructions provided by you, a one-time cash payment of $731,000, which is equal to two (2) times your annual base salary of $295,000, plus 80% of your targeted annual incentive bonus for 2000. In addition, you shall be entitled to receive no more than three (3) non-discretionary cash bonuses in the amount of $75,000 each upon the successful consummation, to occur no later than December 31, 2000, of the following currently contemplated transactions: (i) Fairchild Defense divestiture, (ii) sale of Magellan Corporation and monetization of proceeds, and (iii) third party equity investment of at least $100 million in ORBCOMM or through Orbital with proceeds directed to ORBCOMM . Orbital shall pay you the cash bonus within fifteen (15) days following the closing of each transaction. 3. Administrative Arrangement Orbital agrees to provide you reasonable administrative and secretarial support, including use of voice-mail and e-mail, through the Employment Termination Date. 4. Benefits You shall be entitled to continue to participate in all employee health and welfare benefit plans in accordance with their terms through the Employment Termination Date. Thereafter, you may elect to continue coverage under COBRA at your expense. 5. Retirement Plans You shall continue to be entitled to receive all benefits that may be due you under each of (1) the Orbital Deferred Salary & Profit Sharing Plan (the "Orbital 401(k)"), and (2) the Orbital 1995 Deferred Compensation Plan (the "Deferred Compensation Plan"), in each case in accordance with the terms of such plans. Subsequent to the Employment Termination Date, Orbital shall pay out the balance of your account in the Deferred Compensation Plan pursuant to your election under such plan and shall comply with your election with respect to your balance in the Orbital 401(k) in accordance with such plan. 2 3 Jeffrey V. Pirone August 2, 2000 Page Three 6. Leave As of July 21, 2000, you will no longer accrue any leave under Orbital's composite leave policy. On August 4, 2000, you shall be paid by direct deposit in your account a lump sum payment for your hours of accrued but unused composite leave at your current salary rate through July 21, 2000. 7. Stock Options, ESPP and Promissory Note Except as provided below, your stock options in Orbital shall vest immediately and you shall be entitled to exercise any or all stock options for a period of two (2) years from July 21, 2000, provided, however, that you agree to the substitution of nonstatutory stock options for incentive stock options to the extent necessary to implement the foregoing, and provided further that such exercise is permitted under Orbital's insider trading policy. Notwithstanding the foregoing, the 150,000 Orbital stock options granted to you on May 28, 1999 shall be cancelled as of the date of this Agreement. Your stock options in any Orbital subsidiaries or affiliates shall continue to vest until your Employment Termination Date. Upon your Employment Termination Date, all subsidiary or affiliate options that are not exercisable shall terminate and options that are exercisable on such date shall be exercisable and expire in accordance with their terms. You shall be eligible to continue to participate in the Orbital Employee Stock Purchase Plan for the year ended December 31, 2000. Thereafter, your eligibility to participate shall terminate. The Promissory Note dated May 1, 1998 in the amount of $50,000 payable to the order of Orbital shall be terminated and discharged by Orbital and Orbital shall surrender the original note marked "Paid and Cancelled." You shall assume full responsibility for the payment of any tax liability for federal and state taxes on amounts forgiven and discharged. 8. Taxes All payments to be made to you by Orbital, including payments under paragraph 2, shall be made net of any federal, state and local taxes, FICA or other amounts required to be withheld by Orbital. 9. Expense Reimbursement You shall be reimbursed for normal business expenses incurred prior to your Employment Termination Date, in accordance with Orbital's normal expense reimbursement policy. 3 4 Jeffrey V. Pirone August 2, 2000 Page Four 10. Release Except as provided in this Agreement, you hereby release, acquit and forever discharge Orbital, its subsidiaries, affiliates, successors, officers, directors and employees, the Deferred Compensation Plan and the Orbital 401(k) (collectively, the "Orbital Entities") of and from, and hereby waive all rights with respect to, any and all rights, actions, suits, claims, causes of actions, damages, expenses or costs of whatever nature arising out of or related to (i) Orbital's employment of you, including but not limited to the Executive Employment Agreement between you and Orbital dated as of October 21, 1998, and any and all other contracts and agreements, whether oral or in writing, relating to such employment, (ii) the Deferred Compensation Plan and the Orbital 401(k), (iii) any health or other benefit plans maintained by Orbital or its affiliates, (iv) other matters referred to herein, and (v) Orbital's interaction with you up to the date of execution of this Agreement, including, but not limited to, any rights, actions, suits, claims, causes of action, or liability under (a) any federal, state or local statute or regulation, or (b) under common law principles, except claims or proceedings necessary to enforce the provisions of this Agreement, provided that you shall not be precluded from any action, suit or proceeding arising out of, pertaining to or based on facts not known to you as of the date of this Agreement. You further covenant and agree never to join in or commence any action, suit or proceeding, in law or in equity, or before any administrative agency, or to incite, encourage, or participate in any such action, suit or proceeding, against the Orbital Entities in any way pertaining to or arising out of your employment with Orbital, except claims or proceedings necessary to enforce the provisions of this Agreement. Orbital covenants and agrees not to commence any action, suit or proceeding, in law or in equity, against you, pertaining to or arising out of your employment with Orbital, except claims or proceedings necessary to enforce the provisions of this Agreement, provided that Orbital shall not be precluded from any action, suit or proceeding arising out of, pertaining to or based on facts not known to senior management of Orbital as of the date of this Agreement. This provision shall not release either party from its obligations under the Officer Indemnification Agreement between you and Orbital dated as of October 21, 1998. In connection with the settlement of the class action lawsuits relating to Orbital's restatement of its financial statements, you agree to review, execute and deliver any documents or agreements necessary to approve or implement such settlement including, but not limited to, the settlement agreement, the stipulation of settlement and a release of National Union Fire Insurance Company. In the event that the proposed settlement is changed in a manner that has a material adverse effect on you, you may reasonably decline to execute the related settlement documents and continue the litigation independently. 4 5 Jeffrey V. Pirone August 2, 2000 Page Five 11. Officer Indemnification and Employment Agreements The terms and conditions of the Officer Indemnification Agreement by and between you and Orbital dated as of October 21, 1998, the Officer Indemnification Agreement by and between you and Magellan Corporation ("Magellan") dated as of January 1, 1998, the Director Indemnification Agreement by and between you and Magellan as of January 1, 1998, the Director Indemnification Agreement by and between you and ORBCOMM Corporation as of May 1998 and the Indemnification Agreement by and between you and ORBCOMM Global as of May 1998, shall remain in full force and effect. Arnold & Porter shall continue to represent you as set forth in those certain agreements between you and Arnold & Porter dated March 19, 1999 and an addendum dated March 23, 1999, provided that Orbital shall have the right to select different counsel of equivalent experience and capability if it determines that it is in the best interests of the Company or required as a result of any conflict of interest. You shall be provided coverage under Orbital's Director & Officer insurance policy, if applicable, to the extent permissible by law, with respect to any damages relating to or arising in connection with your service as an officer of Orbital. The Executive Employment Agreement between you and Orbital dated October 15, 1998 and the Performance Share Agreement between you and Orbital dated July 21, 1999 are hereby terminated effective July 21, 2000. 12. Confidentiality You acknowledge that you have held a sensitive management position with Orbital and that, by virtue of having held such position, you have had access to and have learned confidential and proprietary information. You agree that until, and for a period of three years after the Employment Termination Date, you shall hold in confidence and not directly or indirectly disclose any confidential or proprietary information of Orbital or any of Orbital's subsidiaries or affiliates to any person or entity, or use any such confidential and proprietary information for any purpose, except as authorized by Orbital, provided that the foregoing restrictions shall not apply to information that becomes known to and available for use by the public other than as a result of your unauthorized acts or failures to act. You acknowledge that all materials that in any way contain, incorporate or reflect confidential or proprietary information of Orbital or any of Orbital's subsidiaries or affiliates, including but not limited to documents, reports, plans, notes, memoranda, sketches, drawings, discs and records (including electronic records), shall belong exclusively to Orbital. You agree to promptly deliver to Orbital all copies of such materials that you may possess or have under your control upon your Employment Termination Date or at the request of the Chief Executive Officer or General Counsel. You also agree not to disclose to any other person or entity the terms of this Agreement and agree not to disparage Orbital, its officers, affiliates or employees in any way and not 5 6 Jeffrey V. Pirone August 2, 2000 Page Six to engage in any conduct or make statements contrary to the interests of Orbital, its affiliates, officers or employees, except as may be required by law. 13. Orbital Property On the Employment Termination Date or at the request of the Chief Executive Officer or General Counsel, you agree to return to Orbital all Orbital property in your possession, including computer equipment, fax machines, telephones, keys, credit cards, files and records. 14. Noncompetition For two years from the date of this Agreement, except with the express written consent of the Chief Executive Officer, which consent shall not be unreasonably withheld, you agree not to perform consulting services for, or receive full-time or part-time employment from, any person or entity involved in a business that competes with any existing or planned business of Orbital or its subsidiaries or affiliates. 15. Binding Agreement This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, devisees, executors, administrators, legal representatives, successors and assigns. 16. Notice For the purposes of the Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by registered mail, return receipt requested, postage prepaid, addressed (i) if to Orbital, to Orbital Sciences Corporation, 21700 Atlantic Boulevard, Dulles, Virginia 20166, Attn: Legal Department, and (ii) if to you, to the address set forth on the first page of this Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 17. Miscellaneous You and Orbital agree that no provision of this Agreement may be modified, waived or discharged and no amendment or addition to this Agreement shall be binding unless such waiver, modification, discharge, amendment or addition is agreed to in writing, signed by both you and Orbital, and to the extent necessary, approved or authorized Orbital's Board of Directors or a committee thereof. No waiver by you or Orbital of any breach by the 6 7 Jeffrey V. Pirone August 2, 2000 Page Seven other, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provision of conditions at the same or at any prior or subsequent time. You and Orbital agree that no agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement, and this Agreement supersedes all prior agreements between Orbital and you with respect to the subject matter herein. The validity, interpretation, construction and performance of the Agreement shall be governed by the local laws of the Commonwealth of Virginia (regardless of the laws that might otherwise govern under principles of conflicts of law). 18. Validity The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 19. Remedy for Breach In the event of a material breach of this Agreement, you and Orbital agree and consent that the non-breaching party shall be entitled to a decree of specific performance and injunctive or other equitable relief in addition to all other remedies available at law. 20. Executed Counterparts This Agreement may be executed in counterpart and by facsimile. It has been a great pleasure working with you during the past nine years and I deeply appreciate all that you have done for Orbital in that time. I look forward to continuing to work with you on the terms set out above. Sincerely, /s/ David W. Thompson David W. Thompson Chief Executive Officer Acknowledged and Agreed: /s/ Jeffrey V. Pirone - ---------------------------------- Jeffrey V. Pirone Dated: August 3, 2000 7 EX-10.3 5 w42187ex10-3.txt EXECUTIVE EMPLOYMENT AGREEMENT 1 EXECUTIVE EMPLOYMENT AGREEMENT August 9, 2000 Mr. Garrett E. Pierce Orbital Sciences Corporation 21700 Atlantic Blvd. Dulles, Virginia 20166 Dear Garrett: This letter agreement (the "Agreement") sets forth the severance benefits that Orbital Sciences Corporation and its subsidiaries (together, the "Company") agrees will be provided to you in the event your employment with the Company terminates under the circumstances described below. This Agreement is not an employment contract nor does it alter your status as an at-will employee of the Company. 1. Term. This Agreement commences as of August 9, 2000, and shall remain in effect so long as you are employed as an executive officer of the Company. 2. Relationship to Executive Employment Change of Control Agreement. This Agreement shall govern the severance benefits you shall receive from the Company in the event your employment is terminated, except in the event your employment is terminated in anticipation of or within two years following a "Change in Control" as that term is defined in your Executive Employment Change of Control Agreement, in which case your Executive Employment Change of Control Agreement shall govern. 3. Termination. You shall be entitled to the benefits provided in Section 4 of this Agreement if your employment is terminated by the Company for Disability or Cause, as described below, or by the Company for any reasons other than Cause or Disability, or by you for Good Reason, as described below. (i) Disability. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from your duties with the Company on a full-time basis for nine consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, the Company may terminate your employment for "Disability." 2 Mr. Garrett E. Pierce Orbital Sciences Corporation August 9, 2000 Page 2 (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination on (A) the willful gross neglect of your duties with the Company as such duties are determined by the Board or the executive officers to whom you report (other than any such failure resulting from your incapacity due to physical or mental illness), after a demand for substantial performance is delivered to you by the Board which specifically identifies the manner in which the Board believes that you have substantially neglected your duties, or (B) the willful engaging by you in gross misconduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this Subsection, no act, or failure to act, on your part shall be considered "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clause (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (A) without your written consent, the assignment to you of any position (including status, offices, titles and reporting requirements), authorities, duties and responsibilities, that are not at least commensurate in all material respects with the most significant of those held, exercised and assigned by you at any time during the previous 180-day period, or any other action by the Company that results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by you; (B) a failure to nominate, or renominate you to a position on the Board of Directors of the Company; (C) a reduction by the Company in your annual base salary ("Annual Base Salary"), which for the purposes of this Agreement shall mean an amount at least equal to 12 times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, to you by the Company in respect of the previous 12-month period; (D) the Company's requiring you to be based anywhere other than the office of the Company in which you are based in the previous 180-day period or any office or location within a 50 mile radius of such office, except for required travel on the 3 Mr. Garrett E. Pierce Orbital Sciences Corporation August 9, 2000 Page 3 Company's business to an extent substantially consistent with your business travel obligations within the previous 180-day period; (E) the failure by the Company to continue in effect any compensation plan in which you participate, or to provide you with plans substantially similar, including but not limited to any stock purchase plan, stock option plan, incentive compensation, bonus, and other plan in which you were participating in the previous 180-day period, or the failure by the Company to continue your participation therein; (F) the failure by the Company to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Company's retirement, pension, 401(k), deferred compensation, life insurance, medical, health, accident, disability or other benefit plans in which you were participating in the previous 180-day period, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits enjoyed by you in the previous 180-day period, or the failure by the Company to provide you with the number of paid vacation days to which you are entitled in accordance with the Company's normal vacation policy in effect in the previous 180-day period; (G) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3(iv) hereof (and, if applicable, Section 3(ii) hereof); and for purposes of this Agreement, no such purported termination shall be effective. (iv) Notice of Termination. Any termination by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof, and if by the Company for Cause, shall not be effective unless such notice includes the information set forth in Section 3(ii) hereof. (v) Date of Termination, etc. "Date of Termination" shall mean (A) if your employment is terminated by reason of death or Disability, the date of your death or 30 days after Notice of Termination is given (provided that you shall not have returned to the performance of your duties on a full-time basis during such 30 day period), as the case may be, (B) if your employment is terminated by the Company for Cause or for any other reason, the date specified in the Notice of Termination which shall not be less than 30 days from the date such Notice of Termination is given, and (C) if you terminate your employment for "Good Reason," the date such Notice of Termination is given or any later date specified therein. 4 Mr. Garrett E. Pierce Orbital Sciences Corporation August 9, 2000 Page 4 4. Benefits Upon Termination or During Disability. (i) During any period that you fail to perform your duties hereunder as a result of incapacity due to physical or mental illness, and in the event your employment is terminated pursuant to Section 3(i) hereof, your benefits shall be determined in accordance with the Company's insurance and benefit programs then in effect. Your stock options shall continue to vest as scheduled for a 24-month period following your termination and remain exercisable for the rest of the originally scheduled term. (ii) If your employment shall be terminated for Cause or by you without Good Reason, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, as well as any accrued, but unpaid amounts. You shall have 60 days to exercise your vested options and your unvested options shall be forfeited. The Company shall have no further obligations to you under this Agreement. (iii) If your employment shall be terminated (a) by the Company for any reason other than for Cause or Disability or (b) by you for Good Reason, then you shall be entitled to all the benefits provided below: (A) The Company shall pay you on the Date of Termination your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay to you, not later than 15 days following the Date of Termination, a lump sum payment equal to two times the sum of (i) your Annual Base Salary and (ii) the higher of (x) the sum of any incentive, annual and other cash bonuses, paid or payable to you for the 12-month period immediately preceding the month of your termination or (y) the target bonus for the year of termination, based on 60% of your Annual Base Salary (provided that for the first year of your employment, such amount shall be construed to be your minimum guaranteed bonus of $200,000). (C) The Company shall also pay to you all reasonable legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement) upon presentation to the Company of a reasonably detailed invoice for such expenses, whether or not you have already made payment for such expenses. (D) For a 24-month period after such termination, the Company shall arrange to provide you with life, disability, accident and health insurance benefits substantially similar to those you were receiving immediately prior to the Notice of Termination, 5 Mr. Garrett E. Pierce Orbital Sciences Corporation August 9, 2000 Page 5 provided, however, that should the Company be unable to provide for any such benefits under the terms of the benefit plans, or by law, the Company shall pay you an amount equal to the premiums the Company would have paid for such benefits under such plans, grossed-up for taxes. (E) Your stock options shall continue to vest as scheduled for a 24-month period following your termination and all vested stock options shall remain exercisable for the rest of their originally scheduled terms. (F) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer or by retirement benefits after the Date of Termination, or otherwise. (G) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under any of the Company's plans or agreements relating to retirement benefits. (iv) All payments required to be made by the Company hereunder to you shall be subject to the withholding of such amounts relating to Federal, state, local or foreign taxes as the Company reasonably may determine it should withhold pursuant to any applicable law or regulation. 5. Successors; Binding Agreement. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all its business and/or assets to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement no later than ten days prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled under section 4(iii), except that for purposes of implementing the foregoing, a date ten days prior to the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "the Company" shall mean the Company, as hereinbefore defined and any successor to its business and/or assets that assumes and agrees to perform this Agreement by executing and delivering the agreement provided for in this paragraph 5, by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, 6 Mr. Garrett E. Pierce Orbital Sciences Corporation August 9, 2000 Page 6 devisees, and legatees. If you should die while any amount would still be payable to you hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or if there is no such designee, to your estate. 6. Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by registered mail, return receipt requested, postage prepaid, addressed (i) if to the Company, to Orbital Sciences Corporation, 21700 Atlantic Boulevard, Dulles, Virginia 20166, Attn: Secretary of the Company, and (ii) if to you, to the address set forth on the first page of this Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement, and this Agreement supersedes all prior agreements between the Company and you with respect to the subject matter herein. The validity, interpretation construction and performance of this Agreement shall be governed by the local laws of the Commonwealth of Virginia (regardless of the laws that might otherwise govern under principles of conflicts of law). 8. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Washington, D.C. in accordance with the domestic rules of the American Arbitration Association then in effect. Pending the resolution of such dispute or controversy, the Company will continue to pay you your full base salary in effect when the notice giving rise to the dispute was given and you will continue as a participant in all incentive compensation, stock option, retirement, deferred compensation, pension, life, disability, health and accident plans in which you were participating when the notice giving rise to dispute 7 Mr. Garrett E. Pierce Orbital Sciences Corporation August 9, 2000 Page 7 was given, unless you have already received all benefits payable under Section 4(iii) of this Agreement. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this Agreement correctly sets forth our agreement on the subject matter hereof, kindly sign both of the enclosed copies, keeping one for your files and returning the other to the Company. Sincerely, ORBITAL SCIENCES CORPORATION /s/ David W. Thompson - ------------------------------------------- By: David W. Thompson Chairman and Chief Executive Officer Agreed to: /s/ Garrett E. Pierce - ------------------------------------------- Name: Garrett E. Pierce Date: August 9, 2000 EX-10.4 6 w42187ex10-4.txt EXECUTIVE EMPLOYMENT CHANGE OF CONTROL AGREEMENT 1 EXECUTIVE EMPLOYMENT CHANGE OF CONTROL AGREEMENT August 9, 2000 Mr. Garrett E. Pierce Orbital Sciences Corporation 21700 Atlantic Blvd. Dulles, Virginia 20166 Dear Garrett: Orbital Sciences Corporation and its subsidiaries (together, the "Company") consider the maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its stockholders. In this connection, the Company recognizes that the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. Accordingly, the Company's Board of Directors (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of the potentially disturbing circumstances arising from the possibility of a change in control of the Company. This letter agreement (the "Agreement") sets forth the severance benefits that the Company agrees will be provided to you in the event your employment with the Company terminates following a "Change in Control" (as defined in Section 2 hereof) under the circumstances described below. This Agreement is not an employment contract nor does it alter your status as an at-will employee of the Company. No benefit shall be payable under this Agreement except on termination of your employment with the Company as a result of a Change in Control (as defined below). 1. Term. This Agreement commences as of August 9, 2000, and shall remain in effect so long as you are employed as an executive officer of the Company, provided, however, that in the event of a Change in Control, this Agreement shall remain in full force and effect for a 24-month period commencing on the date of the Change in Control regardless of whether you remain an executive officer of the Company during such 24-month period. 2 Mr. Garrett E. Pierce Orbital Sciences Corporation August 9, 2000 Page 2 2. Change in Control. For purposes of this Agreement, a Change in Control shall mean: (a) the acquisition by any individual, entity or group (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of 30% or more of either (i) the then outstanding shares of common stock of the Company or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; (b) within any 24-month period, the persons who were directors of the Company immediately prior thereto (the "Incumbent Board") shall cease to constitute a majority of the Board of Directors of the Company or of its successor by merger, consolidation or sale of assets. For this purpose, the Incumbent Board includes any new director whose (i) election to the Board resulted from a vacancy caused by the retirement, death or disability of a director and was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period, or (ii) nomination to the Board was approved by a committee of the Board whose majority consisted of directors who were directors in office at the beginning of the period; or (c) the consummation by the Company of a reorganization, merger, consolidation or sale or disposition of all or substantially all the assets of the Company (other than any such transaction initiated by the action of the Board) (a "Business Combination"), the result of which is that (i) the stockholders of the Company at the time of the execution of the agreement to effect the Business Combination own less than 60% of the total equity of the surviving or resulting entity entitled to vote generally in the election of directors, (ii) a Person (excluding any corporation resulting from the Business Combination) becomes the beneficial owner of 20% or more of the then outstanding shares of common stock of the corporation resulting from such Business Combination or (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Board of Directors of the Company at the time of execution of the initial agreement or other action of the Board that provided for such Business Combination. Notwithstanding the above, a Change in Control shall not be deemed to occur as a result of a transaction where either you, individually or as an officer, director or 5% stockholder or partner of any entity, or any employee benefit plan (or related trust) of the Company (a) becomes the beneficial owner of securities representing 30% or more of the combined voting power of the 3 Mr. Garrett E. Pierce Orbital Sciences Corporation August 9, 2000 Page 3 Company 's then outstanding securities, or (b) enters into an agreement with the Company providing for the merger, consolidation, or sale or transfer of all or substantially all the assets of the Company. In addition, a Change in Control shall not be deemed to occur where you enter into an employment agreement with the Company, any Person whose acquisition of the Company's securities resulted in the Change in Control or any entity resulting from a Business Combination. 3. Termination Following Change in Control. If a Change in Control as described in Section 2 occurs, you shall be entitled to the benefits provided in Section 4 of this Agreement if your employment is terminated by the Company for Disability or Cause, as described below, or by you for Good Reason, as described below. (i) Disability. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from your duties with the Company on a full-time basis for nine consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, the Company may terminate your employment for "Disability." (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination on (A) the willful and continued failure by you substantially to perform your duties with the Company in accordance with the instructions of the Board or the executive officers to whom you report (other than any such failure resulting from your incapacity due to physical or mental illness), after a demand for substantial performance is delivered to you by the Board which specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this Subsection, no act, or failure to act, on your part shall be considered "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clause (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason in connection with a Change in Control. For purposes of this Agreement, "Good Reason" shall mean: 4 Mr. Garrett E. Pierce Orbital Sciences Corporation August 9, 2000 Page 4 (A) without your written consent, the assignment to you of any position (including status, offices, titles and reporting requirements), authorities, duties and responsibilities, that are not at least commensurate in all material respects with the most significant of those held, exercised and assigned by you at any time during the 180-day period immediately preceding a Change in Control, or any other action by the Company that results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by you; (B) a reduction by the Company in your annual base salary ("Annual Base Salary"), which for the purposes of this Agreement shall mean an amount at least equal to 12 times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, to you by the Company in respect of the 12-month period immediately preceding the month in which the Change of Control occurs; (C) the Company's requiring you to be based anywhere other than the office of the Company in which you are based prior to the Change in Control or any office or location within a 50 mile radius of such office, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company to continue in effect any compensation plan in which you participate, or to provide you with plans substantially similar, including but not limited to any stock purchase plan, stock option plan, incentive compensation, bonus, and other plan in which you were participating at the time of the Change in Control, or the failure by the Company to continue your participation therein; (E) the failure by the Company to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Company's retirement, pension, 401(k), deferred compensation, life insurance, medical, health, accident, disability or other benefit plans in which you were participating at the time of a Change in Control, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits enjoyed by you at the time of the Change in Control, or the failure by the Company to provide you with the number of paid vacation days to which you are entitled in accordance with the Company's normal vacation policy in effect at the time of the Change in Control; (F) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or 5 Mr. Garrett E. Pierce Orbital Sciences Corporation August 9, 2000 Page 5 (G) any termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3(iv) hereof (and, if applicable, Section 3(ii) hereof); and for purposes of this Agreement, no such purported termination shall be effective. (iv) Notice of Termination. Any termination by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof, and if by the Company for Cause, shall not be effective unless such notice includes the information set forth in Section 3(ii) hereof. (v) Date of Termination, etc. "Date of Termination" shall mean (A) if your employment is terminated by reason of death or Disability, the date of your death or 30 days after Notice of Termination is given (provided that you shall not have returned to the performance of your duties on a full-time basis during such 30 day period), as the case may be, (B) if your employment is terminated by the Company for Cause or for any other reason, the date specified in the Notice of Termination which shall not be less than 30 days from the date such Notice of Termination is given, and (C) if you terminate your employment for "Good Reason," the date such Notice of Termination is given or any later date specified therein. 4. Benefits Upon Termination or During Disability. (i) During any period that you fail to perform your duties hereunder as a result of incapacity due to physical or mental illness, and in the event your employment is terminated pursuant to Section 3(i) hereof, your benefits shall be determined in accordance with the Company's insurance and benefit programs then in effect. (ii) If your employment shall be terminated for Cause, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment shall be terminated immediately prior to or any time after a Change in Control (a) by the Company for any reason other than for Cause or Disability or (b) by you for Good Reason, then you shall be entitled to all the benefits provided below: (A) The Company shall pay you on the Date of Termination your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay to you, not later than 15 days following the Date of Termination, a lump sum payment equal to two times the sum of (a) your Annual 6 Mr. Garrett E. Pierce Orbital Sciences Corporation August 9, 2000 Page 6 Base Salary and (b) the sum of any incentive, annual and other cash bonuses, paid to you for the 12-month period immediately preceding the month in which the Change in Control occurred. (C) The Company shall also immediately fully vest you in all your account balances under the Company's retirement, deferred compensation and pension plans (the "Plans"); provided, however, that should the Company be unable to provide for such vesting under the terms of any such Plans, the Company shall pay to you in the manner and as directed by you, an amount that equals on an after-tax basis the value of any amounts that were not vested or would otherwise be forfeited by you under the Plans upon your termination of employment with the Company. (D) The Company shall also allow you the opportunity to surrender to the Company any then outstanding vested and unvested options (whether exercisable or not) to purchase Common Stock of the Company and any of its subsidiaries and affiliates that you own and that you did not previously surrender or convert in the transaction that resulted in the Change in Control, and the Company shall promptly pay to you in consideration therefor a cash payment equal to the difference between the respective exercise price for such options and the higher of the (a) highest price paid in connection with the transaction that resulted in the Change in Control or (b) then current fair-market value. (E) The Company shall also pay to you all reasonable legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement) upon presentation to the Company of a reasonably detailed invoice for such expenses, whether or not you have already made payment for such expenses. (F) For a 24-month period after such termination, the Company shall arrange to provide you with life, disability, accident and health insurance benefits substantially similar to those you were receiving immediately prior to the Notice of Termination, provided, however, that should the Company be unable to provide for any such benefits under the terms of the benefit plans, or by law, the Company shall pay you an amount equal to the premiums the Company would have paid for such benefits under such plans. (G) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer or by retirement benefits after the Date of Termination, or otherwise. 7 Mr. Garrett E. Pierce Orbital Sciences Corporation August 9, 2000 Page 7 (H) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under any of the Company's plans or agreements relating to retirement benefits. (iv) All payments required to be made by the Company hereunder to you shall be subject to the withholding of such amounts relating to Federal, state, local or foreign taxes as the Company reasonably may determine it should withhold pursuant to any applicable law or regulation. Notwithstanding any other provision of this Agreement or of any other agreement, contract or understanding heretofore or hereafter entered into by you and the Company, you shall not have any right to receive any payment or other benefit under this Agreement if such payment or benefit, taking into account all other payments to or benefits received by you, would cause any payment to you under this Agreement to be considered a "parachute payment" within the meaning of Section 280G(b)(2) of the Internal Revenue Code (a "Parachute Payment"). In the event that the receipt of any such payment or benefit under this Agreement would cause you to be considered to have received a Parachute Payment under this Agreement, then you shall have the right, in your sole discretion, to designate those payments or benefits under this Agreement which should be reduced or eliminated so as to avoid having the payment to you under this Agreement be deemed to be a Parachute Payment. 5. Successors; Binding Agreement. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all its business and/or assets to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement no later than ten days prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled under section 4(iii), except that for purposes of implementing the foregoing, a date ten days prior to the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "the Company" shall mean the Company, as hereinbefore defined and any successor to its business and/or assets that assumes and agrees to perform this Agreement by executing and delivering the agreement provided for in this paragraph 5, by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If you should die while any amount would still be payable to you hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or if there is no such designee, to your estate. 8 Mr. Garrett E. Pierce Orbital Sciences Corporation August 9, 2000 Page 8 6. Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by registered mail, return receipt requested, postage prepaid, addressed (i) if to the Company, to Orbital Sciences Corporation, 21700 Atlantic Boulevard, Dulles, Virginia 20166, Attn: Secretary of the Company, and (ii) if to you, to the address set forth on the first page of this Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement, and this Agreement supersedes all prior agreements between the Company and you with respect to the subject matter herein. The validity, interpretation construction and performance of this Agreement shall be governed by the local laws of the Commonwealth of Virginia (regardless of the laws that might otherwise govern under principles of conflicts of law). 8. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Washington, D.C. in accordance with the domestic rules of the American Arbitration Association then in effect. Pending the resolution of such dispute or controversy, the Company will continue to pay you your full base salary in effect when the notice giving rise to the dispute was given and you will continue as a participant in all incentive compensation, stock option, retirement, deferred compensation, pension, life, disability, health and accident plans in which you were participating when the notice giving rise to dispute was given, unless you have already received all benefits payable under Section 4(iii) of this Agreement. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 9 Mr. Garrett E. Pierce Orbital Sciences Corporation August 9, 2000 Page 9 If this Agreement correctly sets forth our agreement on the subject matter hereof, kindly sign both of the enclosed copies, keeping one for your files and returning the other to the Company. Sincerely, ORBITAL SCIENCES CORPORATION /s/ David W. Thompson - ------------------------------------------- By: David W. Thompson Chairman and Chief Executive Officer Agreed to: /s/ Garrett E. Pierce - ------------------------------------------- Name: Garrett E. Pierce Date: August 9, 2000 EX-10.5 7 w42187ex10-5.txt PERFORMANCE SHARE AGREEMENT 1 PERFORMANCE SHARE AGREEMENT This Performance Share Agreement (the "Agreement") is made as of the 9th day of August 2000 by and between Orbital Sciences Corporation, a Delaware corporation (the "Company"), and Garrett E. Pierce (the "Executive"). WHEREAS, the Human Resources and Nominating Committee of the Board of Directors of the Company (the "Committee") has determined that it is desirable and in the best interests of the Company to grant to the Executive the right to receive performance share units (the "Performance Shares"), in order to provide the Executive with further incentive to enhance the profitability and financial strength of the Company by linking a component of the Executive's compensation to Company stock value, which Performance Shares entitle the Executive to receive an annual bonus measured by the increased value of the Company's common stock, par value $.01 per share (the "Common Stock"). NOW THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereby agree as follows: 1. GRANT OF PERFORMANCE SHARES. The Company hereby grants to the Executive a total of 50,000 Performance Shares, which shall have the features set forth below. The date of the grant of the Performance Shares is August 9, 2000. a. Vesting. The 50,000 Performance Shares shall vest immediately. b. Performance Bonus Calculation. Until expiration or termination, each vested Performance Share shall entitle the Executive to receive a bonus (the "Performance Bonus"). The Performance Bonus shall be calculated on each of August 9, 2001 and 2002 with respect to the aggregate number of Performance Shares that have vested as of August 1 of such year. The Performance Bonus shall be equal to the increase, if any, from the Base Price to the Anniversary Valuation Price, as illustrated below for each applicable valuation period.
NUMBER OF ANNIVERSARY --------- ----------- PERFORMANCE SHARES BASE DATE BASE PRICE VALUATION PRICE ------------------ --------- ---------- --------------- 50,000 August 9, 2000 Fair Market Value Fair Market Value on August 9, 2000 on August 9, 2001 50,000 August 9, 2001 Fair Market Value Fair Market Value on August 9, 2001 on August 9, 2002
2 c. Payment of Performance Bonus. The Performance Bonus, if any, shall be paid in cash in the form of a credit to the Executive's account under the Company's 1995 Deferred Compensation Plan. Such payment shall be made as soon as practicable after calculation of the Performance Bonus. Fifty percent (50%) of such credit shall vest immediately, with the other Fifty percent (50%) vesting on August 9 of the subsequent year. d. Expiration. The Performance Shares shall expire on August 10, 2002 unless this Agreement is terminated according to its terms at an earlier time. e. Fair Market Value. For purposes of this Agreement, the Fair Market Value shall be equal to the average closing sales price of the Common Stock on the national securities exchange on which the Common stock is then principally traded, calculated for the 20 trading days immediately preceding August 9 of the applicable valuation year. 2. LIMITATION ON TRANSFER. The Performance Shares are not transferable by the Executive. 3. PERFORMANCE SHARE ADJUSTMENTS. a. Changes in Stock. If the outstanding shares of Common Stock of the Company are increased, decreased, changed into or exchanged for a different number or kind of shares of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, upon authorization of the Board, a proportionate adjustment shall be made in the number or kind of Common Stock subject to the Performance Shares, so that the proportionate interest of the Executive immediately following such event shall, to the extent practicable, be the same as immediately prior to such event. Any such adjustment to Performance Shares shall include a corresponding proportionate adjustment in the Base Price per share of Common Stock. b. Reorganization in Which the Company is the Surviving Corporation. Subject to subparagraph (c) below, if the Company shall be the surviving corporation in any reorganization, merger or consolidation of the Company with one or more other corporations, the Performance Shares shall pertain to and apply to the securities to which a holder of the number of shares of Common Stock subject to the Performance Shares would have been entitled immediately following such reorganization, merger or consolidation, with a corresponding proportionate adjustment in the Base Price per share of Common Stock so that the aggregate Base Price thereafter shall be the same as the aggregate Base Price of the Common Stock remaining subject to the Performance Shares immediately prior to such reorganization, merger or consolidation. 3 c. Reorganization in Which the Company is Not the Surviving Corporation or Sale of Assets or Stock. Upon the dissolution or liquidation of the Company, or upon a merger, consolidation or reorganization of the Company with one or more other corporations in which the Company is not the surviving corporation, or upon a sale of substantially all the assets of the Company to another corporation, or upon any transaction (including, without limitation, a merger or reorganization in which the Company is the surviving corporation) approved by the Board which results in any person or entity owning Eighty percent (80%) or more of the combined voting power of all classes of the stock of the Company, unless provision is made in writing in connection with such transaction for the assumption of this Agreement with such adjustments as the Board deems appropriate with respect to the features, terms and conditions of the Performance Shares, the Performance Shares hereunder shall immediately entitle the Executive to a Performance Bonus in an amount equal to the difference between the applicable Base Price and the Fair Market Value of the per share Common Stock on the trading date immediately preceding the closing date of such Transaction, and any unpaid portion of a previously vested Performance Bonus shall be immediately paid. d. Adjustments. In all cases, the nature and extent of adjustments under this Section 3 shall be determined by the Committee in its sole discretion, and any such determination as to what adjustments shall be made, and the extent thereof, shall be final and binding. 4. WITHHOLDING OF TAXES. The parties hereto recognize that the Company may be obligated to withhold federal, state and local income taxes and Social Security taxes to the extent that the Executive realizes ordinary income in connection with receipt of the Performance Bonus pursuant to this Agreement. The Executive agrees that the Company may withhold amounts needed to cover such taxes from payments otherwise due and owing to the Executive. 5. DISCLAIMER OF RIGHTS. No provision in this Agreement shall be construed to confer upon the Executive the right to be employed by the Company, or to interfere in any way with the right and authority of the Company either to increase or decrease the compensation of the Executive at any time, or to terminate any employment or other relationship between the Executive and the Company. 6. INTERPRETATION OF PERFORMANCE SHARE AGREEMENT. All decisions and interpretations made by the Committee or the Board of Directors of the Company with regard to any questions arising under this Agreement shall be binding and conclusive on the Company and the Executive. 7. TERMINATION. Except as otherwise provided herein, this Agreement shall terminate and all rights and obligations of the parties hereunder shall be void and of no effect immediately upon the date the Executive ceases to hold the same, equivalent or higher grade 4 office as that office set forth in the first paragraph of this Agreement or August 9, 2003, whichever occurs first. For purposes of this Agreement, an approved leave of absence shall not be deemed an event resulting in the Executive ceasing to hold such office under this Agreement. An approved leave of absence shall mean an absence approved by the Committee for military leave, sick leave, or other bona fide leave, as long as the Executive's right to re-employment is guaranteed by contract, statute or the policy of the Company. 8. MISCELLANEOUS a. Title and Headings. Titles and headings of sections of the Agreement are for convenience of reference only and shall not affect the construction of any provision of this Agreement. b. Governing Law. This Agreement 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. IN WITNESS WHEREOF, the parties have executed this agreement as of August 9, 2000. ORBITAL SCIENCES CORPORATION By: /s/ David W. Thompson /s/ Garrett E. Pierce -------------------------------- --------------------------- David W. Thomspon Garrett E. Pierce Chairman and Chief Executive Officer EX-27 8 w42187ex27.txt 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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000820736 ORBITALSCIENCE CORP/DE/ 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 42,942 35,458 204,545 (20,267) 70,708 357,940 296,266 (138,845) 908,956 477,508 241,375 0 0 375 131,226 908,956 663,068 663,068 554,468 554,468 0 5,421 26,179 (175,776) 0 (175,776) 0 0 0 (189,976) (5.07) (5.07)
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