-----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, ETIjAlzDmlE5t0DnGuh1NtfSLDX26B0RWQJJ+vzwwV3ElWOfOO3f0E3q+gmIgHeN Jlbvyfop2xSgJsDJUe5aAw== 0000950133-01-001226.txt : 20010418 0000950133-01-001226.hdr.sgml : 20010418 ACCESSION NUMBER: 0000950133-01-001226 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORBITAL SCIENCES CORP /DE/ CENTRAL INDEX KEY: 0000820736 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 061209561 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14279 FILM NUMBER: 1603696 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-K 1 w47792e10-k.txt ORBITAL SCIENCE FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER 1-14279 ------------------------ ORBITAL SCIENCES CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 06-1209561 (STATE OF INCORPORATION OF REGISTRANT) (I.R.S. EMPLOYER I.D. NO.)
21700 ATLANTIC BOULEVARD DULLES, VIRGINIA 20166 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (703) 406-5000 (REGISTRANT'S TELEPHONE NUMBER) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON STOCK, PAR VALUE $0.01 (LISTED ON THE NEW YORK STOCK EXCHANGE) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing sales price as reported on the New York Stock Exchange on April 10, 2001 was approximately $120,411,788. As of April 10, 2001, 37,746,634 shares of the registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement dated April 16, 2001 are incorporated by reference in Part III of this Report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
ITEM PAGE - ---- ---- PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 11 Item 3. Legal Proceedings........................................... 11 Item 4. Submission of Matters to a Vote of Security Holders......... 11 Item 4A Executive Officers of the Registrant........................ 12 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 14 Item 6. Selected Financial Data..................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 16 Item 7A Quantitative and Qualitative Disclosures About Market Risk........................................................ 24 Item 8. Financial Statements and Supplementary Data................. 25 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 58 PART III Item 10. Directors and Executive Officers of the Registrant.......... 59 Item 11. Executive Compensation...................................... 59 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 59 Item 13. Certain Relationships and Related Transactions.............. 59 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 60
------------------------ Pegasus is a registered trademark and service mark of Orbital Sciences Corporation; Taurus is a registered trademark of Orbital Sciences Corporation; Orbital is a trademark of Orbital Sciences Corporation; OrbView and ORBIMAGE are registered service marks of Orbital Imaging Corporation; and ORBCOMM is a registered service mark of ORBCOMM Global L.P. 3 PART I ITEM 1. BUSINESS BACKGROUND Orbital Sciences Corporation, together with its subsidiaries ("Orbital" or the "company"), is a leading space technology systems company that designs, manufactures, operates and markets a broad range of space-related products and services. Our products and services include: - launch vehicles and advanced programs, - satellites and related space systems, - electronics and sensor systems, and - space robotics, satellite ground systems, and mapping and land information products and services. Orbital was incorporated in Delaware in 1987 to consolidate the assets, liabilities and operations of Space Systems Corporation and Orbital Research Partners, L.P. Since inception, it has been our strategy to develop and grow a core integrated business of space systems technologies and products, starting with the design and manufacturing of lightweight rockets, small satellites and other inexpensive space systems intended to capitalize on the commercial development of space. A major part of this strategy has centered on market- expanding innovations that we have pioneered, including the world's first privately-developed space launch vehicle, the first commercial orbit transfer vehicle, the first operational low-Earth orbit commercial communications network and the first hand-held satellite navigation and communications devices. During 2000, we adopted a strategy intended to focus on our core space technology businesses, primarily involving our satellites, launch vehicles and related space systems. Part of this strategy involves the sale of certain non-core assets. In October 2000, we sold our Fairchild Defense electronics business unit ("Fairchild") for approximately $100 million. In July 2000, our Canadian subsidiary, MacDonald, Dettwiler and Associates Ltd. ("MDA"), completed an initial public offering on the Toronto Stock Exchange, raising gross proceeds for itself of approximately $37,500,000 and $18,800,000 for Orbital. On April 12, 2001, our wholly owned subsidiary, MDA Holdings Corporation ("MDA Holdings"), which holds our shares in MDA, entered into an agreement with a group of Canadian institutional and private equity investors to sell 12,350,000 MDA shares at approximately $9.00 per share. The agreement is subject to customary closing conditions, including the receipt of regulatory approvals, and the parties expect to close the sale by mid-May 2001. Certain of the purchasers also have an option to acquire MDA Holdings' remaining 5,650,000 shares of MDA by May 31, 2001. We recently adopted a formal plan to dispose of our subsidiary, Magellan Corporation ("Magellan"), which designs, produces, distributes, sells and licenses Global Positioning System ("GPS")-based satellite access products, and our investment in Navigation Solutions LLC ("NavSol"), a joint venture engaged in satellite-aided automotive guidance and related value-added information services. We are continuing to explore the disposition of other non-core assets. We also have developed and funded several space-based services businesses, primarily through the following joint ventures: - Orbital Imaging Corporation ("ORBIMAGE"), which develops and operates commercial remote imaging satellites, and - ORBCOMM Global L.P. ("ORBCOMM"), which operates a low-Earth orbit satellite communications system designed to serve the global market for two-way data communications. ORBCOMM and ORBIMAGE have both recently experienced serious financial difficulties. ORBCOMM filed for protection under Chapter 11 of the U.S. Bankruptcy Code in September 2000. On April 12, 2001, ORBCOMM, Teleglobe Holding Corporation ("Teleglobe Holdings"), ORBCOMM's creditors committee, our subsidiary, Orbital Communications Corporation ("OCC"), and we signed a preliminary non-binding term sheet providing for a sale of ORBCOMM's assets to a newly formed consortium called International Licensees, LLC and for a comprehensive liquidating plan of reorganization for 1 4 ORBCOMM. There can be no assurance that the sale will be consummated, and if it is not, we expect that ORBCOMM's Chapter 11 reorganization proceeding would be converted to a Chapter 7 liquidation proceeding. In March 2001, ORBIMAGE defaulted on the interest payment obligations under its $225,000,000 11 5/8% Senior Notes due 2005. This debt is non-recourse to us. ORBIMAGE management currently estimates that ORBIMAGE has sufficient resources to meet its capital and operating requirements through May 2001. ORBIMAGE is seeking to restructure the Senior Notes and to obtain 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. DESCRIPTION OF ORBITAL'S PRODUCTS AND SERVICES Our products and services include launch vehicles and advanced programs, satellites and related space systems, electronics and sensor systems, and space robotics, satellite ground systems, and mapping and land information products and services, and are described more fully below. Our overall business is not seasonal to any significant extent. Customers that accounted for 10% or more of our consolidated 2000 revenues were the National Aeronautics and Space Administration ("NASA"), the U.S. Department of Defense ("DoD") and the Canadian Space Agency. LAUNCH VEHICLES AND ADVANCED PROGRAMS. We developed and produce the Pegasus and Taurus space launch vehicles that place small satellites into low-Earth orbit, and in 2000, we completed development of and successfully launched our first Minotaur space launch vehicle. Our Pegasus launch vehicle is launched from beneath our L-1011 carrier aircraft to deploy satellites weighing up to 1,000 pounds into low-Earth orbit. The Taurus launch vehicle is a ground-launched derivative of the Pegasus vehicle that can carry payloads weighing up to 3,000 pounds to low-Earth orbit. The ground-launched Minotaur launch vehicle combines Minuteman II rocket motors with our Pegasus technology to launch payloads of up to 1,500 pounds into low-Earth orbit. The Pegasus has performed a total of 30 missions, including two successful launches in 2000, one of which represented the first equatorial mission of a small-class commercial space launch vehicle. The Taurus has performed a total of five launches, including one successful mission in 2000 for the U.S. Department of Energy. Pegasus and Taurus customers have included various U.S. and international government and commercial customers. We perform Minotaur missions, including the first two launches in 2000, under a contract with the U.S. Air Force. Orbital's space launch technology has also been the basis for several other space and suborbital programs, including supporting efforts to develop technologies that could be applied to reusable launch vehicles, hypersonic aircraft, and missile defense systems. We also produce suborbital launch vehicles, which place payloads into a variety of high-altitude trajectories but, unlike space launch vehicles, do not place payloads into orbit around the Earth. Our suborbital launch products include suborbital vehicles and their principal subsystems, payloads carried by such vehicles, and related launch support installations and systems used in their assembly and operation. Customers typically use our suborbital launch vehicles to launch scientific and other payloads and for defense-related applications such as target signature and interceptor experiments. During 2000, the U.S. Navy awarded us a contract for the Supersonic Sea-Skimming Target Missile, which broadens the scope of our target launch vehicle products from ballistic missiles to supersonic, low-altitude, air-breathing cruise missiles. Our primary customers for suborbital launch vehicles include NASA and various branches of the U.S. military. Since 1982, we, including a predecessor company, have performed 106 suborbital missions. SATELLITES AND RELATED SPACE SYSTEMS. We design and manufacture small and medium-class satellites to be used in low-Earth orbit and in geosynchronous orbit. Since 1982, we, including two predecessor companies, have built and delivered 88 satellites for various commercial and governmental customers for a wide range of communications, broadcasting, remote imaging, scientific and military missions. In March 2001, the BSAT-2a satellite, based on our smaller geosynchronous orbit satellite platforms and the first of a pair of direct-to-home 2 5 digital television broadcasting satellites that we are building for Japan's Broadcasting Satellite System Corporation, was successfully launched aboard an Ariane 5 rocket. We design and manufacture various other space systems, including satellite command and data handling, attitude control and structural subsystems for a variety of government and commercial customers. In addition, we provide a broad range of spacecraft design and engineering services, including specialized space-related analytical engineering services for U.S. government agencies, including NASA, the Jet Propulsion Laboratory, DoD, the Naval Research Laboratory and the U.S. Department of Energy. ELECTRONICS AND SENSOR SYSTEMS. We design, develop and manufacture sophisticated sensors and analytical instruments for space, defense and industrial applications. Our instruments have successfully operated in space measuring ozone concentrations around the world. We also developed and produced an atmospheric monitoring system that was successfully activated in February 2001 aboard the International Space Station. We provide sensors performing similar functions for U.S. and British Navy nuclear submarines, and we are developing sensors for the DoD for use in the detection of chemical and biological weapons. In addition, we manufacture and market sensors that analyze gas properties for commercial customers in the petrochemical, natural gas, chemical, pharmaceutical, steel and other industries. Our transportation management systems division develops and produces fleet management systems using satellite-based automatic vehicle location systems that have been used primarily for metropolitan mass transit operators in the U.S. During 2000, we entered the international market with a major transportation management systems contract award in Singapore. Our transportation management systems combine GPS vehicle tracking technology with local area wireless and terrestrial communications to help transit agencies manage public bus and light rail systems. Major customers for our transportation management systems include the metropolitan mass transit authorities in Chicago, Houston, Denver, Oakland, Philadelphia, Baltimore, Washington, DC, Atlanta, Santa Clara and San Mateo (California) and Las Vegas, as well as a number of smaller state and municipal transit systems and vehicle fleets. Prior to the sale of Fairchild in October 2000, we developed and manufactured defense electronics products, including advanced avionics and data management systems for aircraft flight operations and ground support applications for U.S. and foreign military customers. We sold this business unit to a U.S. subsidiary of Smiths Industries plc for approximately $100,000,000. SPACE ROBOTICS, SATELLITE GROUND SYSTEMS, AND MAPPING AND LAND INFORMATION PRODUCTS AND SERVICES. Our space robotics, satellite ground systems, and mapping and land information products and services segment is conducted through our Vancouver, Canada-based MDA subsidiary. Through MDA Holdings, we owned 18,000,000 common shares, or 52% of MDA, at December 31, 2000, but as discussed above, MDA Holdings recently entered into an agreement to sell our remaining interest in MDA. MDA provides mission-critical information systems for space applications, natural resource and land management, automated aeronautical information and air traffic control systems and other command and control systems for military and civilian purposes. MDA has built a majority of the world's non-military imaging satellite ground stations, many of which are designed to receive and process data from major civil and commercial earth observation satellites currently in operation. Under a contract with the Canadian Space Agency, MDA is developing, constructing and will operate the Radarsat-2 high-resolution radar satellite, expected to be launched in 2003. MDA also designs, manufactures, markets and supports robotics systems primarily used on Space Shuttle missions and on the International Space Station. Since its first use in 1981, MDA's principal robotics product, the Shuttle Remote Manipulator System, or Canadarm, has performed successfully on 55 Space Shuttle missions involving satellite deployment and retrieval, Space Station assembly and other tasks. Over the last three years, MDA has leveraged its information systems capabilities to become an integrated land information products supplier, providing electronic access to land-related databases to support land purchase and related financing transactions, various other land-related information, and satellite and aircraft-based mapping services. MDA's BC OnLine operation is an advanced, online land information business providing businesses and individuals with access to government database information that is critical 3 6 for real estate and other transactions. In April 2000, MDA acquired the DataQuick Products division of Acxiom Corporation in order to expand into the U.S. market for real property information used by the real estate, mortgage and title insurance industries. The aggregate purchase price was approximately $56,000,000 paid in cash. In November 2000, MDA acquired all the assets of Atlantic Technologies LLC, a Huntsville, Alabama-based supplier of mapping and data services, for $8,500,000 in cash, and up to $6,000,000 in MDA shares to be issued over three years subject to specified conditions. In July 2000, MDA was selected by the British government's Land Registry and Improvement and Development Agency to provide a sophisticated e-commerce system for electronic delivery of comprehensive land ownership information for England and Wales. As previously noted, on April 12, 2001, our wholly owned subsidiary, MDA Holdings, entered into an agreement with a group of Canadian institutional and private equity investors to sell 12,350,000 MDA shares for approximately $9.00 per share. The parties expect this sale to close by mid-May 2001. Certain of the purchasers also have an option to acquire MDA Holdings' remaining MDA shares by May 31, 2001. Upon the closing of the initial sale, our existing agreements with MDA's other major shareholders, which, among other things, granted them a right, under certain circumstances, to exchange their MDA stock for common stock of Orbital pursuant to a specified formula, will terminate. SATELLITE SERVICES. We have also participated in satellite-based communications and remote imaging services, primarily through joint ventures that we account for on an equity method basis. ORBIMAGE Digital Imagery Services. ORBIMAGE is a provider of global space-based imagery, and currently operates two satellites that collect, process and distribute digital imagery of the Earth's surface, atmosphere and weather conditions. ORBIMAGE's imaging products and services are designed to provide customers with direct access to timely and competitively priced information concerning, among other things, the location and movement of military assets, urban growth, forestry and crop health, land and ocean-based natural resources and weather patterns and wind conditions. ORBIMAGE's principal satellite, OrbView-2 (operated under a licensing agreement with us), commenced commercial service in 1997 and is used by ORBIMAGE to deliver high-quality multispectral ocean imagery and land surface imagery to various scientific, government and commercial customers. ORBIMAGE expects to launch its first one-meter high-resolution satellite, OrbView-4, in the summer of 2001, with its second one-meter high resolution satellite, OrbView-3, planned to be launched in the first quarter of 2002. We believe that OrbView-4 will be the world's first satellite with commercially available hyperspectral imaging capability. Under a procurement agreement between Orbital and ORBIMAGE, Orbital is producing and launching the OrbView-3 and OrbView-4 satellites, and is constructing the related ground segment on a fixed-price basis. Orbital also provides ORBIMAGE with administrative services and technical support, generally on a cost-reimbursable basis. In addition, MDA is a supplier to ORBIMAGE of ORBIMAGE's regional ground stations. Pursuant to a license agreement, ORBIMAGE also will be MDA's exclusive U.S. distributor of Radarsat-2 data when the Radarsat-2 satellite is launched. ORBIMAGE is currently MDA's U.S. distributor of Radarsat-1 data. In the third quarter of 2000, as a result of ORBIMAGE's financial difficulties discussed below, we ceased recognizing revenues on the ORBIMAGE system procurement contract. We are, however, currently continuing to work under the procurement agreement to complete the production and launch of the satellites. We own approximately 100% of ORBIMAGE's outstanding common stock and approximately 54% of the voting interest in ORBIMAGE (after giving effect to the conversion of ORBIMAGE's convertible preferred stock), with the remainder of the voting interests owned primarily by the preferred stockholders. As a result of certain rights granted to the preferred stockholders, including the right to elect certain directors and have such directors participate in significant management decisions, we do not control the operational and financial affairs of ORBIMAGE. In March 2001, ORBIMAGE defaulted on its interest payment obligations under its $225,000,000 11 5/8% Senior Notes due 2005. ORBIMAGE management currently estimates that ORBIMAGE has sufficient 4 7 resources to meet its capital and operating requirements through May 2001. ORBIMAGE is seeking to restructure the Senior Notes and to obtain additional capital from third parties as well as its existing shareholders. We cannot be assured that such capital will be available on a timely basis or at all. ORBCOMM Communications Services. The ORBCOMM System consists of a network of 33 small LEO satellites in commercial service and ground segments designed to provide continuous low-cost monitoring, tracking and messaging communications coverage over most of the Earth's surface. ORBCOMM provides commercial data communications service primarily in the monitoring and tracking applications. The system is intended to be a reliable, cost-effective method of providing fixed asset monitoring, mobile asset tracking and data messaging services to a broad range of industrial and commercial customers around the world, enabling customers to collect data from multiple locations, track assets on a global basis and transmit and receive messages outside the coverage area of terrestrial services. It is designed to permit subscribers to use inexpensive communicators to send and receive short messages, high-priority alerts and other information, such as the location and condition of automobiles, trucks, railcars, industrial equipment, shipping vessels and other remote or mobile assets. In September 2000, ORBCOMM and its subsidiaries commenced reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code. On April 12, 2001, ORBCOMM, Teleglobe Holding Corporation, ORBCOMM's creditors committee, OCC and we signed a preliminary non-binding term sheet providing for a sale of ORBCOMM's assets to a newly formed consortium called International Licensees, LLC and for a comprehensive plan of reorganization for ORBCOMM. Under the liquidating plan of reorganization, we would contribute shares of our common stock having a market value of $6,500,000 (subject to a floor price of $3.75 per share and a ceiling price of $6.50 per share); OCC would transfer its Federal Communications Commission licenses relating to the ORBCOMM System; and we would release claims against ORBCOMM and receive releases from the ORBCOMM estate, including releases of potential preference claims of the ORBCOMM estate, and a release of OCC from the holders of at least a majority in principal amount of ORBCOMM's senior notes. We would also receive a substantial equity interest in the successor ORBCOMM entity. There can be no assurance that the sale and reorganization plan will be consummated, and if it is not, we expect that ORBCOMM's Chapter 11 reorganization proceeding would be converted to a Chapter 7 liquidation proceeding. DISCONTINUED OPERATIONS As a result of our recent adoption of a formal plan to dispose of Magellan and our investment in NavSol, our satellite access products line is now accounted for as discontinued operations. Magellan's product line consists of GPS-enabled navigation and positioning products for consumer markets as well as similar products that are used for professional and other high-precision industrial applications. During 2000, Magellan produced approximately 400,000 access product units. Its consumer products are marketed to recreational marine and general aviation customers and outdoor recreation users such as campers, hunters and hikers. Certain of Magellan's satellite guidance devices combine GPS and wireless data communications functions. Magellan has also entered the market for GPS-based car navigation products with its automotive navigation system, which uses satellite signals to provide electronic map guidance to individual motorists. Professional and industrial applications include using GPS for precision surveying, guiding aircraft under low-visibility conditions, monitoring movements of the Earth's surface for researchers, and managing natural resources. In addition, some of Magellan's higher-performance products incorporate technology that provides access to both the U.S. GPS satellites and GLONASS, the comparable Russian satellite navigation system, and improves performance and accuracy. Through a wholly owned subsidiary, we indirectly hold a 60% interest in NavSol, our satellite-based automotive information services joint venture with The Hertz Corporation. NavSol has installed 40,000 Magellan-supplied satellite-based car navigation systems that form the basis for the Hertz NeverLost rental car service. 5 8 Magellan's financial results are no longer included in our operational results and our equity interest in NavSol is no longer included in our earnings (losses) of affiliates for the year ended December 31, 2000 and prior years. Both operations are now reflected as a component of discontinued operations. * * * Financial information about the company's products and services, domestic and foreign operations and export sales is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the notes to the company's consolidated financial statements, and is incorporated herein by reference. COMPETITION Orbital believes that competition for sales of its products and services is based on performance and other technical features, price, reliability, scheduling and customization. The primary domestic competition for the Pegasus and Taurus launch vehicles comes from the Athena launch vehicles developed by Lockheed Martin Corporation ("Lockheed Martin"). In addition, the Israeli Shavit vehicle and other potential foreign launch vehicles could also pose competitive challenges to Pegasus. Competition for Taurus could come from various Russian launch vehicles. Competition to Pegasus and Taurus vehicles also exists in the form of partial or secondary payload capacity on larger boosters, including the Ariane, Atlas and Delta launch vehicles. Our primary competitors in the suborbital launch vehicle product line are Lockheed Martin, L-3 Communications and Space Vector Corporation. Our satellites and spacecraft subsystems products compete with products produced or provided by government entities and numerous private entities, including TRW Inc., Ball Aerospace and Technology Corporation ("Ball Aerospace"), Lockheed Martin, Boeing Corporation ("Boeing"), Spectrum Astro, Inc., EADS/Astrium, Alenia Aerospazio and Alcatel. Our sensors and instruments face competition from several established manufacturers, including Lockheed Martin, Ball Aerospace and ITT Industries, as well as from NASA, and various universities and research institutes. Our primary competition in transportation management systems is Siemens Corporation. MDA's information products face competition from First American Title Insurance Company, NationsData.com Inc. and Transamerica Intellitech. Major competitors in its information systems product lines include Raytheon Company, Lockheed Martin and Boeing. Many of our competitors are larger and have substantially greater resources than we do. Furthermore, it is possible that other domestic or foreign companies or governments, some with greater experience in the space industry and greater financial resources than Orbital, will seek to produce products or services that compete with our products or services. Any such foreign competitor could benefit from subsidies from or other protective measures by its home country. RESEARCH AND DEVELOPMENT We invest in product-related research and development to conceive and develop new products and services, to enhance existing products and services and to seek customer and, where appropriate, third-party strategic investments in these products and services. Our research and development expenses, excluding direct customer-funded development, were approximately $17,355,000, $25,021,000 and $28,790,000 for the fiscal years ended December 31, 2000, 1999 and 1998, respectively. PATENTS AND TRADEMARKS We rely, in part, on patents, trade secrets and know-how to develop and maintain our competitive position and technological advantage. We hold and have applications pending for various U.S. and foreign patents relating to the Pegasus vehicle, our satellites, and other systems and products. Certain of the trademarks and service marks used in connection with our products and services have been registered with the U.S. Patent and Trademark Office, the Canadian Intellectual Property Office and certain other foreign trademark authorities. 6 9 COMPONENTS, RAW MATERIALS AND CARRIER AIRCRAFT We purchase a significant percentage of our product components, including rocket propulsion motors, structural assemblies, electronic equipment and computer chips, from third parties. We also occasionally obtain from the U.S. government parts and equipment that are used in the production of our products or in the provision of our services. We have not experienced material difficulty in obtaining product components or necessary parts and equipment and we believe that alternatives to our existing sources of supply are available, although increased costs and possible delays could be incurred in securing alternative sources of supply. Our ability to launch our Pegasus vehicle depends on the availability of an aircraft with the capability of carrying and launching such space launch vehicle. We own the modified Lockheed L-1011 carrier aircraft that is used for the Pegasus vehicle. In the event that the L-1011 carrier aircraft were to be unavailable, we would experience significant delays, expenses and loss of revenues as a result of having to acquire and modify a new carrier aircraft. U.S. GOVERNMENT CONTRACTS During 2000, 1999 and 1998, approximately 34%, 39% and 46% of our total annual revenues were derived from contracts with the U.S. government and its agencies or from subcontracts with the U.S. government's prime contractors. Most of our U.S. government contracts are funded incrementally on a year-to-year basis. Changes in government policies, priorities or funding levels through agency or program budget reductions by the U.S. Congress or executive agencies or the imposition of budgetary constraints could materially adversely affect our financial condition or results of operations. The accuracy and appropriateness of our direct and indirect costs and expenses under our contracts with the U.S. government are subject to extensive regulation and audit by the Defense Contract Audit Agency or by other appropriate agencies of the U.S. government. These agencies have the right to challenge our cost estimates or allocations with respect to any such contract. Additionally, a substantial portion of payments to Orbital under U.S. government contracts are provisional payments that are subject to potential adjustment upon audit by such agencies. We believe that any adjustments likely to result from inquiries or audits of our contracts will not have a material adverse impact on our financial condition or results of operations. Since Orbital's inception, we have not experienced any material adjustments as a result of any such inquiries or audits. Orbital's major contracts with the U.S. government fall into three categories: firm fixed-price contracts, fixed-price incentive fee contracts and cost-plus-fee contracts. Under firm fixed-price contracts, work performed and products shipped are paid for at a fixed price without adjustment for actual costs incurred in connection with the contract. Therefore, we bear the risk of loss due to increased cost, although some of this risk may be passed on to subcontractors. Under fixed-price government contracts, we may receive progress payments, generally in an amount equal to between 80% and 95% of monthly costs and profits, or we may receive milestone payments upon the occurrence of certain program achievements, with final payments occurring at project completion. Fixed-price incentive fee contracts provide for sharing by Orbital and the customer of unexpected costs incurred or savings realized within specified limits, and may provide for adjustments in price depending on actual contract performance other than costs. Costs in excess of the negotiated maximum (ceiling) price and the risk of loss by reason of such excess costs are borne by Orbital, although some of this risk may be passed on to subcontractors. Under a cost-plus-fee contract, we recover our actual allowable costs incurred and receive a fee consisting of a base amount that is fixed at the inception of the contract and/or an award amount that is based on the U.S. government's subjective evaluation of the contractor's performance in terms of the criteria stated in the contract. All our U.S. government contracts and, in general, our subcontracts with the U.S. government's prime contractors provide that such contracts may be terminated for convenience by the U.S. government or the prime contractor, respectively. Furthermore, any of these contracts may become subject to a government-issued stop work order under which we would be required to suspend production. In the event of a termination for convenience, contractors should be entitled to receive the purchase price for delivered items, reimbursement for allowable costs for work in process and an allowance for reasonable profit thereon or adjustment for 7 10 loss if completion of performance would have resulted in a loss. From time to time we experience contract suspensions and terminations. In March 2001, NASA terminated for convenience our X-34 research and development contract. Although we are seeking to recover from NASA a significant portion of our costs associated with the X-34 program, including costs associated with modifications we made to our L-1011 aircraft to accommodate the X-34, as well as other termination and settlement costs, we cannot be assured that such recovery will occur on a timely basis, if at all. REGULATION Our ability to pursue our business activities is regulated by various agencies and departments of the U.S. government and, in certain circumstances, the governments of other countries. Commercial space launches require licenses from the U.S. Department of Transportation and operation of our L-1011 aircraft requires licenses from certain agencies of the DoT, including the Federal Aviation Administration. There can be no assurance that we will be successful in our efforts to obtain necessary licenses or regulatory approvals. The inability of Orbital to secure or maintain any necessary licenses or approvals or significant delays in obtaining such licenses or approvals could have a material adverse effect on the financial condition or results of operations of Orbital. BACKLOG Our firm backlog at December 31, 2000, was approximately $900,000,000. 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 approximately $4,200,000,000 at December 31, 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. Firm and total backlog at December 31, 2000 does not give effect to new orders received or contract terminations that occurred since that date. EMPLOYEES As of March 1, 2001, Orbital had approximately 4,200 full-time permanent employees. Certain employees of MDA's Ontario-based space robotics division are subject to collective bargaining agreements with the Canadian Auto Workers Union and Spar Professional and Allied Technical Association. None of our other employees are subject to collective bargaining agreements. We believe our employee relations are good. BUSINESS CONSIDERATIONS The Private Securities Litigation Reform Act of 1995 provides a safe harbor, in certain circumstances, for certain forward-looking statements made by or on behalf of Orbital. All statements other than those of historical facts included in this Annual Report on Form 10-K, including those related to the company's financial outlook, liquidity, goals, business strategy, projected plans and objectives of management for future operating results, are forward-looking statements. Such "forward-looking statements" involve unknown risks and uncertainties that may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements are and will be based on management's then-current views and assumptions regarding future events and operating performance. The following are some of the factors that could cause actual results to differ materially from information contained in our forward-looking statements: Our cash flow from operations in 2001 is expected to be insufficient to cover our capital requirements, operating requirements and debt service, and we expect to incur a net loss in 2001 before considering gains or losses from any asset sales. To meet our capital and operating requirements, we are seeking to sell certain non- 8 11 core assets, such as our interests in MDA, Magellan and NavSol, as discussed above, and to restructure business operations. We believe that the foregoing should facilitate our ability to raise additional capital from outside sources, but there can be no assurance that we will successfully implement this strategy. We need to pay down a significant portion of debt by June 30, 2001 in order to comply with certain covenants under our primary debt facilities. Our inability to raise additional capital during the second quarter of 2001 could have a material adverse effect on our business. Given these uncertainties, and in view of our failure to close the foregoing asset sales by mid-April 2001, our independent auditors have concluded there exists substantial doubt as to our ability to continue as a going concern, and accordingly, have included "going concern" uncertainty paragraph in their report on our December 31, 2000 consolidated financial statements. It is customary for commercial and international contracts to require the contractor to post performance bonds or letters of credit pending completion of work, or to provide other assurances with respect to the contractor's financial condition. This is the case with several of our existing contracts. Due to our liquidity constraints, we may be unable to comply with such requirements under existing contracts or pending contract awards; in such circumstances, the customer may be entitled to terminate its contract with us without penalty. In addition, we may be constrained in our ability to bid on contracts with these requirements. Government contracting rules typically require a contracting officer to make a determination of financial responsibility prior to awarding a new contract. The U.S. government may also seek assurances that a contractor's financial condition will not impair its continued performance under contracts. Our liquidity constraints and financial condition may impact our ability to win new U.S. government contracts or the government's determination to exercise options under existing contracts. The majority of our contracts are long-term contracts. We recognize revenues on long-term contracts using the percentage of completion method of accounting, whereby revenue, and therefore profit, is recognized based on actual costs incurred in relation to total estimated costs to complete the contract or based on specific delivery terms and conditions. Revenue recognition and profitability, if any, from a particular contract may be adversely affected to the extent that original cost estimates, estimated costs to complete or incentive or award fee estimates are revised, delivery schedules are delayed, or progress under a contract is otherwise impeded. Most of the products we develop and manufacture are technologically advanced and sometimes novel systems that must function under demanding operating conditions and are subject to significant technological change and innovation. We have experienced product failures or other operational problems. In addition to any costs resulting from product warranties or required remedial action, product failures may result in increased costs or loss of revenues due to postponement or cancellation of subsequently scheduled operations or product deliveries. Our financial performance generally, and investments that we make in the development of new technologies for new products or existing product enhancements, depend on several factors including, among other things, the successful and timely funding and implementation of innovative and novel technologies involving complex systems in a cost-effective manner, the establishment and expansion of commercial markets and customer acceptance, competition and such entities' ability to raise necessary capital. If we conclude at any time that our investments are not recoverable, we may be required to write off part or all of such investments. In 2000, we wrote off our investment in ORBCOMM. In 2001, we were required to cease development and production of the X-34 reusable launch vehicle, which we had been developing pursuant to a research and development contract that NASA terminated for convenience. In March 2001, ORBIMAGE defaulted on its interest payment obligations under its outstanding public debt. The debt is non-recourse to Orbital. ORBIMAGE management currently estimates that ORBIMAGE has sufficient resources to meet its capital and operating requirements through May 2001. ORBIMAGE is seeking to restructure its outstanding debt and to obtain 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. At December 31, 2000, a significant portion of our total firm contract backlog was attributable to contracts with the U.S. government and its agencies or from subcontracts with prime contractors to the U.S. government. Most of our government contracts are funded incrementally on a year-to-year basis. Changes in 9 12 government policies, priorities or funding levels through agency or program budget reductions by the U.S. Congress or executive agencies could materially adversely affect our financial condition or results of operations. Furthermore, contracts with the U.S. government may be terminated or suspended by the U.S. government at any time, with or without cause. Such contract suspensions or terminations could result in unreimbursable expenses or charges or otherwise adversely affect our business. In March 2001, NASA terminated for convenience our X-34 research and development contract. Although we are seeking to recover from NASA a significant portion of our costs associated with such termination for convenience, there can be no assurance that we will be successful in recovering all our costs on a timely basis, if at all. The accuracy and appropriateness of our direct and indirect costs and expenses under our contracts with the U.S. government are subject to extensive regulation and audit by the Defense Contract Audit Agency or by other appropriate agencies of the U.S. government. These agencies have the right to challenge our cost estimates or allocations with respect to any such contract. A substantial portion of payments to us under U.S. government contracts are provisional payments that are subject to potential adjustment upon audit by such agencies. The creditors committee of ORBCOMM has notified us that they believe ORBCOMM's bankruptcy estate is entitled to recover approximately $57,000,000 in allegedly preferential payments that we received in connection with the sale of satellites and launch services to ORBCOMM during the one-year period preceding ORBCOMM's bankruptcy filing. The creditors committee has also asserted that the ORBCOMM estate is entitled to recover approximately $900,000 in allegedly preferential payments received by MDA. We believe that all such claims are without merit and that we have adequate defenses to all such claims. As previously discussed, the current proposed ORBCOMM liquidating plan of reorganization, if implemented, would include a release of the foregoing claims. The costs and other effects of pending or possible litigation or governmental investigations could have an adverse effect on our business and could divert the attention of management from ongoing business matters. Orbital (not including MDA) leases approximately 1,500,000 square feet of office, engineering and manufacturing space, which exceeds our current operational needs. We sublease approximately 125,000 square feet to ORBCOMM, and we have an agreement with ORBIMAGE pursuant to which ORBIMAGE is required to reimburse us for use of our facilities. ORBIMAGE is in default on its rent payments, and there can be no assurance that ORBCOMM and ORBIMAGE will be able to pay us their rent on a timely basis, or at all. Our inability to sublease significant portions of our facilities on commercially reasonable terms could have a material adverse impact on our financial condition. Virtually all our products and services face significant competition from existing competitors, many of whom are larger and have substantially greater resources than we do. Furthermore, the possibility exists that other domestic or foreign companies or governments will seek to produce products or services that compete with our products or services. A foreign competitor could benefit from subsidies from, or other protective measures by, its home country. 10 13 ITEM 2. PROPERTIES We lease almost 2,000,000 square feet of office, engineering and manufacturing space in various locations, primarily in the United States and Canada, as summarized in the table below:
BUSINESS UNIT PRINCIPAL LOCATION(S) - ------------- --------------------- Corporate Headquarters....................... Dulles, Virginia Launch Systems and Advanced Programs......... Dulles, Virginia; Chandler, Arizona Satellite and Related Space Systems.......... Dulles, Virginia; Germantown, Maryland (currently being consolidated into Dulles location); Greenbelt, Maryland Electronics and Sensor Systems............... Pomona, California; Columbia, Maryland MDA.......................................... Richmond, British Columbia; Brampton, Ontario; San Diego, California; Huntsville, Alabama
We also own a 125,000 square foot state-of-the-art satellite manufacturing facility that houses our satellite manufacturing, assembly and testing activities, in Dulles, Virginia. This facility, and our leasehold interest in our corporate headquarters, have been pledged as collateral under our primary credit facility. We believe that our existing facilities are adequate for our requirements. ITEM 3. LEGAL PROCEEDINGS PT Media Citra Indostar ("MCI") and Orbital are involved in an arbitration proceeding pursuant to which MCI is seeking to recover $163,000,000 in connection with the Indostar satellite constructed by CTA Incorporated ("CTA") under a contract that was assigned to Orbital in connection with our CTA acquisition. In this proceeding, we are also seeking to recover $14,000,000 for amounts still owed to Orbital in connection with the project. The parties are currently engaged in discovery and a hearing on the merits is scheduled to commence in February 2002. In addition, under the terms of the CTA acquisition, we believe we are entitled to indemnification from CTA for all or a part of any damages arising from the MCI litigation and that CTA retains liability for certain fraud claims being made by MCI. Orbital is also arbitrating a claim filed by Thomas van der Heyden alleging that Orbital is in actual or anticipatory breach of obligations allegedly imposed on Orbital in a judgment in a previous action 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. In addition, under the terms of the CTA acquisition, we believe we are entitled to indemnification from CTA for all or a part of any damages arising from the van der Heyden litigation. We believe that the allegations in the legal proceedings described above are without merit and intend to vigorously defend against the allegations. In March 2001, MDA and certain of its executive officers, as well as the Province of British Columbia and various provincial government officials, were named in a lawsuit brought by Infowest Services Inc. alleging various conspiracies among MDA and others, breach of contract, abuse of government power and other related allegations in connection with the BC Online procurement during 1997 to 1999. The lawsuit seeks over $80,000,000 in damages. MDA believes that these claims are without merit and intends to vigorously defend against the allegations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There was no matter submitted to a vote of our security holders during the fourth quarter of 2000. 11 14 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the name, age and position of each of the executive officers of Orbital as of March 1, 2001. All executive officers are elected annually and serve at the discretion of the Board of Directors.
NAME AGE POSITION - ---- --- -------- David W. Thompson.................................. 46 Chairman of the Board and Chief Executive Officer James R. Thompson.................................. 64 Director, President and Chief Operating Officer, Acting General Manager/Space Systems Group Garrett E. Pierce.................................. 56 Director, Executive Vice President and Chief Financial Officer Leslie C. Seeman................................... 48 Executive Vice President, General Counsel and Secretary Ronald J. Grabe.................................... 55 Executive Vice President and General Manager/ Launch Systems Group Michael D. Griffin................................. 51 Executive Vice President and Chief Technical Officer, and Acting President, Magellan Robert D. Strain................................... 44 Executive Vice President and General Manager/ Electronics and Sensor Systems Group Antonio L. Elias................................... 51 Senior Vice President, Advanced Programs Group Daniel E. Friedmann................................ 44 President, MDA
David W. Thompson is a co-founder of Orbital and has been Chairman of the Board and Chief Executive Officer of Orbital since 1982. From 1982 until October 1999, he also served as our President. Prior to founding Orbital, Mr. Thompson was employed by Hughes Electronics Corporation as special assistant to the President of its Missile Systems Group and by NASA at the Marshall Space Flight Center as a project manager and engineer, and also worked on the Space Shuttle's autopilot design at the Charles Stark Draper Laboratory. Mr. Thompson serves as Chairman of the Board of both ORBIMAGE and MDA. Mr. Thompson is a Fellow of the American Institute of Aeronautics and Astronautics, the American Astronautical Society and the Royal Aeronautical Society. James R. Thompson (who is not related to David W. Thompson) has been President and Chief Operating Officer since October 1999 and a director of the Company since 1992. From 1993 until October 1999, Mr. Thompson served as Executive Vice President and General Manager/Launch Systems Group. Mr. Thompson was Executive Vice President and Chief Technical Officer of Orbital from 1991 to 1993. He was Deputy Administrator of NASA from 1989 to 1991. From 1986 until 1989, Mr. Thompson was Director of NASA's Marshall Space Flight Center. Mr. Thompson was Deputy Director for Technical Operations at Princeton University's Plasma Physics Laboratory from 1983 through 1986. Before that, he had a 20-year career with NASA at the Marshall Space Flight Center. He is a director of MDA, Nichols Research Corp. and SPACEHAB Incorporated. Garrett E. Pierce has been Executive Vice President and Chief Financial Officer since August 2000 and a director of the Company since August 2000. From 1996 until July 2000, he was Executive Vice President and Chief Financial Officer of Sensormatic Electronics Corp., where he was also named Chief Administrative Officer in July 1998. From 1993 to 1996, Mr. Pierce was the Executive Vice President and Chief Financial Officer of California Microwave, Inc., a leading supplier of microwave, radio frequency, and satellite systems and products for communications and wireless networks. From 1980 to 1993, Mr. Pierce was with Materials Research Corporation, a leading provider of thin film equipment and high purity materials to the semiconductor, telecommunications and media storage industries, where he progressed from Chief Financial Officer to President and Chief Executive Officer. Materials Research Corporation was acquired by Sony Corporation as 12 15 a whollyowned subsidiary in 1989. From 1972 to 1980, Mr. Pierce held various management positions with AlliedSignal. Michael D. Griffin has been Executive Vice President and Chief Technical Officer since 1997, and has served as acting President of Magellan since July 2000. From 1996 to 1997, Dr. Griffin served as Executive Vice President/Space Systems Group. Dr. Griffin joined Orbital in 1995 when he was appointed Senior Vice President and Chief Technical Officer. From 1994 to 1995, he was Senior Vice President for Program Development at Space Industries International. From 1991 to 1994, he served as Chief Engineer of NASA and, from 1989 to 1991, was Deputy Director for Technology at the Strategic Defense Initiative Organization. Leslie C. Seeman has been Executive Vice President and General Counsel of Orbital since January 2000 and served as Senior Vice President and General Counsel from 1993 to January 2000. From 1989 to 1993, she was Vice President and General Counsel of Orbital, and from 1987 to 1989, Ms. Seeman was Assistant General Counsel of Orbital. From 1984 to 1987, she was General Counsel of Source Telecomputing Corporation, a telecommunications company. Prior to that, she was an attorney at the law firm of Wilmer, Cutler and Pickering. Ronald J. Grabe has been Executive Vice President and General Manager/Launch Systems Group since 1999. From 1996 to 1999, he was Senior Vice President and Assistant General Manager of the Launch Systems Group, and Senior Vice President of the Launch Systems Group since 1995. From 1994 to 1995, Mr. Grabe served as Vice President for Business Development in the Launch Systems Group. From 1980 to 1993, Mr. Grabe was a NASA astronaut during which time he flew four Space Shuttle missions and was lead astronaut for development of the International Space Station. Robert D. Strain has been Executive Vice President and General Manager/Electronics and Sensor Systems and Transportation Management Systems Group since 1996. From 1994 until 1996, he was Vice President for Finance and Manufacturing at Orbital. Prior to that, he served in a variety of senior-level financial positions with Fairchild Space and Defense Corporation, including Vice President of Finance, Treasurer and Controller. Antonio L. Elias has been Senior Vice President/Advanced Programs Group since August 1997. From January 1996 until August 1997, Dr. Elias served as Senior Vice President and Chief Technical Officer. From May 1993 through December 1995 he was Senior Vice President for Advanced Projects and was Senior Vice President/Space Systems Division from 1990 to April 1993. He was Vice President/Engineering of Orbital from 1989 to 1990 and was Chief Engineer from 1986 to 1989. From 1980 to 1986, Dr. Elias was an Assistant Professor of Aeronautics and Astronautics at Massachusetts Institute of Technology. Daniel E. Friedmann has been President and Chief Executive Officer of MDA since 1995. From 1992 to 1995, he served as Executive Vice President and Chief Operating Officer of MDA. Between 1979 and 1992, he held a variety of positions at MDA, including serving as Vice President of various divisions. 13 16 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS On March 20, 2001, there were 1,315 Orbital stockholders of record. Our common stock began trading on the New York Stock Exchange ("NYSE") on July 10, 1998 under the symbol ORB. Prior to that our common stock was traded on the Nasdaq National Market under the symbol ORBI. The range of high and low sales prices of Orbital common stock from 1998 through 2000, as reported on Nasdaq or the NYSE, as applicable, was as follows:
2000 HIGH LOW - ---- ---- --- 4th Quarter................................................. $ 9 $ 3 11/16 3rd Quarter................................................. $15 1/2 $ 7 5/8 2nd Quarter................................................. $15 5/16 $11 1st Quarter................................................. $19 1/2 $12 13/16
1999 HIGH LOW - ---- ---- --- 4th Quarter................................................. $19 1/4 $10 3/5 3rd Quarter................................................. $26 1/4 $16 1/4 2nd Quarter................................................. $29 3/4 $19 1/2 1st Quarter................................................. $45 1/3 $19 1/3
1998 HIGH LOW - ---- ---- --- 4th Quarter................................................. $44 $19 1/2 3rd Quarter................................................. $39 $17 2nd Quarter................................................. $50 $32 1/4 1st Quarter................................................. $46 1/2 $29
We have never paid any cash dividends on our common stock, nor do we anticipate paying cash dividends on our common stock at any time in the foreseeable future. In addition, we are prohibited from paying cash dividends under our credit facility. The transfer agent for our common stock is: The First National Bank of Boston c/o Equiserve P.O. Box 8040 Boston, MA 02266-8040 Telephone: (781) 575-3170 www.equiserve.com The trustee for our 5% convertible subordinated notes due 2002 is: Deutsche Bank AG, New York Branch 31 W. 52nd St. New York, NY 10019 14 17 ITEM 6. SELECTED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and notes thereto included in this Annual Report on Form 10-K. The consolidated operating data for the three-year period ended December 31, 2000 and the consolidated balance sheet data at December 31, 2000 and 1999 are derived from and should be read in conjunction with our consolidated financial statements and notes thereto included in this Annual Report on Form 10-K. The consolidated operating data for the years ended December 31, 1997 and 1996 and the consolidated balance sheet data at December 31, 1998, 1997 and 1996 are derived from our consolidated financial statements not included or incorporated by reference herein. Certain information has been reclassified for the discontinued operations discussed in Note 2 to the consolidated financial statements.
YEARS ENDED DECEMBER 31, -------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT SHARE DATA) OPERATING DATA: Revenues..................................... $ 725,669 $ 766,372 $ 628,995 $ 491,133 $ 385,200 Costs of goods sold.......................... 640,531 667,970 475,953 373,524 285,527 ---------- ---------- ---------- ---------- ---------- Gross profit................................. 85,138 98,402 153,042 117,609 99,673 Operating expenses........................... 211,429 141,649 110,691 99,860 83,666 ---------- ---------- ---------- ---------- ---------- Income (loss) from operations................ (126,291) (43,247) 42,351 17,749 16,007 Equity in earnings (losses) of affiliates.... (121,482) (97,190) (76,815) (25,094) (7,008) Other income, net............................ 35,340 46,412 3,312 23,537 1,804 ---------- ---------- ---------- ---------- ---------- Income (loss) before provision for income taxes, discontinued operations............. (212,433) (94,025) (31,152) 16,192 10,803 Provision for income taxes................... 15,791 11,104 5,216 12,933 1,831 ---------- ---------- ---------- ---------- ---------- Income (loss) before discontinued operations................................. (228,224) (105,129) (36,368) 3,259 8,972 Income (loss) from discontinued operations... (49,966) (16,808) (20,184) (14,664) 970 ---------- ---------- ---------- ---------- ---------- Net income (loss)............................ $ (278,190) $ (121,937) $ (56,552) $ (11,405) $ 9,942 ========== ========== ========== ========== ========== INCOME (LOSS) PER COMMON SHARE(1): Income (loss) before discontinued operations................................. $ (6.09) $ (2.82) $ (1.02) $ 0.10 $ 0.31 ---------- ---------- ---------- ---------- ---------- Net income (loss)............................ $ (7.42) $ (3.27) $ (1.59) $ (0.35) $ 0.34 ---------- ---------- ---------- ---------- ---------- Shares used in computing per share amounts... 37,467,520 37,281,065 35,624,888 32,283,138 29,137,361 BALANCE SHEET DATA: Cash and investments......................... $ 79,655 $ 109,058 $ 23,064 $ 8,918 $ 33,441 Net working capital.......................... (169,233) (39,031) (53,053) 53,203 60,275 Total assets................................. 763,258 1,054,525 855,079 714,576 479,512 Short-term borrowings........................ 137,227 131,066 26,294 29,317 38,969 Long-term obligations, net................... 165,717 239,664 180,626 198,394 33,076 Stockholders' equity......................... 44,151 306,792 419,352 313,984 323,795
- --------------- (1) Income (loss) per common share is calculated using the weighted average number of shares outstanding during the periods. Income (loss) per common share, assuming dilution, is calculated using the weighted average number of shares and dilutive equivalent shares outstanding during the periods, plus the dilutive effect of an assumed conversion of our convertible subordinated notes. Per share amounts assuming dilution for 1996 through 2000 are the same as the per share amounts shown in this table. 15 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW With the exception of historical information, the matters discussed below under the headings "Recent Developments," "Results of Operations," "Liquidity and Capital Resources" and elsewhere in this Annual Report include forward-looking statements that involve risks and uncertainties, many of which are beyond our control. We wish to caution readers that a number of important factors, including those identified above in "Item 1 -- Business Considerations," may affect our actual results and may cause actual results to differ materially from those anticipated or expected in any forward-looking statement. We have adopted a strategy intended to focus on our core space technology business units. This strategy includes the disposition of certain non-core assets. Subsequent to December 31, 2000, we adopted a formal plan to dispose of Magellan Corporation ("Magellan"), which designs, produces, distributes, sells and licenses satellite access products, and our investment in Navigation Solutions LLC ("NavSol"), a joint venture engaged in satellite-aided automotive guidance and related value-added information services. Accordingly, Magellan's financial results are no longer included in our operational results and our equity interest in NavSol is no longer included in our earnings (losses) of affiliates for the year ended December 31, 2000 and prior years, but are now reported as "Discontinued Operations." For the year ended December 31, 2000, we recorded a $49,966,000 loss from discontinued operations, including an estimated $33,053,000 loss on the planned disposition of Magellan's and NavSol's net assets. We own substantially all the common stock of Orbital Imaging Corporation ("ORBIMAGE"). We exercise significant influence over ORBIMAGE's operational and financial affairs, but we do not control such affairs. We use the equity method of accounting for our ownership interest in ORBIMAGE. We also accounted for our investment in ORBCOMM Global L.P. ("ORBCOMM") using the equity method of accounting through the second quarter of 2000. We held an approximately 32% limited partnership interest in ORBCOMM as of December 31, 2000. We recognized 100% of the revenues earned and costs incurred on sales of products and services to ORBCOMM and ORBIMAGE. We eliminated our share of profits from these sales to the extent these entities were capitalizing system construction costs. As a result of the weakened financial condition of ORBCOMM and ORBIMAGE, however, we stopped recognizing revenues on sales to ORBCOMM and ORBIMAGE effective June and July 2000, respectively. In September 2000, ORBCOMM and its subsidiaries commenced a reorganization proceeding under Chapter 11 of the U.S. Federal Bankruptcy Code. Accordingly, we recorded non-cash charges totaling $113,123,000 in 2000 to fully write off our investment in ORBCOMM and to write down ORBCOMM-related receivables and related inventories. Although management believes at this time that these write-offs are sufficient to cover our current exposure, such reserves do not include any additional charges to Orbital that might result should any disputes, litigation or unforeseen contingencies related to ORBCOMM arise. RECENT DEVELOPMENTS X-34 Program Since 1996, we have been developing, constructing and testing several X-34 reusable rocketplanes under a contract with the National Aeronautics and Space Administration ("NASA"). NASA terminated this contract for convenience in March 2001. We determined that our estimated future cash flows from X-34 related plant, property and equipment would not be sufficient to recover the recorded cost. Accordingly, we recorded an asset impairment charge of $15,911,000 in the fourth quarter of 2000 to write down X-34 related property, plant and equipment to their estimated realizable values. We also recorded a $3,400,000 provision for potentially uncollectible accounts receivable (recorded as selling, general and administrative expense). While we are seeking to recover from NASA a significant portion of our costs associated with the X-34 contract, there can be no assurance that such a recovery will occur on a timely basis, if at all. 16 19 Sale of MDA Shares On April 12, 2001, our wholly owned subsidiary, MDA Holdings Inc. ("MDA Holdings"), which holds our shares in MacDonald, Dettwiler and Associates Ltd. ("MDA"), entered into an agreement with a group of Canadian institutional and private equity investors to sell 12,350,000 shares for approximately $9.00 per share before fees and expenses. The agreement is subject to customary closing conditions, including the receipt of regulatory approvals, and the parties expect to close the sale by mid-May 2001. Certain of the purchasers also have an option to acquire MDA Holdings' remaining 5,650,000 shares of MDA by May 31, 2001. RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 Our products and services are grouped into four reportable segments: (i) launch vehicles and advanced programs, (ii) satellites and related space systems, (iii) electronics and sensor systems, and (iv) space robotics, satellite ground systems, and mapping and land information products and services. All other activities of the company are reported in corporate and other. As noted previously, for all periods, the financial information for Magellan and NavSol has been reflected as discontinued operations. REVENUES Our consolidated revenues for the year ended December 31, 2000 were $725,669,000 as compared to $766,372,000 for 1999 and $628,995,000 for 1998. Consolidated revenues in 2000, 1999 and 1998 included approximately $32,909,000, $97,069,000 and $125,602,000, respectively, from sales to ORBCOMM and ORBIMAGE. The following table summarizes revenues from our business segments:
YEARS ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- -------- -------- (IN THOUSANDS) Launch Vehicles and Advanced Programs(1)........... $119,588 $157,032 $179,591 Satellites and Related Space Systems(2)............ 206,339 257,431 227,042 Electronics and Sensor Systems(3).................. 146,387 149,991 125,758 Space Robotics, Satellite Ground Systems, and Mapping and Land Information Products and Services(4)...................................... 253,230 199,792 95,845 Corporate and Other................................ 125 2,126 759 -------- -------- -------- TOTAL.............................................. $725,669 $766,372 $628,995 ======== ======== ========
- --------------- (1) Revenues from launch vehicles and advanced programs decreased significantly from 1999 to 2000 primarily due to the suspension of revenue recognition under the company's procurement agreements with ORBCOMM and ORBIMAGE, as discussed previously. Additionally, revenues from the X-34 program declined in 2000 due to a decrease in the percentage of the contract completed in 2000 as compared to 1999. The decrease in revenues from 1998 to 1999 related primarily to customer-induced launch schedule delays by our government customers and slowed demand from our commercial customers. (2) Revenues from satellites and related space systems decreased significantly from 1999 to 2000 primarily due to the suspension of revenue recognition under the company's procurement agreements with ORBCOMM and ORBIMAGE and the cancellation of a major satellite construction contract in the fourth quarter of 1999 by a Canadian customer because of difficulties in obtaining the necessary U.S. government export authorizations. Additionally, revenues from a commercial geosynchronous satellite contract declined in 2000 due to a decrease in the percentage of the contract completed in 2000 as compared to 1999. 17 20 The increase in satellite revenues from 1998 to 1999 was due, in part, to revenues recognized from a commercial geosynchronous satellite contract on which work commenced in 1999, offset, in part, by reduced revenues resulting from estimated contract cost increases on certain satellite contracts in 1999. (3) Revenues from electronics and sensor systems decreased in 2000 as compared to 1999 primarily due to the sale of our Fairchild Defense electronics business unit ("Fairchild") in October 2000. The decrease in revenues was largely offset by an increase in transportation management systems revenues under existing and new contracts. The increase in electronics and sensor systems revenues from 1998 to 1999 was primarily due to defense electronics contract awards in early 1999, as well as to an increase in transportation management systems revenues primarily as a result of the December 1998 acquisition of Raytheon Company's ("Raytheon") transportation management systems business. (4) Revenues from space robotics, satellite ground systems, and mapping and land information products and services increased significantly from 1999 to 2000 primarily as a result of MDA's acquisition of the DataQuick Products division of Acxiom Corporation ("DataQuick") in April 2000, a full year of revenues attributable to our space robotics business and the BC OnLine license, both of which were acquired in May 1999, and orders received in late 1999 for several satellite ground systems and system upgrades. The increase in revenues in space robotics, satellite ground systems, and mapping and land information products and services in 1999 as compared to 1998 was attributable to the acquisition of our space robotics product line in 1999, which accounted for $92,111,000 of the 1999 revenues for this segment. GROSS PROFIT/COSTS OF GOODS SOLD Gross profits and margins depend on a number of factors, including the mix of contract types and costs incurred thereon in relation to revenues recognized. Costs of goods sold include the costs of personnel, materials, subcontracts and overhead related to commercial products and to costs incurred under various development and production contracts. Gross profits and margins by business segment were as follows:
YEARS ENDED DECEMBER 31, ----------------------------------------------------------- 2000 1999 1998 ------------------ ----------------- ------------------ GROSS % OF GROSS % OF GROSS % OF PROFIT REVENUE PROFIT REVENUE PROFIT REVENUE -------- ------- ------- ------- -------- ------- (IN THOUSANDS) Launch Vehicles and Advanced Programs(1)............................ $ 24,994 21% $ 8,572 5% $ 43,591 24% Satellites and Related Space Systems(2)............................. (26,707) (13) 9,557 4 50,052 22 Electronics and Sensor Systems(3)........ 29,840 20 36,206 24 36,620 29 Space Robotics, Satellite Ground Systems, and Mapping and Land Information Products and Services(4)............... 56,886 22 44,161 22 23,057 24 Corporate and Other...................... 125 -- (94) -- (278) -- -------- --- ------- -- -------- -- TOTAL.................................... $ 85,138 12% $98,402 13% $153,042 24% ======== === ======= == ======== ==
- --------------- (1) Gross margins for launch vehicles and advanced programs increased significantly from 1999 to 2000 primarily due to more efficient execution of several launch vehicle contracts, improved margins on the X-34 contract and a $2,600,000 settlement on the closeout of a contract with NASA relating to one of our early launch vehicle products. In addition, 1999 gross margins were negatively impacted by a $14,820,000 write-down in 1999 to costs of goods sold relating to certain software and inventory produced under a contract that was cancelled in 1999. Gross margins for this segment decreased between 1998 and 1999 primarily due to the write-down described above, as well as cost increases on certain advanced launch vehicle contracts principally occurring in the fourth quarter of 1999. (2) Gross margins for satellites and related space systems decreased significantly from 1999 to 2000 primarily due to significant cost growth on a large number of our satellite construction programs. The cost growth is 18 21 primarily associated with schedule delays resulting from non-recurring design and production activities on geosynchronous and remote sensing satellite construction contracts. The estimated costs to complete these programs exceed the applicable contract values and, accordingly, we recorded provisions in 2000 with respect to the anticipated losses. As these contracts are in a loss position, they will not contribute to gross margins in 2001. Profit margins in this product line decreased significantly from 1998 to 1999 primarily as a result of a change in the mix of satellite contracts to include lower margin geosynchronous satellite contracts and cost growth on certain other satellite contracts. (3) Gross margins for electronics and sensor systems decreased from 1999 to 2000 primarily due to the sale of our higher margin Fairchild unit in October 2000, as well as to lower margins attributable to cost growth on certain transportation management system contracts. In addition, we recorded a provision for costs related to the termination of a transportation management systems contract in the third quarter of 2000, which also contributed to the decline in gross margins for this business segment. Profit margins in this product line decreased from 1998 to 1999 primarily as a result of a change in the mix of contracts following the December 1998 acquisition of Raytheon's transportation management systems product line. (4) Gross margins for space robotics, satellite ground systems, and mapping and land information products and services increased slightly from 1999 to 2000, primarily due to the April 2000 acquisition of DataQuick, which is a higher margin land information products business, offset in part by lower margin work on space robotics contracts and on several ground system contracts. Gross margins for this product line decreased from 1998 to 1999 primarily as a result of sales of lower margin land information products and services and an increase in the amount of lower margin subcontract work on several ground systems contracts. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses include our self-funded product development activities and exclude direct customer-funded development. Research and development expenses for 2000, 1999 and 1998 were $17,355,000 (2% of revenues) $25,021,000 (3% of revenues) and $28,790,000 (5% of revenues), respectively. Research and development expenses relate primarily to the development of improved launch vehicles and new satellite and robotics systems. 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 were $112,811,000 (16% of revenues), $92,171,000 (12% of revenues) and $73,562,000 (12% of revenues) in 2000, 1999 and 1998, respectively. The increase in selling, general and administrative expenses in 2000 was primarily attributable to an accrual in 2000 for projected facility sublease losses, provisions for X-34 and ORBIMAGE-related receivables, expenses associated with MDA's acquisition activity and higher professional services fees. The increase in selling, general and administrative expenses in 1999 as compared to 1998 is attributable to the expansion of our business and the acquisition of product lines and businesses. PROVISION FOR DOUBTFUL ORBCOMM ACCOUNTS As a result of ORBCOMM's Chapter 11 filing, we recorded a $53,713,000 charge to write down ORBCOMM receivables to their estimated realizable value. ASSET IMPAIRMENTS As noted previously, we recorded an asset impairment charge of $15,911,000 in the fourth quarter of 2000 to write down X-34-related property, plant and equipment to their estimated realizable values. In December 1999, we determined that the carrying value of a specialized voice communications satellite system that we constructed and launched would no longer be recoverable through the expected future sales of 19 22 the related products or services. We recorded a $15,217,000 asset impairment charge with respect to this asset in the fourth quarter of 1999. INTEREST EXPENSE Interest cost, before deducting capitalized interest, was $30,355,000, $25,896,000 and $17,585,000 for 2000, 1999 and 1998, respectively. We capitalized interest costs totaling $1,846,000, $3,083,000 and $11,638,000 in 2000, 1999 and 1998, respectively. Interest expense increased in 2000 as a result of higher average borrowings and higher interest rates. Interest expense increased in 1999 from 1998 primarily due to an increase in debt outstanding and a decision to stop capitalizing interest on our investment in ORBCOMM when it began commercial operations at the end of 1998. INTEREST INCOME AND OTHER, NET Interest income and other, net, includes interest earnings on short-term investments and realized gains and losses on investments. Interest income and other, net was $5,887,000, $4,693,000 and $7,497,000 for 2000, 1999 and 1998, respectively. EQUITY IN EARNINGS (LOSSES) OF AFFILIATES Equity in earnings (losses) of affiliates were as follows:
YEARS ENDED DECEMBER 31, --------------------------------- 2000 1999 1998 --------- -------- -------- (IN THOUSANDS) ORBCOMM(1)........................................ $ (92,723) $(73,560) $(34,827) ORBIMAGE(2)....................................... (28,223) (5,614) (40,550) CCI and other(3).................................. 536 (18,016) (1,438) --------- -------- -------- $(121,482) $(97,190) $(76,815) ========= ======== ========
- --------------- (1) In the second half of 2000, we wrote off our remaining $56,852,000 investment in ORBCOMM. ORBCOMM's losses increased in 1999 as compared to 1998 due to (i) higher operating expenses relating to the rollout of global commercial services, (ii) increased interest expense and (iii) increased system depreciation expense. ORBCOMM stopped capitalizing interest and began depreciating its full satellite constellation in the fourth quarter of 1998. We eliminated our proportionate share of profits on sales to ORBCOMM based on our partnership interest. (2) Equity in earnings (losses) of affiliates includes Orbital's 100% share of ORBIMAGE's losses, including preferred stock dividends. In the first half of 2000, we recognized equity losses totaling $8,094,000 until our investment balance was reduced to zero. We then suspended recognition of additional ORBIMAGE losses when we determined that we would not provide additional equity funding to ORBIMAGE. During the first quarter of 2001, as a result industry and market conditions we reconsidered our intentions regarding potential future investments of additional capital to ORBIMAGE. As a result, we commenced recognizing ORBIMAGE's losses in the fourth quarter of 2000, including $16,038,000 of ORBIMAGE's losses not previously recognized through December 31, 2000. We also eliminate our 100% share of profits on sales to ORBIMAGE. (3) In 1998, we acquired an equity interest in, and entered into a satellite procurement contract with, CCI International, N.V. ("CCI"), a start-up satellite voice communications provider. We had an investment in CCI of $9,942,000 at December 31, 1998. We provided substantially all of CCI's funding in 1998. Accordingly, we did not recognize any revenue in connection with our satellite contract with CCI and we recognized all of CCI's losses. We concluded in 1999 that our investment in CCI was impaired and recorded a non-cash charge of $11,128,000 in 1999 to write off our investment in CCI. 20 23 MINORITY INTERESTS Minority interests in (earnings) losses of consolidated subsidiaries were ($3,244,000) $2,250,000 and $1,762,000 in 2000, 1999 and 1998, respectively. Substantially all of the minority interest charge in 2000 is attributable to the minority stockholders' proportionate share of MDA's net income for 2000. MDA was a wholly owned subsidiary until late December 1999. Substantially all of the minority interest in 1999 and 1998 is attributable to the minority shareholders' proportionate share of the losses of an ORBCOMM-related partnership that we consolidated in 1999 and 1998. LITIGATION SETTLEMENT In July 2000, we reached an agreement to settle the outstanding class-action lawsuit filed in 1999 alleging violations of federal securities laws. The settlement agreement provides for the plaintiffs to receive a cash payment of $11,000,000 to be made by our insurance carrier, and warrants to be issued by us in 2001, which had an aggregate fair value of $11,500,000 as of the settlement date. Accordingly, we accrued a litigation settlement provision of $11,500,000 in the second quarter of 2000. GAINS ON SALES OF ASSETS AND SUBSIDIARY EQUITY On October 30, 2000, we sold Fairchild for approximately $100,000,000 in cash and realized a $41,982,000 gain. In July 2000, MDA completed an initial public offering on the Toronto Stock Exchange of 6,600,000 shares of common stock, 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 this transaction. In December 1999, MDA issued common stock in a private placement and immediately provided to us a dividend of $75,000,000 in gross proceeds, resulting in a one-time gain of approximately $62,282,000 ($58,610,000 net of taxes, fees and expenses). PROVISION FOR INCOME TAXES We recorded income tax provisions of $15,791,000, $11,104,000 and $5,216,000 in 2000, 1999 and 1998, respectively. In 2000, due to the continuing losses from operations and consideration of anticipated future results, it was determined that a full valuation allowance should be recorded against the U.S. deferred tax assets, resulting in an expense of $9,886,000. The remaining 2000 provision and the 1999 provision were due to foreign taxes attributable to our Canadian operations, as well as a tax charge of $3,672,000 associated with the sale of MDA's common stock in 1999. As of December 31, 2000, we had provided a $214,063,000 valuation allowance against our net deferred tax assets. Valuation allowances are used to reduce net deferred tax assets to the amount considered more likely than not to be realized. Changes in estimates of future taxable income can materially change the amount of such valuation allowances. DISCONTINUED OPERATIONS In the first quarter of 2001, the company adopted a formal plan to dispose of Magellan and our investment in NavSol. Accordingly, a $49,966,000 loss from discontinued operations was recorded in 2000, including an estimated $33,053,000 loss on the planned disposition of Magellan's and NavSol's net assets. The loss on the disposal includes $4,500,000 for projected operating losses through the end of the second quarter of 2001, by which time we expect to have completed the disposition. LIQUIDITY AND CAPITAL RESOURCES During 2000, we 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 Fairchild. Our liquidity has been, and continues to be, constrained and we anticipate that in 2001 cash flow from operations will be insufficient to cover our capital requirements, operating requirements and debt service. To meet our capital and operating requirements, we have entered into an agreement to sell 12,350,000 of our MDA shares, 21 24 at approximately $9.00 per share. The agreement is subject to customary closing conditions, including receipt of regulatory approvals, and the parties expect to close the sale by mid-May 2001. Certain of the purchasers also have an option to acquire MDA Holdings' remaining 5,650,000 shares of MDA by May 31, 2001. Further, we are negotiating to sell our interests in Magellan and NavSol, which we consider to be non-core assets. Management's plans also include restructuring business operations, which, combined with the above-described asset sales should facilitate our ability to raise additional equity capital and refinance our debt. We also intend to explore sales of additional non-core assets. Management expects that this strategy will generate sufficient additional liquidity to satisfy our obligations; however, no assurance can be given that we will be successful in achieving such goal. Our ability to continue as a going concern is contingent upon our success in implementing the foregoing strategy on a timely basis, and we are accordingly focusing our near-term efforts on executing certain asset sales and restructuring our business operations. During the years ended December 31, 2000, 1999 and 1998, we incurred net losses of ($278,190,000), ($121,937,000) and ($56,552,000), respectively. The company expects to incur a net loss in 2001 before considering gains or losses from any asset sales. As of December 31, 2000, we had $70,958,000 of unrestricted cash and short-term investments. Our accumulated deficit was $464,536,000 as of December 31, 2000. Current liabilities exceed current assets by $169,233,000 at December 31, 2000. We invested $39,687,000 in capital expenditures for various satellites, launch vehicles and other infrastructure production, manufacturing and test equipment, buildings and leasehold improvements and office equipment in 2000. During 2000, our continuing operations provided net cash of $35,986,000 and net cash used to fund discontinued operations was $6,530,000. Cash and investments were $79,655,000 and total debt obligations were $302,944,000 at December 31, 2000. Orbital's outstanding debt at December 31, 2000 included $100,000,000 convertible 5% subordinated notes due 2002, $115,000,000 outstanding under our primary credit facility (the "Primary Facility") which is discussed below, $8,145,000 of short-term debt of Magellan that was guaranteed by us, $54,562,000 borrowed by MDA under its credit facility which is non-recourse to us, $6,666,000 outstanding under our secured note with The Northwestern Mutual Life Insurance Company, and other unsecured notes and asset-based financings. Cash and investments at December 31, 2000 included approximately $8,697,000 restricted to support bank covenants and outstanding letters of credit. Our current ratio (defined as current assets divided by current liabilities) was .65 and .92 at December 31, 2000 and 1999, respectively. Our ratio of total debt less cash and investments to total debt plus total stockholders' equity was approximately 64% at December 31, 2000 as compared to 43% at December 31, 1999. Our Primary Facility is with an international syndicate of banks and provided for total borrowings of $115,000,000, all of which was drawn and outstanding as of December 31, 2000, at a weighted average interest rate of 10.56%. The Primary Facility had mandatory prepayment requirements to reduce the total amount outstanding. We satisfied these requirements in 2000 when we paid down $8,000,000 with proceeds from the sale of MDA shares in the third quarter of 2000 and $46,000,000 with proceeds from the sale of Fairchild in the fourth quarter of 2000. On February 23, 2001, we entered into a $30,000,000 364-day loan (the "Secondary Facility") with this bank syndicate. At that same time, we amended and restated the Primary Facility (the "Amended and Restated Primary Facility") in order to, among other things, modify the prepayment terms, expand the collateral provided to the banks and change the expiration date from December 2002 to July 2002. Our borrowings are now collateralized by accounts receivable, intellectual property, inventory, equipment, real estate and certain other assets, including the stock of the company's wholly owned subsidiaries, which include MDA Holdings, the holder of all shares of MDA that we beneficially own. The Amended and Restated Primary Facility and the Secondary Facility prohibit the payment of cash dividends and the making of investments, and contain certain covenants with respect to our working capital levels, operating cash flows, leverage and net worth. During the first quarter of 2001, we defaulted under several financial covenants dealing with minimum consolidated net worth, consolidated leverage and senior leverage under both the Amended and Restated Primary Facility and the Secondary Facility. These defaults were waived by the bank group in amendments signed in April 2001. 22 25 The Amended and Restated Primary Facility and the Secondary Facility require that we reduce outstanding balances under the facilities in connection with debt issuances, equity issuances or asset sales consummated by us. We must apply 100% of the first $50,000,000 of net cash proceeds from any asset sale, 43.75% of the next $80,000,000 and 70% thereafter to pay down amounts owing under the Secondary Facility first, and then the Amended and Restated Primary Facility. In addition, we must apply 100% of net cash proceeds from any debt issuances and 55% of the net cash proceeds of any equity issuance by us to pay down the facilities. We will default under the leverage covenant in both the Secondary Facility and the Amended and Restated Primary Facility unless we complete asset sales by June 30, 2001 that raise sufficient proceeds to pay down a significant portion of debt. In June 2000, we made a scheduled payment of principal on our 12% note payable to Northwestern Mutual Life Insurance Company, reducing the outstanding balance from $13,333,000 to approximately $6,666,000. The remaining balance matures in June 2001. We also agreed that the interest rate on the balance of the note would be retroactively increased if we did not prepay the note. We have not prepaid the note and, accordingly, at December 31, 2000, the interest rate on this note increased to 15%. In January 2001, we also agreed to make pro rata payments under this note at the time payments are made to our lenders under the Amended and Restated Primary Facility in connection with asset sales, equity issuances or debt issuances. In August 2000, Magellan amended its credit facility with Silicon Valley Bank. In connection with the amendment, we guaranteed payment of amounts owed by Magellan. In the first quarter of 2001, we paid Silicon Valley Bank $1,100,000 under the guarantee in order to avoid a default by Magellan on its tangible net worth covenant. 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 $126,650,000 (of which approximately $54,445,000 was outstanding at December 31, 2000) and contains 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 $33,325,000. In July 2000, MDA completed an initial public offering on the Toronto Stock Exchange of 6,600,000 shares of common stock, raising gross proceeds of approximately $37,500,000 for itself, $18,800,000 for us and $5,600,000 for other selling shareholders. Our ownership interest in MDA declined to approximately 52% as of December 31, 2000 as a result of the public offering. In October 2000, we sold Fairchild for approximately $100,000,000. In addition to paying down $46,000,000 on our Primary Facility as described above, we repaid approximately $15,000,000 of debt that had been secured by assets of Fairchild, and have used the balance to fund general operations. During the second quarter of 2000, we agreed to temporarily refund $20,000,000 to ORBIMAGE in January 2001 from amounts previously paid by ORBIMAGE under its procurement agreement with us, provided, however, that such obligation would be terminated if we were to successfully broker a renegotiation of ORBIMAGE's license agreement for worldwide RadarSat-2 satellite distribution rights with MDA. The existing RadarSat-2 agreement was terminated in February 2001 and replaced by a new agreement between MDA and ORBIMAGE for exclusive U.S. Radarsat-2 distribution rights. We believe that as a result, our obligation to temporarily refund $20,000,000 was extinguished. Notwithstanding the renegotiation of the license agreement, ORBIMAGE has notified us of its position that the $20,000,000 refund is now due and payable, which we dispute. The parties are in discussion to resolve this matter. Under the new RadarSat-2 license agreement, $10,000,000 will be due from ORBIMAGE in 2002. We have agreed to purchase up to $10,000,000 of receivables from ORBIMAGE in 2002, subject to certain conditions, if ORBIMAGE is unable to make its 2002 payments to MDA. ORBIMAGE management currently estimates that ORBIMAGE has sufficient resources to meet its capital and operating requirements through May 2001. In March 2001, due to a delay in the OrbView-4 launch, we paid $1,000,000 to ORBIMAGE as partial payment of a $2,500,000 launch delay penalty that is otherwise due in May 2001. ORBIMAGE is seeking to restructure its outstanding debt, which is non-recourse to us, and to obtain additional capital from third parties as well as its existing shareholders. There can be no 23 26 assurance that such capital will be available on a timely basis or at all. As a result of ORBIMAGE's weakened financial condition, we ceased recognizing revenues on the ORBIMAGE system procurement contract during the third quarter of 2000. ITEM 7A. 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 December 31, 2000, the majority of the company's long-term debt consisted of its $100,000,000 convertible 5% subordinated notes due 2002. The fair market value of these convertible securities fluctuates with the company's stock price and was $45,500,000 at December 31, 2000. The company has a deferred compensation plan for senior managers and executive officers, with a total liability balance of $5,959,000 at December 31, 2000, based on the market value of the investments elected by the plan participants. This liability is subject to fluctuation based upon the market value of underlying securities. The company enters into forward exchange contracts in an effort to hedge against foreign currency fluctuations on certain receivables and payables denominated in foreign currencies. Accordingly, Orbital is subject to off-balance sheet market risk for the possibility that future changes in market prices may make the forward exchange contracts less valuable. The following table summarizes at December 31, 2000, outstanding foreign exchange contracts to sell (purchase) foreign currencies, along with current market values:
CURRENCIES CURRENT UNREALIZED HEDGED CONTRACT MARKET GAIN FOREIGN CURRENCY HEDGED AGAINST AMOUNT VALUE (LOSS) ----------------------- ---------- -------- ------- ---------- (U.S. DOLLARS, IN THOUSANDS) EURO...................................... CD $ 1,137 $ 1,170 $ 33 Pounds Sterling........................... CD 232 237 5 Norwegian Kroner.......................... CD 350 355 5 U.S. Dollars.............................. CD (8,821) (8,788) 33 Italian Lire.............................. CD (36) (34) (2) Japanese Yen.............................. US 14,659 13,763 (896)
- --------------- CD -- Canadian Dollars US -- U.S. Dollars ITEM 509. INTERESTED PARTIES We have agreed to indemnify and hold KPMG LLP ("KPMG") harmless against and from any and all legal costs and expenses incurred by KPMG in successful defense of any legal action or proceeding that arises as a result of KPMG's consent to the incorporation by reference of its audit report on the company's, ORBIMAGE's and ORBCOMM's past financial statements incorporated by reference into any applicable registration statement. 24 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
PAGE ---- Reports of Independent Accountants.......................... 26 Consolidated Statements of Operations....................... 28 Consolidated Balance Sheets................................. 29 Consolidated Statements of Stockholders' Equity............. 30 Consolidated Statements of Cash Flows....................... 31 Notes to Consolidated Financial Statements.................. 32
25 28 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Stockholders of Orbital Sciences Corporation: In our opinion, based on our audits and the reports of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in stockholders' equity and cash flows present fairly, in all material respects, the financial position of Orbital Sciences Corporation and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements as of December 31, 2000 of ORBCOMM Global L.P., an equity affiliate, which statements reflect total assets of $11,895,000 as of December 31, 2000, and net losses of $543,227,000, and total revenues of $7,797,000 for the year ended December 31, 2000. We did not audit the December 31, 1999 financial statements of Orbital Communications Corporation, a majority owned subsidiary, which statements reflect total assets of $31,539,000 as of December 31, 1999, and equity in net losses of affiliates of $69,914,000, and total revenues of $2,126,000 for the year ended December 31, 1999. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for ORBCOMM Global L.P., for the year ended December 31, 2000 and as it relates to the amounts included for Orbital Communications Corporation for the year ended December 31, 1999, is based solely on the reports of the other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for the opinion. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net working capital deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters, including efforts to consummate certain sales of assets, among which is the agreement to sell all or a portion of its shares in MacDonald, Dettwiler and Associates Ltd., are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. We have audited the adjustments described in Note 2 to the consolidated financial statements that were applied to reclassify the 1998 consolidated financial statements for the impact of discontinued operations. In our opinion, such adjustments are appropriate and have been properly applied to the 1998 financial statements. /S/ PRICEWATERHOUSECOOPERS LLP McLean, Virginia April 16, 2001 26 29 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Orbital Sciences Corporation: We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of Orbital Sciences Corporation and subsidiaries for the year ended December 31, 1998, before the reclassification to reflect Magellan Corporation as a discontinued operation as described in Note 2 to the consolidated financial statements. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements, before the reclassification to reflect Magellan Corporation as a discontinued operation as described in Note 2 to the consolidated financial statements, referred to above present fairly, in all material respects, the results of operations and cash flows of Orbital Sciences Corporation and subsidiaries for the year ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP Washington, D.C. February 16, 1999, except as to note 3A which is as of April 17, 2000 27 30 ORBITAL SCIENCES CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 ---------- ---------- ---------- REVENUES............................................... $ 725,669 $ 766,372 $ 628,995 Costs of goods sold.................................... 640,531 667,970 475,953 ---------- ---------- ---------- GROSS PROFIT........................................... 85,138 98,402 153,042 Research and development expenses...................... 17,355 25,021 28,790 Selling, general and administrative expenses........... 112,811 92,171 73,562 Amortization of goodwill............................... 11,639 9,240 5,860 Provision for doubtful ORBCOMM accounts................ 53,713 -- -- Asset impairment charges............................... 15,911 15,217 2,479 ---------- ---------- ---------- INCOME (LOSS) FROM OPERATIONS.......................... (126,291) (43,247) 42,351 Interest expense, net of amounts capitalized........... (28,509) (22,813) (5,947) Interest income and other, net......................... 5,887 4,693 7,497 Equity in losses of affiliates......................... (121,482) (97,190) (76,815) Litigation settlement.................................. (11,500) -- -- Gains on sales of assets and subsidiary equity......... 72,706 62,282 -- Minority interests..................................... (3,244) 2,250 1,762 ---------- ---------- ---------- LOSS BEFORE PROVISION FOR INCOME TAXES AND DISCONTINUED OPERATIONS........................................... (212,433) (94,025) (31,152) Provision for income taxes............................. 15,791 11,104 5,216 ---------- ---------- ---------- NET LOSS FROM CONTINUING OPERATIONS.................... (228,224) (105,129) (36,368) Discontinued operations: Loss from operations................................. (16,913) (16,808) (20,184) Loss on disposal..................................... (33,053) -- -- ---------- ---------- ---------- Loss from discontinued operations...................... (49,966) (16,808) (20,184) ---------- ---------- ---------- NET LOSS............................................... $ (278,190) $ (121,937) $ (56,552) ========== ========== ========== LOSS PER COMMON AND DILUTIVE SHARE: Loss from continuing operations...................... $ (6.09) $ (2.82) $ (1.02) ---------- ---------- ---------- Loss from discontinued operations.................... (1.33) (.45) (.57) ---------- ---------- ---------- Net loss............................................. $ (7.42) $ (3.27) $ (1.59) ========== ========== ========== Shares used in computing loss per common and dilutive share................................................ 37,467,520 37,281,065 35,624,888 ========== ========== ==========
See accompanying notes to consolidated financial statements. 28 31 ORBITAL SCIENCES CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, ----------------------- 2000 1999 --------- ---------- ASSETS Current Assets: Cash and cash equivalents................................. $ 62,523 $ 74,428 Restricted cash and short-term investments, at market..... 17,132 34,630 Receivables, net.......................................... 142,345 268,629 Inventories, net.......................................... 61,580 40,536 Current assets of discontinued operations, net............ 9,212 15,826 Deferred income taxes and other assets.................... 21,314 16,346 --------- ---------- Total current assets.............................. 314,106 450,395 --------- ---------- Non-current assets of discontinued operations, net.......... 53,975 86,979 Property, plant and equipment, at cost, less accumulated depreciation and amortization of $115,364 and $114,173, respectively.............................................. 128,713 130,248 Investments in and advances to affiliates................... 2,327 119,282 Goodwill, less accumulated amortization of $42,766 and $35,712, respectively..................................... 219,691 210,287 Deferred income taxes and other assets, less accumulated amortization of $3,744 and $2,520, respectively........... 44,446 57,334 --------- ---------- TOTAL ASSETS...................................... $ 763,258 $1,054,525 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term borrowings and current portion of long-term obligations............................................ $ 137,227 $ 131,066 Accounts payable.......................................... 94,713 70,492 Accrued expenses.......................................... 105,137 130,646 Due to joint venture partner.............................. -- 28,418 Deferred revenues......................................... 146,262 128,804 --------- ---------- Total current liabilities......................... 483,339 489,426 --------- ---------- Long-term obligations, net of current portion............... 165,717 239,664 Recognized losses in excess of investment in affiliate...... 16,038 -- Other liabilities........................................... 14,218 16,207 --------- ---------- Total liabilities................................. 679,312 745,297 --------- ---------- Minority interests.......................................... 39,795 2,436 --------- ---------- 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, 37,729,476 and 37,400,814 shares outstanding, respectively.............................. 377 374 Additional paid-in capital................................ 515,462 497,923 Accumulated other comprehensive loss...................... (7,152) (5,159) Accumulated deficit....................................... (464,536) (186,346) --------- ---------- Total stockholders' equity........................ 44,151 306,792 --------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 763,258 $1,054,525 ========= ==========
See accompanying notes to consolidated financial statements. 29 32 ORBITAL SCIENCES CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED COMMON STOCK ADDITIONAL OTHER RETAINED ------------------- PAID-IN COMPREHENSIVE EARNINGS SHARES AMOUNT CAPITAL LOSS (DEFICIT) TOTAL ---------- ------ ---------- ------------- --------- --------- Balance, December 31, 1997....... 32,481,719 $325 $326,187 $(4,671) $ (7,857) $ 313,984 Shares issued in equity offering....................... 3,450,000 34 150,118 -- -- 150,152 Shares issued to employees and directors................... 1,086,537 11 14,235 -- -- 14,246 Comprehensive income: Net loss.................... -- -- -- -- (56,552) (56,552) Translation adjustment...... -- -- -- (2,282) -- (2,282) Unrealized losses on short-term investments.... -- -- -- (196) -- (196) --------- Total comprehensive loss....... -- -- -- -- -- (59,030) ---------- ---- -------- ------- --------- --------- Balance, December 31, 1998....... 37,018,256 370 490,540 (7,149) (64,409) 419,352 Shares issued to employees and directors................... 382,558 4 7,383 -- -- 7,387 Comprehensive income: Net loss.................... -- -- -- -- (121,937) (121,937) Translation adjustment...... -- -- -- 1,990 -- 1,990 --------- Total comprehensive loss....... -- -- -- -- -- (119,947) ---------- ---- -------- ------- --------- --------- Balance, December 31, 1999....... 37,400,814 374 497,923 (5,159) (186,346) 306,792 Gain on investment in ORBCOMM..................... -- -- 15,367 -- -- 15,367 Shares issued to employees and directors................... 328,662 3 2,172 -- -- 2,175 Comprehensive loss: Net loss.................... -- -- -- -- (278,190) (278,190) Translation adjustment...... -- -- -- (2,253) -- (2,253) Unrealized gain on short-term investments.... -- -- -- 260 -- 260 --------- Total comprehensive loss....... -- -- -- -- -- (280,183) ---------- ---- -------- ------- --------- --------- Balance, December 31, 2000....... 37,729,476 $377 $515,462 $(7,152) $(464,536) $ 44,151 ========== ==== ======== ======= ========= =========
See accompanying notes to consolidated financial statements. 30 33 ORBITAL SCIENCES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------- 2000 1999 1998 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................... $(278,190) $(121,937) $ (56,552) Adjustments to reconcile net loss to net cash provided by operating activities: Loss from discontinued operations....................... 49,966 16,808 20,184 Depreciation and amortization expenses.................. 42,759 43,880 24,525 Amortization of prepaid financing costs................. 5,729 2,227 443 Equity in losses of affiliates.......................... 121,482 97,190 76,815 Minority interests...................................... 3,244 (2,250) (1,762) Loss (gain) on sale of fixed assets and investments..... (512) 13,716 (1,002) Gains on sales of subsidiary stock and assets........... (72,706) (62,282) -- Asset impairment charges................................ 15,911 15,217 -- Deferred income taxes................................... 15,367 (8,936) 3,822 Provision for doubtful ORBCOMM accounts................. 53,713 -- -- Changes in assets and liabilities, net of divestitures and acquisitions: (Increase) decrease in receivables...................... 77,748 9,565 (34,079) (Increase) decrease in inventories...................... (33,082) 8,951 (9,431) (Increase) decrease in other assets..................... (6,777) (24,441) (8,682) Decrease in accounts payable and accrued expenses....... 12,087 53,730 14,782 Increase (decrease) in deferred revenue................. 28,561 10,545 (14,608) Increase (decrease) in other liabilities................ 686 (916) (1,307) --------- --------- --------- Net cash provided by continuing operations........... 35,986 51,067 13,148 Net cash used in discontinued operations............. (6,530) (20,979) (6,759) --------- --------- --------- Net cash provided by operating activities............ 29,456 30,088 6,389 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................... (39,687) (55,648) (36,294) Payments for business combinations, net of cash acquired................................................ (40,248) (33,860) (22,751) Purchases of other assets................................. -- (14,006) -- Net proceeds from sales of subsidiary equity and assets... 115,605 73,432 -- Purchases of available-for-sale investment securities..... (12,196) (10,912) (2,500) Sales of available-for-sale investment securities......... 18,290 -- -- Maturities of available-for-sale investment securities.... 3,006 9,025 2,409 Investments in and advances to affiliates................. (2,095) (65,060) (101,700) --------- --------- --------- Net cash provided by (used in) investing activities......................................... 42,675 (97,029) (160,836) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-term borrowings, net of (repayments)................ 1,800 338 1,940 Principal payments on long-term obligations............... (157,588) (125,813) (79,556) Net proceeds from issuance of long-term obligations....... 57,965 241,342 63,000 Sale of subsidiary equity................................. 37,500 -- -- Net proceeds from issuances of common stock............... 2,176 7,387 164,398 (Repayments to) advances from joint venture partner....... (28,418) -- 21,829 --------- --------- --------- Net cash provided by (used in) financing activities......................................... (86,565) 123,254 171,611 --------- --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS............................................... 2,529 2,973 (2,206) --------- --------- --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (11,905) 59,286 14,958 CASH AND CASH EQUIVALENTS, beginning of period.............. 74,428 15,142 184 --------- --------- --------- CASH AND CASH EQUIVALENTS, end of period.................... $ 62,523 $ 74,428 $ 15,142 ========= ========= =========
See accompanying notes to consolidated financial statements. 31 34 ORBITAL SCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS OPERATIONS AND LIQUIDITY Orbital Sciences Corporation (together with its subsidiaries, "Orbital" or the "company"), a Delaware corporation, is a leading space technology and information systems company that designs, manufactures, operates and markets a broad range of affordable space systems, including launch vehicles, satellites and related space systems, electronics and sensor systems, and space robotics, satellite ground systems, and mapping and land information products and services. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, as reflected in the accompanying consolidated financial statements, the company continues to suffer recurring losses from operations and has a net working capital deficit. In addition, the company has not yet completed the sale of certain non-core assets, as discussed below, that the company believes will be required in order to meet certain loan covenants and provide adequate liquidity for operations for the remainder of 2001. The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the company be unable to continue as a going concern. The company's continuation as a going concern is dependent on its ability to sell certain non-core assets, restructure its business operations, meet its 2001 budgeted cash flow objectives, and comply with the terms of its credit facilities. The company incurred losses of $278,190,000, $121,937,000 and $56,552,000, in 2000, 1999 and 1998, respectively. The company expects to incur a net loss in 2001 before considering gains or losses from any asset sales. As of December 31, 2000, the company had $70,958,000 of unrestricted cash and short-term investments. Current liabilities exceeded current assets by $169,233,000 at December 31, 2000. The company's accumulated deficit was $464,536,000 as of December 31, 2000. The company's liquidity has been, and continues to be, constrained. During 2000, the company funded capital requirements for operations through cash from operations combined with cash on hand and the proceeds from the dispositions of both the Fairchild Defense electronics business unit ("Fairchild") and a portion of its existing MacDonald, Dettwiler and Associates Ltd. ("MDA") shares. To meet the company's capital and operating requirements in 2001, on April 12, 2001, the company entered into an agreement to sell 12,350,000 of its MDA shares for approximately $9 per share. The agreement is subject to customary closing conditions, including receipt of regulatory approval, and the parties expect to close the sale by mid-May 2001. Certain of the purchasers also have an option to acquire MDA Holdings Corporation's remaining 5,650,000 shares of MDA by May 31, 2001. Further, the company is negotiating to sell its interests in Magellan Corporation ("Magellan") and Navigation Solutions LLC ("NavSol"). Management's plans also include restructuring business operations which, combined with the above-described asset sales, management believes should facilitate its ability to raise additional capital and to refinance the company's debt (see Note 8). The company will also continue to pursue opportunities to make its operations more efficient in the future in order to minimize its losses from operations. The company's ability to continue as a going concern is contingent upon management's success in implementing the foregoing strategy on a timely basis, and the company is accordingly focusing its near-term efforts on executing certain asset sales and restructuring its business operations. Management expects that this strategy will generate sufficient additional liquidity to satisfy its obligations; however, no assurance can be given that the company will be successful in achieving such goal. If this strategy is not successfully implemented in a timely manner, the company anticipates that in 2001, cash flow from operations will be insufficient to cover capital requirements, operating requirements and debt service. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Orbital, all wholly and majority owned subsidiaries controlled by Orbital, and partnerships in which Orbital directly or indirectly controls the general 32 35 partner interests. Orbital uses the equity method of accounting for affiliates that the company does not control. Such affiliates include Orbital Imaging Corporation ("ORBIMAGE"), and have included ORBCOMM Global, L.P. ("ORBCOMM") and CCI International NV ("CCI"). All material transactions and accounts among consolidated entities have been eliminated in consolidation. PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS The preparation of consolidated financial statements, in conformity with generally accepted accounting principles in the United States, requires management to make estimates and assumptions, including estimates of anticipated contract costs and revenues utilized in the earnings recognition process that affect the reported amounts of assets and liabilities and 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 adequacy and/or deficiency of estimated liabilities recorded for various reserves, liabilities, programmatic risks and uncertainties. Actual results could differ from these estimates. Certain reclassifications have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentation. All financial amounts are stated in U.S. dollars unless otherwise indicated. REVENUE RECOGNITION Orbital generally recognizes revenues on long-term contracts using the percentage-of-completion method of accounting (see Note 5). Revenues on cost-plus-fee contracts are recognized to the extent of costs incurred plus a proportionate amount of fee earned. Revenues on fixed-price contracts are recognized based on costs incurred in relation to total estimated costs, or based on specific delivery terms and conditions. To the extent that estimated costs of completion are adjusted, revenue and profit recognized from a particular contract will be affected in the period of the adjustment. Anticipated contract losses, excluding future estimated general and administrative costs, are recognized as they become known. Fees under certain long-term contracts may be increased or decreased in accordance with cost or performance incentive provisions which measure actual performance against established targets or other criteria. Incentive fee awards or penalties are included in estimated contract revenues at the time the amounts can be reasonably determined. COMPREHENSIVE INCOME (LOSS) The company's comprehensive income (loss) is presented in the consolidated statements of stockholders' equity. Other comprehensive income (loss) consists primarily of foreign currency translations adjustments and unrealized gains and losses on available-for-sale securities. FOREIGN CURRENCY Orbital's operating entities conduct business in a number of countries and deal in a number of foreign currencies. The financial results of foreign operations are translated into U.S. dollars using year-end exchange rates for assets and liabilities and using weighted average exchange rates for revenues, expenses, gains and losses. Gains and losses arising from the translation of the functional currency to the U.S. dollar relating to foreign operations that are self-contained and integrated within a particular country or economic environment are recognized as a component of accumulated other comprehensive income (loss) in stockholders' equity until there is a realized reduction in Orbital's net investment in the foreign operation. Transaction gains and losses relating to foreign operations that are a direct and integral component or extension of Orbital's domestic operations, and therefore are dependent on the U.S. dollar, are reported currently as a component of net income (loss). 33 36 Orbital enters into forward exchange contracts to hedge against foreign currency fluctuations on certain receivables and payables. Gains and losses on contracts to hedge specific foreign currency commitments are deferred and accounted for as part of the underlying transaction. RESEARCH AND DEVELOPMENT Research and development expenses include self-funded product development activities and exclude direct customer-funded development and are expensed as incurred. Research and development expenses are allocated, when appropriate, to U.S. government contracts under government-mandated cost accounting standards. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost. Depreciation and amortization are provided using the straight-line method as follows: Buildings........................... 18 to 20 years Machinery, equipment, software and intellectual property............. 3 to 12 years Satellite systems................... 5 to 7 years Leasehold improvements.............. Shorter of estimated useful life or lease term
RECOVERABILITY OF LONG-LIVED ASSETS Orbital's policy is to review its long-lived assets, including goodwill, investments in and advances to affiliates, self-constructed assets, internally developed software and specialized equipment used to support specific space-related products, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of the impairment is measured as the difference between the asset's estimated fair value and its book value. Given the inherent technical and commercial risks within the space industry, it is possible that the company's current expectation that it will recover the carrying amount of its long-lived assets from future operations could change. INCOME TAXES The company recognizes income taxes, foreign and domestic, using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a tax rate change on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Valuation allowances are used to reduce net deferred tax assets to the amount considered more likely than not to be realized. Changes in estimates of future taxable income can materially change the amount of such valuation allowances. STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), requires companies to (i) recognize as expense the fair value of all stock-based awards on the date of grant, or (ii) continue to apply the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issues to Employees" ("APB 25"), and provide pro forma operating results and pro forma earnings per share disclosures for employee stock option grants as if the fair-value-based method defined in SFAS 123 had been applied. The company elected to continue to apply the provisions of APB 25 and provide the pro forma disclosure in accordance with the provisions of SFAS 123. 34 37 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 shares and dilutive common equivalent shares outstanding during the periods, plus the effects of an assumed conversion of the company's convertible notes if dilutive, after giving effect to all adjustments that would result from the assumed conversion. In periods of net loss, the assumed conversion of convertible notes and stock options are anti-dilutive. Assuming conversion of the convertible notes (see Note 8) and the dilutive impact of outstanding stock options (see Note 11), diluted shares would have been 41,106,669 for 2000, 41,599,939 for 1999 and 40,336,587 for 1998. CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM INVESTMENTS Orbital considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Restricted cash consists of compensating cash balances for contractual obligations. Investments in securities that do not meet the definition of cash equivalents are classified as short-term investments. Orbital classifies investments in debt and equity securities as either available-for-sale or trading securities and, accordingly, reports such investments at fair value. Any temporary difference between the fair value and the underlying cost of the available-for-sale securities is excluded from current period earnings and is reported as a component of accumulated other comprehensive income (loss) in stockholders' equity. Temporary differences between the fair value and the underlying cost of trading securities is included in net investment income. 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 ("FIFO") or specific identification basis. 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 completed contract method of accounting and using the percentage-of- completion method of accounting applied on a units of delivery basis, and (ii) partially assembled commercial products. Work-in-process inventory generally includes direct production costs and certain allocated indirect costs (including an allocation of general and administrative costs). SELF-CONSTRUCTED ASSETS AND INTERNALLY DEVELOPED SOFTWARE The company self-constructs much of its ground and airborne support and special test equipment used in the manufacture, production and delivery of many of its products. Orbital capitalizes direct costs incurred in constructing such equipment and certain allocated indirect costs. General and administrative and research and development costs are expensed as incurred. Pursuant to the requirements of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 86, "Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise Marketed," Orbital capitalizes certain costs of developing product software to be sold or leased once technological feasibility has been established. Capitalized costs generally include direct software coding costs and certain allocated indirect costs, and exclude general and administrative and research and development costs. The company capitalizes its internal use software in accordance with Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," ("SOP 98-1"). SOP 98-1 requires computer software costs related to internal-use software that are incurred in the preliminary project stage be expensed as incurred. Once the capitalization criteria of SOP 98-1 have been met, external direct costs of materials and services consumed in developing or obtaining internal-use computer software and payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use computer software project, are capitalized. 35 38 INVESTMENTS IN AND ADVANCES TO AFFILIATES The company uses the equity method of accounting for its investments in and advances to affiliates in which the company has the ability to significantly influence, but not control, the affiliates' operations. In accordance with the equity method of accounting, the company's carrying amount of an investment in an affiliate is initially recorded at cost and is increased to reflect the company's proportionate share of the affiliate's income and is reduced to reflect its proportionate share of the affiliate's losses based on the company's common stock or partnership interest, including all preferred dividends attributable to other investors in such entities. For those investments for which Orbital has provided substantially all of the investee's funding, the company uses a modified equity method of accounting whereby 100% of the investee's current period losses are recognized. Further, Orbital does not recognize revenues on sales to investees for which Orbital has provided substantially all such investees' funding. Orbital's investment is also increased to reflect contributions to, and decreased to reflect distributions received from the affiliate. Any excess of the amount of Orbital's investment over the amount of the underlying equity in each affiliate's net assets is amortized in a manner similar to goodwill. The company capitalizes interest costs on equity method investments when an affiliate has significant assets under construction and has not yet commenced planned principal operations. No interest was capitalized during 2000 related to such affiliates. During 1999 and 1998, the company capitalized interest totaling $372,000 and $9,555,000, respectively, on investments in and advances to affiliates. The company uses the cost method of accounting for investments in which it has no significant influence. GOODWILL The company amortizes goodwill related to business combinations on a straight-line basis over its estimated useful life, generally 10 to 40 years. Orbital periodically assesses and evaluates the recoverability of such goodwill based on current facts and circumstances and the operational performance of the related acquired businesses. ISSUANCES OF SUBSIDIARY EQUITY At times, the company may divest a portion or all its ownership in its subsidiaries through the issuance of additional subsidiary equity or through the sale of its shares to the public. The company recognizes the difference between the carrying amount of its interest in the subsidiary equity sold and the fair market value of the equity as a gain or loss upon divestiture or issuance when the company believes the realization of the gain or loss is assured. DEFERRED REVENUE The company receives advances and program payments from customers in excess of costs incurred on certain contracts, including contracts with the U.S. government. These advances or program payments are classified as deferred revenues. WARRANTIES The company occasionally accepts warranty clauses in its commercial and government contracts. The company records a liability for estimated warranty claims. The company may provide limited warranties on certain commercial products and accrues an estimate of expected warranty costs based on historical experience. NEW ACCOUNTING PRONOUNCEMENTS The company adopted Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), in 2000. SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The impact of that adoption on the results of operations was not material. 36 39 Effective January 1, 2001, the company adopted Statement of Financial Accounting Standard No. 133, as amended, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" ("SFAS No. 133"), which changes the way in which the company will account for its derivative transactions to require the company to recognize the fair value of all derivative transactions, including embedded derivatives, as a recognized asset or liability. The accounting for the gains or losses resulting from the changes in the fair value of derivatives is dependent on whether the derivative is designated as a hedge, the intended use of the hedge and the extent to which a designated hedge is effective. Adjustments to reflect changes in the fair value of derivatives that are not designated as a hedge or that are not considered to be highly effective are reflected in earnings. Adjustments to reflect changes in fair value of derivatives that are designated as hedges and considered highly effective are either reflected in earnings and offset by corresponding adjustments related to the fair values of the hedged items, or reflected in other comprehensive income until the hedged transaction matures and the entire transaction is recognized in earnings. The change in fair value of the ineffective portion of a hedge and the change in the fair value of all derivatives not designated as a hedge are recognized immediately in earnings. Upon adoption of SFAS 133, the company anticipates recognizing a loss of less than $1,000,000 related to derivative contracts that were not designated as hedges as of January 1, 2001. 2. DISCONTINUED OPERATIONS Magellan manufactures and sells GPS-enabled navigation and positioning products for consumer markets, as well as similar products that are used for professional and other high-precision industrial applications. Magellan also sells automotive navigation products to NavSol, a joint venture between The Hertz Corporation ("Hertz") and Orbital, in which Orbital holds a 60% interest. NavSol collects fees from Hertz customers for the use of these products. The company had been accounting for its non-controlled investment in NavSol using the equity method of accounting and had consolidated the financial results of Magellan, in which it owns a 66 2/3% interest. Subsequent to December 31, 2000, the company adopted a formal plan to sell its entire interest in Magellan and its entire interest in NavSol. The company is negotiating an agreement to sell Magellan and its interest in NavSol in a combined transaction. As a result of this plan, the assets, liabilities and results of operations related to these businesses have been reported in the accompanying financial statements as discontinued operations for the current and all prior periods presented. The company anticipates that a sale will occur by the end of the second quarter of 2001, although there can be no assurance that such transaction will occur. The company recorded a $33,053,000 loss on disposal of the discontinued operations including a provision of $4,500,000 for the estimated losses during the 2001 phase-out period. The loss provision was based on the estimated proceeds from the sale and has been recorded as a reduction to goodwill as of December 31, 2000. The carrying values of assets and liabilities are as follows:
DECEMBER 31, ------------------- 2000 1999 ------- -------- (IN THOUSANDS) Current assets, net..................................... $ 9,212 $ 15,826 ------- -------- Non-current assets, net: Investment in NavSol.................................. 20,312 19,991 Property, plant and equipment, net.................... 5,692 7,374 Goodwill, net......................................... 29,932 68,022 Other, net............................................ (1,961) (8,408) ------- -------- Net non-current assets............................. 53,975 86,979 ------- -------- Net assets of discontinued operations.............. $63,187 $102,805 ======= ========
37 40 The following summarizes the operating results of the discontinued operations for the year ended December 31, 2000:
2000 -------------- (IN THOUSANDS) Revenues.................................................... $ 97,311 Net loss.................................................... (16,913)
The company reclassified its consolidated balance sheet as of December 31, 1999, and its consolidated statements of operations and cash flows for the years ended December 31, 1999 and 1998 to reflect the assets, liabilities, results of operations and cash flows related to Magellan and NavSol as discontinued operations. The following table summarizes the various adjustments:
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------------- 1999 1998 -------------------------------------- -------------------------------------- PREVIOUSLY PREVIOUSLY REPORTED ADJUSTMENTS AS REPORTED REPORTED ADJUSTMENTS AS REPORTED ---------- ----------- ----------- ---------- ----------- ----------- (IN THOUSANDS) Revenues...................... $ 874,911 $(108,539) $ 766,372 $730,662 $(101,667) $628,995 Costs of goods sold........... 738,526 (70,556) 667,970 549,628 (73,675) 475,953 Operating expenses............ 195,034 (53,385) 141,649 168,388 (57,697) 110,691 Income (loss) from operations.................. (58,649) 15,402 (43,247) 12,646 29,705 42,351 Net loss...................... (121,937) -- (121,937) (56,552) -- (56,552)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------------- 1999 1998 -------------------------------------- -------------------------------------- PREVIOUSLY PREVIOUSLY REPORTED ADJUSTMENTS AS REPORTED REPORTED ADJUSTMENTS AS REPORTED ---------- ----------- ----------- ---------- ----------- ----------- (IN THOUSANDS) Net cash provided by operating activities.................. $ 30,058 $29 $ 30,088 $ 308 $6,081 $ 6,389 Net cash used in investing activities.................. (97,029) -- (97,029) (160,836) -- (160,836) Net cash provided by financing activities.................. 123,254 -- 123,254 171,611 -- 171,611 Net increase (decrease) in cash and cash equivalents... 59,256 29 59,286 8,877 6,081 14,958
CONSOLIDATED BALANCE SHEET YEAR ENDED DECEMBER 31, 1999 -------------------------------------- PREVIOUSLY REPORTED ADJUSTMENTS AS REPORTED ---------- ----------- ----------- (IN THOUSANDS) Total current assets..................................... $ 476,139 $(25,744) $ 450,395 Non-current assets....................................... 616,773 (12,643) 604,130 Total assets............................................. 1,092,912 (38,387) 1,054,525 Current liabilities...................................... 515,169 (25,743) 489,426 Non-current liabilities.................................. 255,880 (9) 255,871 Minority interests....................................... 15,071 (12,635) 2,436 Stockholders' equity..................................... 306,792 -- 306,792
Magellan recognized revenues from sales of products to NavSol of approximately $8,555,000 and $2,667,000 for the years ended December 31, 2000 and 1999, respectively. Revenues on sales from Magellan to NavSol are deferred and recognized ratably over a five-year period through 2004. At December 31, 2000 and 1999, deferred revenues were $29,281,000 and $37,085,000, respectively. In 2000, the company received $2,200,000 of dividends from NavSol. 38 41 3. RESTATEMENT MATTERS AND SPECIAL GAINS AND CHARGES A. RESTATEMENT MATTERS In connection with the 1999 Form 10-K filing, management restated its previously issued consolidated financial statements as of and for the year ended December 31, 1998. Accordingly, the original Annual Report on Form 10-K for 1998 was amended and an Annual Report on Form 10-K/A was filed in April 2000. B. SPECIAL GAINS AND CHARGES During 2000 and 1999, the company recorded the following non-recurring special gains and charges: Gain on Issuance of Subsidiary Equity. In July 2000, MDA completed an initial public offering on the Toronto Stock Exchange of 6,600,000 shares of common stock, 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 recognized a gain on the sale of such stock of $30,724,000 in 2000. In December 1999, the company's then wholly owned subsidiary, MDA, issued common stock to a group of minority investors, and immediately provided a dividend to the company for the gross amount of the proceeds from the sale of $75,000,000. Pursuant to its policy with respect to issuances of subsidiary equity, the company recorded a $62,282,000 gain on the sale of such stock (approximately $58,610,000 net of taxes). The company's ownership interest in MDA was approximately 52% and 66% at December 31, 2000 and 1999, respectively. Gain on Sale of Assets. On October 30, 2000, the company sold Fairchild for approximately $100,000,000 in cash. The company recognized a gain of $41,982,000 in 2000 related to the sale. Asset Impairments Charges. Since 1996, Orbital has been developing, constructing and testing several X-34 reusable rocketplanes under a contract with the National Aeronautics and Space Administration ("NASA"). NASA terminated this contract for convenience in March 2001. The company determined that its estimated future cash flows from X-34-related plant, property and equipment would not be sufficient to recover the recorded cost. Accordingly, the company recorded an asset impairment charge in the fourth quarter of 2000 of $15,911,000 to write down X-34-related property, plant and equipment to their estimated realizable values. The company also recorded a $3,400,000 provision for potentially uncollectible accounts receivable (recorded as selling, general and administrative expense). Although the company is seeking to recover from NASA a significant portion of costs associated with the X-34 contract, there can be no assurance that such recovery will occur. In December 1999, the company determined that the carrying value of a specialized voice communication satellite system it had constructed and launched would no longer be recoverable through the expected future sales of the related products or services. The company recorded a $15,217,000 asset impairment charge with respect to this asset in the fourth quarter of 1999. In addition, a commercial airline navigation and communications contract was cancelled in the fourth quarter of 1999. Consequently, the carrying value of the software and inventory in the amount of $14,820,000 was written off as a component of cost of goods sold in the fourth quarter of 1999. 4. INDUSTRY SEGMENT INFORMATION Orbital designs, manufactures, operates and markets a broad range of space-related products and services that are grouped into four reportable segments: (i) launch vehicles and advanced programs, (ii) satellites and related space systems, (iii) electronics and sensor systems, and (iv) space robotics, satellite ground systems, and mapping and land information products and services. Reportable segments are generally organized based upon product lines. All other activities of the company are reported in the corporate and other segment, which includes certain general and administrative expenses of corporate finance, legal, administrative and general management functions. The company's investment in, as well as its share of the income or loss of ORBCOMM, ORBIMAGE and CCI are also included in corporate and other. In 2000, corporate and other also includes a $29,462,000 write-off of ORBCOMM-related receivables. 39 42 Orbital reports industry segment 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. It also established standards for disclosures about products, services and geographic areas. In 2000, the company recast the composition of certain reportable segments as a result of new reporting mechanisms and as a result of Magellan and NavSol being considered discontinued operations. The corresponding segment information for the prior years has been revised to conform to the 2000 presentation. The following table presents operating information and identifiable assets by reportable segment. Intersegment sales are generally negotiated and accounted for under terms and conditions that are similar to other commercial and government contracts. There were no significant sales or transfers between segments.
YEARS ENDED DECEMBER 31, ----------------------------------- 2000 1999 1998 --------- ---------- -------- (IN THOUSANDS) LAUNCH VEHICLES AND ADVANCED PROGRAMS: Revenues............................................... $ 119,588 $ 157,032 $179,591 Operating income (loss)................................ (20,621) (8,452) 23,476 Identifiable assets.................................... 102,885 125,157 96,190 Capital expenditures................................... 4,073 13,665 8,270 Depreciation and amortization.......................... 6,327 7,130 5,370 SATELLITES AND RELATED SPACE SYSTEMS: Revenues............................................... $ 206,339 $ 257,431 $227,042 Operating income (loss)................................ (66,580) (13,517) 17,388 Identifiable assets.................................... 55,653 58,153 109,922 Capital expenditures................................... 8,920 7,481 4,499 Depreciation and amortization.......................... 5,824 5,066 4,835 ELECTRONICS AND SENSOR SYSTEMS: Revenues............................................... $ 146,387 $ 149,991 $125,758 Operating income (loss)................................ (2,075) (248) 11,312 Identifiable assets.................................... 53,109 114,765 109,907 Capital expenditures................................... 2,228 3,373 5,563 Depreciation and amortization.......................... 3,682 4,689 3,125 SATELLITE GROUND SYSTEMS AND SPACE ROBOTICS, AND MAPPING AND LAND INFORMATION PRODUCTS AND SERVICES: Revenues............................................... $ 253,230 $ 199,792 $ 95,845 Operating income (loss)................................ 14,834 17,199 5,232 Equity in earnings (losses) of affiliates.............. (2,299) (182) -- Identifiable assets.................................... 269,969 221,389 67,422 Capital expenditures................................... 10,148 13,949 2,524 Depreciation and amortization.......................... 16,675 9,650 2,339 CORPORATE AND OTHER: Revenues............................................... $ 125 $ 2,126 $ 759 Operating income (loss)................................ (51,849) (38,229) (15,057) Minority interests..................................... (3,244) 2,250 1,762 Gains on sales of subsidiary equity and assets......... 72,706 62,282 -- Equity in earnings (losses) of affiliates.............. (119,183) (97,008) (76,815) Identifiable assets.................................... 281,642 535,061 471,638 Capital expenditures................................... 14,318 17,180 15,438 Depreciation and amortization.......................... 10,251 17,345 8,856
40 43
YEARS ENDED DECEMBER 31, ----------------------------------- 2000 1999 1998 --------- ---------- -------- (IN THOUSANDS) CONSOLIDATED: Revenues............................................... $ 725,669 $ 766,372 $628,995 Operating income (loss)................................ (126,291) (43,247) 42,351 Equity in earnings (losses) of affiliates.............. (121,482) (97,190) (76,815) Minority interest...................................... (3,244) 2,250 1,762 Gains on sales of subsidiary equity and assets......... 72,706 62,282 -- Identifiable assets.................................... 763,258 1,054,525 855,079 Capital expenditures................................... 39,687 55,648 36,294 Depreciation and amortization.......................... 42,759 43,880 24,525
DOMESTIC AND NON-U.S. OPERATIONS The following table presents Orbital's revenues from continuing operations, operating income (loss) and identifiable assets by originating location:
YEARS ENDED DECEMBER 31, ----------------------------------- 2000 1999 1998 --------- ---------- -------- (IN THOUSANDS) REVENUES: United States.................................. $ 505,466 $ 586,575 $551,859 Canada and Mexico.............................. 218,213 175,923 72,642 Other.......................................... 1,990 3,874 4,494 --------- ---------- -------- Total....................................... $ 725,669 $ 766,372 $628,995 ========= ========== ======== OPERATING INCOME (LOSS): United States.................................. $(137,548) $ (59,355) $ 39,672 Canada and Mexico.............................. 11,169 15,725 2,277 Other.......................................... 88 383 402 --------- ---------- -------- Total....................................... $(126,291) $ (43,247) $ 42,351 ========= ========== ======== IDENTIFIABLE ASSETS: United States.................................. $ 593,737 $ 848,423 Canada and Mexico.............................. 168,765 205,369 Other.......................................... 756 733 --------- ---------- Total....................................... $ 763,258 $1,054,525 ========= ==========
41 44 EXPORT SALES AND MAJOR CUSTOMERS Orbital's sales to geographic areas were as follows:
YEARS ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- -------- -------- (IN THOUSANDS) United States...................................... $463,929 $486,735 $488,773 Canada............................................. 157,340 153,155 43,522 Southeast Asia..................................... 54,162 67,815 28,942 Middle East and other.............................. 29,252 23,930 28,622 Far East........................................... 11,155 25,592 30,272 Europe............................................. 9,831 9,145 8,864 -------- -------- -------- Total......................................... $725,669 $766,372 $628,995 ======== ======== ========
Approximately 34%, 39% and 46% of the company's revenues in 2000, 1999 and 1998, respectively, were generated under contracts with the U.S. government and its agencies or under subcontracts with the U.S. government's prime contractors. 5. INVESTMENTS IN AND ADVANCES TO AFFILIATES 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, 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. Pursuant to the terms of the partnership agreements, until December 31, 1999, OCC and Teleglobe Mobile shared equal responsibility for the operational and financial affairs of ORBCOMM. The company accounted for its investment in ORBCOMM using the equity method of accounting. 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. As a result of the increase in Teleglobe's ownership interest in ORBCOMM, Orbital's share of ORBCOMM's total capital exceeded the book value of Orbital's investment in ORBCOMM. Accordingly, Orbital recorded a change-in-interest gain of $15,367,000 on reduction in ORBCOMM investment as an increase in additional paid-in capital. Orbital was the primary supplier to ORBCOMM of its communications satellites, launch vehicles and certain of its satellite ground systems and software. During 2000, 1999 and 1998, Orbital recorded sales to ORBCOMM totaling $22,849,000, $44,302,000 and $36,596,000, respectively. During 2000 and 1999, Orbital recognized operating losses of $1,839,000 and $311,000, respectively. The company eliminated profit on these sales based on its ownership interest in ORBCOMM. This elimination is reported in equity in losses of affiliates. During 1999 and 1998, Orbital deferred invoicing ORBCOMM for approximately $37,000,000 and $33,000,000, respectively, for work performed under satellite and launch procurement agreements. Approximately $33,000,000 (including interest) of these amounts was advanced from an affiliate of Teleglobe to Orbital. As part of the Omnibus Agreement, Orbital, Teleglobe and ORBCOMM agreed to settle the deferred invoicing and related cash advances. 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, the company converted approximately $33,000,000 of its deferred invoices into partnership interests in 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, ORBCOMM, using funds contributed for this purpose by Teleglobe, paid one-third of the $25,000,000 remaining balance due Orbital in the first quarter of 2000. 42 45 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. In September 2000, ORBCOMM defaulted on its interest payment obligations under 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 September 2000, ORBCOMM and its subsidiaries commenced reorganization proceedings under Chapter 11 of the U.S. Federal Bankruptcy Code. On April 12, 2001, ORBCOMM, Teleglobe Holdings, ORBCOMM's creditors committee, OCC and the company signed a preliminary non-binding term sheet providing for a sale of ORBCOMM's assets to a newly formed consortium called International Licensees, LLC and for a comprehensive liquidating plan of reorganization for ORBCOMM. There can be no assurance that the sale and reorganization plan will be consummated, in which case, we expect that ORBCOMM's Chapter 11 reorganization proceeding would be converted to a Chapter 7 liquidation proceeding. Orbital recorded non-cash charges totaling $113,123,000 in the second half of 2000 to fully write off its $56,852,000 investment in ORBCOMM as of June 30, 2000, and to write down ORBCOMM-related receivables totaling $54,527,000, including $813,000 of receivables written off by Magellan. Magellan's write down in the third quarter of 2000 of $2,753,000 of ORBCOMM-related inventory, less minority interest of $1,009,000, was included in the results from discontinued operations. At December 31, 2000, the estimated realizable values of such receivables and inventory were $196,000 and $12,854,000, respectively. Although management believes that these write-offs were sufficient to cover the company's current exposure, such reserves do not include any additional charges that might result should any disputes, litigation or unforeseen contingencies related to ORBCOMM arise. At December 31, 2000 and 1999, ORBCOMM had approximately $11,895,000 and $389,812,000 in total assets, $316,352,000 and $299,063,000 in total liabilities and ($304,457,000) and $90,749,000 of total partner's capital (deficit), respectively. At December 31, 2000 and 1999, ORBCOMM had approximately $3,895,000 and $31,121,000 in total current assets and $16,655,000 and $127,543,000 in total current liabilities, respectively. ORBCOMM recorded approximately $7,797,000, $2,772,000 and $1,262,000 in revenues, approximately $509,317,000, $116,034,000 and $62,996,000 in losses from operations, and $543,227,000, $144,548,000 and $69,628,000 in net losses for the years ended December 31, 2000, 1999 and 1998, respectively. Orbital recognized equity in losses of affiliates of $92,723,000, $73,560,000 and $34,827,000 for the years ended December 31, 2000, 1999 and 1998, respectively, for its share of ORBCOMM's losses, elimination of profits on sales to ORBCOMM and, for 2000, the write-off of the remaining investment balance. ORBIMAGE In 1997, the company's subsidiary, ORBIMAGE, completed a private placement of preferred equity. Although Orbital owns substantially all of the common stock of ORBIMAGE, Orbital is unable to control, but is able to exercise significant influence over, ORBIMAGE's operational and financial affairs. Accordingly, the company uses the equity method of accounting for its ownership interest in ORBIMAGE. Equity in earnings (losses) of affiliates includes Orbital's 100% share of ORBIMAGE's losses, including preferred stock dividends. As of December 31, 1999, the company's investments in and advances to ORBIMAGE were $8,094,000. During the second quarter of 2000, the company's share of ORBIMAGE's losses exceeded the company's investment balance and the company suspended recognition of additional ORBIMAGE losses when its investment balance was reduced to zero. At that time the company concluded that it did not intend to provide additional future equity funding to ORBIMAGE. During the first quarter of 2001, as a result of industry and market conditions, the company reconsidered its intentions regarding potential future funding to ORBIMAGE. As a result, the company commenced recognizing ORBIMAGE's losses in the fourth quarter of 2000, including $16,038,000 of ORBIMAGE's losses, representing the cumulative amount of losses incurred by ORBIMAGE, including preferred dividends, not previously recognized by Orbital through December 31, 2000. Such losses are in excess of the company's investment in ORBIMAGE and have been reflected as a liability in the accompanying consolidated financial statements. 43 46 During the second quarter of 2000, Orbital agreed to temporarily refund $20,000,000 to ORBIMAGE in January 2001 from amounts previously paid by ORBIMAGE under its procurement agreement with Orbital, provided, however, that such obligation would be terminated if Orbital were to successfully broker a renegotiation of ORBIMAGE's license agreement for worldwide RadarSat-2 satellite distribution rights with MDA by January 2001. The existing RadarSat-2 agreement was terminated in February 2001 and replaced by a new agreement between MDA and ORBIMAGE for exclusive U.S. Radarsat-2 distribution rights. Orbital believes that as a result, its obligation to temporarily refund $20,000,000 was extinguished. ORBIMAGE has notified Orbital of its position, notwithstanding the renegotiation of the license agreement, that the $20,000,000 refund is now due and payable, which Orbital disputes. The parties are currently in discussions to resolve this matter. Under the new RadarSat-2 license agreement, $10,000,000 will be due from ORBIMAGE in 2002. Orbital has agreed to purchase up to $10,000,000 of receivables from ORBIMAGE in 2002, subject to certain conditions, if ORBIMAGE is unable to make its 2002 payments to MDA. In March 2001, ORBIMAGE defaulted on its interest payment obligations under its $225,000,000 Senior Notes due 2005. The Senior Notes are non-recourse to Orbital. ORBIMAGE management currently estimates that ORBIMAGE has sufficient resources to meet its capital and operating requirements through April 2001. ORBIMAGE is seeking to restructure the Senior Notes and to obtain 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. Under a procurement agreement between Orbital and ORBIMAGE, Orbital is providing and launching the OrbView-3 and OrbView-4 satellites, and constructing the related ground segment on a fixed-price basis. As a result of ORBIMAGE's lack of liquidity and weakened financial condition, Orbital ceased recognizing revenues on the ORBIMAGE system procurement contract beginning in the third quarter of 2000 and commenced accounting for its contract with ORBIMAGE using the completed contract method. During the years ended December 31, 2000, 1999 and 1998, Orbital recorded sales to ORBIMAGE of approximately $10,060,000, $50,100,000 and $89,006,000, respectively. During 2000 and 1999, Orbital recognized operating losses of $21,323,000 and $12,199,000, respectively. The company eliminated 100% of the profit on these sales. This elimination is reported in equity in losses of affiliates. Additionally, Orbital provides certain administrative services to ORBIMAGE on a cost-reimbursable basis. During 2000, 1999 and 1998, Orbital was reimbursed approximately $471,000, $1,513,000 and $1,985,000, respectively, for such administrative services. At December 31, 2000 and 1999, the company had total receivables due from ORBIMAGE of approximately $500,000 and $10,899,000, respectively. At December 30, 2000, the company also had approximately $18,524,000 of ORBIMAGE-related inventory. Under the completed contract method, costs incurred under the contract are capitalized as inventory. Should ORBIMAGE be unsuccessful in its efforts to raise additional capital, Orbital's ORBIMAGE-related receivables and inventory could become impaired. At December 31, 2000 and 1999, ORBIMAGE had approximately $344,329,000 and $359,838,000 in total assets, $247,463,000 and $253,604,000 in total liabilities and ($9,237,000) and $14,671,000 of total stockholders' (deficit) equity, respectively. At December 31, 2000 and 1999, ORBIMAGE had approximately $14,898,000 and $55,719,000 in total current assets and $240,493,000 and $23,618,000 in total current liabilities, respectively. ORBIMAGE recorded approximately $24,123,000, $18,587,000 and $11,663,000 in revenues, $2,573,000, $2,625,000 and $3,552,000 in gross losses, $9,552,000, $6,722,000, and $5,679,000 in net losses and $24,092,000, $19,796,000 and $26,538,000 in net losses available to common shareholders after considering preferred stock dividends for the years ended December 31, 2000, 1999 and 1998, respectively. CCI INTERNATIONAL, N.V. In 1998, the company acquired an equity interest in, and entered into a satellite procurement contract with CCI International, N.V. ("CCI"), a start-up satellite voice communications provider. The company had an investment in CCI of $9,942,000 at December 31, 1998. CCI ceased operations in 2000. The company provided substantially all of CCI's funding in 1998, and accordingly, the company did not recognize any revenue in connection with its satellite contract with CCI and recognized all of CCI's losses. Orbital 44 47 concluded in 1999 that its investment in CCI was impaired and recorded a non-cash charge of $11,128,000 in 1999 to write off its investment in CCI. This loss is included in equity in losses of affiliates in the accompanying statements of operations. OTHER INVESTMENTS The company owns equity interests in several emerging companies. The carrying value of these investments was approximately $2,327,000 and $5,198,000, respectively, at December 31, 2000 and 1999. 6. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS ATLANTIC TECHNOLOGIES In November 2000, the company, through its MDA subsidiary, acquired all of the assets of Atlantic Technologies, LLC for approximately $8,500,000 in cash with up to $6,000,000 in MDA shares to be issued over three years, subject to specified conditions. The company accounted for its acquisition using the purchase method of accounting. The purchase price exceeded the fair value of identifiable tangible and intangible assets acquired resulting in goodwill of approximately $10,809,000, which is being amortized on a straight-line basis over 20 years. DATAQUICK PRODUCTS In April 2000, the company, through its MDA subsidiary, acquired certain of the assets and liabilities of the DataQuick Products division of Acxiom Corporation for approximately $56,000,000. The company has accounted for its 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 $44,275,000, which is being amortized on a straight-line basis over twenty years. ROBOTICS DIVISION OF SPAR AEROSPACE LTD. In May 1999, the company, through its MDA subsidiary, acquired all the assets and certain liabilities of the space robotics division of Toronto-based Spar Aerospace Ltd. ("Robotics") for approximately $43,000,000. MDA paid half of the purchase price in cash at closing and issued an unsecured 8% note, which was paid in May 2000, for the remainder. The company has accounted for the acquisition using the purchase method of accounting. The liabilities recorded exceeded the fair value of tangible and identifiable intangible assets acquired resulting in goodwill of approximately $56,000,000 which is being amortized on a straight-line basis over 30 years. RAYTHEON On December 31, 1998, the company acquired the transportation management systems business of Raytheon Company for approximately $21,000,000 in cash. The acquired business produces satellite-based automatic vehicle location systems for public transit fleets. The company accounted for the acquisition using the purchase method of accounting. The purchase price exceeded the fair value of the net tangible and identifiable intangible assets acquired by approximately $20,000,000, which is being amortized on a straight-line basis over 15 years. The following unaudited, supplemental financial information presents the consolidated results of operations, on a pro forma basis, as though the above acquisitions were consummated on January 1, 1998:
DECEMBER 31, ---------------------------------- 2000 1999 1998 --------- --------- -------- (IN THOUSANDS EXCEPT SHARE DATA) Revenues......................................... $ 751,344 $ 822,839 $774,167 Net loss......................................... (274,656) (117,169) (54,628) Net loss per common and diluted share............ (7.33) (3.14) (1.53)
45 48 LICENSE AGREEMENT In May 1999, MDA entered into a $37,000,000 long-term license agreement with the British Columbia provincial government whereby MDA obtained the exclusive rights to use certain government information databases (the "License Agreement"). MDA provides Internet-based services pursuant to the License Agreement. For the license, MDA paid approximately $13,000,000 in cash and borrowed approximately $7,000,000 under an existing line of credit and $17,000,000 pursuant to a loan that was repaid in 2000. The cost of this license is classified as an other long-term asset and is being amortized on a straight-line basis over its 10-year term. 7. BALANCE SHEET ACCOUNTS RESTRICTED CASH AND SHORT-TERM INVESTMENTS At December 31, 2000 and 1999, the company had approximately $8,697,000 and $17,041,000, respectively, of cash restricted to support bank covenants and outstanding letters of credit. Short-term investments consist of the following:
DECEMBER 31, ----------------- 2000 1999 ------ ------- (IN THOUSANDS) AVAILABLE-FOR-SALE SECURITIES Canadian mortgage bonds................................... $ -- $10,912 Commercial paper securities............................... 8,435 -- ------ ------- TRADING SECURITIES Mutual funds at fair value................................ -- 6,677 ------ ------- Total.................................................. $8,435 $17,589 ====== =======
At December 31, 1999, the gross unrealized gains and losses on short-term trading securities were $1,087,000. Amortized cost approximated fair value for available-for-sale securities at December 31, 2000 and 1999. At December 31, 2000, available-for-sale securities with a fair value of $1,991,000 were included in other non-current assets. Unrealized gains on these securities were $335,000 at December 31, 2000. INVENTORY Inventories, net of allowances for obsolescence, consisted of the following:
DECEMBER 31, ------------------ 2000 1999 ------- ------- (IN THOUSANDS) Components and raw materials................................ $20,602 $12,227 Work-in-process............................................. 46,473 36,725 Allowance for inventory obsolescence........................ (5,495) (8,416) ------- ------- Total.................................................. $61,580 $40,536 ======= =======
Work-in-process inventory includes $18,524,000 at December 31, 2000 related to the costs incurred in the second half of 2000 in connection with the ORBIMAGE system procurement contract (see Note 5). Should ORBIMAGE be unsuccessful in its efforts to raise additional capital, the related inventory amounts may be impaired. 46 49 ACCOUNTS RECEIVABLE The components of receivables were as follows:
DECEMBER 31, -------------------- 2000 1999 -------- -------- (IN THOUSANDS) Billed and billable......................................... $ 94,524 $166,776 Recoverable costs and accrued profit not billed............. 64,816 104,103 Retainages due upon contract completion..................... 5,632 13,707 Allowance for doubtful accounts............................. (22,627) (15,957) -------- -------- Total.................................................. $142,345 $268,629 ======== ========
Approximately 80% of recoverable costs and accrued profit not billed and retainages due upon contract completion at December 31, 2000 is due within one year and will be billed on the basis of contract terms and delivery schedules. At December 31, 2000 and 1999, $27,856,000 and $45,749,000, respectively, were receivable from non-U.S. customers. The accuracy and appropriateness of Orbital's direct and indirect costs and expenses under its government contracts, and, therefore, its receivables recorded pursuant to such contracts, are subject to extensive regulation and audit by the Defense Contract Audit Agency or by other appropriate governmental agencies. These agencies have the right to challenge Orbital's cost estimates or allocations with respect to any such contract. Additionally, a substantial portion of the payments to the company under government contracts are provisional payments that are subject to potential adjustment upon audit by such agencies. In the opinion of management, any adjustments likely to result from inquiries or audits of its contracts will not have a material adverse impact on the company's financial condition or results of operations. The company enters into forward exchange contracts in an effort to hedge against foreign currency fluctuations on certain receivables and payables denominated in foreign currencies. Accordingly, Orbital is subject to off-balance sheet market risk for the possibility that future changes in market prices may make the forward exchange contracts less valuable. The following table summarizes at December 31, 2000, outstanding foreign exchange contracts to sell (purchase) foreign currencies, along with current market values:
CURRENCIES CURRENT UNREALIZED HEDGED CONTRACT MARKET GAIN FOREIGN CURRENCY HEDGE AGAINST AMOUNT VALUE (LOSS) - ---------------------- ---------- -------- ------- ---------- (U.S. DOLLARS, IN THOUSANDS) EURO...................................... CD $ 1,137 $ 1,170 $ 33 Pounds Sterling........................... CD 232 237 5 Norwegian Kroner.......................... CD 350 355 5 U.S. Dollars.............................. CD (8,821) (8,788) 33 Italian Lire.............................. CD (36) (34) (2) Japanese Yen.............................. US 14,659 13,763 (896)
- --------------- CD -- Canadian Dollars, US -- U.S. Dollars 47 50 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following:
DECEMBER 31, ---------------------- 2000 1999 --------- --------- (IN THOUSANDS) Land........................................................ $ 4,061 $ 4,061 Buildings and leasehold improvements........................ 43,512 31,910 Machinery and equipment..................................... 162,565 169,572 Equipment and satellite systems under construction.......... 2,021 22,446 Software, intellectual property and technical drawings...... 31,918 16,432 Accumulated depreciation and amortization................... (115,364) (114,173) --------- --------- Total.................................................. $ 128,713 $ 130,248 ========= =========
Interest expense totaling $1,846,000, $2,711,000, and $1,705,000 was capitalized during 2000, 1999 and 1998, respectively, as part of the historical cost of buildings and equipment under construction. ACCRUED EXPENSES Accrued expenses consisted of the following:
DECEMBER 31, -------------------- 2000 1999 -------- -------- (IN THOUSANDS) Payroll, payroll taxes and fringe benefits.................. $ 34,539 $ 43,449 Payable to subcontractors................................... 6,183 5,902 Accrued contract costs...................................... 27,217 40,106 Accrued financing and acquisition costs..................... 2,848 13,973 Accrued income taxes........................................ 1,550 12,533 Accrued warranty reserves................................... 3,793 -- Accrued litigation settlement............................... 11,500 -- Accrued sublease losses..................................... 5,159 -- Other accrued expenses...................................... 12,348 14,683 -------- -------- Total.................................................. $105,137 $130,646 ======== ========
In 2000, the company established a $5,159,000 liability for estimated losses on unutilized subleased facilities. VENDOR FINANCING In 2000, the company secured vendor financing that provided for the deferral of payments under certain contracts. The deferred payments are due by the end of 2001 along with accrued interest at the annual interest rate of 8.25%. As of December 31, 2000, $31,562,000 of deferred vendor payments and interest was recorded in accounts payable. 48 51 8. DEBT OBLIGATIONS The following table sets forth long-term obligations, excluding capital lease obligations (see Note 9):
DECEMBER 31, ---------------------- 2000 1999 --------- --------- (IN THOUSANDS) 7.6% -- 9.09% notes, principal and interest due monthly through 2004.............................................. $ 7,444 $ 27,326 8.41% note, principal and interest due monthly through 2004...................................................... 6,239 7,385 Non-interest bearing notes, principal due semi-annually through 2005.............................................. 1,561 2,100 6% note, due in 2000........................................ -- 1,450 6.22% -- 7.125% bank notes, principal and interest due monthly through 2002...................................... -- 21,569 Revolving credit facility, interest due monthly at LIBOR plus 0.75% to 1.3%, principal due two years from last date of revolving period, currently 2003....................... 35,261 -- Term credit facility, interest due monthly at LIBOR plus 0.75% to 1.3% through 2005 and principal due in 2005...... 19,184 -- 8% note, due in 2000........................................ -- 22,976 15% note, interest due semi-annually, principal due in June 2001...................................................... 6,666 13,333 Primary credit facility, interest due quarterly at LIBOR plus 3.75% through July 2002 and principal due July 2002...................................................... 115,000 165,000 5% convertible subordinated notes, interest due semi-annually, principal due 2002......................... 100,000 100,000 --------- --------- 291,355 361,139 LESS CURRENT PORTION........................................ (127,426) (123,361) --------- --------- LONG-TERM PORTION........................................... $ 163,929 $ 237,778 ========= =========
The 7.6% -- 9.09% notes are collateralized by certain office, computer and test equipment. The 8.41% note is collateralized by the company's L-1011 aircraft. MDA paid the remaining outstanding principal balances on the 6.22% -- 7.125% bank notes in 2000 and entered into a new credit facility with a syndicate of six banks. The new agreement provides a total facility to MDA and its subsidiaries of $126,650,000, consisting of a $73,325,000 revolving facility, a $20,000,000 term facility and a $33,325,000 program-specific letter of credit facility. At December 31, 2000, $35,261,000 and $19,184,000 were outstanding under the revolving and term facilities, respectively. Letters of credit outstanding at December 31, 2000 totaled $22,041,000. Interest rates on the facility are based on LIBOR plus 0.75% to 1.3%, or 7.55% to 8.1% at December 31, 2000. The new credit facility is collateralized by MDA's assets and includes certain operational and financial covenants, including certain restrictions on the payment of dividends. MDA's credit facility is non-recourse to Orbital. The 15% note 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. A portion of the collateral for the primary credit facility described below is pledged for this note. Orbital's primary credit facility (the "Primary Facility") is with an international syndicate of banks and provided for total borrowings of $115,000,000, all of which was drawn and outstanding at December 31, 2000, at a weighted average interest rate of 10.56%. It was amended several times in 2000 to waive noncompliance with certain financial covenants and to amend other covenants, including net worth, leverage, fixed charges capital expenditures and subsidiary debt and to reduce the credit facility. The Primary Facility had mandatory prepayment requirements to reduce the total amount outstanding. Orbital satisfied these requirements in 2000 when it paid down $8,000,000 with proceeds from the sale of MDA shares and $46,000,000 with proceeds from the sale of Fairchild in 2000. 49 52 On February 23, 2001, the company entered into a $30,000,000 364-day loan (the "Secondary Facility") with this bank syndicate. At that same time, the company amended and restated the Primary Facility (the "Amended and Restated Primary Facility") in order to, among other things, modify the prepayment terms, expand the collateral provided to the banks and change the expiration date from December 2002 to July 2002. Orbital's borrowings are now collateralized by accounts receivable, intellectual property, inventory, equipment, real estate 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 the company beneficially owns. The Amended and Restated Primary Facility and the Secondary Facility prohibit the payment of cash dividends and the making of investments, and contain certain covenants with respect to working capital levels, operating cash flows, leverage and net worth. During the first quarter of 2001, the company defaulted under several financial covenants dealing with minimum consolidated net worth, consolidated leverage and senior leverage under both the Amended and Restated Primary Facility and the Secondary Facility. The defaults were waived by the bank group in amendments signed in April 2001. The Amended and Restated Primary Facility and the Secondary Facility require that the company reduce outstanding balances under the facilities in connection with debt issuances, equity issuances or asset sales. The company must apply 100% of the first $50,000,000 of net cash proceeds from any asset sale, 43.75% of the next $80,000,000 and 70% thereafter to pay down amounts owing under the Secondary Facility first, and then the Amended and Restated Primary Facility. In addition, the company must apply 100% of net cash proceeds from any debt issuances and 55% of the net cash proceeds of any equity issuance to pay down the facilities. Orbital will default under the leverage covenant in both the Secondary Facility and the Amended and Restated Primary Facility unless it completes asset sales by June 30, 2001 that raise sufficient proceeds to pay down a significant portion of debt. In September 1997, Orbital sold $100,000,000 of 5% convertible subordinated notes due October 2002. The notes are convertible at the option of the holders into Orbital common stock at a conversion price of $28.00 per share, subject to adjustment in certain events. The fair value of Orbital's convertible subordinated notes at December 31, 2000 and 1999 is estimated at approximately $45,500,000 and $85,625,000, respectively. Fair value estimates are based on quoted market prices or on current rates offered for debt of similar remaining maturities. The carrying amounts of the other outstanding debt approximate their fair values. Scheduled maturities of long-term debt for each of the years in the five-year period ending December 31, 2005 are $127,426,000, $104,300,000, $37,750,000, $2,016,000 and $19,862,000, respectively. Magellan maintains a short-term credit facility that is guaranteed by Orbital. At December 31, 2000 and 1999, approximately $8,145,000 and $6,345,000 was outstanding on this facility at an average borrowing rate of 11.50% and 10.25%, respectively. These borrowings are collateralized by Magellan's accounts receivable, inventory, equipment and general intangibles. In the first quarter of 2001, the company paid Silicon Valley Bank $1,100,000 under the guarantee in order to avoid a default on Magellan's tangible net worth covenant. In 1996, ORBCOMM issued $170,000,000 14% senior unsecured notes due 2004 (the "ORBCOMM Notes") to institutional investors. ORBCOMM defaulted on the ORBCOMM Notes, in September 2000. The ORBCOMM Notes are fully and unconditionally guaranteed on a joint and several basis by OCC and Teleglobe Mobile. On April 5, 2001, HSBC Bank USA, the indenture trustee for the ORBCOMM Notes, submitted to OCC and other guarantors of the ORBCOMM Notes a formal demand for payment of the outstanding principal amount of the notes, plus accrued unpaid interest from February 15, 2000 and related expenses. OCC's obligation is non-recourse to Orbital. 50 53 9. COMMITMENTS AND CONTINGENCIES LEASES Aggregate minimum rental commitments under non-cancelable operating and capital leases (primarily for office space and equipment) at December 31, 2000 were as follows:
OPERATING CAPITAL --------- ------- (IN THOUSANDS) 2001........................................................ $ 23,635 $ 1,826 2002........................................................ 22,865 743 2003........................................................ 22,824 600 2004........................................................ 22,559 577 2005........................................................ 21,139 183 2006 and hereafter.......................................... 134,525 108 -------- ------- 4,037 Less interest at 10%........................................ $247,547 (578) -------- Less current portion........................................ (1,671) ------- Long-term portion........................................... $ 1,788 =======
Rent expense for 2000, 1999 and 1998 was approximately $23,170,000, $18,385,000 and $14,124,000, respectively. LITIGATION 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 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 arbitration proceedings. Orbital believes that PT-MCI's allegations are without merit and intends to vigorously defend against the 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. The company is currently arbitrating a claim brought by Thomas van der Heyden alleging that the company is in actual or anticipatory breach of obligations allegedly imposed on the company in a judgment in a previous action brought by the plaintiff against CTA. Mr. van der Heyden claims that he is entitled to a sum exceeding $30,000,000 from the company, as successor-in-interest to CTA. Management believes that Mr. van der Heyden's allegations in these proceedings are without merit and intends to vigorously defend against the 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 this litigation. In March 2001, MDA and certain of its executive officers, as well as the Province of British Columbia and various provincial government officials, were named in a lawsuit brought by Infowest Services Inc. alleging various conspiracies among MDA and others, breach of contract, abuse of government power and other related allegations in connection with the BC Online procurement during 1997 to 1999. The lawsuit seeks over $80,000,000 in damages. MDA believes that these claims are without merit and intends to vigorously defend against the allegations. The eventual outcome of the foregoing legal matters is uncertain and could have a material adverse impact on the company's results of operations and financial condition. In July 2000, the company reached an agreement to settle the outstanding class-action lawsuit filed in 1999 alleging violations of federal securities laws. The settlement agreement provides for the plaintiffs to 51 54 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 in 2001, which had an aggregate fair market value of $11,500,000 as of the settlement date. Accordingly, an expense and liability of $11,500,000 were recorded in the second quarter of 2000. The creditors committee of ORBCOMM has notified the company that they believe ORBCOMM's bankruptcy estate is entitled to recover approximately $57,000,000 in allegedly preferential payments that Orbital received in connection with the sale of satellites and launch services to ORBCOMM during the one-year period preceding ORBCOMM's bankruptcy filing. The creditors committee has also asserted that the ORBCOMM estate is entitled to recover approximately $900,000 in allegedly preferential payments received by MDA. Orbital believes that all such claims are without merit and that the company has adequate defenses to all such claims. As previously discussed, the current proposed ORBCOMM liquidating plan of reorganization, if implemented, would include a release of the foregoing claims. 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 other litigation or proceedings will have a material adverse effect on our results of operations or financial position. CONTRACTS Most of the company's government contracts are funded incrementally on a year-to-year basis. Changes in government policies, priorities or funding levels through agency or program budget reductions by the U.S. Congress or executive agencies could materially adversely affect our financial condition or results of operations. Furthermore, contracts with the U.S. government may be terminated or suspended by the U.S. government at any time, with or without cause. Such contract suspensions or terminations could result in unreimbursable expenses or charges or otherwise adversely affect our business. In March 2001, NASA terminated for convenience the company's X-34 research and development contract (see Note 3). Although Orbital is seeking to recover from NASA a significant portion of its costs associated with such termination for convenience, there can be no assurance that the company will be successful in recovering all its costs on a timely basis, if at all. 10. INCOME TAXES The provisions for income taxes consisted of the following:
YEARS ENDED DECEMBER 31, ---------------------------- 2000 1999 1998 ------- ------- ------ (IN THOUSANDS) CURRENT PROVISION: U.S. Federal......................................... $ -- $ -- $ -- Foreign.............................................. 424 20,040 1,394 State................................................ -- -- -- DEFERRED PROVISION (BENEFIT): U.S. Federal......................................... 9,886 -- -- Foreign.............................................. 5,481 (8,936) 3,822 State................................................ -- -- -- ------- ------- ------ Total............................................. $15,791 $11,104 $5,216 ======= ======= ======
52 55 The income tax provisions were different from those computed using the statutory U.S. Federal income tax rate as set forth below:
YEARS ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------ ------ ------ U.S. Federal statutory rate................................. (35.0)% (35.0)% (35.0)% Changes in valuation allowance.............................. 45.5 51.8 44.2 Investments in affiliates and minority interests in net assets of consolidated subsidiaries....................... 1.2 (2.6) 3.3 Intangible amortization..................................... 1.0 2.9 5.1 Foreign income taxes in excess of statutory rate............ 0.5 4.4 3.6 Other, net.................................................. (5.8) (9.7) (4.5) ----- ----- ----- Effective rate......................................... 7.4% 11.8% 16.7% ===== ===== =====
The tax effects of significant temporary differences were as follows:
DECEMBER 31, ---------------------- 2000 1999 --------- --------- (IN THOUSANDS) TAX ASSETS: U.S. Federal and state net operating loss carryforward.... $ 168,277 $ 128,095 Non-deductible financial statement accruals............... 101,305 80,307 U.S. Federal and foreign tax credit carryforward.......... 2,998 2,998 Intangible assets......................................... 6,029 6,511 --------- --------- 278,609 217,911 Valuation allowance....................................... (214,063) (118,119) --------- --------- Tax assets, net........................................ $ 64,546 $ 99,792 ========= ========= TAX LIABILITIES: Excess deductions for tax reporting purposes.............. $ 14,641 $ 52,841 Excess tax depreciation................................... 27,594 19,895 Investments in subsidiaries/affiliates.................... 5,441 5,719 Percentage-of-completion accounting....................... 2,702 2,702 --------- --------- Tax liabilities........................................ $ 50,378 $ 81,157 ========= =========
In 2000, 1999 and 1998, approximately $11,106,000, $16,213,000 and $8,300,000, respectively, of income before provision for income taxes was generated from foreign sources. At December 31, 2000, the company had U.S. Federal net operating loss carryforwards (portions of which expire beginning in 2004) of approximately $444,791,000, and U.S. research and experimental tax credit carryforwards of approximately $2,998,000. Such net operating loss carryforwards and tax credits are subject to certain limitations and other restrictions. The increase in the valuation allowance of $95,944,000 is primarily due to current year operating losses and management's assessment of anticipated future taxable income. There is a potential for near-term reversal of the valuation allowance dependent on the future operating results. Management currently believes that it is more likely than not that its existing net deferred tax assets will be realized in the future. Due to adjustments in the allocation of the purchase price accounting for the recent acquisitions by MDA, the net deferred tax assets attributable to MDA were increased by $10,900,000. This increase to the net deferred tax assets was adjusted through a corresponding decrease in recorded goodwill for these acquisitions. 11. COMMON STOCK AND STOCK OPTION PLANS In October 1998, the company adopted a stockholder rights plan in which preferred stock purchase rights were granted as a dividend at the rate of one right for each share of common stock to stockholders of record on 53 56 November 13, 1998. The plan is designed to deter coercive or unfair takeover tactics. The rights become exercisable only if a person or group in the future becomes the beneficial owner of 15% or more of Orbital's common stock, or announces a tender or exchange offer that would result in its ownership of 15% or more of the company's common stock. The rights are generally redeemable by Orbital's Board of Directors at a redemption price of $0.005 per right and expire on October 31, 2008. In 1999, the company adopted an Employee Stock Purchase Plan ("ESPP") for employees of the company (including its consolidated U.S. subsidiaries). Under the ESPP, eligible employees may purchase up to 1,000,000 shares of Orbital's common stock, subject to certain limitations. The ESPP has semi-annual offering periods beginning on January 1 and July 1 and allows employees to purchase shares of stock at the lesser of 85% of the fair market value of shares at either the beginning or the end of the offering period. As of December 31, 2000, the company's 1997 Stock Option and Incentive Plan, as amended in 1999 (the "1997 Plan"), provided for awards of up to 6,800,000 incentive or non-qualified stock options and shares of restricted stock to employees, directors, consultants and advisors of the company and its subsidiaries. Under the terms of the 1997 Plan, options may not be issued at less than 100% of the fair market value of the company's common stock on the date of grant. Options under the 1997 Plan vest at a rate set forth by the Board of Directors in each individual option agreement, generally in one-third increments over a three-year period following the date of grant. Options granted in 2000 were vested one-third immediately, with the remaining two-thirds vesting in equal increments over two years. Options expire no more than ten years following the grant date. The 1997 Plan provides for automatic grants of non-qualified stock options to nonemployee directors of the company. The company also has options outstanding that were issued pursuant to two predecessor plans to the 1997 Plan, as well as replacement options issued in connection with certain acquisitions. The following two tables summarize information regarding options under the company's stock option plans for the last three years:
WEIGHTED AVERAGE OUTSTANDING NUMBER OF OPTION PRICE EXERCISE AND ORBITAL OPTIONS SHARES PER SHARE PRICE EXERCISABLE --------------- ---------- ------------ -------- ----------- Outstanding at December 31, 1997... 4,007,291 $ 1.84-24.00 $15.16 1,549,185 Granted.......................... 2,236,700 18.38-38.44 32.49 Exercised........................ (1,086,537) 1.76-20.75 13.39 Cancelled or expired............. (713,898) 3.51-36.50 35.07 ---------- Outstanding at December 31, 1998............................. 4,443,556 3.51-38.44 21.09 1,548,218 Granted.......................... 2,070,400 12.50-43.31 25.88 Exercised........................ (218,346) 3.51-24.00 13.50 Cancelled or expired............. (282,888) 3.51-38.44 23.17 ---------- Outstanding at December 31, 1999... 6,012,722 3.51-43.31 22.66 2,602,819 Granted.......................... 1,746,033 8.00-36.50 12.34 Exercised........................ (17,587) 3.51-12.25 6.74 Canceled or expired.............. (766,167) 3.51-40.00 24.94 ---------- Outstanding at December 31, 2000... 6,975,001 $ 3.51-43.31 $19.86 4,409,970 ========== ============ ====== =========
54 57
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------- --------------------------------- WEIGHTED NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE PRICES AT DEC. 31, 2000 CONTRACTUAL LIFE EXERCISE PRICE AT DEC. 31, 2000 EXERCISE PRICE --------------- ---------------- ---------------- -------------- ---------------- -------------- $ 3.5100-$13.5000.. 2,359,886 7.75 $12.1688 1,189,340 $12.4545 $13.6200-$22.6250.. 3,266,720 6.99 $19.4997 2,329,243 $18.5024 $24.000-$43.3100.. 1,348,395 7.61 $34.1891 891,387 $33.5075 - ----------------- --------- ---- -------- --------- -------- $ 3.5100-$43.3100.. 6,975,001 7.37 $19.8592 4,409,970 $19.9043 ================= ========= ==== ======== ========= ========
OCC adopted a stock option plan in 1992 (the "OCC Plan"), which provided for grants of incentive and non-qualified stock options to purchase OCC common stock to officers and employees of ORBCOMM and the company. No OCC options have been granted since 1998. Options were granted under the OCC Plan at the fair market value of OCC common stock at the date of grant as determined by OCC's Board of Directors. Options under the OCC Plan vest in one-fourth increments over a four-year period following the date of grant. Certain provisions of the OCC Plan require OCC to repurchase, with cash or promissory notes, the common stock acquired pursuant to the options. During 2000, 1999, and 1998, OCC repurchased zero, 9,700 and 1,000 shares, respectively, of OCC common stock under this provision. The following two tables summarize information regarding options under the OCC Plan for the last three years:
WEIGHTED AVERAGE OUTSTANDING NUMBER OF OPTION PRICE EXERCISE AND OCC OPTIONS SHARES PER SHARE PRICE EXERCISABLE ----------- --------- ------------ -------- ----------- Outstanding at December 31, 1997.... 749,830 $ 1.50-26.50 $15.22 415,804 Granted........................... 305,300 26.50-39.75 32.37 Exercised......................... (32,600) 1.50-13.00 3.15 Cancelled or expired.............. (17,700) 1.50-26.50 23.94 --------- Outstanding at December 31, 1998.... 1,004,830 1.50-39.75 20.40 520,864 Granted........................... 36,000 39.75-43.67 43.34 Exercised......................... (35,000) 1.50-26.50 8.02 Cancelled or expired.............. (287,825) 4.00-43.67 27.84 --------- Outstanding at December 31, 1999.... 718,005 1.50-43.67 19.18 531,739 Granted........................... -- -- -- Exercised......................... -- -- -- Cancelled or expired.............. (148,440) 1.50-39.75 23.87 --------- Outstanding at December 31, 2000.... 569,565 $ 1.50-43.67 $18.10 501,574 ========= ============ ====== =======
WEIGHTED NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE PRICES AT DEC. 31, 2000 CONTRACTUAL LIFE EXERCISE PRICE AT DEC. 31, 2000 EXERCISE PRICE - --------------- ---------------- ---------------- -------------- ---------------- -------------- $1.50-$25.00... 290,290 2.43 $ 6.43 290,290 $ 6.43 $26.50-$43.67.. 279,650 7.05 $30.22 211,284 $28.31 - --------------- ------- ---- ------ ------- ------ $1.50-$43.67... 569,940 4.69 $18.10 501,574 $15.65 =============== ======= ==== ====== ======= ======
Magellan adopted a stock option plan in 1998 (the "1998 Magellan Plan"). The 1998 Magellan Plan authorizes the issuance of incentive or non-qualified options to purchase up to 19,900,000 shares of Magellan common stock to Magellan and Orbital employees, consultants or advisors. Stock options may not be granted with an exercise price less than 85% of the fair market value of the common stock at the date of grant as determined by Magellan's Board of Directors. Options under the 1998 Magellan Plan vest at a rate set forth by the Board of Directors in each individual option agreement, generally in one-third increments over a three- 55 58 year period following the date of the grant. Additionally, Magellan options that were issued pursuant to an option plan adopted in 1996 are still outstanding. The following two tables summarize information regarding options under Magellan's stock option plans for the last three years:
WEIGHTED OUTSTANDING NUMBER OF OPTION PRICE AVERAGE AND MAGELLAN OPTIONS SHARES PER SHARE EXERCISE PRICE EXERCISABLE - ---------------- ---------- ------------ -------------- ----------- Outstanding at December 31, 1997............................ 6,779,660 $ 1.10 $1.10 2,528,097 Granted......................... 15,307,204 0.40 0.40 Exercised....................... (21,300) 0.40-1.10 0.98 Cancelled or expired............ (5,093,210) 0.40-1.10 1.03 ---------- Outstanding at December 31, 1998............................ 16,972,354 0.40-1.10 0.47 5,389,208 Granted......................... 2,253,025 0.40-0.50 0.45 Exercised....................... (52,737) 0.40-1.10 0.46 Cancelled or expired............ (4,558,786) 0.40-1.10 0.45 ---------- Outstanding at December 31, 1999............................ 14,613,856 0.40-1.10 0.46 8,044,552 Granted......................... 3,260,362 0.30 0.30 Exercised....................... (148,583) 0.30-0.40 0.40 Cancelled or expired............ (7,321,866) 0.30-1.10 0.48 ---------- Outstanding at December 31, 2000............................ 10,403,769 $0.30-1.10 $0.39 6,337,100 ========== ========== ===== =========
WEIGHTED RANGE OF NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED EXERCISE OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE PRICES AT DEC. 31, 2000 CONTRACTUAL LIFE EXERCISE PRICE AT DEC. 31, 2000 EXERCISE PRICE - -------------- ---------------- ---------------- -------------- ---------------- -------------- $0.30-$0.30 2,691,713.00 9.37 $0.30 61,675.00 $0.30 $0.40-$1.10 7,712,056.58 6.52 $0.42 6,275,424.50 $0.42 - -------------- ------------- ---- ----- ------------ ----- $0.30-$1.10 10,403,769.58 7.25 $0.39 6,337,099.50 $0.42 ============== ============= ==== ===== ============ =====
In connection with Magellan's merger with Ashtech on December 31, 1997, Magellan assumed Ashtech's option plan and issued replacement options that are exercisable into Magellan common stock. At December 31, 2000, 10,403,770 non-qualified replacement options were outstanding, 6,337,100 of which were exercisable at prices ranging from $0.30 to $1.10. The weighted average remaining contractual life on these outstanding options is 7.25 years. MDA adopted a stock option plan in 1999 (the "1999 MDA Plan"). The 1999 MDA Plan authorizes the issuance of options to purchase up to 6,000,000 shares of MDA common stock to MDA and Orbital employees, consultants or advisors, and the issuance of options to purchase 127,500 shares of MDA common stock to certain MDA shareholders. Stock options may not be issued at less than 100% of the fair market value of the common stock at the date of grant as determined by MDA's Board of Directors. Options under the 1999 MDA Plan vest generally in one-third increments over a three-year period following the date of the grant. There were no options exercised during 2000, and at December 31, 2000, none of the outstanding options were exercisable. The following table summarizes information regarding options under the MDA stock option plan as of and for the year ended December 31, 2000: 56 59
WEIGHTED AVERAGE NUMBER OF OPTION PRICE EXERCISE MDA OPTIONS SHARES PER SHARE PRICE - ----------- --------- ------------ -------- Outstanding at December 31, 1999................. -- -- -- Granted........................................ 4,553,250 $7.17-12.87 $7.28 Cancelled or expired........................... (138,750) 7.17 7.17 --------- Outstanding at December 31, 2000................. 4,414,500 $7.17-12.87 $7.29 ========= =========== =====
WEIGHTED NUMBER AVERAGE WEIGHTED RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISE PRICES AT DEC. 31, 2000 CONTRACTUAL LIFE EXERCISE PRICE - --------------- ---------------- ---------------- -------------- $ 7.17-$ 7.17 4,308,500 9.2 $7.17 $10.68-$12.87 106,000 9.8 11.88 -------------- --------- --- ----- $ 7.17-$12.87 4,414,500 9.2 $7.28 ============== ========= === =====
12. STOCK-BASED COMPENSATION The company uses the Black-Scholes option pricing model to determine the pro forma impact under SFAS 123 to the company's net income and earnings per share. The model utilizes certain information, such as the interest rate on a risk-free security maturing generally at the same time as the option being valued, and requires certain assumptions, such as the expected amount of time an option will be outstanding until it is exercised or it expires, to calculate the weighted average fair value per share of stock options granted. This information and the assumptions used for 2000, 1999 and 1998 for all option plans is summarized as follows:
ADDITIONAL SHARES WEIGHTED AVERAGE AVAILABLE AT RISK-FREE FAIR VALUE DECEMBER 31, VOLATILITY INTEREST RATE PER SHARE AT GRANT DATE ---------------------------------- ------------------ ------------------ ------------------------ 2000 1999 1998 2000 1999 1998 2000 1999 1998 2000 1999 1998 ---------- --------- --------- ---- ---- ---- ---- ---- ---- ------ ------ ------ Orbital Plans........ 969,012 277,085 271,619 59% 58% 55% 6.3% 5.4% 5.8% $12.34 $25.88 $32.49 OCC Plan............. 456,815 308,750 56,925 N/A 30% 30% N/A 5.6% 5.4% N/A $43.34 $32.37 Magellan Plans....... 10,869,701 6,808,198 9,892,346 30% 30% 30% 6.7% 5.1% 5.5% $ 0.30 $ 0.45 $ 0.40 MDA Plan............. 1,585,500 N/A N/A 30% N/A N/A 6.5% N/A N/A $ 7.28 N/A N/A
- --------------- The assumed expected dividend yield was zero for all years for all option plans. The assumed average expected life for all options for all years was 4.5 years. Had the company determined compensation expense in accordance with the provisions of SFAS 123, based on the calculated fair value of stock options at the grant date, the company's net loss and net loss per common and dilutive share would have been $296,198,000 and $7.90, respectively, for the year ended December 31, 2000; $141,428,000 and $3.78, respectively, for the year ended December 31, 1999; and $76,176,000 and $2.14, respectively, for the year ended December 31, 1998. Pro forma net loss reflects only options granted in 2000, 1999 and 1998 and, therefore, may not be representative of the effects for future periods. In 1996, the company issued 150,000 stock appreciation rights that vested annually through 1998. Payment was dependent on appreciation of the company's common stock over the vesting period. The company recorded approximately $250,000 in compensation expense during 1998 (none in 2000 and 1999) with respect to these rights. Additional awards for 200,000 stock appreciation rights were granted in 1999 that did not result in any additional compensation expense. 13. SUPPLEMENTAL DISCLOSURES DEFINED CONTRIBUTION PLANS At December 31, 2000, the company had several defined contribution plans (the "Plans") generally covering all full-time employees in the U.S. and Canada. Company contributions to the Plans are made based 57 60 on certain plan provisions and at the discretion of the Board of Directors, and were approximately $8,661,000, $9,363,000 and $10,370,000 during 2000, 1999 and 1998, respectively. In addition, the company has a deferred compensation plan for senior managers and executive officers. At December 31, 2000 and 1999, liabilities related to this plan totaling $5,959,000 and $7,570,000, respectively, were included in accrued expenses. The liability amounts are based on the market value of the investments elected by the plan participants. CASH FLOWS Cash payments for interest and income taxes were as follows:
YEARS ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- (IN THOUSANDS) Interest paid......................................... $23,591 $18,458 $16,032 Income taxes paid, net of refunds..................... 7,981 2,257 1,624
14. SUMMARY SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of selected quarterly financial data for the previous two years:
QUARTER ENDED --------------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 -------- -------- --------- -------- (IN THOUSANDS, EXCEPT SHARE DATA) 2000 Revenues....................................... $198,852 $205,808 $ 185,603 $135,406 Gross profit................................... 33,426 34,362 18,594 (1,244) Income (loss) from continuing operations....... 5,901 1,107 (72,915) (60,384) Net income (loss) from continuing operations... (22,175) (39,003) (114,933) (52,113) Net income (loss) from discontinued operations................................... (4,349) (3,126) (6,389) (36,102) Net loss per common and dilutive share, continuing operations........................ (.59) (1.04) (3.06) (1.40) Net loss per common and dilutive share, discontinued operations...................... (.12) (.09) (.17) (.96) 1999 Revenues....................................... 173,177 199,709 202,470 191,016 Gross profit................................... 32,558 38,904 36,503 (9,563) Income (loss) from continuing operations....... 4,310 9,394 2,695 (59,646) Net income (loss) from continuing operations... (22,848) (23,363) (34,019) (24,899) Net income (loss) from discontinued operations................................... (3,315) (2,708) (5,547) (5,238) Net loss per common and dilutive share, continuing operations........................ (.62) (.63) (.91) (.66) Net loss per common and dilutive share, discontinuing operations..................... (.08) (.07) (.15) (.13)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 58 61 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is included in Item 4A above and under the caption "Election of Directors -- Directors to be Elected at the 2001 Annual Meeting, -- Directors Whose Terms Expire in 2002 and -- Directors Whose Terms Expire in 2003" and "Section 16(a) Beneficial Ownership Reporting Compliance" of the Proxy Statement filed pursuant to Regulation 14A on or about April 16, 2001 and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is included under the captions "Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values," "Indemnification Agreements," "Executive Employment Agreements" and "Information Concerning the Board and Its Committees" of the Proxy Statement filed pursuant to Regulation 14A on or about April 16, 2001 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is included under the caption "Ownership of Common Stock" of the Proxy Statement filed pursuant to Regulation 14A on or about April 16, 2001 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is included under the caption "Related Transactions" of the Proxy Statement filed pursuant to Regulation 14A on or about April 16, 2001 and is incorporated herein by reference. 59 62 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this Report: 1. Financial Statements. The following financial statements, together with the reports of PricewaterhouseCoopers LLP, KPMG LLP and Arthur Andersen LLP are filed as a part of this report: A. Reports of Independent Auditors B. Consolidated Statements of Operations C. Consolidated Balance Sheets D. Consolidated Statements of Changes in Stockholders' Equity E. Consolidated Statements of Cash Flows F. Notes to Consolidated Financial Statements 2. Financial Statements of 50% Owned Subsidiary and Financial Statement Schedules. The financial statements of Orbital Imaging Corporation, ORBCOMM Global, L.P. and Orbital Communications Corporation are transmitted with this report as Exhibits 99.1, 99.2 and 99.3, respectively. The following additional financial data are transmitted with this report and should be read in conjunction with the consolidated financial statements contained herein. Schedules other than those listed below have been omitted because they are inapplicable or are not required. Reports of Independent Accountants on Financial Statement Schedule Schedule II -- Valuation and Qualifying Accounts 3. 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. (c) See Item 14(a)(3) of this report. (d) See Item 14(a)(2) of this report. 60 63 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: April 16, 2001 ORBITAL SCIENCES CORPORATION By: /s/ DAVID W. THOMPSON ------------------------------------ David W. Thompson Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Dated: April 16, 2001 SIGNATURE: TITLE: - ------------------------------------------------ -------------------------------------------------- /s/ David W. Thompson Chairman of the Board, Chief Executive - ------------------------------------------------ Officer and Director DAVID W. THOMPSON /s/ James R. Thompson President and Chief Operating Officer, - ------------------------------------------------ Director JAMES R. THOMPSON /s/ Garrett E. Pierce Executive Vice President, Chief Financial - ------------------------------------------------ Officer and Director GARRETT E. PIERCE /s/ Hollis M. Thompson Vice President and Controller - ------------------------------------------------ HOLLIS M. THOMPSON /s/ Fred C. Alcorn Director - ------------------------------------------------ FRED C. ALCORN /s/ Kelly H. Burke Director - ------------------------------------------------ KELLY H. BURKE Director - ------------------------------------------------ BRUCE W. FERGUSON /s/ Daniel J. Fink Director - ------------------------------------------------ DANIEL J. FINK /s/ Lennard A. Fisk Director - ------------------------------------------------ LENNARD A. FISK /s/ Jack L. Kerrebrock Director - ------------------------------------------------ JACK L. KERREBROCK Director - ------------------------------------------------ DOUGLAS S. LUKE /s/ Janice I. Obuchowski Director - ------------------------------------------------ JANICE I. OBUCHOWSKI
61 64
SIGNATURE: TITLE: ---------- ------ /s/ Frank L. Salizzoni Director - ------------------------------------------------ FRANK L. SALIZZONI /s/ Harrison H. Schmitt Director - ------------------------------------------------ HARRISON H. SCHMITT /s/ Scott L. Webster Director - ------------------------------------------------ SCOTT L. WEBSTER
62 65 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Orbital Sciences Corporation Our audit of the consolidated financial statements referred to in our report dated April 16, 2001 appearing in this Annual Report on Form 10-K also included an audit of the financial statement schedule as of and for the years ended December 31, 2000 and 1999 listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP McLean, VA April 16, 2001 63 66 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Orbital Sciences Corporation: Under date of February 16, 1999, except as to note 3A, which is as of April 17, 2000, we reported on the consolidated statements of operations, stockholders' equity, and cash flows of Orbital Sciences Corporation and subsidiaries for the year ended December 31, 1998, before the reclassification to reflect Magellan Corporation as a discontinued operation as described in Note 2 to the consolidated financial statements, included in the Company's 2000 annual report on Form 10-K. In connection with our audit of the aforementioned consolidated financial statements, we also audited the related consolidated financial statements schedule in the Company's 2000 Form 10-K, before the reclassification to reflect Magellan Corporation as a discontinued operation as described in Note 2 to the consolidated financial statements. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audit. In our opinion, such consolidated statement schedule (before reclassification), when considered in relation to the basic consolidated financial statements, before the reclassification to reflect Magellan Corporation as a discontinued operation as described in Note 2 to the consolidated financial statements, taken as a whole, presents fairly, in all material respects, the information set forth therein. KMPG LLP Washington, DC February 16, 1999, except as to note 3A which is as of April 17, 2000 64 67 ORBITAL SCIENCES CORPORATION SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FORM 10-K FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 (AMOUNTS IN THOUSANDS)
ADDITIONS ----------------------------------------------------------------------- BALANCE AT CHARGED TO CHARGED/ BALANCE START OF COSTS AND CREDITED TO OTHER AT END OF DESCRIPTION PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD - ----------- ---------- ---------- ----------------- ------------- --------- YEAR ENDED DECEMBER 31, 1998 Allowance for doubtful accounts.................... $ 18,077 $ 4,635 $ 794 $ (1,936) $ 21,570 Allowance for obsolete inventory................... 10,900 6,023 4,161 (12,869) 8,215 Allowance for unrecoverable investments................. 4,886 552 (1,100) -- 4,338 Deferred income tax valuation reserve..................... 66,889 27,296 -- -- 94,185 YEAR ENDED DECEMBER 31, 1999 Allowance for doubtful accounts.................... 21,570 3,733 -- (6,383) 18,920 Allowance for obsolete inventory................... 8,215 7,969 -- (1,704) 14,480 Allowance for unrecoverable investments................. 4,338 -- -- (4,338) -- Deferred income tax valuation reserve..................... 94,185 56,659 -- -- 150,844 YEAR ENDED DECEMBER 31, 2000 Allowance for doubtful accounts.................... 18,920 10,362 -- (4,112) 25,170 Allowance for obsolete inventory................... 14,480 9,348 -- (11,037) 12,791 Deferred income tax valuation reserve..................... 150,844 63,219 -- -- 214,063
- --------------- (1) Amounts charged/credited to other accounts represent valuation and qualifying accounts recorded pursuant to purchase business combinations as described in Note 4 to the consolidated financial statements incorporated by reference elsewhere herein, and certain other reclassifications. (2) Deduction for revaluation of allowance account. 65 68 EXHIBIT INDEX The following exhibits are filed as part of this report. Where such filing is made by incorporation by reference to a previously filed statement or report, such statement or report is identified in parentheses.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 3.1 Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.1 to the company's Registration Statement on Form S-3 (File Number 333-08769) filed and effective on July 25, 1996). 3.2 By-Laws of Orbital Sciences Corporation, as amended on July 27, 1995 (incorporated by reference to Exhibit 3 to the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995). 3.3 Certificate of Amendment to Restated Certificate of Incorporation, dated April 29, 1997 (incorporated by reference to Exhibit 3.3 to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 3.4 Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred Stock, dated November 2, 1998 (incorporated by reference to Exhibit 2 to the company's Report on Form 8-A filed on November 2, 1998). 4.1 Form of Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to the company's Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990 and effective on April 24, 1990). 4.2 Indenture dated as of September 16, 1997 between the company and Deutsche Bank AG, New York Branch, as Trustee (incorporated by reference to Exhibit 4.1 to the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 4.3 First Supplemental Indenture dated as of December 15, 1997 between the company and Deutsche Bank AG, New York Branch, as Trustee (incorporated by reference to Exhibit 4.4 to the company's Registration Statement on Form S-3 (File Number 333-42271) filed on December 15, 1997 and effective on March 12, 1998). 4.4 Form of 5% Convertible Subordinated Note (incorporated by reference to Exhibit 4.5 to the company's Registration Statement on Form S-3 (File Number 333-42271) filed on December 15, 1997 and effective on March 12, 1998). 4.5 Registration Rights Agreement dated as of September 16, 1997 among the company and Deutsche Morgan Grenfell Inc. and J.P. Morgan Securities Inc. (incorporated by reference to Exhibit 4.6 to the company's Registration Statement on Form S-3 (File Number 333-42271) filed on December 15, 1997 and effective on March 12, 1998). 4.6 Rights Agreement dated as of October 22, 1998 between the company and BankBoston N.A., as Rights Agent (incorporated by reference to Exhibit 1 to the company's Report on Form 8-A filed on November 2, 1998). 4.7 Form of Rights Certificate (incorporated by reference to Exhibit 3 to the company's Report on Form 8-A filed on November 2, 1998). 10.1 Third Amended and Restated Credit Agreement, dated as of December 21, 1998 among the company, Magellan Corporation, the Banks listed therein, Morgan Guaranty Trust Company of New York, as Administrative Agent and Collateral Agent (the "Credit Agreement") (incorporated by reference to Exhibit 10.1 to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.1.1 Amendment No. 1, dated as of March 25, 1999, to the Credit Agreement (incorporated by reference to Exhibit 10.1.1 to the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999).
69
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.1.2 Amendment No. 2, dated as of May 26, 1999, to the Credit Agreement (incorporated by reference to Exhibit 10.1.2 to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). 10.1.3 Amendment No. 3, dated as of July 26, 1999, to the Credit Agreement (incorporated by reference to Exhibit 10.1.3 to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). 10.1.4 Intentionally omitted. 10.1.5 Amendment No. 5, dated as of September 30, 1999, to the Credit Agreement (incorporated by reference to Exhibit 10.26 to the company's Current Report on Form 8-K filed on January 7, 2000). 10.1.6 Amendment No. 6, dated as of December 21, 1999, to the Credit Agreement (incorporated by reference to Exhibit 10.27 to the company's Current Report on Form 8-K filed on January 7, 2000). 10.1.7 Amendment No. 7, dated as of February 16, 2000, to the Credit Agreement (incorporated by reference to Exhibit 10.1.7 to the company's Annual Report on Form 10-K for the year ended December 31, 1999 filed on April 19, 2000). 10.1.8 Amendment No. 8, dated as of April 13, 2000, to the Credit Agreement (incorporated by reference to Exhibit 10.1.8 to the company's Annual Report on Form 10-K for the year ended December 31, 1999 filed on April 19, 2000). 10.1.9 Amendment No. 9, dated as of May 31, 2000, to the Credit Agreement (incorporated by reference to Exhibit 10.1 to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 filed on August 14, 2000). 10.1.10 Amendment No. 10, dated as of June 7, 2000, to the Credit Agreement (incorporated by reference to Exhibit 10.2 to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 filed on August 14, 2000). 10.1.11 Amendment No. 11, dated as of July 31, 2000, to the Credit Agreement (incorporated by reference to Exhibit 10.1 to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 filed on August 14, 2000). 10.1.12 Amendment No. 12, dated as of November 1, 2000, to the Credit Agreement (incorporated by reference to Exhibit 10.1 to the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 filed on November 14, 2000). 10.1.13 Amendment No. 13, dated as of February 23, 2001, to the Credit Agreement (transmitted herewith). 10.1.14 Amendment No. 14 and Waiver, dated as of April 12, 2001, to the Credit Agreement (transmitted herewith). 10.2 Note Agreement, dated as of June 14, 1995 between the company and The Northwestern Mutual Life Insurance Company (the "NWML Note Agreement") (incorporated by reference to Exhibit 4.7.1 to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995). 10.2.1 First Amendment to the NWML Note Agreement, dated as of June 30, 1995, between the company and The Northwestern Mutual Life Insurance Company (incorporated by reference to the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995). 10.2.2 Second Amendment to the NWML Note Agreement, dated as of March 15, 1996 (incorporated by reference to Exhibit 10.2.2 to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
70
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.2.3 Third Amendment to NWML Note Agreement, dated as of July 13, 1996 (incorporated by reference to Exhibit 10.2 to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). 10.2.4 Fourth Amendment to NWML Note Agreement, dated as of March 31, 1997 (incorporated by reference to Exhibit 10.2.4 to the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997). 10.2.5 Fifth Amendment to NWML Note Agreement, dated as of December 23, 1997 (incorporated by reference to Exhibit 10.2.5 to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.2.6 Sixth Amendment to NWML Note Agreement, dated as of August 14, 1998 (incorporated by reference to Exhibit 10.2.6 to the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 10.2.7 Seventh Amendment to NWML Note Agreement, dated as of May 27, 1999 (incorporated by reference to Exhibit 10.2.7 to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). 10.2.8 Eighth Amendment to NWML Note Agreement, dated as of December 21, 1999 (incorporated by reference to Exhibit 10.30 to the company's Current Report on Form 8-K filed on January 7, 2000). 10.2.9 Ninth Amendment to NWML Note Agreement, dated as of January 31, 2000 (incorporated by reference to Exhibit 10.2.9 to the company's Annual Report on Form 10-K filed on April 19, 2000). 10.2.10 Tenth Amendment to NWML Note Agreement, dated as of February 22, 2000 (incorporated by reference to Exhibit 10.2.10 to the company's Annual Report on Form 10-K filed on April 29, 2000. 10.2.11 Eleventh Amendment to NWML Note Agreement, dated as of April 12, 2000 (transmitted herewith). 10.2.12 Twelfth Amendment to NWML Note Agreement, dated as of January 17, 2001 (transmitted herewith). 10.3 364-Day Senior Credit Agreement dated as of February 23, 2001 among the company, the banks listed therein and Morgan Guaranty Trust Company of New York, as Administrative Agent and as Collateral Agent (the "364-Day Senior Credit Agreement") (transmitted herewith). 10.3.1 Amendment No. 1 and Waiver, dated as of April 12, 2001, to the 364-Day Senior Credit Agreement (transmitted herewith). 10.4 Third Amended and Restated Security Agreement, dated as of February 23, 2001, among the company, Morgan Guaranty Trust Company of New York, as Collateral Agent, and Bank of America, N.A., as Designated Lockbox Bank (transmitted herewith). 10.5 Bank Agreement between MacDonald, Dettwiler and Associates Ltd. and Royal Bank of Canada dated April 20, 2000 (incorporated by reference to Exhibit 10.4 to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 filed on August 14, 2000). 10.6 Orbital Sciences Corporation 1990 Stock Option Plan, restated as of April 27, 1995 (incorporated by reference to Exhibit 10.5.1 to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995).* 10.7 Orbital Sciences Corporation 1990 Stock Option Plan for Non-Employee Directors, restated as of April 27, 1995 (incorporated by reference 10.7 to Exhibit 10.5.2 to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995).*
71
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.8 MacDonald Dettwiler and Associates Ltd. 1999 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.4 to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 filed on August 14, 2000).* 10.9 Orbital Sciences Corporation 1995 Deferred Compensation Plan (incorporated by reference to Exhibit 10.9 to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).* 10.10 Magellan Corporation 1996 Stock Option Plan (incorporated by reference to Exhibit 10.3 to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).* 10.11 Orbital Imaging Corporation 1996 Stock Option Plan (incorporated by reference to Exhibit 10.11 to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).* 10.12 Performance Share Agreement dated July 21, 1999 between the company and Mr. D. W. Thompson (incorporated by reference to Exhibit 10.12.3 to the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).* 10.12.1 Performance Share Agreement between the company and James R. Thompson dated July 21, 1999 (incorporated by reference to Exhibit 10.12.4 to the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).* 10.12.2 Performance Share Agreement between the company and Garrett E. Pierce dated August 9, 2000 (incorporated by reference to Exhibit 10.5 to the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 filed on November 14, 2000).* 10.13 Executive Employment Agreement dated as of August 9,2000 by and between the company and Garrett E. Pierce (incorporated by reference to Exhibit 10.3 to the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 filed on November 14, 2000).* 10.14 Executive Employment and Change of Control Agreement dated as of August 9,2000 by and between the company and Garrett E. Pierce (incorporated by reference to Exhibit 10.4 to the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 filed on November 14, 2000).* 10.15 Agreement between Robert D. Strain and the company dated July 7, 2000 (transmitted herewith).* 10.16 Agreement between Robert D. Strain and the company dated January 29, 2001 (transmitted herewith).* 10.17 Intentionally omitted. 10.18 Amended and Restated Orbital Sciences Corporation 1997 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.18 to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.19 Promissory Note dated June 27, 1997 from the company payable to the order of General Electric Capital Corporation ("GECC") (incorporated by reference to Exhibit 10.19 to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.20 Aircraft Security Agreement dated as of June 27, 1997 from the company to GECC (incorporated by reference to Exhibit 10.20 to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.21 1998 Magellan Stock Option Plan (incorporated by reference to Exhibit 10.21 to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.22 Intentionally omitted. 10.23 Form of 1998 Indemnification Agreement (incorporated by reference to Exhibit 10.23 to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998).*
72
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.24 Form of 1998 Executive Employment Agreement (incorporated by reference to Exhibit 10.24 to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998).* 10.25 Amended and Restated Pledge Agreement dated as of February 23, 2001 among the company, certain of its subsidiaries and Morgan Guaranty Trust Company of New York, as collateral agent (transmitted herewith). 10.26 Exchange and Registration Agreement, dated as of December 22, 1999, among the company and the investors identified therein (incorporated by reference to Exhibit 10.25 to the company's Current Report on Form 8-K filed on January 7, 2000). 21 Subsidiaries of the Company (incorporated by reference to Exhibit 21 to the company's Annual Report on Form 10-K for the year ended December 31, 1999 filed on April 19, 2000). 23.1 Consent of PricewaterhouseCoopers LLP (transmitted herewith). 23.2.1 Consent of KPMG LLP regarding the Company (transmitted herewith). 23.2.2 Consent of KPMG LLP regarding ORBCOMM (transmitted herewith). 23.2.3 Consent of KPMG LLP regarding ORBIMAGE (transmitted herewith). 23.3 Consent of Arthur Andersen LLP (transmitted herewith). 99.1 Financial Statements of Orbital Imaging Corporation. 99.2 Financial Statements of ORBCOMM Global, L.P. 99.3 Financial Statements of Orbital Communication Corporation.
- --------------- * Management Contract or Compensatory Plan or Arrangement. EX-10.1.13 2 w47792ex10-1_13.txt AMENDMENT NO. 13 1 EXHIBIT 10.1.13 [EXECUTION COPY] AMENDMENT No. 13 TO THIRD AMENDED AND RESTATED CREDIT AND REIMBURSEMENT AGREEMENT AMENDMENT No. 13 dated as of February 23, 2001 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 and as 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 prior to the date hereof, the "EXISTING AGREEMENT"); and WHEREAS, the Company and the Banks wish to amend and restate the Credit Agreement as set forth herein; NOW, THEREFORE, the parties hereto hereby agree as follows: SECTION 1. Definitions; References . Unless otherwise specifically defined herein, each term used herein shall have the meaning assigned to such term in Exhibit A hereto. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference contained in the Credit Agreement shall from and after the Effective Date (as defined in Section 4 below) refer to the Credit Agreement as amended and restated hereby. SECTION 2. Amendment and Restatement of the Credit Agreement . The Existing Agreement is hereby amended and restated in its entirety to read as set forth in Exhibit A (as so amended and restated, the "CREDIT AGREEMENT"): SECTION 3. Representations and Warranties . The Company hereby represents and warrants that the representations and warranties set forth in the Credit Agreement are true and correct. SECTION 4. Effectiveness . This Amendment shall become effective on the date (the "EFFECTIVE DATE") on which the following conditions shall have been 2 satisfied (except Sections 2.13 and 10.03 of the Credit Agreement, which shall become effective when the Administrative Agent shall have received the documents specified in paragraph (a) below): (a) The Administrative Agent shall have received counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telex, facsimile or other written confirmation from such party of execution of a counterpart hereof by such party); (b) The Administrative Agent shall have received an opinion of Hogan & Hartson L.L.P., special counsel for the Borrowers, substantially in the form of Exhibit B hereto and covering such additional matters relating to the transactions contemplated by the Financing Documents as the Required Banks may reasonably request; (c) The Collateral and Guarantee Requirement shall have been satisfied; (d) The New Agreement shall have become effective in accordance with its terms; (e) The Administrative Agent shall have received 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 paragraph (a) in an amount equal to 0.60% of such Bank's Commitment; and (f) The Administrative Agent shall have received all documents it may reasonably request relating to the existence of the Borrowers, the corporate authority for and the validity of the Financing Documents, and any other matters reasonably relevant hereto, all in form and substance reasonably satisfactory to the Administrative Agent; provided that this Agreement shall not become effective or be binding on any party hereto unless the foregoing conditions are satisfied not later than February 23, 2001. On the Effective Date the Credit Agreement will be automatically amended and restated in its entirety to read as set forth in Exhibit A. On and after the Effective Date the rights and obligations of the parties hereto shall be governed by the Credit Agreement. Without limiting the generality of the foregoing, on and after the Effective Date the provisions of prior amendments of and waivers under the Existing Agreement (including Amendment No. 4 thereto which by its terms has not become effective) shall be of no further force and effect except insofar as the same are reflected in the terms of the Credit Agreement. The Administrative Agent shall - 2 - 3 promptly notify the Company and the Banks of the effectiveness of this Agreement, and such notice shall be conclusive and binding on all parties hereto. SECTION 5. Governing Law . This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 6. Counterparts . 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. - 3 - 4 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: ------------------------------------------ Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: ------------------------------------------ Name: Title: THE BANK OF NOVA SCOTIA By: ------------------------------------------ Name: Title: BANK OF AMERICA, N.A., f/k/a NATIONSBANK, N.A. By: ------------------------------------------ Name: Title: FIRST UNION COMMERCIAL CORPORATION By: ------------------------------------------ Name: Title: - 4 - 5 DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLAND BRANCHES By: ------------------------------------------ Name: Title: By: ------------------------------------------ Name: Title: KEYBANK NATIONAL ASSOCIATION By: ------------------------------------------ Name: Title: BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: ------------------------------------------ Name: Title: WACHOVIA BANK, N.A. By: ------------------------------------------ Name: Title: - 5 - 6 CHEVY CHASE BANK By: ------------------------------------------ Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent and as Collateral Agent By: ------------------------------------------ Name: Title: Acknowledged by: ENGINEERING TECHNOLOGIES, INC. By: ------------------------- Name: Title: ORBITAL SPACE SYSTEMS, INC. By: ------------------------- Name: Title: ORBITAL COMMERCIAL SYSTEMS, INC. By: ------------------------- Name: Title: - 6 - 7 ORBITAL INTERNATIONAL, INC. By: ------------------------- Name: Title: ORBITAL SERVICES CORPORATION By: ------------------------- Name: Title: ORBITAL NAVIGATION CORPORATION By: ------------------------- Name: Title: ORBLINK LLC By: ------------------------- Name: Title: - 7 - 8 TABLE OF CONTENTS
Page ---- SECTION 1. Definitions; References.................................1 SECTION 2. Amendment and Restatement of the Credit Agreement.......1 SECTION 3. Representations and Warranties..........................1 SECTION 4. Effectiveness...........................................1 SECTION 5. Governing Law...........................................3 SECTION 6. Counterparts............................................3
- i - EX-10.1.14 3 w47792ex10-1_14.txt AMENDMENT NO. 14 AND WAIVER 1 EXHIBIT 10.1.14 [EXECUTION COPY] AMENDMENT NO. 14 AND WAIVER AMENDMENT No. 14 and WAIVER ("THIS AMENDMENT") dated as of April 12, 2001 relating to the Third Amended and Restated Credit and Reimbursement Agreement dated as of December 21, 1998 (as the same has been amended and restated by Amendment No. 13 and as the same may hereafter be amended from time to time, the "CREDIT AGREEMENT") among ORBITAL SCIENCES CORPORATION (the "COMPANY"), the BANKS party thereto (the "BANKS") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "ADMINISTRATIVE AGENT") and as Collateral Agent (the "COLLATERAL AGENT"). The parties hereto agree as follows: SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has 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, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby. SECTION 2. Limited Waiver of Compliance with Certain Information Covenants. (a) The Required Banks hereby waive compliance by the Company with Sections 5.01(a), 5.01(c) and 5.01(d) of the Credit Agreement, and any Default arising from its failure to comply with such Sections, during the period from and including April 2, 2001 to but not including April 18, 2001. (b) The waiver granted pursuant to subsection (a) shall be limited precisely as written, shall not constitute a waiver of compliance with, or of a Default arising under, any provision of the Credit Agreement except Sections 5.01(a), 5.01(c) and 5.01(d) and shall not constitute a waiver of compliance with, or of a Default under, Sections 5.01(a), 5.01(c) and 5.01(d) at any time after such waiver ceases to be effective. Such waiver shall cease to be effective at 12:01 A.M. (New York City time) on April 18, 2001. SECTION 3. Amendment to the Definitions. (a) The definition of "REDUCTION PERCENTAGE" set forth in Section 1.01 of the Credit Agreement is amended to read in its entirety as follows: "REDUCTION PERCENTAGE" means (i) with respect to any Debt Issuance, 100%, (ii) with respect to any Equity Issuance, 55%, and (iii) with respect to any Asset Sale, (x) for any Asset Sale that occurs on or prior to September 30, 2001, (A) to the extent the aggregate Net Cash Proceeds of such Asset Sales since the Effective Date (excluding Net Cash Proceeds of any Asset Sale applied to prepay Loans under, or reduce the Commitments under, the New 2 Agreement) do not exceed $20,000,000, 100%, (B) to the extent the aggregate Net Cash Proceeds of such Asset Sales since the Effective Date (excluding Net Cash Proceeds of any Asset Sale applied to prepay Loans under, or reduce the Commitments under, the New Agreement) exceed $20,000,000 but do not exceed $100,000,000, 43.75%, and (C) to the extent the aggregate Net Cash Proceeds of such Asset Sales since the Effective Date (excluding Net Cash Proceeds of any Asset Sale applied to prepay Loans under, or reduce the Commitments under, the New Agreement) exceed $100,000,000, 70%, and (y) 70% for any Asset Sale that occurs after September 30, 2001. SECTION 4. Amendment of a Certain Information Covenant. Section 5.01(o) of the Credit Agreement is amended by deleting the words "simultaneously with" and replacing them with the words "within five days after". SECTION 5. Amendment of the Minimum Consolidated Net Worth Covenant. Section 5.08 of the Credit Agreement is amended by: (i) substituting the dollar amount "$140,000,000" for the dollar amount "$190,000,000" set forth in the table in Section 5.08 opposite the fiscal quarter ended December 31, 2000; and (ii) substituting the dollar amount "$115,000,000" for the dollar amount "$175,000,000" set forth in the table in Section 5.08 opposite the fiscal quarter ended March 31, 2001. SECTION 6. Amendment of the Consolidated Leverage Ratio Covenant. Section 5.09(a) of the Credit Agreement is amended by: (i) substituting the ratio "5.80:1" for the ratio "4.85:1" set forth in the table in Section 5.09(a) opposite the period beginning October 1, 2000 and ending December 31, 2000; and (ii) substituting the ratio "9.50:1" for the ratio "4.50:1" set forth in the table in Section 5.09(a) opposite the period beginning January 1, 2001 and ending March 31, 2001. SECTION 7. Amendment of the Senior Leverage Ratio Covenant. Section 5.09(b) of the Credit Agreement is amended by: (i) substituting the ratio "4.10:1" for the ratio "3.50:1" set forth in the table in Section 5.09(b) opposite the period beginning October 1, 2000 and ending December 31, 2000; and (ii) substituting the ratio "6.60:1" for the ratio "3.35:1" set forth in the table in Section 5.09(b) opposite the period beginning January 1, 2001 and ending March 31, 2001. SECTION 8. Amendment of the Minimum Operating Cash Flow Covenant. Section 5.10 of the Credit Agreement is amended by: (i) adding the words "(in thousands)" immediately after the word "Amount" in the table in Section 5.10; (ii) adding the dollar amount "$(101,300)" in the table in Section 5.10 opposite the period beginning January 2001 and ending July 2001; and 3 (iii) adding the dollar amount "$(104,600)" in the table in Section 5.10 opposite the period beginning January 2001 and ending August 2001. SECTION 9. Amendment of the Subsidiary Debt Covenant. Section 5.15 of the Credit Agreement is amended by deleting "5%" and substituting in lieu thereof the phrase "(x) prior to June 30, 2001, 7.5% of Consolidated Net Worth and (y) on and after June 30, 2001, 5%". SECTION 10. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 11. Counterparts, Effectiveness. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective as of the date hereof on the date when the following conditions are met: (a) the Administrative Agent shall have received from each of the Company and the Required Banks a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Administrative Agent) that such party has signed a counterpart hereof; and (b) the Administrative Agent shall have received payment in full of all fees and expenses payable by the Company in connection with this Amendment pursuant to Section 10.03 of the Credit Agreement. 4 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 -------------------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By -------------------------------------------- Name: Title: THE BANK OF NOVA SCOTIA By -------------------------------------------- Name: Title: BANK OF AMERICA, N.A. By -------------------------------------------- Name: Title: 5 FIRST UNION COMMERCIAL CORPORATION By -------------------------------------------- Name: Title: DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLAND BRANCHES By -------------------------------------------- Name: Title: By -------------------------------------------- Name: Title: KEYBANK NATIONAL ASSOCIATION By -------------------------------------------- Name: Title: BANK OF TOKYO-MITSUBISHI TRUST COMPANY By -------------------------------------------- Name: Title: 6 WACHOVIA BANK, N.A. By -------------------------------------------- Name: Title: CHEVY CHASE BANK By -------------------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent and as Collateral Agent By -------------------------------------------- Name: Title: Acknowledged by: ENGINEERING TECHNOLOGIES, INC. By -------------------------------------------- Name: Title: ORBITAL SPACE SYSTEMS, INC. By -------------------------------------------- Name: Title: 7 ORBITAL COMMERCIAL SYSTEMS, INC. By -------------------------------------------- Name: Title: ORBITAL INTERNATIONAL, INC. By -------------------------------------------- Name: Title: ORBITAL SERVICES CORPORATION By -------------------------------------------- Name: Title: ORBITAL NAVIGATION CORPORATION By -------------------------------------------- Name: Title: ORBLINK LLC By -------------------------------------------- Name: Title: EX-10.2.11 4 w47792ex10-2_11.txt 11TH AMENDMENT TO NOTE AGREEMENT AND WAIVER 1 EXHIBIT 10.2.11 ELEVENTH AMENDMENT TO NOTE AGREEMENT AND WAIVER THIS ELEVENTH AMENDMENT TO NOTE AGREEMENT AND WAIVER ("ELEVENTH AMENDMENT"), is made and entered into as of the 12th day of April, 2000, between ORBITAL SCIENCES CORPORATION, a Delaware corporation (the "COMPANY"), and THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation (the "PURCHASER"). RECITALS A. The Purchaser is the holder of $13,333,333 12% Senior Notes of the Company due June 14, 2001 (the "NOTES"). The Company and the Purchaser are parties to that certain Note Agreement, dated as of June 1, 1995, the First Amendment to Note Agreement dated as of June 30, 1995, the Second Amendment to Note Agreement dated as of March 15, 1996, the Third Amendment to Note Agreement dated as of July 31, 1996, the Fourth Amendment to Note Agreement dated as of March 31, 1997, the Fifth Amendment to Note Agreement dated as of December 23, 1997, the Sixth Amendment to Note Agreement dated as of August 14, 1998, the Seventh Amendment to Note Agreement dated as of May 27, 1999, the Eighth Amendment to Note Agreement dated as of December 20, 1999, the Ninth Amendment to Note Agreement dated as of January 31, 2000 and the Tenth Amendment to Note Agreement and Extension of Waiver, dated as of February 22, 2000 (as amended, supplemented or otherwise modified, the "NOTE AGREEMENT") whereby the Purchaser purchased the Notes from the Company. B. The Company and the Purchaser entered into that certain Waiver Letter, dated as of October 31, 1999 (the "WAIVER LETTER"), whereby the Purchaser waived certain Defaults or Events of Default arising or existing under Sections 5.7, 5.8 and 5.9 of the Note Agreement until 11:59 p.m. C.S.T. on December 31, 1999. Pursuant to that certain Letter Agreement, dated as of December 23, 1999, between the Company and the Purchaser, the date and time of termination of the Default Waiver Term (as defined in Section 1 of the Waiver Letter) was extended to 5:00 p.m. C.S.T. on February 22, 2000. Pursuant to that certain Tenth Amendment and Extension of Waiver dated as of February 22, 2000, between the Company and the Purchaser, the date and time of termination of the Default Waiver Term was further extended to 5:00 p.m. C.S.T. on April 30, 2000. The Company and the Purchaser now desire to further extend the waivers of the above-referenced covenants and waive defaults existing or arising under certain other covenants in the Note Agreement on the terms set forth in this Eleventh Amendment. C. In addition, the Company and the Purchaser desire to amend certain provisions of the Note Agreement as of April 12, 2000 (the "EFFECTIVE DATE") in the respects, but only in the respects, set forth in this Eleventh Amendment. D. Capitalized terms used in this Eleventh Amendment have the respective meanings ascribed thereto in the Note Agreement unless defined in this Eleventh Amendment or the context otherwise requires. NOW, THEREFORE, upon full and complete satisfaction of the conditions precedent to the effectiveness of this Eleventh Amendment set forth in Section 5 below, the Company and the Purchaser agree as follows: 2 SECTION 1. WAIVER Notwithstanding anything to the contrary set forth in the Note Agreement, the Notes or any agreement or instrument relating to any of the foregoing (collectively, the "NOTE DOCUMENTS"), the Purchaser waives any Default or Event of Default existing or arising under (a) Section 5.6 of the Note Agreement, (b) Section 5.7 of the Note Agreement, (c) Section 5.8 of the Note Agreement, (d) Section 5.9 of the Note Agreement, or (e) Section 5.10 of the Note Agreement (collectively, the "DEFAULT WAIVERS"); provided that the effectiveness of the Default Waivers shall expire at 11:59 p.m. C.S.T. on December 31, 2000 (the "DEFAULT WAIVER TERM"). In addition, the Purchaser waives any Default or Event of Default under Section 5.17 of the Note Agreement existing or arising on or prior to the Effective Date. SECTION 2. FUTURE AMENDMENT OF NOTE AGREEMENT 2.1 The Company and the Purchaser shall use their respective best efforts to enter into an Amended and Restated Note Agreement or an Amendment to Note Agreement, as the Purchaser shall deem appropriate (the "AMENDMENT"), in either such case providing, inter alia, for (i) covenants that will amend and restate those covenants set forth in Sections 5.6, 5.7, 5.8, 5.9 and 5.10 of the Note Agreement, and (ii) such other terms and provisions as may be considered necessary by the Purchaser. 2.2 In connection with the execution and delivery of the Amendment, the Company shall cause to be delivered to the Purchaser, (i) a favorable written opinion of Hogan & Hartson L.L.P., counsel to the Company, with respect to the due authorization, execution and delivery of the Amendment and the enforceability of the same in accordance with its terms; and (ii) a copy of the resolutions of the Board of Directors of the Company authorizing the execution, delivery and performance by the Company of the Amendment certified by its Secretary or Assistant Secretary. SECTION 3. AMENDMENTS From and after the Effective Date the Note Agreement shall be and hereby is amended as follows: 3.1. Section 5.10 of the Note Agreement is hereby amended as follows: (a) Clause (i) is amended by deleting the period at the end thereof and substituting in lieu thereof the text "; and". (b) A new Clause (j) is added following Clause (i) as follows: "(i) liens on the assets of MacDonald, Dettwiler and Associates and its subsidiaries securing debt and other obligations of MacDonald, Dettwiler and Associates and such subsidiaries under the MDA Financing." 3.2. Section 5.13(c) of the Note Agreement is hereby amended as follows: (a) Clause (9) is hereby amended by substituting a semicolon for the period and adding the word "or" at the end thereof. - 2 - 3 (b) A new Clause (10) is added following Clause (9) as follows: "(10) the pledge by MacDonald, Dettwiler and Associates or any subsidiary thereof of the shares of any subsidiary of MacDonald, Dettwiler and Associates pursuant to the MDA Financing." 3.3. Section 8.1 of the Note Agreement is amended by adding the following definitions in their proper alphabetical order: ""Covenant Restatement Date" - shall mean that date following the Eleventh Amendment Effective Date upon which the Purchaser and the Company enter into an Amendment to this Note Agreement, or an Amended and Restated Note Agreement, in accordance with the terms and conditions set forth in Section 2 of the Eleventh Amendment." ""Current Interest Rate"- shall mean the following: (a) From the Eleventh Amendment Effective Date and thereafter, 12%; (b) In the event that the Covenant Restatement Date shall not have occurred on or prior to May 31, 2000, from June 1, 2000 and thereafter, 13%; (c) In the event that the Covenant Restatement Date shall not have occurred on or prior to August 31, 2000, from September 1, 2000 and thereafter, 14%; and (d) In the event that the Covenant Restatement Date shall not have occurred on or prior to November 30, 2000, from December 1, 2000 and thereafter, 15%." ""Eleventh Amendment" shall mean the Eleventh Amendment to Note Agreement and Waiver between the Company and the Purchaser dated as of April 12, 2000." ""Eleventh Amendment Effective Date" shall mean April 12, 2000." ""MDA Financing" means the credit agreement to which MacDonald, Dettwiler and Associates will become party providing for loans thereunder to be used by MacDonald, Dettwiler and Associates for working capital purposes and for the consummation of an acquisition from Axciom Corporation pursuant to an Asset Purchase Agreement; provided that the aggregate principal amount of debt that may be incurred under such credit agreement (i) shall not exceed $210,000,000 Canadian Dollars and (ii) shall be non-recourse to the Company." 3.4. The following paragraph shall be inserted immediately following the first paragraph of the Notes and Exhibit A to the Note Agreement: "Notwithstanding the foregoing, from and after the Eleventh Amendment Effective Date, (a) the 12% interest rate referenced in the foregoing paragraph shall be modified to equal the Current Interest Rate (as defined in the Note Agreement, as amended), and (b) the rate set forth in clause (b)(1) of the definition of "Overdue Rate" set forth above shall be modified to equal the Current Interest Rate as then in effect, plus 2%." SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY To induce the Purchaser to execute and deliver this Eleventh Amendment, the Company represents and warrants to the Purchaser (which representations will survive the execution and delivery of this Eleventh Amendment) that: - 3 - 4 (a) this Eleventh Amendment has been duly authorized, executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to fraudulent conveyance or limiting creditors' rights generally; (b) the Note Agreement, as modified by this Eleventh Amendment, constitutes the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the execution, delivery and performance by the Company of this Eleventh Amendment (i) has been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) does not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any material provision of any material indenture, agreement or other instrument to which it is a party or by which its properties or assets are or may be bound, or (B) result in a material breach or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this Section 4(c); and (d) as of the date hereof and after giving effect to this Eleventh Amendment, no Default or Event of Default has occurred which is continuing. SECTION 5. CONDITIONS AND AGREEMENTS Upon fulfillment or receipt of all of the following, as the case may be, this Eleventh Amendment will on the Effective Date become effective: (a) executed counterparts of this Eleventh Amendment, duly executed by the Company and the Purchaser, have been delivered to the Purchaser; (b) the representations and warranties of the Company set forth in Section 4 of this Eleventh Amendment will be true and correct on and with respect to the date hereof; (c) the Company has obtained any consents or approvals required to be obtained from any holder or holders of any outstanding security of the Company and any amendments of agreements pursuant to which any security may have been issued which will be necessary to permit the consummation of the transactions contemplated by this Eleventh Amendment; and (d) a waiver fee in the amount of $33,333.33 by wire transfer in immediately available funds to the account specified on Schedule 1 to the Note Agreement. SECTION 6. MISCELLANEOUS 6.1 This Eleventh Amendment will be construed in connection with the Note Agreement, and except as modified by this Eleventh Amendment, all terms, conditions and covenants contained in the Note Agreement and the Note are hereby ratified and will be and remain in full force and effect. - 4 - 5 6.2. The descriptive headings of the various sections or parts of this Eleventh Amendment are for convenience only and will not affect the meaning or construction of any of the provisions hereof. 6.3. This Eleventh Amendment will be governed by and construed in accordance with the internal laws of the State of Illinois. 6.4. This Eleventh Amendment may be executed in any number of counterparts, each executed counterpart constituting an original, but all together only one agreement. IN WITNESS WHEREOF, the Company and the Purchaser have caused this Eleventh Amendment to be executed and delivered by their respective duly authorized representatives. ORBITAL SCIENCES CORPORATION By: ----------------------------- Title: THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY By: ----------------------------- Its Authorized Representative - 5 - EX-10.2.12 5 w47792ex10-2_12.txt TWELFTH AMENDMENT TO NOTE AGREEMENT AND WAIVER 1 EXHIBIT 10.2.12 TWELFTH AMENDMENT TO NOTE AGREEMENT AND WAIVER THIS TWELFTH AMENDMENT TO NOTE AGREEMENT AND WAIVER ("TWELFTH AMENDMENT"), is made and entered into as of the 17th day of January, 2001, between ORBITAL SCIENCES CORPORATION, a Delaware corporation (the "COMPANY"), and THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation (the "PURCHASER"). RECITALS A. The Purchaser is the holder of $6,666,666 15% Senior Notes of the Company due June 14, 2001 (the "NOTES"). The Company and the Purchaser are parties to that certain Note Agreement, dated as of June 1, 1995, the First Amendment to Note Agreement dated as of June 30, 1995, the Second Amendment to Note Agreement dated as of March 15, 1996, the Third Amendment to Note Agreement dated as of July 31, 1996, the Fourth Amendment to Note Agreement dated as of March 31, 1997, the Fifth Amendment to Note Agreement dated as of December 23, 1997, the Sixth Amendment to Note Agreement dated as of August 14, 1998, the Seventh Amendment to Note Agreement dated as of May 27, 1999, the Eighth Amendment to Note Agreement dated as of December 20, 1999, the Ninth Amendment to Note Agreement dated as of January 31, 2000, the Tenth Amendment to Note Agreement and Extension of Waiver, dated as of February 22, 2000 and the Eleventh Amendment to Note Agreement and Waiver, dated as of April 12, 2000 (as amended, supplemented or otherwise modified, the "NOTE AGREEMENT") whereby the Purchaser purchased the Notes from the Company. B. The Company and the Purchaser entered into that certain Eleventh Amendment to Note Agreement and Waiver, dated as of April 12, 2000 (the "ELEVENTH AMENDMENT"), whereby the Purchaser waived certain Defaults or Events of Default arising or existing under Sections 5.6, 5.7, 5.8, 5.9 and 5.10 of the Note Agreement until 11:59 p.m. C.S.T. on December 31, 2000. Pursuant to that certain Letter Agreement, dated as of December 31, 2000, between the Company and the Purchaser, the date and time of termination of the Default Waiver Term (as defined in Section 1 of the Eleventh Amendment) was extended to 11:59 p.m. C.S.T. on January 17, 2000. The Company and the Purchaser now desire to further extend the waivers of the above-referenced Defaults or Events of Default on the terms set forth in this Twelfth Amendment. C. In addition, the Company and the Purchaser desire to amend certain provisions of the Note Agreement as of January 17, 2001 (the "EFFECTIVE DATE") in the respects, but only in the respects, set forth in this Twelfth Amendment. D. Capitalized terms used in this Twelfth Amendment have the respective meanings ascribed thereto in the Note Agreement unless defined in this Twelfth Amendment or the context otherwise requires. NOW, THEREFORE, upon full and complete satisfaction of the conditions precedent to the effectiveness of this Twelfth Amendment set forth in Section 4 below, the Company and the Purchaser agree as follows: SECTION 1. WAIVER Notwithstanding anything to the contrary set forth in the Note Agreement, the Notes or any agreement or instrument relating to any of the foregoing, the Purchaser waives any Default or Event of Default existing or arising under (a) Section 5.6 of the Note Agreement, (b) Section 5.7 of the Note 2 January 17, 2000 Orbital Sciences Corporation Page 2 Agreement, (c) Section 5.8 of the Note Agreement, (d) Section 5.9 of the Note Agreement, or (e) Section 5.10 of the Note Agreement (collectively, the "DEFAULT WAIVERS"); provided that the effectiveness of the Default Waivers shall expire at 11:59 p.m. C.D.T. on June 14, 2001 (the "DEFAULT WAIVER TERM"). SECTION 2. AMENDMENTS From and after the Effective Date the Note Agreement shall be and hereby is amended as follows: 2.1. Section 5.13(b) of the Note Agreement is hereby amended as follows: (a) Subsection (i) of Clause (2) is amended by deleting such Subsection (i) and replacing it in its entirety with the following: "(i) the Company shall have complied with its obligations pursuant to Section 5.13(d). " (b) Subsection (iii) of Clause (2) is amended by substituting a period for the semi-colon appearing at the end thereof, and deleting the remainder of Clause (2) following such period. 2.2. Section 5.13(c) of the Note Agreement is hereby amended as follows: (a) Subsection (i) of Clause (5) is amended by deleting such Subsection (i) and replacing it in its entirety with the following: "(i) the Company shall have complied with its obligations pursuant to Section 5.13(d). " (b) Subsection (iv) of Clause (5) is amended by substituting a period for the semi-colon appearing at the end thereof, and deleting the remainder of Clause (5) following such period. 2.3. Section 5.13 of the Note Agreement is hereby amended by adding the following new clause (d) immediately following clause (c) of such Section: "(d) In connection with any transaction which results in the Company becoming obligated to make a mandatory payment to the Banks under the Bank Debt in respect of a commitment reduction thereunder, the Company agrees, at the same time such payment is made to the Banks, to make a corresponding pro-rata payment to the Purchaser, such payment to be applied to reduce the aggregate principal amount outstanding under the Notes." 2.4. Section 8.1 of the Note Agreement is amended by adding the following definitions in their proper alphabetical order: ""Bank Debt" shall mean Indebtedness of the Company outstanding to the banks party to the Bank Credit Agreement. 3 January 17, 2000 Orbital Sciences Corporation Page 3 SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY To induce the Purchaser to execute and deliver this Twelfth Amendment, the Company represents and warrants to the Purchaser (which representations will survive the execution and delivery of this Twelfth Amendment) that: (a) this Twelfth Amendment has been duly authorized, executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to fraudulent conveyance or limiting creditors' rights generally; (b) the Note Agreement, as modified by this Twelfth Amendment, constitutes the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the execution, delivery and performance by the Company of this Twelfth Amendment (i) has been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) does not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any material provision of any material indenture, agreement or other instrument to which it is a party or by which its properties or assets are or may be bound, or (B) result in a material breach or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this Section 3(c); and (d) as of the date hereof and after giving effect to this Twelfth Amendment, no Default or Event of Default has occurred which is continuing. SECTION 4. CONDITIONS AND AGREEMENTS Upon fulfillment or receipt of all of the following, as the case may be, this Twelfth Amendment will on the Effective Date become effective: (a) executed counterparts of this Twelfth Amendment, duly executed by the Company and the Purchaser, have been delivered to the Purchaser; (b) the representations and warranties of the Company set forth in Section 3 of this Twelfth Amendment will be true and correct on and with respect to the date hereof; and (c) the Company has obtained any consents or approvals required to be obtained from any holder or holders of any outstanding security of the Company 4 January 17, 2000 Orbital Sciences Corporation Page 4 and any amendments of agreements pursuant to which any security may have been issued which will be necessary to permit the consummation of the transactions contemplated by this Twelfth Amendment. SECTION 5. MISCELLANEOUS 5.1 This Twelfth Amendment will be construed in connection with the Note Agreement, and except as modified by this Twelfth Amendment, all terms, conditions and covenants contained in the Note Agreement and the Note are hereby ratified and will be and remain in full force and effect. 5.2. The descriptive headings of the various sections or parts of this Twelfth Amendment are for convenience only and will not affect the meaning or construction of any of the provisions hereof. 5.3. This Twelfth Amendment will be governed by and construed in accordance with the internal laws of the State of Illinois. 5.4. This Twelfth Amendment may be executed in any number of counterparts, each executed counterpart constituting an original, but all together only one agreement. IN WITNESS WHEREOF, the Company and the Purchaser have caused this Twelfth Amendment to be executed and delivered by their respective duly authorized representatives. ORBITAL SCIENCES CORPORATION By: ----------------------------- Title: THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY By: ----------------------------- Its Authorized Representative 153925 EX-10.3 6 w47792ex10-3.txt 364-DAY SENIOR CREDIT AGREEMENT 1 EXHIBIT 10.3 $30,000,000 364-DAY SENIOR CREDIT AGREEMENT dated as of February 23, 2001 among Orbital Sciences Corporation The Banks Listed Herein and Morgan Guaranty Trust Company of New York, as Administrative Agent and as Collateral Agent ---------------------------------------------- 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 Definitions....................................................................................1 Section 1.01. Definitions...........................................................................1 Section 1.02. Accounting Terms and Determinations..................................................12 ARTICLE 2 The Credits...................................................................................12 Section 2.01. Commitments to Lend..................................................................12 Section 2.02. Method of Borrowing..................................................................12 Section 2.03. Notes................................................................................13 Section 2.04. Maturity of Loans....................................................................13 Section 2.05. Interest Rates.......................................................................13 Section 2.06. Commitment Fees......................................................................13 Section 2.07. Participation Fees...................................................................13 Section 2.08. Optional Termination of the Commitments..............................................13 Section 2.09. Mandatory Termination and Reduction of Commitments; Mandatory Prepayments............14 Section 2.10. Methodx..............................................................................14 Section 2.11. General Provisions as to Payments....................................................14 Section 2.12. Computation of Interest and Fees.....................................................14 Section 2.13. Taxes................................................................................15 Section 2.14. Other Fees...........................................................................16 ARTICLE 3 The Credits...................................................................................16 Section 3.01. Effectiveness........................................................................16 Section 3.02. Borrowings...........................................................................17 ARTICLE 4 Representations and Warranties................................................................18 Section 4.01. Corporate Existence and Power........................................................18 Section 4.02. Corporate and Governmental Authorization No Contravention............................18 Section 4.03. Binding Effect.......................................................................18 Section 4.04. Lien Enforceable.....................................................................18 Section 4.05. Assignments Valid....................................................................18 Section 4.06. Financial Information................................................................18 Section 4.07. Litigation...........................................................................19 Section 4.08. Compliance with ERISA................................................................19 Section 4.09. Environmental Matters................................................................19 Section 4.10. Taxes................................................................................19 Section 4.11. Subsidiaries.........................................................................19 Section 4.12. Full Disclosure......................................................................20 ARTICLE 5 Covenants.....................................................................................20 Section 5.01. Information..........................................................................20 Section 5.02. Payment of Obligations...............................................................22 Section 5.03. Maintenance of Property; Insurance...................................................22 Section 5.04. Conduct of Business and Maintenance of Existence.....................................23 Section 5.05. Compliance with Laws.................................................................24 Section 5.06. Inspection of Property, Books and Records............................................24
iii 3
Page ---- Section 5.07. Investments; Acquisitions............................................................24 Section 5.08. Minimum Consolidated Net Worth.......................................................24 Section 5.09. (a) Leverage.........................................................................25 Section 5.10. Minimum Operating Cash Flow..........................................................25 Section 5.11. Consolidated Loss Ratio..............................................................26 Section 5.12. Negative Pledge......................................................................26 Section 5.13. Consolidations, Mergers and Sales of Assets..........................................27 Section 5.14. Use of Proceeds......................................................................28 Section 5.15. Subsidiary Debt......................................................................28 Section 5.16. Restricted Payments..................................................................28 Section 5.17. Additional Collateral; Additional Guarantors; Further Assurances.....................28 Section 5.18. Consolidated Capital Expenditures....................................................29 Section 5.19. Accounts.............................................................................29 Section 5.20. Reduction Event Undertaking..........................................................29 ARTICLE 6 Defaults......................................................................................29 Section 6.01. Events of Default....................................................................29 Section 6.02. Notice of Default....................................................................31 ARTICLE 7 The Agents....................................................................................31 Section 7.01. Appointment and Authorization........................................................31 Section 7.02. Agents and Affiliates................................................................31 Section 7.03. Action by Agents.....................................................................31 Section 7.04. Consultation with Experts............................................................31 Section 7.05. Liability of Agents..................................................................32 Section 7.06. Indemnification......................................................................32 Section 7.07. Credit Decision......................................................................32 Section 7.08. Successor Agents.....................................................................32 ARTICLE 8 Miscellaneous.................................................................................32 Section 8.01. Notices..............................................................................32 Section 8.02. No Waiver............................................................................33 Section 8.03. Expenses; Documentary Taxes; Indemnification.........................................33 Section 8.04. Sharing of Set-Offs..................................................................33 Section 8.05. Amendments and Waivers...............................................................34 Section 8.06. Successors and Assigns...............................................................34 Section 8.07. Collateral...........................................................................35 Section 8.08. Proprietary Information..............................................................35 Section 8.09. Governing Law; Submission to Jurisdiction............................................35 Section 8.10. Counterparts; Integration............................................................35 Section 8.11. Severability.........................................................................35 Section 8.12. WAIVER OF JURY TRIAL.................................................................35 Section 8.13. Amendment to Registration Rights Agreement...........................................35 Section 8.14. Schedule 5.13........................................................................36
ii 4 PRICING SCHEDULE SCHEDULE 1.01A - Investment Policy SCHEDULE 5.07 - Investments Existing on and as of the Effective Date SCHEDULE 5.12 - Liens Existing on and as of the Effective Date SCHEDULE 5.13 - Permitted Asset Sale EXHIBIT A - Note EXHIBIT B - Warrant EXHIBIT C - Opinion of Special Counsel for the Company EXHIBIT D - [Intentionally Omitted] EXHIBIT E - [Intentionally Omitted] EXHIBIT F - Form of Assignment and Assumption Agreement EXHIBIT G-1 - [Intentionally Omitted] EXHIBIT G-2 - Form of Assignment EXHIBIT G-3 - Form of Notice of Assignment EXHIBIT H - [Intentionally Omitted] EXHIBIT I - [Intentionally Omitted] EXHIBIT J - [Intentionally Omitted] EXHIBIT K - [Intentionally Omitted] EXHIBIT L - [Intentionally Omitted] iii 5 364-DAY SENIOR CREDIT AGREEMENT 364-DAY SENIOR CREDIT AGREEMENT dated as of February 23, 2001 among ORBITAL SCIENCES CORPORATION, as Company, the BANKS listed on the signature pages hereof, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent and as Collateral Agent. The parties hereto hereby agree as follows: ARTICLE 1 Definitions Section 1.01. Definitions . The following terms, as used herein, have the following meanings: "ADMINISTRATIVE AGENT" means Morgan Guaranty Trust Company of New York in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity. "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Company) duly completed by such Bank. "AFFILIATE" means, with respect to any Person (i) any Person that directly, or indirectly through one or more intermediaries, controls such Person (a "CONTROLLING PERSON") or (ii) any Person which is controlled by or is under common control with a Controlling Person. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "AGENT" means the Administrative Agent or the Collateral Agent, as the context may require, and "AGENTS" means both of them. "AGREEMENT" means this 364-Day Senior Credit Agreement as the same may be amended from time to time in accordance with the terms hereof. "APPLICABLE LENDING OFFICE" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Applicable Lending Office) or such other office as such Bank may hereafter designate as its Applicable Lending Office by notice to the Company and the Administrative Agent. "ASSET SALE" means any sale, lease or other disposition (including any such transaction effected by way of merger or consolidation) by the Company or any of its Wholly-Owned Domestic Subsidiaries of any asset, but excluding (i) dispositions in the ordinary course of business, (ii) dispositions to the Company or a Wholly-Owned Domestic Subsidiary and (iii) dispositions of Temporary Cash Investments and cash payments otherwise permitted under this Agreement. "ASSIGNEE" has the meaning set forth in Section 8.06(c). "ASSIGNMENT OF CLAIMS ACT" means the Assignment of Claims Act of 1940, as amended, or any successor statute. 6 "BANK" means each financial institution listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 8.06(c), and their respective successors. "BASE RATE" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "BENEFIT ARRANGEMENT" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA that is not a Plan or a Multiemployer Plan and that is maintained or otherwise contributed to by any member of the ERISA Group. "BORROWING" has the meaning set forth in Section 2.01. "BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "COLLATERAL ACCOUNT" has the meaning set forth in the Security Agreement. "COLLATERAL AGENT" means Morgan Guaranty Trust Company of New York (as successor by merger to J.P. Morgan Delaware) in its capacity as collateral agent for the Secured Parties hereunder and under the Security Documents, and its successors in such capacity. "COLLATERAL AND GUARANTEE REQUIREMENT" means the requirement that: (a) the Administrative Agent shall have received counterparts of amendments and/or restatements to each of the Security Agreement, the Pledge Agreement and the Existing Mortgage duly executed and delivered by the Collateral Agent and each Obligor party thereto, pursuant to which (i) the obligations of the Company under this Agreement are secured obligations thereunder entitled to the benefit of a guarantee by each Subsidiary party thereto and to the benefit of all Collateral (as defined in the Security Agreement) pledged thereunder, (ii) that the security interest securing the obligations of the Obligors in respect of this Agreement and the Notes shall be on a first priority basis, senior to the security interest in respect of obligations of the Obligors under the Existing Agreement, and (iii) that all inventory and equipment of the Obligors the pledge of which is not validly restricted under existing agreements, as well as the Second Magellan Note (as defined in the Security Agreement) and the capital stock of Magellan owned by the Company are added as additional collateral thereunder, all in form and substance satisfactory to the Administrative Agent; (b) the Second Magellan Note and certificates evidencing the capital stock of Magellan owned by the Company shall have been delivered to the Collateral Agent, together with stock powers or other instruments of transfer with respect thereto endorsed in blank; (c) the Collateral Agent shall have received (i) a Mortgage on the Highbay Facility securing the obligations of the Obligors in respect of this Agreement and the Existing Agreement in the respective priorities described in paragraph (a), duly executed and delivered by the record owner of the Highbay Facility, (ii) a Mortgage on the leasehold interest of the Company in the premises located at 21730 Atlantic Boulevard, Dulles, Virginia securing such obligations in such priorities, duly executed by the lessee of record and (iii) such legal opinions and other documents as the Collateral Agent may reasonably request with respect to such Mortgages; (d) all documents and instruments, including Uniform Commercial Code financing statements, filings with the United States Patent and Trademark Office and the Mortgage referred to in clause (c)(i) above, but excluding (subject to Section 5.17(d)) the Mortgage referred to in clause (c)(ii) above, required by law or reasonably requested by either Agent to be filed, registered or recorded to create the Liens intended to be created by 2 7 the Security Documents and perfect or record such Liens to the extent, and with the priority, required by the Security Documents, shall have been filed, registered or recorded or delivered to the Collateral Agent for filing, registration or recording; (e) each Obligor shall have obtained all consents and approvals required to be obtained by it in connection with the execution and delivery of all Security Documents to which it is a party, the performance of its obligations thereunder and the granting of the Liens granted by it thereunder; and (f) each Obligor shall have taken all other action required under the Security Documents to perfect, register and/or record the Liens granted by it thereunder. "COMBINED TOTAL EXPOSURE" means the sum of (i) the aggregate amount of the Commitments, or if the Commitments shall have terminated, the aggregate outstanding principal amount of the Loans plus (ii) the aggregate amount of the "Commitments" under the Existing Agreement, or if such Commitments shall have terminated, the aggregate amount of the "Exposures" thereunder. "COMMITMENT" means (i) with respect to each Bank listed on the signature pages hereof, the amount set forth opposite the name of such Bank on the signature pages hereof and (ii) with respect to each Assignee that becomes a Bank pursuant to Section 8.06(c), the amount of the Commitment thereby assumed by it, in each case as such amount may be increased or reduced from time to time pursuant to Section 8.06(c) or reduced from time to time pursuant to Section 2.08. "COMMITMENT FEE RATE" means a rate per annum determined in accordance with the Pricing Schedule. "COMPANY" means Orbital Sciences Corporation, a Delaware corporation, and its successors. "COMPANY'S 1999 FORM 10-K" means the Company's annual report on Form 10-K for the fiscal year ended December 31, 1999, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. "CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the aggregate amount of expenditures by the Company and its Consolidated Subsidiaries for plant, property and equipment during such period (including any such expenditure by way of acquisition of a Person or by way of assumption of indebtedness or other obligations of a Person, to the extent reflected as plant, property and equipment). "CONSOLIDATED DEBT" means at any date, without duplication, the sum of (i) the Debt of the Company and its Consolidated Subsidiaries determined on a consolidated basis (other than (x) at any date prior to January 1, 2001, Debt consisting of performance bonds and letters of credit issued for the account of MDA in an aggregate amount not in excess of $48,000,000 to support certain contractual obligations and (y) at any date on or after January 1, 2001, all Debt of MDA and its Subsidiaries which is not Debt of the Company or any Subsidiary other than MDA or a Subsidiary of MDA), plus (ii) the portion of the Debt (other than Excluded ORBCOMM Debt) of any Person accounted for by the Company on the equity method properly allocable to the direct or indirect interest of the Company in such Person, all determined as of such date. "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) 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 (v) the ORBCOMM Write-down; 3 8 provided that for any period beginning on or after January 1, 2001, Consolidated EBITDA shall be calculated exclusive of the contribution of MDA and its Subsidiaries. "CONSOLIDATED LEVERAGE RATIO" means on any date the ratio of Consolidated Debt on such date to Consolidated EBITDA for the period of four consecutive fiscal quarters most recently ended on or prior to such date. "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 Obligors 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 Obligors outstanding at the end of such month. "CONSOLIDATED NET INCOME" means, for any period, the consolidated net income of the Company and its Consolidated Subsidiaries for such period. "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. "CONSOLIDATED SUBSIDIARY" means, at any date with respect to any Person, any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date; provided that in no event shall Orbital Imaging be a "Consolidated Subsidiary" of the Company. "CONTROLLING PERSON" has the meaning assigned to such term in the definition of "Affiliate". "DEBT" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all obligations of such Person (whether fixed or contingent) to reimburse any bank or other Person in respect of amounts paid or payable under a letter of credit or similar instrument, (vi) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person (such Debt to have a principal amount, for purposes of determinations under this Agreement, not exceeding the greater of (x) the net unencumbered carrying value of such asset under generally accepted accounting principles and (y) the fair market value of such asset as of the date the principal amount of such Debt is determined), and (vii) all Debt of others Guaranteed by such Person; provided that Excluded ORBCOMM Debt shall not constitute Debt of the Company or any of its Consolidated Subsidiaries. "DEBT ISSUANCE" means any incurrence of Debt by the Company or any of its Wholly-Owned Domestic Subsidiaries after the Effective Date (including without limitation any Debt convertible into equity) in the capital markets (whether in a registered offering or in a private placement), other than Debt hereunder or under the Existing Agreement. "DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DERIVATIVES OBLIGATIONS" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor 4 9 transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "DESIGNATED INSURANCE POLICIES" has the meaning set forth in Section 5.03(c). "DOMESTIC RECEIVABLE" means any Receivable due from an account debtor that is both domiciled in the United States of America and (if not a natural person) organized under the laws of the United States of America or any State thereof. "DOMESTIC SUBSIDIARY" means any Subsidiary which is not a Foreign Subsidiary. "EFFECTIVE DATE" means the date this Agreement becomes effective in accordance with Section 3.01. "ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the clean-up or other remediation thereof. "EQUITY ISSUANCE" means any issuance of equity securities by the Company or any of its Wholly-Owned Domestic Subsidiaries, other than (i) any such issuance to the Company or any of its Wholly-Owned Domestic Subsidiaries, (ii) any such issuance pursuant to employee benefit arrangements in the ordinary course of business, (iii) any such issuance pursuant to the warrants issued to the Banks under the Existing Agreement or this Agreement and (iv) any such issuance pursuant to the conversion of any Debt, so long as neither the Company nor any of its Wholly-Owned Domestic Subsidiaries receives any Net Cash Proceeds in connection with any such issuance described in this clause (iv). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA GROUP" means the Company, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company, or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "EVENTS OF DEFAULT" has the meaning set forth in Section 6.01. "EXCLUDED COVERAGES" has the meaning set forth in Section 5.03(c). "EXCLUDED ORBCOMM DEBT" means, at any date, (i) any Debt of ORBCOMM Global which is not Guaranteed by the Company or any Consolidated Subsidiary (other than OCC and ORBCOMM USA) and (ii) the ORBCOMM Global Guaranty and any other Guarantee by OCC or ORBCOMM USA of any Debt of ORBCOMM Global so long as at such date (A) the only assets owned or otherwise held by OCC are the Federal Communications Commission's licenses and authorizations to construct, launch and operate 34 satellites for the ORBCOMM low-earth satellite system and to operate related gateway earth stations and subscriber communications, as such licenses and authorizations may be amended or modified, contracts between OCC and the Partnerships related to the construction or operation of the ORBCOMM low-earth satellite system and OCC's investments in ORBCOMM 5 10 Global and ORBCOMM USA, (B) OCC conducts no business activities other than holding such assets and (C) such Guarantee is non-recourse to, and is not otherwise supported by the credit of, the Company or any of its Consolidated Subsidiaries (other than OCC and ORBCOMM USA). "EXISTING AGREEMENT" means the Third Amended and Restated Credit and Reimbursement Agreement dated as of December 21, 1998 among the Company, the Banks listed therein and Morgan Guaranty Trust Company of New York, as administrative agent and as collateral agent, as amended prior to the Effective Date, as amended and restated on and as of the Effective Date and as further amended from time to time. "EXISTING MORTGAGE" means the Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement dated as of January 21, 2000 from the Company to the Trustee named therein, for the benefit of the Collateral Agent. "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (i) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty Trust Company of New York on such day on such transactions as determined by the Administrative Agent. "FINANCING DOCUMENTS" means this Agreement, the Notes and the Security Documents. "FOREIGN SUBSIDIARY" means any Subsidiary organized under the laws of a jurisdiction outside the United States of America. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "GUARANTOR" means each Subsidiary of the Company from time to time party to the Security Agreement. "HIGHBAY FACILITY" means the Dulles Highbay satellite manufacturing facility currently occupied by the Company's Space Systems Group, located at 21830 Atlantic Boulevard, Dulles, Virginia. "INSURANCE ACCOUNT" has the meaning set forth in the Security Agreement. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. 6 11 "INVESTMENT" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Company or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "LOAN" means a loan made by a Bank pursuant to Section 2.01. "MAGELLAN" means Magellan Corporation, a Delaware corporation, and its successors. "MAGELLAN FINANCING" means one or more credit agreements to which Magellan is or may become a party providing for loans thereunder to be used by Magellan for working capital purposes; provided that the aggregate principal amount of Debt that may be incurred under such credit agreements shall not exceed $11,000,000. "MAGELLAN GUARANTY" means the Cross-Corporate Continuing Guaranty dated August 21, 2000, by Magellan and Magellan DIS, Inc. in favor of Silicon Valley Bank. "MARGIN" means a rate per annum determined daily in accordance with the Pricing Schedule. "MATERIAL DEBT" means Debt in an aggregate principal amount exceeding $5,000,000 (other than the Loans) of the Company and/or one of more of its Subsidiaries arising in one or more related or unrelated transactions. "MATERIAL PLAN" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $5,000,000. "MDA" means MacDonald, Dettwiler and Associates Ltd., a Canadian corporation, and its successors. "MDA FINANCING" means the Credit Agreement dated as of March 31, 2000 among MDA, Royal Bank of Canada, as administrative agent and the lenders listed on the signature pages thereof, as amended, restated, renewed or refinanced from time to time. "MDA TRANSACTION AGREEMENT" means the Subscription Agreement dated as of December 22, 1999 among CAI Capital Partners and Company II, CAI Partners and Company II, CAI Capital Partners and Company II-C, (collectively, the "CAI ENTITIES"), a newly-formed British Columbia corporation ("NEWCO" and, together with the CAI Entities, the "PURCHASERS"), MDA and the Company. "MDH" means MDA Holdings Corporation, a Delaware corporation and a Wholly-Owned Domestic Subsidiary. "MONTHLY PAYMENT DATE" means the last Business Day of each calendar month. "MOODY'S" means Moody's Investors Service, Inc. or any successor to such corporation's business of rating debt securities. 7 12 "MORTGAGE" means a mortgage, deed of trust, assignment of leases and rents, leasehold mortgage or other security document granting a Lien on any real property to secure obligations under the Financing Documents. Each Mortgage must be satisfactory in form and substance to the Collateral Agent. "MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "NET CASH PROCEEDS" means, with respect to any Reduction Event, an amount equal to the cash proceeds received by the Company or any of its Wholly-Owned Domestic Subsidiaries from or in respect of such Reduction Event (including any cash proceeds received as interest or similar income or other proceeds of any noncash proceeds of any Asset Sale), less (i) any fees, costs and expenses reasonably incurred by such Person in respect of such Reduction Event and (ii) if such Reduction Event is an Asset Sale, any taxes actually paid or to be paid by such Person (as estimated by a senior financial or accounting officer of the Company, after giving effect to the overall tax position of the Company) in respect of such Asset Sale and the amount of any Debt secured by a Lien on an asset which is the subject of such Asset Sale and required to be discharged in connection therewith. "NEW SUBSIDIARY" has the meaning set forth in Section 5.17. "NML DEBT" means Debt of the Company under the Note Agreement dated as of June 1, 1995 (as amended) between the Company and The Northwestern Mutual Life Insurance Company. "NOTES" means promissory notes of the Company, substantially in the form of Exhibit A hereto, evidencing the obligation of the Company to repay the Loans, together with any modifications, substitutions, extensions or renewals of such promissory notes, and "NOTE" means any one of such promissory notes issued hereunder. "NOTICE OF BORROWING" has the meaning set forth in Section 2.02. "OBLIGOR" means the Company or any Guarantor. "OCC" means Orbital Communications Corporation, a Delaware corporation, and its successors. "OPERATING CASH FLOW" means, for any period, (i) cash received by the Company's operating divisions (LSG, SSG, ESSG, APG, Pomona and Corporate operating groups) during such period in respect of operating revenues and other operating proceeds minus (ii) cash disbursed by such operating divisions during such period in respect of operating expenses and capital expenditures on a basis comparable to cash forecasts as presented by the Company to the Banks as of December 29, 2000. For avoidance of doubt, the classification of an item as operating revenue, operating proceeds or operating expense shall be made in accordance with generally accepted accounting principles; the timing of receipt or disbursement, however, is based on the actual date of receipt or disbursement and not on the date such item would be recognized as revenue or expense under generally accepted accounting principles. "ORBCOMM" means, collectively, OCC, ORBCOMM Global and ORBCOMM Global Capital Corp. "ORBCOMM GLOBAL" means ORBCOMM Global L.P., a Delaware limited partnership, and its successors. "ORBCOMM GLOBAL GUARANTY" means the non-recourse guaranty dated August 7, 1996, by OCC and ORBCOMM USA of the $170,000,000 14% Senior Notes Due 2004 issued by ORBCOMM Global and 8 13 ORBCOMM Global Capital Corp., contained in the Indenture dated as of August 7, 1996, issued by ORBCOMM Global and ORBCOMM Global Capital Corp. in favor of Marine Midland Bank as Trustee, the proceeds of which Notes are to be applied to develop the ORBCOMM system. "ORBCOMM USA" means ORBCOMM USA L.P., a Delaware limited partnership, and its successors. "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. "ORBITAL IMAGING" means Orbital Imaging Corporation, a Delaware corporation, and its successors. "ORBITAL IMAGING AGREEMENT" means the Amended and Restated Orbimage System Procurement Agreement dated as of February 26, 1998 between the Company and Orbital Imaging, as amended prior to the Effective Date. "PARENT" means, with respect to any Bank, any Controlling Person of such Bank. "PARTICIPANT" has the meaning set forth in Section 8.06(b). "PARTNERSHIPS" means ORBCOMM Global, ORBCOMM USA and ORBCOMM International Partners L.P. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PERMITTED LIEN" has the meaning set forth in Section 5.12. "PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof (including, without limitation, the Government). "PLAN" means at any time an employee pension benefit plan (other than a Multiemployer Plan) that is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person that was at such time a member of the ERISA Group for employees of any Person that was at such time a member of the ERISA Group. "PLEDGE AGREEMENT" means the Pledge Agreement dated as of November 30, 1999 among the Company, each of its Subsidiaries party thereto, and the Collateral Agent, as amended on and as of the Effective Date and as the same may be further amended from time to time thereafter. "PRICING SCHEDULE" means the Schedule attached hereto and identified as such. "PRIME RATE" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York from time to time as its Prime Rate. "RECEIVABLE" means, at any date of determination thereof, the amount of the unpaid portion of an obligation, as stated in the invoice to a customer of an Obligor which such Obligor has issued with respect thereto, 9 14 in respect of goods delivered, services rendered or the achievement of other contractual milestones in the ordinary course of business, which amount has been earned by performance under the terms of the contract between such Obligor and such customer relating to such goods, services or other contractual milestones, as the case may be, net of any credits, rebates or offsets owed to the customer. "REDUCTION EVENT" means the receipt by the Company or any Wholly-Owned Domestic Subsidiary of any Net Cash Proceeds of any Asset Sale, Debt Issuance or Equity Issuance occurring at any date on or after January 31, 2001. "REDUCTION PERCENTAGE" means (i) with respect to any Debt Issuance or any Asset Sale, the lesser of 100% or such percentage as may be necessary to reduce the Commitments to zero and (ii) with respect to any Equity Issuance, the lesser of 55% or such percentage as may be necessary to reduce the Commitments to zero. "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REQUIRED BANKS" means at any time Banks having at least 66 2/3% of the aggregate amount of the Commitments or, if the commitments shall have been terminated, having at least 66 2/3% of the aggregate principal amount of outstanding Loans at such time. "RESTRICTED ACCOUNT" means a bank account established pursuant to arrangements satisfactory to the Collateral Agent which is subject to a Lien in favor of the Agents and the Banks and from which disbursements of funds may be authorized only by the Collateral Agent. "RESTRICTED PAYMENT" means (i) any dividend or other distribution on any shares of the Company's capital stock (except dividends payable solely in shares of its capital stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Company's capital stock or (b) any option, warrant or other right to acquire shares of the Company's capital stock. "SECURED PARTY" has the meaning set forth in any Security Document. "SECURITY AGREEMENT" means the Second Amended and Restated Security Agreement dated as of June 30, 1992, and amended and restated as of August 5, 1997 and November 30, 1999 among the Company, each of its Subsidiaries party thereto, the Collateral Agent and Bank of America, N.A., as Designated Lockbox Bank, as amended and restated on and as of the Effective Date and as the same may be further amended from time to time thereafter. "SECURITY DOCUMENTS" means the Security Agreement, the Pledge Agreement, the Mortgages and any additional pledge agreement, security agreement, Mortgage or other instrument delivered by the Company or any of its Subsidiaries (including without limitation any New Subsidiary) from time to time pursuant to Section 5.17 or otherwise for the purpose of granting, perfecting or protecting a Lien on any Collateral in favor of the Collateral Agent. "SECURITY EVENT" has the meaning set forth in any of the Security Agreements. "SENIOR DEBT" means at any date (i) Debt of the Company under this Agreement and the Existing Agreement plus (ii) the NML Debt plus (iii) other Debt of the Company (other than (x) Debt owed to any Subsidiary and (y) other Debt so long as such other Debt is subordinated to Debt of the Company under this Agreement on terms satisfactory to the Required Banks) plus (iv) Debt of Subsidiaries of the Company (other than (v) any Guarantees of the NML Debt, (w) Guarantees of Debt under this Agreement or the Existing Agreement, (x) Debt of 10 15 any Subsidiary owed to the Company or any other Subsidiary, (y) other Debt of any Subsidiary Guarantor so long as such other Debt is subordinated to such Subsidiary Guarantor's Guarantee of Debt under this Agreement on terms satisfactory to the Required Banks and (z) at any date on or after March 31, 2001, all Debt of MDA and its Subsidiaries which is not Debt of the Company or any Subsidiary other than MDA or a Subsidiary of MDA. "SENIOR LEVERAGE RATIO" means on any date the ratio of Senior Debt on such date to Consolidated EBITDA for the period of four consecutive fiscal quarters most recently ended on or prior to such date. "S&P" means Standard and Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc., or any successor to its business of rating debt securities. "SUBSIDIARY" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Company (or if such term is used with reference to any other Person, by such other Person); provided that Orbital Imaging shall not be deemed a "Subsidiary" of the Company. "TEMPORARY CASH INVESTMENT" means any Investment in (i) direct obligations of the United States or Canada or any agency thereof, or obligations guaranteed by the United States or Canada or any agency thereof, (ii) commercial paper rated at least A-1 by S&P and P-1 by Moody's, (iii) time deposits with, including certificates of deposit issued by, any office located in the United States or Canada of any Bank or any bank or trust company which is organized under the laws of the United States or any state thereof or Canada or any province thereof, has capital, surplus and undivided profits aggregating at least $100,000,000 and the unsecured long-term debt of which is rated at least investment grade by each nationally recognized statistical rating organization that rates such debt, (iv) money market funds that invest only in securities described in clause (i), (ii) or (iii) above, (v) Investments made in accordance with the investment policies set forth on Schedule 1.01A, or (vi) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above; provided in each case that such Investment matures within two years from the date of acquisition thereof by the Company or a Subsidiary. "TERMINATION DATE" means February 22, 2002, or, if such day is not a Business Day, the next preceding Business Day. "UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all benefits under such Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "WARRANTS" means warrants to purchase shares of common stock of the Company for $0.01 per share, in substantially the form of Exhibit B. "WHOLLY-OWNED DOMESTIC SUBSIDIARY" means any Wholly-Owned Subsidiary which is a Domestic Subsidiary. "WHOLLY-OWNED SUBSIDIARY" means any Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time owned by the Company or one or more of its Wholly-Owned Subsidiaries (or if such term is used with reference to any other Person, by such other Person or one or more of its Wholly-Owned Subsidiaries). 11 16 Section 1.02. Accounting Terms and Determinations . Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes in accordance with generally accepted accounting principles) with the most recent audited consolidated financial statements of the Company and its Consolidated Subsidiaries delivered to the Banks; provided that, if the Company notifies the Administrative Agent that the Company wishes to amend any covenant in Article 5 to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Administrative Agent notifies the Company that the Required Banks wish to amend Article 5 for such purpose), then the Company's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Company and the Required Banks. For purposes of Sections 5.08, 5.09, 5.11, and 5.15 and related definitions, only the percentage of Debt, net income, interest expense, rental expense, income taxes, Intangible Assets and equity of Magellan equal to the percentage of the equity of Magellan held directly or indirectly by the Company at the relevant time shall be included in such computations. ARTICLE 2 The Credits Section 2.01. Commitments to Lend. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make Loans to the Company from time to time prior to the Termination Date in amounts such that the aggregate outstanding principal amount of Loans of such Bank shall at no time exceed the amount of its Commitment. Each borrowing under this Section ("BORROWING") shall be in an aggregate principal amount of $1,000,000 or any larger multiple thereof (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.02(d)) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Company may borrow under this Section, prepay Loans to the extent permitted by Section 2.10 and reborrow at any time under this Section. Section 2.02. Method of Borrowing. (a) The Company shall give the Administrative Agent notice (a "NOTICE OF BORROWING") not later than Noon (New York City time) on the date of each Borrowing; specifying: (i) the date of such Borrowing, which shall be a Business Day, and (ii) the aggregate amount of such Borrowing. (b) Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Company. (c) Not later than 1:00 P.M. (New York City time) on the date of each Borrowing, each Bank shall make available its ratable share of such Borrowing, in Federal or other immediately available funds, to the Administrative Agent at its address specified in or pursuant to Section 8.01. Unless the Administrative Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Administrative Agent will make the funds so received from the Banks available to the Company at the Administrative Agent's aforesaid address. (d) Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Administrative Agent such Bank's share of such 12 17 Borrowing, the Administrative Agent may assume that such Bank has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsection 2.02(c) and the Administrative Agent may, in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Administrative Agent, such Bank and the Company severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Company until the date such amount is repaid to the Administrative Agent, at the Federal Funds Rate. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. Section 2.03. Notes. (a) The Loans of each Bank shall be evidenced by a single Note of the Company payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Upon receipt of each Bank's Note pursuant to Section 3.01(b), the Administrative Agent shall mail such Note to such Bank. Each Bank shall record the date and amount of each Loan made by it and the date and amount of each payment of principal made with respect thereto, and prior to any transfer of its Note, shall endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Company hereunder or under the Notes or any other Financing Document. Each Bank is hereby irrevocably authorized by the Company so to endorse its Note and to attach to and make a part of any Note a continuation of any such schedule as and when required. Section 2.04. Maturity of Loans. Each Loan shall mature, and the outstanding principal amount thereof shall be due and payable (together with accrued interest thereon), on the Termination Date. Section 2.05. Interest Rates. Each Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the sum of the Margin plus the Base Rate, in each case for such day. Such interest shall be payable monthly in arrears on each Monthly Payment Date. Any overdue principal of or interest on any Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to the Loans for such day. Section 2.06. Commitment Fees. The Company shall pay to the Administrative Agent for the account of each Bank a commitment fee at the Commitment Fee Rate (determined in accordance with the Pricing Schedule) on the daily amount by which such Bank's Commitment exceeds the aggregate outstanding principal amount of such Bank's Loans. Such commitment fee shall accrue from and including the Effective Date to but excluding the Termination Date. Such commitment fee shall be payable monthly in arrears on each Monthly Payment Date and on the Termination Date or, if earlier, the date of effectiveness of the termination of the Commitments in their entirety. Section 2.07. Participation Fees. The Company shall pay to the Administrative Agent on the Effective Date for the account of the Banks a participation fee in an amount equal to 1.80% of the aggregate amount of the Commitments in effect on such date under this Agreement, which participation fee shall be payable to the Banks ratably in proportion to their respective Commitments as in effect on the Effective Date under this Agreement. Section 2.08. Optional Termination of the Commitments. The Company may, upon at least three Business Days' notice to the Administrative Agent, terminate the Commitments at any time, if no Loans are outstanding at such time. If the Commitments are so terminated, all accrued commitment fees shall be payable on the effective date of such termination. 13 18 Section 2.09. Mandatory Termination and Reduction of Commitments; Mandatory Prepayments. (a) The Commitments shall terminate on the Termination Date. (b) If a Reduction Event shall occur, the Commitments shall be automatically and ratably reduced on the date of such Reduction Event by an amount equal to the Reduction Percentage of the Net Cash Proceeds of such Reduction Event; provided that if such portion of such Net Cash Proceeds, when aggregated with the corresponding portions of the Net Cash Proceeds for all other Reduction Events not theretofore so applied, is less than $1,000,000, such Net Cash Proceeds shall be deposited in the Restricted Account pending application pursuant to this subsection (b) in connection with a subsequent Reduction Event. (c) On the date of each reduction of the Commitments pursuant to this Section 2.09, the Company shall prepay, together with accrued interest thereon, an aggregate principal amount of the Loans equal to the lesser of (i) the aggregate amount of such reduction of the Commitments and (ii) the aggregate principal amount of the Loans at the time outstanding. (d) The Company shall notify the Agent (which will promptly notify each Bank) of each Reduction Event and the related Net Cash Proceeds not later than the date thereof. Section 2.10. Optional Prepayments. (a) The Company may, upon at least one Business Day's notice to the Administrative Agent, prepay the Loans, in whole at any time, or from time to time in part in amounts aggregating $1,000,000 or any larger multiple thereof, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks. (b) Upon receipt of a notice of prepayment pursuant to this Section, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share of such prepayment and such notice shall not thereafter be revocable by the Company. Section 2.11. General Provisions as to Payments. (a) The Company shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other immediately available funds, to the Administrative Agent at its address referred to in Section 8.01. The Administrative Agent will promptly distribute to each Bank its ratable share of each such payment received by the Administrative Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Loans or fees shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Administrative Agent shall have received notice from the Company prior to the date on which any payment is due from the Company to the Banks hereunder that the Company will not make such payment in full, the Administrative Agent may assume that the Company has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Company shall not have so made such payment, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate. Section 2.12. Computation of Interest and Fees. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and all fees shall be computed on the 14 19 basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). Section 2.13. Taxes. (a) For purposes of this Section 2.13, the following terms have the following ---- meanings: "TAXES" means any and all present or future taxes or other charges of any nature deducted, withheld or otherwise imposed with respect to any payment by the Company pursuant to this Agreement or any Note, and all liabilities with respect thereto, excluding: (i) with respect to the Administrative Agent or any Bank, taxes imposed on its net income by the United States and taxes imposed on its net income and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which it is organized or in which its principal executive office or Applicable Lending Office is located, and (ii) any United States withholding tax imposed on such payment, but not excluding any portion of such tax that exceeds the United States withholding tax which would have been imposed on such a payment to any Bank under the laws and treaties in effect when such Bank first becomes a party to this Agreement. "OTHER TAXES" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or any Note or from the execution, delivery, registration or enforcement of, or otherwise with respect to, this Agreement or any Note. (b) Each payment by the Company to or for the account of the Administrative Agent or any Bank hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if the Company shall be required by law to deduct any Taxes or Other Taxes from such payment, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or such Bank, as the case may be, receives an amount equal to the sum it would have received had no such deduction been made, (ii) the Company shall make such deduction, (iii) the Company shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Company shall promptly furnish to the Administrative Agent, at its address specified in or pursuant to Section 8.01, the original or a certified copy of a receipt evidencing payment thereof. (c) The Company agrees to indemnify the Administrative Agent and each Bank for the full amount of any Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted (whether or not correctly) by any jurisdiction on amounts payable under this Section) paid by the Administrative Agent or such Bank, as the case may be, with respect to amounts payable by the Company pursuant to this Agreement or any Note, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after the Administrative Agent or such Bank, as the case may be, makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, before it signs and delivers this Agreement in the case of each Bank listed on the signature pages hereof and before it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Company (but only so long as such Bank remains lawfully able to do so), shall provide the Company and the Administrative Agent with (i) an Internal Revenue Service Form W-8BEN (or any successor form), in duplicate, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts such Bank from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such 15 20 Bank or (ii) an Internal Revenue Service Form W-8ECI (or any successor form), in duplicate, certifying that the income receivable by it pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (e) For any period with respect to which a Bank has failed to provide the Company or the Administrative Agent with the appropriate form as required by Section 2.13(d) (unless such failure is due to a change in treaty, law or regulation occurring after the date on which such form originally was required to be provided or results from the Company's failure to make a timely written request pursuant to Section 2.13(d)), such Bank shall not be entitled to indemnification under Section 2.13(b) or 2.13(c), respectively, with respect to Taxes imposed by the United States; provided that if a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Company shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Company is required to pay additional amounts to or for the account of a Bank pursuant to this Section as a result of a change of law or treaty occurring after such Bank first became a party to this Agreement, such Bank will, at the Company's request, change the jurisdiction of its Applicable Lending Office if, in the sole judgment of such Bank, such change will (i) eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank. Section 2.14. Other Fees. (a) Unless Combined Total Exposure is reduced below $32,500,000 by July 1, 2001, the Company shall pay to the Administrative Agent on such date for the account of the Banks ratably a fee in an amount equal to 0.60% of the aggregate amount of the Commitments on such date (or, if the Commitments shall have terminated, the aggregate outstanding principal amount of Loans, if any, on such date). (b) Unless Combined Total Exposure is reduced to zero by October 31, 2001, the Company shall pay to the Administrative Agent on such date for the account of the Banks ratably (i) a fee in an amount equal to 0.60% of the aggregate amount of the Commitments on such date (or, if the Commitments shall have terminated, the aggregate outstanding principal amount of Loans, if any, on such date) plus (ii) a number of Warrants equal to 300,000 multiplied by a fraction the denominator of which is Combined Total Exposure at such date and the numerator of which is the aggregate amount of the Commitments at such date, or if the Commitments shall have terminated, the aggregate outstanding principal amount of the Loans, if any, at such date; provided that in no event shall the aggregate number of warrants payable by the Company under this Agreement and the Existing Agreement exceed 300,000. ARTICLE 3 The Credits Section 3.01. Effectiveness. This Agreement shall become effective on and as of the date on which the following conditions are satisfied (except Section 8.03, which shall become effective when the Administrative Agent shall have received the documents specified in paragraph (a) below): (a) The Administrative Agent shall have received counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, the Administrative Agent shall have received in form satisfactory to it of telegraphic, telex, facsimile or other written confirmation from such party of execution of a counterpart hereof by such party); (b) The Administrative Agent shall have received duly executed Notes for the account of each Bank dated on or before the Effective Date and complying with the provisions of Section 2.03; 16 21 (c) The Administrative Agent shall have received an opinion of Hogan & Hartson L.L.P., special counsel for the Company, substantially in the form of Exhibit C hereto and covering such additional matters relating to the transactions contemplated by the Financing Documents as the Required Banks may reasonably request; (d) The Collateral and Guarantee Requirement shall have been satisfied; (e) Amendment No. 13 dated as of the date hereof to the Existing Agreement shall be effective; (f) Since January 11, 2001, no change, development or event shall have occurred that in the reasonable opinion of the Required Banks could reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), operations, liabilities or prospects of the Company and its Subsidiaries, considered as a whole. (It is understood that a "going concern" qualification in the auditor's report on the financial statements of the Company or Orbital Imaging does not constitute a material adverse change for purposes hereof); (g) All costs, fees, expenses (including, without limitation, legal fees and expenses and recording taxes and fees) and other compensation contemplated hereby payable to the Administrative Agent and the Banks shall have been paid; and (h) The Administrative Agent shall have received all documents it may reasonably request relating to the existence of the Obligors, the corporate authority for and the validity of the Financing Documents, and any other matters reasonably relevant hereto, all in form and substance reasonably satisfactory to the Administrative Agent; provided that this Agreement shall not become effective or be binding on any party hereto unless the foregoing conditions are satisfied not later than February 23, 2001. The Administrative Agent shall promptly notify the Company and the Banks of the effectiveness of this Agreement, and such notice shall be conclusive and binding on all parties hereto. Section 3.02. Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02; (b) the fact that, immediately before and after such Borrowing, no Default shall have occurred and be continuing; (c) the fact that the representations and warranties of the Company contained in Article 4 of this Agreement (except, in the case of any Borrowing subsequent to the Effective Date, the representations and warranties contained in Sections 4.06(a) and 4.06(b)) and Section 2 of the Security Agreement shall be true on and as of the date of such Borrowing; (d) in the case of any Borrowing prior to March 1, 2001, the fact that, immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed $15,000,000; and (e) the fact that there is no unused amount of the "Commitments" under the Existing Agreement. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Company on the date of such Borrowing as to the facts specified in Sections 3.02(b), 3.02(c), 3.02(d) and 3.02(e). 17 22 ARTICLE 4 Representations and Warranties The Company represents and warrants that: Section 4.01. Corporate Existence and Power. Each Obligor is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and each has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. Section 4.02. Corporate and Governmental Authorization No Contravention. The execution, delivery and performance by each Obligor of the Financing Documents to which it is a party are within its corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of (except as contemplated herein) or filing with (except as contemplated herein or by the Security Documents), any governmental body, agency or official and do not contravene, or constitute a default under, any provision of (i) any applicable law, rule or regulation, (ii) the certificate of incorporation or by-laws of any Obligor, (iii) any Material Debt instrument binding upon any Obligor or (iv) any judgment, injunction, order, decree or other material agreement or instrument binding upon any Obligor or, except as contemplated by the Security Documents, result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries. Section 4.03. Binding Effect. This Agreement constitutes, and each of the Security Documents and the Notes, when executed and delivered in accordance with this Agreement will constitute, a valid and binding agreement or obligation of each Obligor signatory hereto or thereto, as the case may be, subject to applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and general principles of equity. Section 4.04. Lien Enforceable. (a) (i) Each Security Document creates, or, when executed and delivered in accordance with this Agreement, will create, in favor of the Collateral Agent for the benefit of the Secured Parties, a valid and binding Lien on the Collateral referred to therein with the priority contemplated thereby. Each Security Document entered into pursuant to Section 5.17 creates, in favor of the Collateral Agent for the ratable benefit of the Secured Parties, a valid and binding Lien on the Collateral referred to therein with the priority contemplated thereby subject only to Permitted Liens (as such term is defined in each such Financing Document). (b) The information set forth in the Perfection Certificate delivered by the Company as of the date of this Agreement is true and correct as of the Effective Date. Section 4.05. Assignments Valid. The assignments and notices of assignment substantially in the form of Exhibits G-2 and G-3, respectively, when completed by the appropriate Obligor and duly acknowledged by each governmental authority or agency described therein, will constitute valid assignments of the monies due or to become due under the government contracts described therein under the Assignment of Claims Act. Section 4.06. Financial Information. (a) The consolidated balance sheet of the Company and its Consolidated Subsidiaries as of December 31, 1999 and the related consolidated statements of operations and cash flows for the fiscal year then ended, reported on by PricewaterhouseCoopers LLP, copies of which have been delivered to each of the Banks, fairly present in all material respects, in conformity with generally accepted accounting principles, the consolidated financial position of the Company and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) The unaudited consolidated balance sheet of the Company and its Consolidated Subsidiaries as of September 30, 2000 and the related unaudited consolidated statements of operations and cash flows for the three months then ended, copies of which have been delivered to each of the Banks, fairly present in all material respects, 18 23 in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a), the consolidated financial position of the Company and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such three month period (subject to normal year-end adjustments). (c) Since January 11, 2001, no change, development or event has occurred that could reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), operations, liabilities or prospects of the Company and its Subsidiaries, considered as a whole. (It is understood that a "going concern" qualification in the auditor's report on the financial statements of the Company or Orbital Imaging does not constitute a material adverse change for purposes hereof.) Section 4.07. Litigation. Except as to any matter that has been disclosed in writing by the Company to the Banks or disclosed in the Company's filings with the Securities and Exchange Commission, in each case prior to the date hereof, there is no action, suit or proceeding pending against, or to the knowledge of the Company threatened against the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, financial position or results of operations of the Company and its Consolidated Subsidiaries, taken as a whole, or which in any manner draws into question the validity of any of the Financing Documents. Section 4.08. Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multi-employer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. Section 4.09. Environmental Matters. Except as to any matter that has been disclosed prior to the date hereof in writing by the Company to the Banks, (i) the Company and each of its Consolidated Subsidiaries have obtained all permits, licenses and other authorizations that are required under all Environmental Laws, except to the extent failure to have any such permit, license or authorization would not have a material adverse effect on the business, financial position or results of operations of the Company and its Consolidated Subsidiaries, taken as a whole and (ii) the Company and its Consolidated Subsidiaries are in compliance with the terms and conditions of all such permits, licenses and authorizations, and are also in compliance with all other provisions of any applicable Environmental Law or any order, judgment, injunction, notice or demand letter issued or entered thereunder, except to the extent failure to comply would not have a material adverse effect on the business, condition (financial or otherwise), operations, liabilities or prospects of the Company and its Consolidated Subsidiaries, taken as a whole. Section 4.10. Taxes. The Company and its Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company or any of its Subsidiaries other than taxes or assessments the validity of which the Company or the relevant Subsidiary is contesting in good faith by appropriate proceedings and is maintaining adequate reserves with respect thereto in accordance with generally accepted accounting principles. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Company, adequate. Section 4.11. Subsidiaries. (a) Each of the Company's Subsidiaries is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and has all legal powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 19 24 (b) Each Wholly-Owned Domestic Subsidiary, other than MDH, is a Guarantor. Section 4.12. Full Disclosure. No information heretofore or hereafter furnished by the Company to the Agents or any Bank for purposes of or in connection with this Agreement, the other Financing Documents or any transaction contemplated hereby or thereby contains or, taken together with all such information so furnished, will contain any untrue statement of a material fact or omits or will omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company agrees for itself and its Subsidiaries that so long as any Bank has any Commitment hereunder or any amount payable under any Financing Document remains unpaid: ARTICLE 5 Covenants Section 5.01. Information. The Company will deliver to each of the Banks: (a) as soon as available and in any event within 90 days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of operations and cash flows for such fiscal year, together with consolidating balance sheets, statements of operations and operating cash flows for such fiscal year for each of the Company's Consolidated Subsidiaries in the form currently prepared by the Company, setting forth in each case in comparative form the figures for the previous fiscal year, all such consolidated statements reported on in a manner acceptable to the Securities and Exchange Commission by PricewaterhouseCoopers LLP or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company, a consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of operations and cash flows for such quarter and for the portion of the Company's fiscal year ended at the end of such quarter, together with consolidating balance sheets, statements of operations and operating cash flows for such quarter and the portion of the Company's fiscal year ended at the end of such quarter for each of the Company's Consolidated Subsidiaries in the form currently prepared by the Company, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Company's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation in all material respects and generally accepted accounting principles by the chief financial officer or the chief accounting officer of the Company; (c) simultaneously with the delivery of each set of financial statements referred to in clauses 5.01(a) and 5.01(b) above, a certificate of the chief financial officer or the treasurer of the Company (i) setting forth in reasonable detail the calculations required to establish whether the Company is in compliance with the requirements of Sections 5.07 through 5.11, inclusive, and Section 5.15 on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of financial statements referred to in clause 5.01(a) above, a statement of the firm of independent public accountants that reported on such statements whether anything has come to their attention to cause them to believe the Company was not in compliance with the requirements of Sections 5.07 through 5.11, inclusive, and Section 5.15 on the date of such financial statements; 20 25 (e) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (f) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Company shall have filed with the Securities and Exchange Commission; (g) within five days after any executive officer obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the treasurer of the Company setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto (for purposes of this Section, "executive officer" shall mean any of the President, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Treasurer, Controller and General Counsel of the Company and the President of the Company); (h) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan that might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement that has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Company setting forth details as to such occurrence and action, if any, which the Company or applicable member of the ERISA Group is required or proposed to take; (i) on Thursday of each week, commencing with March 1, 2001, a statement of Operating Cash Flows for each week in the period of eight continuous weeks commencing with the current week, in a form reasonably satisfactory to the Administrative Agent; (j) on Thursday of each week, commencing with March 1, 2001, a written variance report, in a form reasonably satisfactory to the Administrative Agent, setting forth explanations of material differences between actual and projected cash flows (over $100,000 and 10%) associated with cash flows projected from material contracts, accounts payable, Receivables and Reduction Events, on a basis comparable to that presented to the Banks by the Company in its cash forecast as of December 29, 2000; (k) on the first Business Day of each week, commencing with February 26, 2001, a written report setting forth in reasonable detail any developments relating to proposed Reduction Events (including, but not limited to, sales of [CODE1], [CODE2], Sensor Systems Division, Transportation Management Systems Division and real property and equity and debt financings); (l) on or prior to April 1, 2001, an appraisal of the Highbay Facility conducted by an independent third party expert, in form and substance reasonably satisfactory to the Collateral Agent; 21 26 (m) as promptly as possible and in any event within five Business Days of the occurrence thereof, a written report setting forth in reasonable detail any default or anything that has come to the Company's attention to cause it to believe that there is likely to be a default with respect to, or in connection with, any customer contract if the aggregate projected revenues from such contract exceed $5,000,000 and setting forth the details of any action taken or proposed to be taken with respect thereto; (n) as promptly as possible and in any event within two Business Days of the occurrence thereof, notice that the liquidity of the Company (unrestricted cash balances plus availability under this Agreement and the Existing Agreement) does not exceed $7,000,000; (o) 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 to the Banks by the Company on December 11, 2000, 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; and (p) from time to time such additional information regarding the financial position or business of the Company and its Subsidiaries as the Collateral Agent or the Administrative Agent, at the request of any Bank, may reasonably request. Section 5.02. Payment of Obligations. The Company will pay and discharge, and will cause each of its Subsidiaries to pay and discharge, at or before maturity or in accordance with customary trade practices, all their respective material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings, and will maintain, and will cause each of their respective Subsidiaries to maintain, in accordance with and to the extent required by generally accepted accounting principles, appropriate reserves for the accrual of any of the same; provided that this Section shall not apply to the obligations of the Company under the Orbital Imaging Agreement. Section 5.03. Maintenance of Property; Insurance. (a) The Company will keep, and will cause each of its Subsidiaries to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) The Company will maintain, and will cause each of its Subsidiaries to maintain: (i) at all times, physical damage insurance on all real and personal property owned by it on an all risks basis covering the repair and replacement cost of all such property and consequential loss coverage for business interruption and extra expense; (ii) at all times, public liability insurance (including products/completed operations liability coverage) in an amount not less than $10,000,000; and (iii) from time to time, such other insurance coverage in such amounts and with respect to such risks as it shall have determined in its reasonable discretion to be necessary or advisable in the conduct of its business. 22 27 All such insurance will be provided by financially sound and reputable insurers. The Company will deliver to the Banks (i) upon request of any Bank through the Administrative Agent from time to time full information as to the insurance carried, (ii) within five days of receipt of notice from any insurer a copy of any notice of cancellation or material change in coverage from that existing on the date of this Agreement (other than any notice of increase in the amount of any such coverage from the amount in effect on the date of this Agreement) and (iii) forthwith, notice of any cancellation or nonrenewal of coverage by the Company or any of its Subsidiaries with respect to any insurance the Company must maintain, and must cause its Subsidiaries to maintain, pursuant to this subsection. (c) Prior to the Effective Date, the Company has caused the Collateral Agent to be named as an additional insured party and the loss payee (to the extent that the insurance policy is of a type that provides for a loss payee) on each insurance policy any Obligor is required to maintain pursuant to this Section and which is in existence on the Effective Date (including any mission success insurance policy (a "MISSION SUCCESS POLICY") but excluding (x) any Mission Success Policy or portion thereof obtained by the Company or a Subsidiary on behalf of a customer as to which such customer is named loss payee and (y) any policy, or portion thereof, solely with respect to real property or tangible personal property subject to a Permitted Lien in favor of a Person other than the Collateral Agent which is listed on Schedule 5.12 or which attaches subsequent to the Effective Date as permitted by clauses (b) through (f) of Section 5.12 (such excluded policies, or portions thereof, described in clauses (x) and (y), the "EXCLUDED COVERAGES", and the insurance policies required to be maintained by the Obligors pursuant to this Section, other than the Excluded Coverages, the "DESIGNATED INSURANCE POLICIES")). The Company will deliver to the Collateral Agent, upon request, the insurance policies for each Designated Insurance Policy. Each Designated Insurance Policy includes and shall include effective waivers by the insurer of all claims for insurance premiums against the Collateral Agent or any other Secured Party, provides and will provide that (i) all insurance proceeds (other than any insurance proceeds with respect to any Mission Success Policy) in excess of $1,000,000 per claim for which the Collateral Agent is loss payee shall be adjusted with and payable to the Collateral Agent, (ii) all insurance proceeds with respect to any Mission Success Policy in excess of $1,000,000 per claim for which the Collateral Agent is loss payee shall be payable to the Collateral Agent and the Collateral Agent shall have the right to attend all meetings relating to the adjustment of any such claim and shall be provided with all information relating to such claim provided by the Company to the insurance company with which such claim is being adjusted and any additional information the Collateral Agent may reasonably request relating to such claim, (iii) the insurer shall notify the Collateral Agent of any failure by the Company to pay any premiums or other amounts due on any insurance policy and (iv) no cancellation or termination of such Designated Insurance Policy shall be effective until at least 30 days after receipt by the Collateral Agent of written notice thereof; provided that, solely with respect to any Mission Success Policy, such Policy may provide that no cancellation or termination of such Policy shall be effective until at least 15 days after receipt by the Collateral Agent of written notice thereof. All insurance proceeds payable to the Collateral Agent pursuant to this Section shall be deposited in the Insurance Account. The Company agrees that it will (x) give prior notice to the Collateral Agent of any meeting referred to in clause (ii) of this subsection, promptly upon request, provide the Collateral Agent with all information referred to in clause (ii) of this subsection and (z) not agree to any adjustment with respect to any claim described in clause (ii) of this subsection without the prior written consent of the Collateral Agent, which consent shall not be unreasonably withheld. (d) The Company will cause the Collateral Agent to be named as an additional insured party and the loss payee (to the extent that the insurance policy is of a type that provides for a loss payee) on each Designated Insurance Policy any Obligor acquires after the Effective Date pursuant to this Section; provided that, nothing in this subsection shall be construed to require the Company to cause the Collateral Agent to be named as an additional insured party and the loss payee for any Excluded Coverages. Each such insurance policy shall include each of the waivers and provisions described in Section 5.03(c). Section 5.04. Conduct of Business and Maintenance of Existence. The Company will continue, and will cause each of its Subsidiaries to continue, to engage in business of the same general type as now conducted by it, and will preserve, renew and keep in full force and effect, and will cause each of its Subsidiaries to preserve, renew and keep in full force and effect its corporate existence and rights, privileges and franchises necessary or desirable in 23 28 the normal conduct of business; provided that nothing contained in this Section shall prohibit any transaction expressly permitted under Section 5.13. Section 5.05. Compliance with Laws. The Company will comply, and will cause each of its Subsidiaries to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities except where the necessity of compliance therewith is contested in good faith by appropriate proceedings. Section 5.06. Inspection of Property, Books and Records. The Company will keep, and will cause each of its Subsidiaries to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each of its Subsidiaries to permit, representatives of any Agent or any Bank, at such Agent's or Bank's expense, to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times during normal business hours, upon reasonable notice and as often as may reasonably be desired by such Agent or such Bank. Section 5.07. Investments; Acquisitions. (a) On and after the Effective Date, neither the Company nor any Subsidiary will make, acquire or hold any Investment in any Person other than: (i) Investments in an Obligor; (ii) Temporary Cash Investments; (iii) Investments by the Company or any of its Subsidiaries constituting "vendor financing" under contracts entered into in the ordinary course of business; (iv) Investments by Magellan and its Subsidiaries in Magellan and its Subsidiaries; (v) Investments by MDA and its Subsidiaries permitted by the terms of the MDA Financing; (vi) Any payments made (x) by OCC pursuant to the ORBCOMM Global Guaranty or (y) by the Company pursuant to the Magellan Guaranty; (vii) Acquisition of (but not exercise of, unless such exercise concurrently would generate Net Cash Proceeds) the option on shares of [CODE2] contemplated by the summary of terms of the transaction described on Schedule 5.13 heretofore furnished to the Banks; and (viii) Investments not permitted by clauses (i) - (vii) which (x) were made prior to the Effective Date (or, in the case of Items 6 and 7 in Schedule 5.07, committed to be made prior to the Effective Date), (y) were permitted under the Existing Agreement immediately prior to the Effective Date and (z) are set forth on Schedule 5.07 (but not any additional such Investments). (b) The Company will not, and will not permit any Subsidiary (other than MDA and its Subsidiaries) to, consummate any acquisition of any other Person or a line of business, division or other business unit 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. Section 5.08. Minimum Consolidated Net Worth. Consolidated Net Worth at the last day of any fiscal quarter set forth below will not be less than (i) the amount set forth in the table below opposite such fiscal quarter 24 29 plus (ii) 50% of Consolidated Net Income for each fiscal quarter of the Company ended after December 31, 2000, which such Consolidated Net Income is positive (but with no deduction on account of any fiscal quarter for which Consolidated Net Income is negative) plus (iii) 100% of the aggregate amount by which Consolidated Net Worth shall have been increased by reason of the issuance and sale after December 31, 2000 and on or prior to such date of any capital stock or the conversion or exchange of any Debt of the Company into or with capital stock of the Company consummated after December 31, 2000 and on or prior to such date.
----------------------------------- ----------------------------------- FISCAL QUARTER ENDED AMOUNT ----------------------------------- ----------------------------------- 12/31/00 $190,000,000 ----------------------------------- ----------------------------------- 3/31/01 $175,000,000 ----------------------------------- ----------------------------------- 6/30/01 $165,000,000 ----------------------------------- ----------------------------------- 9/30/01 $190,000,000 ----------------------------------- ----------------------------------- 12/31/01 and thereafter $190,000,000 ----------------------------------- -----------------------------------
Section 5.09. (a) Leverage. The Consolidated Leverage Ratio will at no date during any period set forth below exceed the ratio set forth below opposite such period:
----------------------------------- ----------------------------------- PERIOD RATIO ----------------------------------- ----------------------------------- 10/1/00-12/31/00 4.85:1 ----------------------------------- ----------------------------------- 1/1/01-3/31/01 4.50:1 ----------------------------------- ----------------------------------- 4/1/01-6/30/01 5.35:1 ----------------------------------- ----------------------------------- 7/1/01-9/30/01 6.00:1 ----------------------------------- ----------------------------------- 10/1/01-12/31/01 2.00:1 ----------------------------------- ----------------------------------- 1/1/02 and thereafter 2.00:1 ----------------------------------- -----------------------------------
(b) Senior Leverage. The Senior Leverage Ratio will at no date during any period set forth below exceed the ratio set forth below opposite such period:
----------------------------------- ----------------------------------- PERIOD RATIO ----------------------------------- ----------------------------------- 10/1/00-12/31/00 3.50:1 ----------------------------------- ----------------------------------- 1/1/01-3/31/01 3.35:1 ----------------------------------- ----------------------------------- 4/1/01-6/30/01 3.35:1 ----------------------------------- ----------------------------------- 7/1/01-9/30/01 3.60:1 ----------------------------------- ----------------------------------- 10/1/01-12/31/01 2.00:1 ----------------------------------- ----------------------------------- 1/1/02 and thereafter 1.50:1 ----------------------------------- -----------------------------------
Section 5.10. Minimum Operating Cash Flow. (a) The Operating Cash Flow for any period set forth below will not be less than the applicable amount set forth below opposite such period:
----------------------------------- ----------------------------------- MONTH AMOUNT ----------------------------------- ----------------------------------- January 2001 $(14,386) ----------------------------------- ----------------------------------- January 2001-February 2001 $(49,075) ----------------------------------- ----------------------------------- January 2001-March 2001 $(62,406) ----------------------------------- ----------------------------------- January 2001-April 2001 $(55,022) ----------------------------------- ----------------------------------- January 2001-May 2001 $(60,236) ----------------------------------- ----------------------------------- January 2001-June 2001 $(97,375) ----------------------------------- ----------------------------------- January 2001-July 2001 * ----------------------------------- ----------------------------------- January 2001-August 2001 *
25 30 ----------------------------------- ----------------------------------- January 2001-September 2001 $(105,904) ----------------------------------- ----------------------------------- January 2001-October 2001 * ----------------------------------- ----------------------------------- January 2001-November 2001 * ----------------------------------- ----------------------------------- January 2001-December 2001 $(104,650) ----------------------------------- ----------------------------------- January 2002 * ----------------------------------- ----------------------------------- January 2002-February 2002 * ----------------------------------- ----------------------------------- January 2002-March 2002 * ----------------------------------- ----------------------------------- January 2002-April 2002 * ----------------------------------- ----------------------------------- January 2002-May 2002 * ----------------------------------- ----------------------------------- January 2002-June 2002 * ----------------------------------- -----------------------------------
* The applicable amount determined pursuant to subsection (b). (b) On or before the first day of each calendar quarter (i.e., April 1, July 1, October 1 and January 1), the Company will deliver to each Bank a monthly forecast of Operating Cash Flow for the succeeding calendar quarter (e.g., July, August and September 2001 in the case of the forecast delivered on or before April 1, 2001) and a quarterly forecast of Operating Cash Flow for the two quarters following the quarter covered by such monthly forecast, in each case prepared on a basis consistent with the forecasts delivered to the Banks prior to the Effective Date. The Company and the Administrative Agent shall negotiate in good faith in an effort to set by mutual agreement monthly compliance levels under subsection (a) for periods after June 2001 for which no compliance level is specified on a basis consistent with the establishment of the compliance levels specified for the first six months of 2001, taking into account the monthly forecasts delivered by the Company; provided that in the event the Company and the Administrative Agent are unable to reach agreement, such compliance levels shall be as reasonably specified by the Administrative Agent on such basis. Section 5.11. Consolidated Loss Ratio. The Consolidated Loss Ratio will not at any time, for the calendar month then most recently ended, exceed 0.50%. Section 5.12. Negative Pledge. Neither the Company nor any Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except the following (each a "PERMITTED LIEN"): (a) Liens existing or provided for pursuant to a contract existing as of the Effective Date and listed on Schedule 5.12; (b) any Lien existing on any asset of any corporation at the time such corporation becomes a Subsidiary and not created in contemplation of such event; (c) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset; provided that such Lien attaches to such asset concurrently with or within 120 days after the acquisition thereof; (d) any Lien on any asset of any corporation existing at the time such corporation is merged or consolidated with or into the Company or a Subsidiary and not created in contemplation of such event; (e) any Lien existing on any asset prior to the acquisition thereof by the Company or a Subsidiary and not created in contemplation of such acquisition; (f) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this Section; provided that such Debt is not increased and is not secured by any additional assets; 26 31 (g) Liens arising in the ordinary course of its business which do not secure Debt or Derivatives Obligations and do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (h) Liens created pursuant to any of the Financing Documents; (i) Liens imposed by any governmental authority for taxes, assessments, governmental charges, duties or levies not yet due or which are being contested in good faith and by appropriate proceedings; provided adequate reserves with respect thereto are maintained on the books of the Company and its Consolidated Subsidiaries in accordance with generally accepted accounting principles; (j) carriers', warehousemen's, mechanics', transporters, materialmen's, repairmen's or other like Liens arising in the ordinary course of business; provided any such Lien is either (A) discharged within five days of the date when payment of the obligation secured by such Lien is due or (B) is being contested in good faith and by appropriate proceedings; (k) Liens securing judgments for an amount not exceeding $5,000,000 and for a period not resulting in an Event of Default under Section 6.01(k); (l) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (m) deposits to secure the performance of bids, trade contracts (other than for Debt or Derivatives Obligations), leases, statutory obligations, surety and appeal bonds, performance bonds and other similar obligations incurred in the ordinary course of business; (n) Liens on any such asset imposed under the Federal Acquisition Regulations to secure advance payments made by the Government under contracts; (o) Liens existing or provided for pursuant to a contract to which an Obligor becomes a party as a result of a novation of a contract described in clause 5.12(a); (p) Liens on assets of Magellan securing Debt and other obligations of Magellan under the Magellan Financing; (q) Liens on cash and cash equivalents (other than any cash or cash equivalents held by MDA or its Subsidiaries) securing letter of credit reimbursement obligations and/or Derivatives Obligations; provided that the aggregate amount of cash and cash equivalents subject to such Liens may at no time exceed $20,000,000; (r) Liens on assets of MDA and its Subsidiaries securing Debt and other obligations of MDA and such subsidiaries under the MDA Financing; and (s) Liens on the shares of MDA pursuant to Section 13 of the Secondary Option Agreement contemplated by the MDA Transaction Agreement. Section 5.13. Consolidations, Mergers and Sales of Assets. (a) The Company will not consolidate or merge with or into any other Person or sell, lease or otherwise transfer, directly or indirectly, all or any substantial part of the assets of the Company and its Subsidiaries, taken as a whole, to any other Person; provided that nothing contained herein shall prohibit (x) the Company from merging any of its Subsidiaries with and into the Company or (y) the consummation of any Asset Sale permitted by subsection (b). 27 32 (b) Neither the Company nor any Subsidiary (other than MDA and its Subsidiaries) will make any Asset Sale (or, in the case of any Subsidiary other than a Wholly-Owned Domestic Subsidiary, any disposition of assets that would constitute an "Asset Sale" if made by the Company) unless the consideration therefor (x) is determined pursuant to an arm's-length transaction and (y) shall consist solely of cash payable at closing (or assets that will be converted into cash, and are so converted, concurrently with the consummation thereof); provided that nothing in this subsection shall prevent the Company from consummating the transaction described on Schedule 5.13. Section 5.14. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Company exclusively for normal working capital requirements of the Obligors. Section 5.15. Subsidiary Debt. Total Debt of all of the Company's Subsidiaries (excluding (i) Debt hereunder and under the Existing Agreement, and any Guarantees thereof, (ii) Debt of a Subsidiary to the Company or to a Wholly-Owned Subsidiary of the Company, (iii) Debt of MDA or any of its Subsidiaries and (iv) any Guarantees of the NML Debt), will at no time exceed 5% of Consolidated Net Worth. For purposes of this Section 5.15, any preferred stock of a Subsidiary held by a Person other than the Company or a Wholly-Owned Subsidiary of the Company shall be included, at the higher of its voluntary or involuntary liquidation value, in the "Debt" of such Subsidiary. Section 5.16. Restricted Payments. Neither the Company nor any Subsidiary will declare or make any Restricted Payment. Section 5.17. Additional Collateral; Additional Guarantors; Further Assurances. (a) If the Company or any Wholly-Owned Domestic Subsidiary (other than of MDH) at any time after the Effective Date creates or acquires any new direct Wholly-Owned Subsidiary (each, a "NEW SUBSIDIARY"), the Company shall, within ten days after such creation or acquisition, cause such New Subsidiary to become a party to the Security Agreement (and be subject to all of the obligations of a Subsidiary Debtor thereunder), grant a perfected first priority Lien to the Collateral Agent pursuant to the Pledge Agreement for the benefit of the Banks and the other Secured Parties on all of the outstanding capital stock or other equity interests of such New Subsidiary and take, and cause such New Subsidiary and each other Subsidiary to take, all action necessary or (in the opinion of the Collateral Agent or the Required Banks) desirable to perfect and protect the Liens intended to be created by the Financing Documents (including any Financing Documents delivered in connection with such creation or acquisition pursuant to clauses (i) and (ii) of this Section); provided that the Company will not be required to take the actions described in clause (i) of this subsection with respect to any New Subsidiary that is not a Domestic Subsidiary, the Company will not be required to take the actions described in clause (ii) with respect to the capital stock or other equity interests of any New Subsidiary that is not a Domestic Subsidiary to the extent the aggregate capital stock or other equity interests of such New Subsidiary subject to a Lien granted to the Collateral Agent for the benefit of the Banks would exceed 66% of the outstanding voting capital stock or other voting equity interests of such New Subsidiary, and the Company will not be required to take any of the actions described in clauses (i), (ii) or (iii) of this subsection (b) with respect to any New Subsidiary to the extent any such action is prohibited by the terms of any agreement or instrument to which (aa) such New Subsidiary is a party or is bound as in effect on the date such New Subsidiary becomes a Subsidiary of the Company, so long as such agreement or such instrument was not entered into in contemplation of such New Subsidiary becoming a Subsidiary of the Company or (bb) the Company or any of its Wholly-Owned Domestic Subsidiaries (other than such New Subsidiaries) is a party or is bound as in effect on the Effective Date. (b) The Company will use its commercially reasonable efforts to cause to be granted to the Collateral Agent for the benefit of the Banks a perfected Lien on the L1011 aircraft (model number L1011-385-1-15; serial number 193E-1067; registration number N#140SC), subject only to the prior Lien of General Electric Capital Corporation, as promptly as practicable following the Effective Date. 28 33 (c) The Company will deliver such title insurance, surveys and appraisals as the Collateral Agent may reasonably request to the Collateral Agent for the benefit of the Banks as promptly as practicable following the Effective Date. (d) The Company will use its commercially reasonable efforts to record in Loudoun County, Virginia a memorandum of the Office Lease dated July 17, 1992 between Transcontinental Realty Investors, Inc. and the Company relating to the property located at 21730 Atlantic Boulevard, Sterling, Virginia, as promptly as practicable following the Effective Date, and upon such recordation, the Collateral Agent will record the Leasehold Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement dated as of the date hereof and delivered to the Collateral Agent on the Effective Date and the Company will pay promptly all mortgage recording taxes, intangible taxes or other similar taxes associated therewith. In addition, the Company will deliver to the Collateral Agent within 30 days of the delivery of such deed of trust a lenders' leasehold title insurance policy insuring the Lien created by such deed of trust in an amount equal to $600,000 and otherwise in form and substance reasonably satisfactory to the Collateral Agent but subject to any Permitted Liens and any liens encumbering the fee interest of Transcontinental Realty Investors, Inc. Section 5.18. Consolidated Capital Expenditures. (a) The aggregate amount of Consolidated Capital Expenditures for the fiscal year ending December 31, 2001 will not exceed $35,000,000. (b) The aggregate amount of Consolidated Capital Expenditures for the two fiscal quarters ending after December 31, 2001 will not exceed in the aggregate $18,000,000. Section 5.19. Accounts. The aggregate amount deposited or invested by the Obligors in Deposit Accounts or Securities Accounts which are not Controlled Deposit Accounts or Controlled Securities Accounts (as each of the foregoing terms is defined in the Security Agreement) will at no time exceed $1,500,000. Section 5.20. Reduction Event Undertaking. The Company will use commercially reasonable efforts to generate Net Cash Proceeds from Reduction Events in excess of $75,000,000 by June 30, 2001. ARTICLE 6 Defaults Section 6.01. Events of Default. If one or more of the following events ("EVENTS OF DEFAULT") shall have occurred and be continuing: (a) any principal of any Loan or any Reimbursement Obligation shall not be paid when due; (b) (i) any fee payable pursuant to Section 2.14 shall not be paid when due or (ii) any interest on any Loan, any fees (other than any fee described in clause (i)) or commissions or any other amount payable under any Financing Document, shall not be paid within one Business Day after the due date thereof; (c) the Company shall fail to observe or perform any covenant or agreement contained in Sections 5.01(g), 5.07 to 5.19 inclusive; (d) any Obligor shall fail to observe or perform any covenant or agreement contained in any Financing Document (other than those covered by clauses 6.01(a), 6.01(b) or 6.01(c) above) for 30 days after written notice thereof has been given to the Company by the Administrative Agent at the request of any Bank; 29 34 (e) any representation, warranty, certification or statement made by any Obligor in any Financing Document, or in any certificate, financial statement or other document delivered pursuant thereto shall prove to have been incorrect in any material respect when made (or deemed made); (f) the Company or any of its Subsidiaries shall fail to make any payment in respect of any Material Debt beyond any notice, grace or cure period applicable with respect thereto; (g) any event or condition (other than an event or condition described in Section 6.01(f) shall occur which results in the acceleration of the maturity of any Material Debt or the accelerated termination of binding commitments to lend monies or extend credit in any other form to the Company or any Subsidiary in an aggregate amount in excess of $10,000,000 or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such Debt or the maker of any such commitment, as the case may be, or any Person acting on such holder's or maker's behalf, to accelerate the maturity of such Debt or terminate any such commitment prior to the scheduled termination thereof; (h) the Company or any Subsidiary (other than ORBCOMM) shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (i) an involuntary case or other proceeding shall be commenced against the Company or any Subsidiary (other than ORBCOMM) seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 30 days; or an order for relief shall be entered against the Company or any Subsidiary (other than ORBCOMM) under the federal bankruptcy laws as now or hereafter in effect; (j) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $5,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $5,000,000; (k) a judgment or order for the payment of money in excess of $5,000,000 shall be rendered by a court of competent jurisdiction against the Company and/or any of its Subsidiaries (other than ORBCOMM) and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Company or the relevant Subsidiary shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; (l) any Person or group of Persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 30 35 promulgated by the Securities and Exchange Commission under said Act) of 30% or more of the outstanding shares of common stock of the Company; or, during any period of 12 consecutive calendar months, individuals who were directors of the Company on the first day of such period shall cease to constitute a majority of the board of directors of the Company; (m) the Lien created by any Security Document shall at any time and for any reason not constitute a valid and perfected Lien on the Collateral referred to therein subject to no prior or equal Lien other than a Permitted Lien; or (n) any Guarantor's Guarantee shall at any time fail to constitute a valid and binding agreement of such Guarantor or any party shall so assert in writing; (o) then, and in every such event, the Administrative Agent shall (i) if requested by Banks having more than 50% in aggregate amount of the Commitments, by notice to the Company terminate the Commitments and they shall thereupon terminate and (ii) if requested by Banks holding Notes evidencing more than 50% in aggregate principal amount of the Loans, by notice to the Company declare the Notes (together with accrued interest thereon) to be, and the Notes shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company; provided that in the case of any of the Events of Default specified in clause 6.01(h) or 6.01(i) above with respect to any Obligor without any notice to any Obligor or any other act by any Agent or Bank, the Commitments shall thereupon terminate, and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company. Section 6.02. Notice of Default. The Administrative Agent shall give notice to the Company under Section 6.01(d) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE 7 The Agents Section 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers under the Financing Documents as are delegated to such Agent by the terms thereof, together with all such powers as are reasonably incidental thereto. Section 7.02. Agents and Affiliates. Each of the Agents in its individual capacity shall have the same rights and powers under the Financing Documents as any other Bank and may exercise or refrain from exercising the same as though it were not an Agent and each of the Agents in its individual capacity and their respective Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Company or any Subsidiary or Affiliate of the Company as if it were not an Agent. Section 7.03. Action by Agents. The obligations of each Agent under the Financing Documents are only those expressly set forth therein. Without limiting the generality of the foregoing, no Agent shall be required to take any action with respect to any Default, except, in the case of the Administrative Agent, as expressly provided in Article 6 and in the case of the Collateral Agent, as expressly provided for in the Security Agreements. Section 7.04. Consultation with Experts. Each Agent may consult with legal counsel (who may be counsel for the Company), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. 31 36 Section 7.05. Liability of Agents. None of the Agents, their respective Affiliates nor any of their respective directors, officers, agents, or employees shall be liable to any Bank or any other Agent for any action taken or not taken by it in connection with the Financing Documents (i) with the consent or at the request of the Required Banks (or such greater number as may be required by Section 8.05) or (ii) in the absence of its own gross negligence or willful misconduct. None of the Agents, their respective Affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with the Financing Documents or any Borrowing, (ii) the performance or observance of any of the covenants or agreements of the Company, (iii) the satisfaction of any condition specified in Article 3 hereof, except, in the case of the Administrative Agent, receipt of items required to be delivered to the Administrative Agent, (iv) the validity, effectiveness or genuineness of the Financing Documents or any other instrument or writing furnished in connection therewith or (v) the existence or sufficiency of the Collateral. No Agent shall incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile or similar writing) believed by it to be genuine or to be signed by the proper party or parties. Section 7.06. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify each Agent, their respective Affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Company) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitee's gross negligence or willful misconduct) that such indemnitee may suffer or incur in connection with the Financing Documents or any action taken or omitted by such indemnitee thereunder. Section 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon any Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon any Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. Section 7.08. Successor Agents. Any Agent may resign at any time by giving written notice thereof to the Banks and the Company. Upon any such resignation, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. ARTICLE 8 Miscellaneous Section 8.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Company or any Agent, at its address or facsimile number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or telex or facsimile number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or telex or facsimile number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Company. Each such notice, request or other 32 37 communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in or pursuant to this Section and the appropriate answerback is received, (ii) if given by reputable overnight courier, one Business Day after being delivered to such courier, (iii) if given by certified mail (return receipt requested), three Business Days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when received at the address specified in this Section; provided that notices to the Administrative Agent under Article 2 shall not be effective until received. Section 8.02. No Waiver. No failure or delay by any Agent or any Bank in exercising any right, power or privilege under any of the Financing Documents shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies therein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Section 8.03. Expenses; Documentary Taxes; Indemnification. (a) The Company shall pay (i) all reasonable legal and other out-of-pocket expenses of the Agents, including the reasonable fees and expenses of Davis Polk & Wardwell, special counsel to the Agents, and all reasonable fees and expenses of consultants and other experts consulted by the Agents in connection with (x) the preparation of the Financing Documents, (y) any waiver or consent under the Financing Documents or (z) any amendment of the Financing Documents or any Default or alleged Default thereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by any Agent or Bank, including reasonable fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. The Company shall indemnify each Bank against any transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of the Financing Documents. (b) The Company agrees to indemnify each Bank and hold each Bank harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by any Bank (or by any Agent in connection with its actions as Agent) in connection with any investigative, administrative or judicial proceeding (whether or not such Bank shall be designated a party thereto) relating to or arising out of the Financing Documents, the Collateral or any transaction relating thereto; provided that no Bank shall have the right to be indemnified hereunder for its own gross negligence or willful misconduct as determined by a court of competent jurisdiction. Section 8.04. Sharing of Set-Offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to the Note of the Company held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to the Note of the Company held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes of the Company held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes of the Company held by the Banks shall be shared by the Banks pro rata; provided that if the Bank purchasing such participations (the "SHARING BANK") should subsequently be required to refund such payment to the Company, then each Bank from whom a participation was purchased shall pay to the Sharing Bank its pro rata share of the participations purchased together with its pro rata share of interest on such amount if and to the extent the Sharing Bank is required to pay interest on any refunded amount; provided further that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Company other than its indebtedness hereunder. The Company agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note in respect of which it is an obligor acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Company in the amount of such participation. 33 38 Section 8.05. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Company and the Required Banks (and, if the rights or duties of either Agent are affected thereby, by it); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder, (iii) postpone the date fixed for any payment of principal or interest on any Loan, or any fees hereunder or for termination or scheduled reduction of any Commitment or (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement or the Notes. Section 8.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "PARTICIPANT") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Company and the Administrative Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Company and the Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Company hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clauses (i), (ii), (iii) or (iv) of Section 8.05 without the consent of the Participant. (c) Any Bank may at any time assign to one or more banks or other institutions (each an "ASSIGNEE") all, or a proportionate part of all, of its rights and obligations with respect to its Commitment (and corresponding Loans and Letter of Credit Liabilities), and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit F hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Company, the LC Bank and the Administrative Agent (which consents shall not be unreasonably withheld); provided that (i) if an Assignee is another Bank or an Affiliate of such transferor Bank, no such consent shall be required, and (ii) immediately after giving effect to any such assignment, (x) the transferor Bank's Commitment is equal to either $0 or at least $1,500,000 and (y) the Assignee's Commitment is at least equal to $1,500,000. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection, the transferor Bank, the Administrative Agent and the Company shall make appropriate arrangements so that, if required, new Notes are issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of $3,500. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to the Company and the Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 2.13. (d) Any Bank may at any time assign all or any portion of its rights under the Financing Documents to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. 34 39 Section 8.07. Collateral. Each of the Banks represents to each Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. Section 8.08. Proprietary Information. The Administrative Agent and each Bank shall keep confidential any information provided by or on behalf of the Company or any of its Subsidiaries and marked as confidential or proprietary; provided, that nothing herein shall prevent the Administrative Agent or any Bank from disclosing such information (i) to its officers, directors, employees, agents, attorneys and accountants in accordance with customary banking practices, (ii) upon the order of a court or administrative agency, (iii) upon the request or demand of any regulatory agency or authority having jurisdiction over such party, (iv) that has become publicly available without breach of any agreement between the parties hereto, (v) as necessary for the exercise of any remedy under any Financing Document or (vi) subject to provisions similar to those contained in this Section, to any prospective Participant or Assignee. Section 8.09. Governing Law; Submission to Jurisdiction. Except as otherwise provided for in the Security Agreements, each of the Financing Documents shall be governed by and construed in accordance with the laws of the State of New York. The Company hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement, any other Financing Document or the transactions contemplated hereby or thereby. The Company irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Section 8.10. Counterparts; Integration. This Agreement 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 Agreement and the other Financing Documents constitute the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. Section 8.11. Severability. If any provision hereof is invalid or unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Agents and the Banks in order to carry out the intentions of the parties hereto as nearly as may be possible, and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. Section 8.12. WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE AGENTS AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER FINANCING DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. Section 8.13. Amendment to Registration Rights Agreement. In the event any Warrants are issued pursuant to Section 2.14 of this Agreement and/or the corresponding provision of the Existing Agreement, the Company and the Administrative Agent shall enter into a mutually satisfactory amendment to the Registration Rights Agreement dated as of January 15, 2000 heretofore executed and delivered by them, which will (i) include any such additional Warrants as "Warrants" entitled to the benefits of such agreement and (ii) provide for a one-time demand registration at the expense of the Company, in addition to the piggy-back registrations currently provided for, subject to customary black-out periods and subject to the condition that the Company be eligible to effect such registration on Form S-3 (or its equivalent) at such time. 35 40 Section 8.14. Schedule 5.13. The Banks acknowledge that the terms of the transaction described in the document referenced on Schedule 5.13 and heretofore furnished to them do not contravene any provision of this Agreement and the Banks consent to the terms of such transaction. 36 41 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. ORBITAL SCIENCES CORPORATION By: ---------------------------------- Name: Title: 21700 Atlantic Boulevard Dulles, VA 20166 Attention: Facsimile number: Commitment: - ---------- $4,350,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: ---------------------------------- Name: Title: $4,350,000 THE BANK OF NOVA SCOTIA By: ---------------------------------- Name: Title: $4,350,000 BANK OF AMERICA, N.A. By: ---------------------------------- Name: Title: $4,200,000 FIRST UNION COMMERCIAL CORPORATION By: ---------------------------------- Name: Title: 37 42 $3,750,000 DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLAND BRANCHES By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: $3,000,000 KEYBANK NATIONAL ASSOCIATION By: ---------------------------------- Name: Title: $2,250,000 BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: ---------------------------------- Name: Title: $2,250,000 WACHOVIA BANK, N.A. By: ---------------------------------- Name: Title: 38 43 $1,500,000 CHEVY CHASE BANK By: ---------------------------------- Name: Title: - -------------------- Total Commitments ==================== $30,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent and as Collateral Agent By: ---------------------------------- Name: Title: 60 Wall Street New York, New York 10260-0060 Attention: Facsimile number: 39 44 PRICING SCHEDULE Each of "COMMITMENT FEE RATE" and "BASE RATE MARGIN" means, for any day, the sum of (i) the rate per annum set forth below in the row opposite such term and in the column corresponding to the Pricing Level that applies for such day plus (ii) for determining the Margin for any day on or after May 1, 2001, 0.50%: - ------------------------------------------ ------------ ------------- Pricing Level Level I Level II - ------------------------------------------ ------------ ------------- Commitment Fee Rate 0.625% 0.875% - ------------------------------------------ ------------ ------------- Base Rate Margin 3.25% 3.75% - ------------------------------------------ ------------ -------------
For purposes of this Schedule, the following terms have the following meanings, subject to the last sentence of this Pricing Schedule: "LEVEL I PRICING" applies for any day if, on such day, the Company's senior secured debt is rated B+ or higher by S&P and B1 or higher by Moody's. "LEVEL II PRICING" applies for any day if Pricing Level I does not apply. "PRICING LEVEL" refers to the determination of which of Level I or Level II applies for any day. The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior secured debt of the Company without third-party credit enhancement, and any rating assigned to any other debt security of the Company shall be disregarded. The ratings in effect for any day are those in effect at the close of business on such day. Notwithstanding the foregoing until such time as the senior secured debt of the Company is rated by Moody's, the Pricing Level that exists on any day shall be determined solely with reference to the rating by S&P. 40 EX-10.3.1 7 w47792ex10-3_1.txt AMENDMENT NO.1 AND WAIVER 1 EXHIBIT 10.3.1 [EXECUTION COPY] AMENDMENT NO. 1 AND WAIVER AMENDMENT No. 1 and WAIVER ("THIS AMENDMENT") dated as of April 12, 2001 relating to the 364-Day Senior Credit Agreement dated as of February 23, 2001 (as the same may hereafter be amended from time to time, the "364-DAY SENIOR CREDIT AGREEMENT") among ORBITAL SCIENCES CORPORATION (the "COMPANY"), the BANKS party thereto (the "BANKS") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "ADMINISTRATIVE AGENT") and as Collateral Agent (the "COLLATERAL AGENT"). The parties hereto agree as follows: SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the 364-Day Senior Credit Agreement has the meaning assigned to such term in the 364-Day Senior 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 364-Day Senior Credit Agreement shall, after this Amendment becomes effective, refer to the 364-Day Senior Credit Agreement as amended hereby. SECTION 2. Limited Waiver of Compliance with Certain Information Covenants. (a) The Required Banks hereby waive compliance by the Company with Sections 5.01(a), 5.01(c) and 5.01(d) of the 364-Day Senior Credit Agreement, and any Default arising from its failure to comply with such Sections, during the period from and including April 2, 2001 to but not including April 18, 2001. (b) The waiver granted pursuant to subsection (a) shall be limited precisely as written, shall not constitute a waiver of compliance with, or of a Default arising under, any provision of the 364-Day Senior Credit Agreement except Sections 5.01(a), 5.01(c) and 5.01(d) and shall not constitute a waiver of compliance with, or of a Default under, Sections 5.01(a), 5.01(c) and 5.01(d) at any time after such waiver ceases to be effective. Such waiver shall cease to be effective at 12:01 A.M. (New York City time) on April 18, 2001. SECTION 3. Amendment of a Certain Information Covenant. (a) Section 5.01(o) of the 364-Day Senior Credit Agreement is amended by deleting the words "simultaneously with" and replacing them with the words "within five days after". SECTION 4. Amendment of the Minimum Consolidated Net Worth Covenant. Section 5.08 of the 364-Day Senior Credit Agreement is amended by: (i) substituting the dollar amount "$140,000,000" for the dollar amount "$190,000,000" set forth in the table in Section 5.08 opposite 2 the fiscal quarter ended December 31, 2000; and (ii) substituting the dollar amount "$115,000,000" for the dollar amount "$175,000,000" set forth in the table in Section 5.08 opposite the fiscal quarter ended March 31, 2001. SECTION 5. Amendment of the Consolidated Leverage Ratio Covenant. Section 5.09(a) of the 364-Day Senior Credit Agreement is amended by: (i) substituting the ratio "5.80:1" for the ratio "4.85:1" set forth in the table in Section 5.09(a) opposite the period beginning October 1, 2000 and ending December 31, 2000; and (ii) substituting the ratio "9.50:1" for the ratio "4.50:1" set forth in the table in Section 5.09(a) opposite the period beginning January 1, 2001 and ending March 31, 2001. SECTION 6. Amendment of the Senior Leverage Ratio Covenant. Section 5.09(b) of the 364-Day Senior Credit Agreement is amended by: (i) substituting the ratio "4.10:1" for the ratio "3.50:1" set forth in the table in Section 5.09(b) opposite the period beginning October 1, 2000 and ending December 31, 2000; and (ii) substituting the ratio "6.60:1" for the ratio "3.35:1" set forth in the table in Section 5.09(b) opposite the period beginning January 1, 2001 and ending March 31, 2001. SECTION 7. Amendment of the Minimum Operating Cash Flow Covenant. Section 5.10 of the 364-Day Senior Credit Agreement is amended by: (i) adding the words "(in thousands)" immediately after the word "Amount" in the table in Section 5.10; (ii) adding the dollar amount "$(101,300)" in the table in Section 5.10 opposite the period beginning January 2001 and ending July 2001; and (iii) adding the dollar amount "$(104,600)" in the table in Section 5.10 opposite the period beginning January 2001 and ending August 2001. SECTION 8. Amendment of the Subsidiary Debt Covenant. Section 5.15 of the 364-Day Senior Credit Agreement is amended by deleting "5%" and substituting in lieu thereof the phrase "(x) prior to June 30, 2001, 7.5% of Consolidated Net Worth and (y) on and after June 30, 2001, 5%". SECTION 9. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 10. Counterparts, Effectiveness. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective as of the date hereof on the date when the following conditions are met: (a) the Administrative Agent shall have received from each of the Company and the Required Banks a counterpart hereof signed by such 3 party or facsimile or other written confirmation (in form satisfactory to the Administrative Agent) that such party has signed a counterpart hereof; and (b) the Administrative Agent shall have received payment in full of all fees and expenses payable by the Company in connection with this Amendment pursuant to Section 8.03 of the 364-Day Senior Credit Agreement. 4 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 --------------------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By --------------------------------------------- Name: Title: THE BANK OF NOVA SCOTIA By --------------------------------------------- Name: Title: BANK OF AMERICA, N.A. By --------------------------------------------- Name: Title: 5 FIRST UNION COMMERCIAL CORPORATION By --------------------------------------------- Name: Title: DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLAND BRANCHES By --------------------------------------------- Name: Title: By --------------------------------------------- Name: Title: KEYBANK NATIONAL ASSOCIATION By --------------------------------------------- Name: Title: BANK OF TOKYO-MITSUBISHI TRUST COMPANY By --------------------------------------------- Name: Title: 6 WACHOVIA BANK, N.A. By --------------------------------------------- Name: Title: CHEVY CHASE BANK By --------------------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent and as Collateral Agent By --------------------------------------------- Name: Title: Acknowledged by: ENGINEERING TECHNOLOGIES, INC. By --------------------------------------------- Name: Title: ORBITAL SPACE SYSTEMS, INC. By --------------------------------------------- Name: Title: 7 ORBITAL COMMERCIAL SYSTEMS, INC. By --------------------------------------------- Name: Title: ORBITAL INTERNATIONAL, INC. By --------------------------------------------- Name: Title: ORBITAL SERVICES CORPORATION By --------------------------------------------- Name: Title: ORBITAL NAVIGATION CORPORATION By --------------------------------------------- Name: Title: ORBLINK LLC By --------------------------------------------- Name: Title: EX-10.4 8 w47792ex10-4.txt THIRD AMENDED AND RESTATED SECURITY AGREEMENT 1 EXHIBIT 10.4 EXECUTION COPY THIRD AMENDED AND RESTATED SECURITY AGREEMENT dated as of June 30, 1992 amended and restated as of August 5, 1997 and further amended and restated as of November 30, 1999 and further amended and restated as of February 23, 2001 among ORBITAL SCIENCES CORPORATION, EACH OF ITS SUBSIDIARIES PARTY HERETO, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Collateral Agent and BANK OF AMERICA, N.A., as Designated Lockbox Bank 2 THIRD AMENDED AND RESTATED SECURITY AGREEMENT THIRD AMENDED AND RESTATED SECURITY AGREEMENT dated as of June 30, 1992, amended and restated as of August 5, 1997, and further amended and restated as of November 30, 1999 and further amended and restated as of February 23, 2001 among ORBITAL SCIENCES CORPORATION (with its successors, the "COMPANY") and each of the Subsidiaries of the Company listed on the signature pages hereof and each other Subsidiary of the Company that may from time to time become a party to this Agreement (each such Subsidiary, with its successors, a "SUBSIDIARY DEBTOR" and together with the Company, the "DEBTORS"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK , as Collateral Agent (with its successors, the "COLLATERAL AGENT") and BANK OF AMERICA, N.A., as Designated Lockbox Bank (with its successors, the "DESIGNATED LOCKBOX BANK"). W I T N E S S E T H : WHEREAS, the Company, certain banks listed therein, Morgan Guaranty Trust Company of New York, as administrative agent (the "ADMINISTRATIVE AGENT") and the Collateral Agent have entered into a 364-Day Senior Credit Agreement dated as of February 23, 2001 (as amended from time to time, the "NEW AGREEMENT"); and WHEREAS, the Debtors, certain banks listed therein, the Collateral Agent and the Administrative Agent are parties to a Third Amended and Restated Credit Agreement dated as of December 21, 1998 (as heretofore amended, as amended and restated by Amendment No. 13 thereto dated as of the date hereof ("AMENDMENT NO. 13") and as the same may be further amended from time to time hereafter, the "EXISTING AGREEMENT"); and WHEREAS, the Debtors, the Collateral Agent and the Designated Lockbox Bank have entered into a Second Amended and Restated Security Agreement dated as of June 30, 1992, amended and restated as of August 5, 1997 and further amended and restated as of November 30, 1999 (the "EXISTING SECURITY AGREEMENT"); and WHEREAS, pursuant to the New Agreement and Amendment No. 13, the Company and Subsidiary Debtors party hereto are required to enter into a security agreement substantially in the form hereof; and NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby 3 acknowledged, the Existing Security Agreement is amended and restated in its entirety as follows: SECTION 1. Definitions . (a) Terms Defined in Credit Agreements. Terms defined in the Credit Agreements and not otherwise defined in subsection (b) or (c) of this Section have, as used herein, the respective meanings provided for therein. (b) Terms Defined in UCC. As used herein, each of the following terms (1) if it is defined in both the Current UCC and the Revised UCC, has the meaning specified in the Current UCC until the UCC Revision Date and the meaning specified in the Revised UCC on and after the UCC Revision Date or (2) if it is defined in the Revised UCC but not in the Current UCC, has the meaning specified in the Revised UCC at all times:
Term Current UCC Revised UCC ---- ----------- ----------- Authenticate not defined 9-102 Deposit Account not defined 9-102 Entitlement Holder 8-102 8-102 Entitlement Order 8-102 8-102 Equipment 9-109 9-102 Financial Asset 8-102 & 103 8-102 & 103 Inventory 9-109 9-102 Record not defined 9-102 Securities Account 8-501 8-501 Securities Intermediary 8-102 8-102 Security 8-102 & 103 8-102 & 103 Security Entitlement 8-102 8-102
(c) Additional Definitions. The following additional terms, as used herein, have the following respective meanings: "ANCILLARY RIGHTS" means, with respect to each Debtor, rights incidental or ancillary to the Receivables of such Debtor and the administration, servicing and collection thereof, including, without limitation, all collateral security and guarantees of any kind (including without limitation letters of credit or other forms of credit enhancement) given by any Person to such Debtor with respect to any Receivable of such Debtor. "BANK COLLATERAL" has the meaning set forth in Section 3(a). "COLLATERAL" means the Bank Collateral and the Shared Collateral. "COLLATERAL ACCOUNT" has the meaning set forth in Section 5. 2 4 "CONTROL" has the following meanings: (a) when used with respect to any Security or Security Entitlement, (i) before the applicable UCC Revision Date, the meaning specified in Current UCC Section 8-106 and (ii) on and after the applicable UCC Revision Date, the meaning specified in Revised UCC Section 8-106; and (b) when used with respect to any Deposit Account, the meaning specified in Revised UCC Section 9-104. "CONTROLLED ACCOUNT" means a Controlled Deposit Account or a Controlled Securities Account. "CONTROLLED DEPOSIT ACCOUNT" means a Deposit Account (i) that is subject to a Deposit Account Control Agreement or (ii) as to which the Collateral Agent is the Depositary Bank's "customer" (as defined in UCC Section 4-104). "CONTROLLED SECURITIES ACCOUNT" means a Securities Account that (i) is maintained in the name of a Debtor at an office of a Securities Intermediary located in the United States and (ii) together with all Financial Assets credited thereto and all related Security Entitlements, is subject to a Securities Account Control Agreement among such Debtor, the Collateral Agent and such Securities Intermediary. "COPYRIGHT LICENSE" means, with respect to each Debtor, any agreement now or hereafter in existence granting to such Debtor, or pursuant to which such Debtor has granted to any other Person, any right to use, copy, reproduce, distribute, prepare derivative works, display or publish any records or other materials on which a Copyright is in existence or may come into existence, including, without limitation, any agreement identified in Schedule 1 to a Copyright Security Agreement. "COPYRIGHTS" means all the following: (i) all copyrights under the laws of the United States or any other country (whether or not the underlying works of authorship have been published), all registrations and recordings thereof, all copyrightable works of authorship (whether or not published), and all applications for copyrights under the laws of the United States or any other country, including, without limitation, registrations, recordings and applications in the United States Copyright Office or any other country or any political subdivision thereof, including, without limitation, those described in Schedule 1 to any Copyright Security Agreement, (ii) all renewals thereof, (iii) all claims for, and rights to sue for, past or future infringements of any of the foregoing, and (iv) all income, royalties, damages and payments now or hereafter due or payable with respect to any of the foregoing, 3 5 including, without limitation, damages and payments for past or future infringements thereof. "COPYRIGHT SECURITY AGREEMENT" means a Copyright Security Agreement, substantially in the form of Exhibit B hereto, executed and delivered by a Debtor in favor of the Collateral Agent, for the benefit of the Secured Parties, as amended from time to time. "CREDIT AGREEMENT" means the New Agreement or the Existing Agreement, and "CREDIT Agreements" means the New Agreement and the Existing Agreement. "CURRENT UCC" means the UCC as in effect from time to time before the UCC Revision Date. "DEPOSIT ACCOUNT CONTROL AGREEMENT" means, with respect to any Deposit Account of any Debtor, an agreement among such Debtor, the Collateral Agent and the relevant Depositary Bank, set forth in an Authenticated Record, (i) that such Depositary Bank will comply with instructions originated by the Collateral Agent directing disposition of the funds in such Deposit Account without further consent by such Debtor and (ii) subordinating to the relevant Lien all claims of the Depositary Bank to such Deposit Account (except its right to deduct its normal operating charges and any uncollected funds previously credited thereto). "DEPOSITARY BANK" means a bank at which a Controlled Deposit Account is maintained. "DESIGNATED LOCKBOX BANK" means Bank of America, N.A. "EVENT OF DEFAULT" means an Event of Default as defined in either Credit Agreement. "FINANCING DOCUMENT" means any Financing Document as defined in either Credit Agreement. "GENERAL INTANGIBLES" means, with respect to each Debtor, all "general intangibles" (as defined in the UCC) now owned or hereafter acquired by such Debtor (but excluding any partnership interests or limited liability company interests of any Person held by such Debtor), including, without limitation, (i) all obligations or indebtedness owing to such Debtor (other than (x) Receivables of such Debtor and (y) limited liability company interests or partnership interests of any Person held by such Debtor from whatever source arising, (ii) Intellectual Property, goodwill, trade names, service marks, trade secrets, inventions, permits and licenses, (iii) all rights or claims in respect of refunds for taxes paid and (iv) all 4 6 rights in respect of any pension plan or similar arrangement maintained for employees of any member of the ERISA Group. "INSTRUMENTS" means, with respect to each Debtor, all "instruments", "chattel paper" or "letters of credit" (each as defined in the UCC), including (but not limited to) promissory notes, drafts, bills of exchange and trade acceptances, now owned or hereafter acquired by such Debtor, including the Second Magellan Note, but excluding any of the foregoing evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Receivables. "INSURANCE ACCOUNT" has the meaning set forth in Section 6. "INSURANCE PAYMENTS" means all proceeds payable to the Collateral Agent as loss payee under, or unearned premiums with respect to, the Insurance Policies. "INSURANCE POLICIES" means the insurance policies evidencing the insurance the Company and its Subsidiaries are maintaining at any time pursuant to Section 5.03 of either Credit Agreement other than any Excluded Coverages. "INTELLECTUAL PROPERTY" means (i) Patents, (ii) Patent Licenses, (iii) Trademarks, (iv) Trademark Licenses, (v) Copyrights and (vi) Copyright Licenses, and all rights in or under any of the foregoing. "INTELLECTUAL PROPERTY FILING" means (i) with respect to any Patent, Patent License, Trademark or Trademark License, the filing of the applicable Patent Security Agreement or Trademark Security Agreement with the United States Patent and Trademark Office, together with an appropriately completed recordation form, and (ii) with respect to any Copyright or Copyright License, the filing of the applicable Copyright Security Agreement with the United States Copyright Office, together with an appropriately completed recordation form, in each case sufficient to record the Security Interest granted to the Collateral Agent in such Intellectual Property. "INTELLECTUAL PROPERTY SECURITY AGREEMENT" means a Copyright Security Agreement, a Patent Security Agreement or a Trademark Security Agreement. "JUNIOR BANK PARTIES" means the Administrative Agent under the Existing Agreement, each Bank from time to time party to the Existing Agreement and the Treasury Management Bank. "JUNIOR BANK SECURED OBLIGATIONS" means: (x) with respect to the Company, (a) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, 5 7 proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding) on any loan to the Company under, or any note issued by the Company pursuant to, the Existing Agreement, (b) all Reimbursement Obligations and all interest thereon (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding), (c) all other amounts payable by the Company under any Financing Document in respect of or relating to the Existing Agreement, and (d) any renewals or extensions of any of the foregoing; and (y) with respect to the Company, all amounts payable by the Company pursuant to the Treasury Management Agreement; provided that such amounts shall not constitute Junior Bank Secured Obligations to the extent the aggregate amount thereof exceeds $4,300,000; and (z) with respect to each Subsidiary Debtor, all obligations of such Subsidiary Debtor incurred by such Subsidiary Debtor pursuant to Section 23 with respect to the obligations described in (x) and (y) above. "JUNIOR SECURED OBLIGATIONS" means the Junior Bank Secured Obligations and, solely with respect to the Shared Collateral, the NML Secured Obligations. "JUNIOR SECURED PARTIES" means the Junior Bank Parties and, solely with respect to the Shared Collateral, NML. "LETTER OF CREDIT OBLIGATION" means, at any time, any Reimbursement Obligations or other obligation to make a payment in connection with a Letter of Credit issued under the Existing Agreement, including contingent obligations with respect to amounts which are then, or may thereafter become, available for drawing under such Letter of Credit. "LIQUID INVESTMENTS" means, with respect to each Debtor, Temporary Cash Investments; provided that (i) each Liquid Investment shall mature within 30 days after it is acquired by the Collateral Agent and (ii) in order to provide the Collateral Agent, for the benefit of the Secured Parties (other than NML), with a perfected security interest therein, each Liquid Investment shall be either: (i) evidenced by negotiable certificates or instruments, or if non-negotiable then issued in the name of such Debtor, which (together with any appropriate instruments of transfer) are delivered to, and held by, the Collateral Agent or an agent thereof (which shall not be such Debtor or any of its Affiliates) in the State of New York; or 6 8 (ii) in book-entry form and issued by the United States and subject to pledge under applicable state law and Treasury regulations and as to which (in the reasonable opinion of counsel to the Collateral Agent) appropriate measures shall have been taken for perfection of the Security Interests. "MAGELLAN NOTE" means the promissory note dated November 30, 1999 in the principal amount of $23,000,000.00 issued by Magellan to the Company. "MATERIAL GOVERNMENT CONTRACT" means, with respect to each Debtor, any contract between such Debtor and any United States government agency under which contract payments to such Debtor in an amount in excess of $3,000,000 may be made. "NML GUARANTY AGREEMENT" means the Subsidiary Guaranty Agreement dated as of January 31, 2000, by the Subsidiary Debtors for the benefit of NML. "NML NOTE AGREEMENT" means the agreement dated as of June 1, 1995 (as amended from time to time) between the Company and The Northwestern Mutual Life Insurance Company (with its successors and assigns, "NML"). "NML SECURED OBLIGATIONS" means: (x) with respect to the Company, (a) all principal of and interest on any note issued by the Company pursuant to the NML Note Agreement (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding), (b) all other amounts, including without limitation, make-whole amount, if any, payable by the Company under the NML Note Agreement and (c) any renewals or extensions of any of the foregoing; and (y) with respect to each Subsidiary Debtor, all obligations of such Subsidiary Debtor incurred by such Subsidiary Debtor pursuant to the NML Guaranty Agreement or pursuant to Section 23 with respect to the obligations described in (x) above. "PATENT LICENSE" means, with respect to each Debtor, any agreement now or hereafter in existence granting such Debtor, or pursuant to which such Debtor has granted to any other Person, any right with respect to any Patent, now or hereafter in existence, including, without limitation, any agreement identified in Schedule 1 to a Patent Security Agreement. "PATENTS" means (i) all letters patent and design letters patent of the United States or any other country and all applications for letters patent and design letters patent of the United States or any other country, including, without limitation, 7 9 applications in the United States Patent and Trademark Office or in any similar office or agency of any other country or any political subdivision thereof, (ii) all reissues, divisions, continuations, continuations-in-part, revisions and extensions thereof, (iii) all claims for, and rights to sue for, past or future infringements of any of the foregoing and (iv) all income, royalties, damages and payments now or hereafter due or payable with respect to any of the foregoing, including, without limitation, damages and payments for past or future infringements thereof. "PATENT SECURITY AGREEMENT" means a Patent Security Agreement, substantially in the form of Exhibit C hereto, executed and delivered by a Debtor in favor of the Collateral Agent, for the benefit of the Secured Parties, as amended from time to time. "PERFECTION CERTIFICATE" means the certificate, substantially in the form of Exhibit A, completed and supplemented with the schedules and attachments contemplated thereby to the satisfaction of the Collateral Agent, and duly executed by the Debtors. "PERMITTED LIENS" means the Liens permitted both under Section 5.12 of the New Agreement and under Section 5.14 of the Existing Agreement. "PROCEEDS" means all proceeds of, and all other profits, rentals or receipts, in whatever form, arising from the collection, sale, lease, exchange, assignment, licensing or other disposition of, or realization upon, Collateral, including without limitation all claims of each Debtor against third parties for loss of, damage to or destruction of, or for proceeds payable under, or unearned premiums with respect to, policies of insurance in respect of, any Collateral, rights to any returned or repossessed goods relating to any Collateral, and any condemnation or requisition payments with respect to any Collateral, in each case whether now existing or hereafter arising. "RECEIVABLES" means, with respect to each Debtor, all "ACCOUNTS" (as defined in the UCC) now owned or hereafter acquired by such Debtor, and shall also mean and include all accounts receivable, contract rights, book debts, chattel paper, notes, drafts and other obligations or indebtedness owing to such Debtor arising from the sale, lease or exchange of goods or other property by it and/or performance of services by it (including, without limitation, any such obligation which might be characterized as an account, contract right or general intangible under the Uniform Commercial Code in effect in any jurisdiction) and all of such Debtor's right in, to and under all purchase orders for goods, services or other property to be provided or sold by it or any Affiliate, and all of such Debtor's rights to any goods, services or other property represented by any of the foregoing (including returned or repossessed goods and unpaid sellers' rights of rescission, replevin, reclamation and rights to stoppage in transit) and all monies due to or to become due to such Debtor under all contracts for the sale (as seller), lease (as lessor) or exchange of goods or 8 10 other property and/or performance of services by it (whether or not yet earned by performance on the part of such Debtor), in each case whether now in existence or hereafter arising or acquired including, without limitation, the right to receive the proceeds of said purchase orders and contracts and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing. "RELATED DOCUMENTS" means the Financing Documents, the NML Guarantee Agreement, the NML Note Agreement and the Treasury Management Agreement. "RELEASE CONDITIONS" means the following conditions for releasing all of the Secured Guarantees and terminating all Liens: (i) all Commitments under either Credit Agreement shall have expired or been terminated; (ii) all Secured Obligations shall have been paid in full. "REQUIRED BANKS" means (i) until such time as all Loans outstanding under the New Agreement have been paid in full, together with accrued interest thereon and all other amounts then due under the New Agreement, and the Commitments thereunder shall have terminated, the Required Banks as defined in the New Agreement and (ii) thereafter, the Required Banks as defined in the Existing Agreement. "REVISED ARTICLE 9" means revised Article 9 of the Uniform Commercial Code as set forth in the 1998 Official Text thereof; provided that, when used with respect to any jurisdiction on or after the date when revised Article 9 (with or without local changes therein) first becomes effective in such jurisdiction, "Revised Article 9" refers to Article 9 as in effect in such jurisdiction from time to time. "REVISED UCC" means (i) before the UCC Revision Date, the Uniform Commercial Code as set forth in the 1998 Official Text thereof and (ii) on and after the UCC Revision Date, the Uniform Commercial Code as in effect from time to time in the State of New York. "SECOND MAGELLAN NOTE" means the Unsecured Subordinated Revolving Promissory Note dated November 29, 1999 in the principal amount of $26,700,000.00 issued by Magellan to the Company. "SECURED GUARANTEE" means, with respect to each Guarantor, its guarantee of the Secured Obligations under Section 23 hereof. "SECURED OBLIGATIONS" means: 9 11 (x) with respect to the Company, (a) the Senior Secured Obligations of the Company, (b) the Junior Bank Secured Obligations of the Company and (c) the NML Secured Obligations of the Company; and (y) with respect to each Subsidiary Debtor, (a) the Senior Secured Obligations of such Subsidiary Debtor, (b) the Junior Bank Secured Obligations of such Subsidiary Debtor and (c) the NML Secured Obligations of such Subsidiary Debtor. "SECURED PARTIES" means the Senior Secured Parties, the Junior Secured Parties, the Collateral Agent and the Designated Lockbox Bank. "SECURITIES ACCOUNT CONTROL AGREEMENT" mean, with respect to any Securities Account of any Debtor, an agreement set forth in an Authenticated Record among the relevant Securities Intermediary, such Debtor and the Collateral Agent to the effect that such Securities Intermediary will comply with Entitlement Orders originated by the Collateral Agent with respect to such Securities Account without further consent by the relevant Debtor. "SECURITY EVENT" means any event, occurrence or condition which, in the sole discretion of the Required Banks acting in good faith, "impairs the prospect of payment" by the Debtors within the meaning of Section 1-208 of the UCC. "SECURITY INTERESTS" means the security interests in the Collateral granted hereunder securing the Secured Obligations. "SENIOR SECURED OBLIGATIONS" means: (x) with respect to the Company, (a) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding) on any loan to the Company under, or any note issued by the Company pursuant to, the New Agreement, (b) all other amounts payable by the Company under any Financing Document in respect of or relating to the New Agreement and (c) any renewals or extensions of any of the foregoing; and (y) with respect to each Subsidiary Debtor, all obligations of such Subsidiary Debtor incurred by such Subsidiary Debtor pursuant to Section 23 with respect to the obligations described in (x) above. "SENIOR SECURED PARTIES" means the Administrative Agent under the New Agreement and each Bank from time to time party to the New Agreement. "SHARED COLLATERAL" has the meaning set forth in Section 3(b). 10 12 "TRADEMARK LICENSE" means, with respect to each Debtor, any agreement now or hereafter in existence granting to such Debtor, or pursuant to which such Debtor has granted to any other Person, any right to use any Trademark, including, without limitation, any agreement identified in Schedule 1 to any Trademark Security Agreement. "TRADEMARKS" means: (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos, brand names, trade dress, prints and labels on which any of the foregoing have appeared or appear, package and other designs, and any other source or business identifiers, and general intangibles of like nature, and the rights in any of the foregoing which arise under applicable law, (ii) the goodwill of the business symbolized thereby or associated with each of them, (iii) all registrations and applications in connection therewith, including, without limitation, registrations and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, including, without limitation, those described in Schedule 1 to any Trademark Security Agreement, (iv) all renewals thereof, (v) all claims for, and rights to sue for, past or future infringements of any of the foregoing and (vi) all income, royalties, damages and payments now or hereafter due or payable with respect to any of the foregoing, including, without limitation, damages and payments for past or future infringements thereof. "TRADEMARK SECURITY AGREEMENT" means a Trademark Security Agreement, substantially in the form of Exhibit D hereto, executed and delivered by a Debtor in favor of the Collateral Agent, for the benefit of the Secured Parties, as amended from time to time. "TREASURY MANAGEMENT AGREEMENT" means the treasury management arrangement established by the Treasury Management Bank for the benefit of the Company, as evidenced by, among other things, that certain zero Balance Account Service Agreement dated as of May 15, 1997 and that certain Authorization and Agreement for Treasury Services dated as of the date hereof, including those accounts bearing account numbers 4113052459, 4122852365, 79176554 and 4113052381, and such other accounts as are or may be established in connection therewith. "TREASURY MANAGEMENT BANK" means Bank of America, N.A., in its capacity as provider of treasury management services under the Treasury Management Agreement. The term shall also include any affiliate providing such services under the Treasury Management Agreement. "UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection or the priority of the 11 13 Security Interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, "UCC" means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or priority. "UCC REVISION DATE" means the date when Revised Article 9 first becomes effective in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any Transaction Lien on any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, "UCC Revision Date" means the date when Revised Article 9 first becomes effective in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority. Such provisions often refer to the relevant date as the "APPLICABLE UCC REVISION DATE". SECTION 2. Representations and Warranties . Each Debtor represents and warrants as follows: (a) Such Debtor has good title to all of the Collateral, free and clear of any Liens other than the Permitted Liens. Such Debtor has taken all actions necessary under the UCC to perfect its interest in any Receivables purchased or otherwise acquired by it, as against its assignors and creditors of its assignors. (b) Other than financing statements, mortgages, security agreements or other similar or equivalent documents or instruments with respect to the Security Interests and the Permitted Liens, no financing statement, mortgage, security agreement or similar or equivalent document or instrument covering all or any part of the Collateral is on file or of record in any jurisdiction in which such filing or recording would be effective to perfect a Lien on such Collateral. No Collateral is in the possession of any Person (other than such Debtor) asserting any claim thereto or security interest therein, except that the Collateral Agent or its designee may have possession of Collateral as contemplated hereby. (c) Such Debtor has delivered the Perfection Certificate to the Collateral Agent. The information set forth therein is correct and complete in all material respects. Promptly after the receipt thereof, such Debtor shall furnish to the Collateral Agent acknowledgment copies of the filings set forth in Schedule 7 to the Perfection Certificate. (d) The Security Interests constitute valid security interests under the UCC securing the Secured Obligations to the extent the UCC is applicable thereto. Upon filing of the financing statements, the Security Interests will constitute perfected security interests in the Collateral of each Debtor to the extent that a security interest therein may be perfected by filing pursuant to the UCC, subject to 12 14 no Liens except for the Permitted Liens and prior to all Liens except for the Permitted Liens (other than the Security Interests) existing on and as of the date on which such Debtor becomes a party to this Agreement. When, in addition to the filing of UCC financing statements, the applicable Intellectual Property Filings have been made with respect to each Debtor's Intellectual Property (including any future filings required pursuant to Section 4(b)), the Security Interests will constitute perfected security interests in all right, title and interest of each Debtor in its Intellectual Property to the extent that security interests therein may be perfected by such filings, subject to no Liens except for the Permitted Liens and prior to all Liens except for the Permitted Liens (other than the Security Interests) existing on and as of the date such Debtor becomes a party to this Agreement. (e) Upon the delivery to the Collateral Agent by such Debtor of assignments and notices of assignment substantially in the forms of Exhibits E-1 and E-2 hereto, respectively, and the filing of each such notice with the governmental authority or agency or other office described therein, the Security Interests shall constitute valid assignments of the Receivables of such Debtor due under Material Government Contracts of such Debtor to the extent that such assignment is governed by the Assignment of Claims Act. (f) No Person other than the Collateral Agent has been named as a loss payee on any of the Insurance Policies except to the extent contemplated by Section 5.03(c) of the Credit Agreements. No consent of any Person is required in connection with the pledge of the Insurance Policies hereunder, other than the consent of NML set forth in that certain waiver and consent letter, dated November 30, 1999. SECTION 3. The Security Interests . (a) In order to secure the full and punctual payment of the Junior Bank Secured Obligations in accordance with the terms thereof, and to secure the performance of all of the obligations of each Debtor hereunder, under the Treasury Management Agreement and under the other Financing Documents with respect thereto, each Debtor hereby grants to the Collateral Agent for the ratable benefit of the Junior Bank Parties a continuing security interest in and to all of the following property of such Debtor, whether now owned or existing or hereafter acquired or arising and regardless of where located (all being collectively referred to as the "BANK COLLATERAL"): (1) Receivables; (2) Ancillary Rights; (3) Insurance Payments; (4) Insurance Policies; 13 15 (5) The Collateral Account, all cash deposited therein from time to time, all investments thereof made pursuant to Section 5(d) and other monies and property of any kind of such Debtor in the possession or under the control of the Collateral Agent; (6) The Insurance Account, all cash deposited therein from time to time, and all investments thereof made pursuant to Section 6(c); (7) The Magellan Note; (8) All books and records (including, without limitation, customer lists, credit files, computer programs, printouts and other computer materials and records) of such Debtor pertaining to any of the Collateral described in clauses 1 through 7 hereof; and (9) All Proceeds of all or any of the Collateral described in clauses 1 through 8 hereof. The Security Interests granted pursuant to this Section 3(a) shall be subordinate in right of payment as set forth in Section 11 to the Security Interests granted pursuant to Section 3(c). (b) In order to secure the full and punctual payment of the Junior Secured Obligations in accordance with the terms thereof, and to secure the performance of all of the obligations of each Debtor hereunder, under the other Financing Documents, under the NML Note Agreement, under the NML Guaranty and under the Treasury Management Agreement with respect thereto, each Debtor hereby grants to the Collateral Agent for the ratable benefit of the Junior Secured Parties, a continuing security interest in and to all of following property of such Debtor, whether now owned or existing or hereafter acquired or arising and regardless of where located (all being collectively referred to as the "SHARED COLLATERAL"): (1) Copyrights; (2) Copyright Licenses; (3) Patents; (4) Patent Licenses; (5) Trademarks; (6) Trademark Licenses; (7) General Intangibles (other than Receivables, Ancillary Rights, Insurance Payments and Insurance Policies); 14 16 (8) Instruments (other than the Magellan Note); (9) Subject to Section 3(d) below, Inventory and Equipment; (10) Subject to Section 3(e) below, Securities Accounts, including all Financial Assets credited thereto from time to time and all Security Entitlements in respect thereof, and Controlled Deposit Accounts (in each case, other than the Collateral Account and the Insurance Account); (11) All books and records (including, without limitation, customer lists, credit files, computer programs, printouts and other computer materials and records) of such Debtor pertaining to any of the Collateral described in clauses 1 through 10 hereof; and (12) All Proceeds of all or any of the Collateral described in clauses 1 through 11 hereof. The Security Interests granted pursuant to this Section 3(b) shall be subordinate in right of payment as set forth in Section 11 to the Security Interests granted pursuant to Section 3(c). (c) In order to secure the full and punctual payment of the Senior Secured Obligations in accordance with the terms thereof, and to secure the performance of all the obligations of each Debtor hereunder and under the other Financing Documents with respect thereto, each Debtor hereby grants to the Collateral Agent for the ratable benefit of the Senior Secured Parties a continuing security interest in and to all Collateral of such Debtor, whether now owned or existing or hereafter acquired or arising and regardless of where located. (d) The Collateral shall not include Inventory or Equipment to the extent that the grant of a security interest therein is validly and effectively prohibited, or made subject to the requirement of third-party consent which consent has not been obtained, pursuant to the terms of an agreement in effect on the Effective Date. Upon request of the Collateral Agent, each Debtor will use its commercially reasonable efforts to obtain any such required consent. (e) To the extent that Collateral described in Section 3(b)(10) includes Proceeds of Bank Collateral, such Collateral shall be deemed to be solely Bank Collateral and not Shared Collateral. 15 17 (f) The Security Interests are granted as security only and shall not subject the Collateral Agent or any other Secured Party to, or transfer or in any way affect or modify, any obligation or liability of any Debtor with respect to any of the Collateral or any transaction in connection therewith. SECTION 4. Further Assurances; Covenants . (a) Each Debtor will not change its name, identity or corporate structure in any manner or change the location of (i) its chief executive office or chief place of business, or (ii) the locations where it keeps or holds any Collateral from the applicable location described in the Perfection Certificate unless it shall have given the Collateral Agent 30 days prior notice thereof, shall have taken all such action as the Collateral Agent shall reasonably deem necessary to maintain at all times the perfection of the Security Interests in the Collateral granted hereunder and shall have delivered an opinion of counsel with respect thereto in accordance with Section 4(h). (b) Each Debtor will, from time to time, at its expense, execute, deliver, file and record any statement, notice, assignment, instrument, document, agreement or other paper and take any other action (including, without limitation, any filings of financing or continuation statements under the UCC and any Intellectual Property Filings, and, solely with respect to any Material Government Contract, any such document or action in respect of the Assignment of Claims Act) that from time to time may be necessary or desirable, or that the Collateral Agent may reasonably request, in order to create, preserve, perfect, confirm or validate the Security Interests or to enable the Collateral Agent and the Secured Parties to obtain the full benefits of this Agreement, or to enable the Collateral Agent to exercise and enforce any of its rights, powers and remedies hereunder with respect to any of the Collateral. To the extent permitted by applicable law, each Debtor hereby authorizes the Collateral Agent to execute and file financing statements or continuation statements or Intellectual Property Filings without such Debtor's signature appearing thereon. Each Debtor agrees that a carbon, photographic, photostatic or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. Each Debtor shall pay the costs of, or incidental to, any recording or filing of any financing or continuation statements concerning the Collateral. (c) Each Debtor will maintain its qualification to do business and all necessary licenses, permits and other governmental authorizations necessary in any jurisdiction to enable such Debtor to perform its obligations in respect of the Receivables of such Debtor and to administer, service and collect such Receivables. (d) Each Debtor will not, without the consent of the Required Banks, change its credit or collection policies in a manner that is reasonably likely to impair the collectability of the Receivables of such Debtor. 16 18 (e) Each Debtor will keep full and accurate books and records relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Required Banks may reasonably require in order to reflect the Security Interests. (f) Each Debtor shall use all commercially reasonable efforts to cause to be collected from its account debtors, as and when due, any and all amounts owing under or on account of each Receivable of such Debtor (including, without limitation, Receivables which are delinquent, such Receivables to be collected in accordance with lawful collection procedures) and shall apply forthwith upon receipt thereof all such amounts as are so collected to the outstanding balance of such Receivables. Subject to the rights of the Collateral Agent and the Secured Parties hereunder if an Event of Default shall have occurred and be continuing, each Debtor may allow in the ordinary course of business as adjustments to amounts owing under the Receivables of such Debtor (i) an extension or renewal of the time or times of payment, or settlement for less than the total unpaid balance and (ii) a refund, credit or other adjustment due as a result of returned, damaged, or non-conforming merchandise, products or services, all in accordance with such Debtor's sound business judgment. The costs and expenses (including, without limitation, reasonable attorney's fees) of collection, whether incurred by such Debtor or the Collateral Agent, shall be borne by such Debtor. (g) Each Debtor will, promptly upon request, provide to the Collateral Agent all information and evidence it may reasonably request concerning the Collateral to enable the Collateral Agent to enforce the provisions of this Agreement. (h) Not more than six months nor less than 30 days prior to each date on which any Debtor proposes to take any action in connection with which an opinion of counsel is to be delivered pursuant to Section 4(a), such Debtor shall, at its cost and expense, cause to be delivered to the Secured Parties an opinion of counsel, reasonably satisfactory to the Collateral Agent, in form and substance reasonably satisfactory to the Collateral Agent, to the effect that all financing statements and amendments or supplements thereto, continuation statements and other documents required to be recorded or filed in order to continue the perfection of the Security Interests in the Collateral following the proposed action by such Debtor have been filed in each filing office necessary for such purpose and that all filing fees and taxes, if any, payable in connection with such filings have been paid in full. (i) Within 30 days after entering into any Material Government Contract, such Debtor shall deliver to such government agency an instrument of assignment duly completed and executed by such Debtor substantially in the form of Exhibit E-1 hereto. 17 19 (j) If any Collateral of any Debtor is at any time in the possession or control of any warehouseman, bailee or any of such Debtor's agents or processors, such Debtor shall notify such warehouseman, bailee, agent or processor of the Security Interests created hereby and to hold all such Collateral for the Collateral Agent's account subject to the Collateral Agent's instructions. (k) Each Debtor will immediately deliver and pledge each Instrument to the Collateral Agent, appropriately endorsed to the Collateral Agent, provided that so long as no Event of Default shall have occurred and be continuing, each Debtor may retain for collection in the ordinary course any Instruments (other than checks and drafts constituting payments in respect of Receivables of such Debtor described in clauses (x) or (y) of Section 5(b), as to which the provisions of such Section shall apply) received by it in the ordinary course of business and the Collateral Agent shall, promptly upon request of such Debtor, make appropriate arrangements for making any other Instrument pledged by such Debtor available to it for purposes of presentation, collection or renewal (any such arrangement to be effected, to the extent deemed appropriate to the Collateral Agent, against trust receipt or like document). (l) Each Debtor shall notify the Collateral Agent promptly if it knows that any application or registration relating to any material Intellectual Property owned or licensed by such Debtor may become abandoned or dedicated, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Copyright Office, the United States Patent and Trademark Office or any court) regarding such Debtor's ownership of such material Intellectual Property, its right to register or patent the same, or its right to keep and maintain the same. If any of such Debtor's rights to any material Intellectual Property are infringed, misappropriated or diluted by a third party, such Debtor shall notify the Collateral Agent within 30 days after it learns thereof and shall take all actions as such Debtor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property. (m) On the date on which each Debtor becomes a party to this Agreement, such Debtor will execute and deliver to the Collateral Agent Intellectual Property Security Agreements with respect to all Intellectual Property then owned by it. Within 30 days after each March 31 and September 30 thereafter, each such Debtor will execute and deliver to the Collateral Agent any Intellectual Property Security Agreement necessary to grant Security Interests in any Intellectual Property owned by it on such March 31 or September 30 that are not covered by the Security Interests granted in any previous Intellectual Property Security Agreements so executed and delivered by it. In each case, each such Debtor will promptly make all Intellectual Property Filings necessary to record the Security Interests in such Intellectual Property. 18 20 SECTION 5. Collateral Account . (a) The Company has established with the Collateral Agent a cash collateral account (the "COLLATERAL ACCOUNT") in the name and under the control of the Collateral Agent into which there shall be deposited from time to time (i) the cash proceeds of the Collateral of each Debtor (other than any cash proceeds of the Insurance Payments or the Insurance Policies) required to be delivered to the Collateral Agent pursuant to subsection (b) of this Section 5 and (ii) the Borrower LC Amount received by the Collateral Agent pursuant to Section 6.01 of the Existing Agreement. Any income received by the Collateral Agent with respect to the balance from time to time standing to the credit of the Collateral Account, including any interest or capital gains on Liquid Investments, shall remain, or be deposited, in the Collateral Account. The cash amounts on deposit from time to time in the Collateral Account together with any Liquid Investments from time to time made pursuant to subsection (d) of this Section shall constitute part of the Collateral hereunder and shall not constitute payment of the Secured Obligations until applied thereto as hereinafter provided. (b) Each Debtor shall instruct all account debtors and other Persons obligated in respect of (x) all Receivables of such Debtor in an amount in excess of $1,000,000 and (y) all Receivables (regardless of the amount thereof) of such Debtor payable pursuant to a contract under which the aggregate amount of payments to be made exceeds $1,000,000 to make all payments in respect thereof either (i) directly to the Collateral Agent (by instructing that such payments be remitted to a post office box which shall be in the name and under the control of the Collateral Agent) or (ii) to one or more other banks in any state in the United States (by instructing that such payments be remitted to a post office box which shall be in the name and under the control of such bank) under a Lockbox Letter substantially in the form of Exhibit G hereto duly executed by such Debtor and such bank or under other arrangements, in form and substance reasonably satisfactory to the Collateral Agent, pursuant to which such Debtor shall have irrevocably instructed such other bank (and such other bank shall have agreed) to remit all proceeds of such payments directly to the Collateral Agent for deposit into the Collateral Account or as the Collateral Agent may otherwise instruct such bank. All such payments made to the Collateral Agent shall be deposited in the Collateral Account. In addition to the foregoing, each Debtor agrees that if the Proceeds of any Collateral hereunder (including the payments made in respect of Receivables) shall be received by it, such Debtor shall as promptly as possible deposit such Proceeds into the Collateral Account. Until so deposited, all such Proceeds shall be held in trust by such Debtor for the Collateral Agent and the other Secured Parties and shall not be commingled with any other funds or property of such Debtor. (c) The balance from time to time standing to the credit of the Collateral Account shall, except upon the occurrence and continuation of a Security Event or an Event of Default, be distributed to the Company upon the order of the Company. If immediately available cash on deposit in the Collateral Account is not sufficient to make any distribution to the Company or referred to in the previous sentence of 19 21 this Section 5(c), the Collateral Agent shall liquidate as promptly as practicable Liquid Investments as required to obtain sufficient cash to make such distribution and, notwithstanding any other provision of this Section 5, such distribution shall not be made until such liquidation has taken place. Upon the occurrence and during the continuation of an Event of Default the Collateral Agent shall, if so instructed by the Required Banks, apply or cause to be applied (subject to collection) any or all of the balance from time to time standing to the credit of the Collateral Account in the manner specified in Section 11. (d) Amounts on deposit in the Collateral Account aggregating $1,000,000 or more shall be invested and re-invested from time to time in such Liquid Investments as the Company shall determine, which Liquid Investments shall be under the control of the Collateral Agent, provided that, if an Event of Default has occurred and is continuing, the Collateral Agent shall, if instructed by the Required Banks, liquidate any such Liquid Investment and apply or cause to be applied the proceeds thereof to the payment of the Secured Obligations in the manner specified in Section 11. SECTION 6. Insurance Accounts . (a) The Company has established with the Collateral Agent a cash collateral account (the "INSURANCE ACCOUNT") in the name and under the control of the Collateral Agent into which there shall be deposited from time to time any amounts received by the Collateral Agent pursuant to Section 5.03(c) of either Credit Agreement. Any income received by the Collateral Agent with respect to the balance from time to time standing to the credit of the Insurance Account, including any interest or capital gains on Liquid Investments, shall remain, or be deposited, in the Insurance Account. The cash amounts on deposit from time to time in the Insurance Account together with any Liquid Investments from time to time made pursuant to subsection (c) of this Section shall constitute part of the Collateral hereunder and shall not constitute payment of the Secured Obligations until applied thereto as hereinafter provided. (b) The balance from time to time standing to the credit of the Insurance Account shall, except upon the occurrence and during the continuation of a Security Event or an Event of Default, be distributed to the Company upon the order of the Company. If immediately available cash on deposit in the Insurance Account is not sufficient to make any distribution to the Company referred to in the previous sentence of this Section 6(b), the Collateral Agent shall liquidate as promptly as practicable Liquid Investments as required to obtain sufficient cash to make such distribution and, notwithstanding any other provision of this Section 6, such distribution shall not be made until such liquidation has taken place. Upon the occurrence and during the continuation of an Event of Default, the Collateral Agent shall, if so instructed by the Required Banks, apply or cause to be applied (subject to collection) any or all of the balance from time to time standing to the credit of the Insurance Account in the manner specified in Section 11. 20 22 (c) Amounts on deposit in the Insurance Account aggregating $1,000,000 or more shall be invested and re-invested from time to time in such Liquid Investments as the Company shall determine, which Liquid Investments shall be under the control of the Collateral Agent, provided that, if an Event of Default has occurred and is continuing, the Collateral Agent shall, if instructed by the Required Banks, liquidate any such Liquid Investment and apply or cause to be applied the proceeds thereof to the payment of the Secured Obligations in the manner specified in Section 11. SECTION 7. Controlled Accounts . Each Debtor represents, warrants and covenants as follows: (a) Security Entitlements. (i) Within 15 days (or such longer period, not exceeding 60 days, as the Collateral Agent may approve, such approval not to be unnecessarily withheld) after the later of the Effective Date and the date this Agreement becomes effective as to such Debtor, such Debtor will, with respect to each Security Entitlement then owned by it, enter into (and cause the relevant Securities Intermediary to enter into) a Securities Account Control Agreement in respect of such Security Entitlement and the Securities Account to which the underlying Financial Asset is credited and will deliver such Securities Account Control Agreement to the Collateral Agent (which shall enter into the same). Thereafter, whenever such Debtor acquires any other Security Entitlement, such Debtor will, as promptly as practicable, cause the underlying Financial Asset to be credited to a Controlled Securities Account. The provisions of this subsection are subject to Section 7(d). (ii) So long as the Financial Asset underlying any Security Entitlement owned by such Debtor is credited to a Controlled Securities Account, (x) the Lien on such Security Entitlement will be perfected, subject to no prior Liens or rights of others (except Liens and rights of the relevant Securities Intermediary that are Permitted Liens), (y) the Collateral Agent will have Control of such Security Entitlement and (z) no meritorious action based on an adverse claim to such Security Entitlement or such Financial Asset, whether framed in conversion, replevin, constructive trust, equitable lien or other theory, may be asserted against the Collateral Agent or any other Secured Party. (iii) In respect of all Security Entitlements owned by such Debtor, and all Securities Accounts to which the related Financial Assets are credited, the Securities Intermediary's jurisdiction (determined as provided in UCC Section 8-110(e)) will at all times be located in the United States. (b) Deposit Accounts. (i) At all times 15 days (or such longer period, not exceeding 60 days, as the Collateral Agent may approve, such approval not to be unreasonably withheld) or more after the later of the Effective Date and the date this Agreement becomes effective as to such Debtor, all cash owned by such Debtor 21 23 will be deposited, upon or promptly after the receipt thereof, in one or more Controlled Deposit Accounts; provided that cash subject to a Lien securing obligations other than Secured Obligations which Lien is permitted both under Section 5.12 of the New Agreement and under Section 5.14 of the Existing Agreement may be maintained in Deposit Accounts which are not Controlled Deposit Accounts. The provisions of this subsection (b)(i) are subject to Section 7(d). (ii) In respect of each Controlled Deposit Account, the Depositary Bank's jurisdiction (determined as provided in Revised UCC Section 9-304) will at all times after the UCC Revision Date be a jurisdiction in which Revised Article 9 is in effect. (iii) On and after the applicable UCC Revision Date, so long as the Collateral Agent has Control of a Controlled Deposit Account, the Lien on such Controlled Deposit Account will be perfected, subject to no prior Liens or rights of others (except the Depositary Bank's right to deduct its normal operating charges and any uncollected funds previously credited thereto). (c) Disbursement and Transfer. (i) With respect to each Controlled Account, the Collateral Agent will instruct the relevant Securities Intermediary or Depositary Bank that the relevant Debtor may withdraw, or direct the disposition of, funds or Financial Assets held therein unless and until the Collateral Agent rescinds such instruction. The Collateral Agent will not rescind such instructions unless directed to do so by the Administrative Agent under either Credit Agreement at a time when an Event of Default shall have occurred and be continuing. (ii) No Debtor will cause funds to be transferred from a Controlled Account to any other account owned by the Company or any of its Subsidiaries unless (x) such other account is a Controlled Account or (y) such funds constitute a payment that is not prohibited by either Credit Agreement and made to a Person other than a Debtor. The provisions of this subsection (c)(ii) are subject to Section 7(d). (iii) If an Event of Default shall have occurred and be continuing, the Collateral Agent may (x) retain, or instruct the relevant Securities Intermediary or Depositary Bank to retain, all cash and Financial Assets then held in any Controlled Account, (y) liquidate, or instruct the relevant Securities Intermediary or Depositary Bank to liquidate, any or all Financial Assets held therein and/or (z) withdraw any amounts held therein and apply such amounts as provided in Section 11. (d) Basket Exception. The Debtors have the right not to comply with subsections (a)(i), (b)(i) and (c)(ii) of this Section with respect to cash and Financial Assets having a fair market value that does not at any time exceed $1,500,000 in the aggregate for all Debtors. However, if an Event of Default occurs and is 22 24 continuing, the Collateral Agent may terminate the foregoing right not to comply, or reduce the amount thereof, by giving at least ten days' notice of such termination or reduction to the relevant Debtors, whereupon such relevant Debtors shall transfer such cash and Financial Assets to one or more Controlled Deposit Accounts and Controlled Securities Accounts, respectively. SECTION 8. General Authority . Each Debtor hereby irrevocably appoints the Collateral Agent its true and lawful attorney, with full power of substitution, in the name of such Debtor, the Agents, any other Secured Parties or otherwise, for the sole use and benefit of the Collateral Agent and the Secured Parties, but at such Debtor's expense, to the extent permitted by law (including, without limitation, applicable laws, rules, regulations and orders) to exercise, at any time and from time to time while and only after an Event of Default has occurred and is continuing, all or any of the following powers with respect to all or any of the Collateral: (i) to demand, sue for, collect, receive and give acquittance for any and all monies due or to become due thereon or by virtue thereof; (ii) to settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto; (iii) to sell, transfer, assign or otherwise deal in or with the same or the proceeds or avails thereof, as fully and effectually as if the Collateral Agent were the absolute owner thereof; and (iv) to extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference thereto; provided that the Collateral Agent shall give such Debtor not less than ten days' prior written notice of the time and place of any sale or other intended disposition of any of the Collateral of such Debtor, except any Collateral which is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. Each Debtor agrees that such notice constitutes "reasonable notification" within the meaning of Section 9-504(3) of the UCC. 23 25 SECTION 9. Remedies upon Event of Default . (a) If any Event of Default has occurred and is continuing, the Collateral Agent may at the direction of the Required Banks, exercise on behalf of the Secured Parties all rights of a secured party under the UCC (or, if the Uniform Commercial Code is not in effect in the jurisdiction where such rights are exercised, the UCC as in effect in the State of New York to the extent not prohibited by the laws of such jurisdiction), and, in addition, the Collateral Agent may, at the direction of the Required Banks, without being required to give any notice, except as herein provided or as may be required by mandatory provisions of law, (i) withdraw all cash and Liquid Investments in the Collateral Account and the Insurance Account and apply such cash and Liquid Investments and other cash, if any, then held by it as Collateral as specified in Section 11 and (ii) if there shall be no such cash or Liquid Investments or if such cash and Liquid Investments shall be insufficient to pay all the Secured Obligations in full, sell the Collateral (subject to any applicable laws, rules, regulations and orders) or any part thereof at public or private sale, for cash, upon credit or for future delivery, and at such price or prices as the Collateral Agent may reasonably deem satisfactory. The Collateral Agent or any other Secured Party may be the purchaser of any or all of the Collateral (subject to any applicable laws, rules, regulations and orders) so sold at any public sale (or, if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations, at any private sale). Each Debtor will execute and deliver such documents and take such other action as the Collateral Agent reasonably deems necessary or advisable in order that any such sale may be made in compliance with law. Upon any such sale the Collateral Agent shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold (subject to any applicable laws, rules, regulations and orders). Each purchaser at any such sale shall (subject to any applicable laws, rules, regulations and orders) hold the Collateral so sold to it absolutely and free from any claim or right of whatsoever kind, including any equity or right of redemption of any Debtor which may be waived, and each Debtor, to the extent permitted by law, hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter adopted. The notice (if any) of such sale required by Section 8 shall (1) in the case of a public sale, state the time and place fixed for such sale, and (2) in the case of a private sale, state the day after which such sale may be consummated. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix in the notice of such sale. At any such sale the Collateral may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may determine. The Collateral Agent shall not be obligated to make any such sale pursuant to any such notice. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so 24 26 sold may be retained by the Collateral Agent until the selling price is paid by the purchaser thereof, but the Collateral Agent shall not incur any liability in case of the failure of such purchaser to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may again be sold upon like notice. The Collateral Agent, instead of exercising the power of sale herein conferred upon it (subject to any applicable laws, rules, regulations and orders) may, at the direction of the Required Banks, proceed by a suit or suits at law or in equity to foreclose the Security Interests and sell the Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction. (b) For the purpose of enforcing any and all rights and remedies under this Agreement the Collateral Agent may (i) require each Debtor to, and each Debtor agrees that it will, at its expense and upon the request of the Collateral Agent, forthwith assemble all or any part of the Collateral as directed by the Collateral Agent and make it available at a place reasonably designated by the Collateral Agent which is, in its opinion, reasonably convenient to the Collateral Agent and such Debtor, whether at the premises of such Debtor or otherwise, (ii) to the extent permitted by applicable law, enter, with or without process of law and without breach of the peace, any premise where any of the Collateral is or may be located, and without charge or liability to it seize and remove such Collateral from such premises, (iii) have access to and use each Debtor's books and records relating to the Collateral and (iv) prior to the disposition of the Collateral, store or transfer it without charge in or by means of any storage or transportation facility owned or leased by any Debtor, process, repair or recondition it or otherwise prepare it for disposition in any reasonable manner and to the extent the Collateral Agent deems reasonable, appropriate and, in connection with such preparation and disposition, use without charge any trademark, trade name, copyright, patent or technical process used by any Debtor. (c) Without limiting the generality of the foregoing, if an Event of Default shall have occurred and be continuing, (i) the Collateral Agent may license, or sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any Intellectual Property included in the Collateral throughout the world for such term or terms, on such conditions and in such manner as the Collateral Agent shall in its sole discretion determine; (ii) the Collateral Agent may (without assuming any obligations or liability thereunder), at any time and from time to time, in its sole and reasonable discretion, enforce (and shall have the exclusive right to enforce) against any licensee or sublicensee all rights and remedies of any Debtor in, to and under any of its Intellectual Property and take or refrain from taking any action under any thereof, and each Debtor hereby releases the Collateral Agent and each of the other Secured Parties from, and agrees to hold the Collateral Agent and each of the other 25 27 Secured Parties free and harmless from and against any claims and expenses arising out of, any lawful action so taken or omitted to be taken with respect thereto, except for claims and expenses arising from the Collateral Agent's or such Secured Party's gross negligence or willful misconduct; and (iii) upon request by the Collateral Agent (which shall not be construed as implying any limitation on the rights or powers of the Collateral Agent), each Debtor will execute and deliver to the Collateral Agent a power of attorney, in form and substance satisfactory to the Collateral Agent, for the implementation of any lease, assignment, license, sublicense, grant of option, sale or other disposition of any Intellectual Property owned by such Debtor or any action related thereto. In the event of any such disposition pursuant to this Section, subject to confidentiality restrictions imposed on such Debtor in any license or similar agreement, such Debtor shall supply its know-how and expertise relating to or the products or services made or rendered in connection with Patents, and its customer lists and other records relating to such Intellectual Property and to the distribution of said products or services, to the Collateral Agent. SECTION 10. Limitation on Duty of Collateral Agent in Respect of Collateral . Beyond the exercise of reasonable care in the custody thereof, the Collateral Agent shall have no duty as to any Collateral in its possession or control or in the possession or control of any agent or bailee or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. The Collateral Agent shall be deemed to have exercised reasonable care in the custody of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords its own property, and shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any warehouseman, carrier, forwarding agency, consignee or other agent or bailee selected by the Collateral Agent in good faith. SECTION 11. Application of Proceeds . (a) Upon the occurrence and during the continuance of an Event of Default, the proceeds of any sale of, or other realization upon, all or any part of the Collateral of each Debtor and any cash held in the Collateral Account and Insurance Account shall be applied by the Collateral Agent in the following order of priorities: first, to payment of the expenses of such sale or other realization, including reasonable compensation to agents and counsel for the Collateral Agent, and all expenses, liabilities and advances incurred or made by the Collateral Agent in connection therewith, and any other unreimbursed expenses for which the Collateral Agent or the Designated Lockbox Bank is to be reimbursed pursuant to any Financing Document and unpaid fees owing to the Collateral Agent under any Financing Document; 26 28 second, to payment of any unreimbursed expenses for which any Senior Secured Party is to be reimbursed pursuant to any Financing Document, and unpaid fees owing to the Administrative Agent under the New Agreement; third, to the ratable payment of accrued but unpaid interest on the Senior Secured Obligations; fourth, to the ratable payment of Senior Secured Obligations consisting of unpaid principal of Loans made under the New Agreement; fifth, to the ratable payment of all other Senior Secured Obligations, until all such Secured Obligations have been repaid in full; sixth, to the ratable payment of any unreimbursed expenses for which any Junior Secured Party is to be reimbursed pursuant to any Financing Document, unpaid fees owing to the Administrative Agent under the Existing Agreement and unpaid amounts owing to the Treasury Management Bank under the Treasury Mangement Agreement which are Junior Bank Secured Obligations; seventh, to the ratable payment of accrued but unpaid interest on the Junior Bank Secured Obligations (or, solely with respect to the proceeds of any sale of, or other disposition or realization upon, the Shared Collateral, to the ratable payment of accrued but unpaid interest on the Junior Bank Secured Obligations and the NML Secured Obligations); eighth, to the ratable payment of Junior Bank Secured Obligations consisting of unpaid principal of Loans made under the Existing Agreement and, subject to the second sentence of subsection (b), Letter of Credit Obligations (or, solely with respect to the proceeds of any sale of, or other disposition or realization upon, the Shared Collateral, to the ratable payment of (x) the Junior Bank Secured Obligations consisting of unpaid principal of Loans and, subject to the second sentence of subsection (b), Letter of Credit Obligations and (y) the NML Secured Obligations); ninth, to the ratable payment of all other Junior Bank Secured Obligations (or, solely with respect to the proceeds of any sale of, or other disposition or realization upon, the Shared Collateral, to the 27 29 ratable payment of all other Junior Bank Secured Obligations and NML Secured Obligations), until all such Junior Bank Secured Obligations have been repaid in full; and finally, to payment to such Debtor or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. (b) The Collateral Agent may make distributions hereunder in cash or in kind or, on a ratable basis, in any combination thereof. If at any time any monies collected or received by the Collateral Agent are distributable pursuant to this Section in respect of a Letter of Credit Obligation which is a contingent obligation at such time, then the Collateral Agent shall invest such amounts in Liquid Investments selected by it and shall hold all such amounts so distributable and all such Liquid Investments and the net proceeds thereof in trust for application to the payment of such Letter of Credit Obligation at such time as such Letter of Credit Obligation is no longer a contingent obligation. If the Collateral Agent holds any amounts which were distributable in respect of any Letter of Credit Obligations after all Letters of Credit have expired and all amounts payable with respect thereto have been paid, such amounts shall be applied in the order set forth in subsection (a) above. (c) In making the determinations and allocations required by this Section, the Collateral Agent shall have no liability to any Secured Party for actions taken in reliance on information supplied by such Secured Party as to the amounts of the Secured Obligations held by them. All distributions made by the Collateral Agent pursuant to this Section shall be final, and the Collateral Agent shall have no duty to inquire as to the application by any Secured Party of any amount distributed to them. However, if at any time the Collateral Agent determines that an allocation or distribution previously made pursuant to this Section was based on a mistake of fact (including, without limiting the generality of the foregoing, mistakes based on any assumption that principal or interest has been paid by payments which are subsequently recovered from the recipient thereof through the operation of any bankruptcy, reorganization, insolvency or other laws or otherwise), the Collateral Agent may in its discretion, but shall not be obligated to, adjust subsequent allocations and distributions hereunder so that, on a cumulative basis, the Collateral Agent and the other Secured Parties receive the distributions to which they would have been entitled if such mistake of fact had not been made. 28 30 SECTION 12. Appointment of Co-agents . At any time or times, in order to comply with any legal requirement in any jurisdiction, the Collateral Agent may appoint another bank or trust company or one or more other Persons, either to act as collateral co-agent or collateral co-agents, jointly with the Collateral Agent, or to act as separate collateral agent or collateral agents on behalf of the Secured Parties with such power and authority as may be necessary for the effectual operation of the provisions hereof and may be specified in the instrument of appointment (which may, in the discretion of the Collateral Agent, include provisions for the protection of each such collateral co-agent or separate collateral agent similar to the provisions of Article 7 of either Credit Agreement). SECTION 13. Designated Lockbox Bank. The Designated Lockbox Bank shall have the rights and obligations of the Collateral Agent in respect of the Collateral Account specified in Section 5 of this Agreement, provided that if an Event of Default has occurred and is continuing, the Designated Lockbox Bank shall exercise such rights and perform such obligations at the direction of the Collateral Agent. In exercising such rights and performing such obligations the Designated Lockbox Bank shall have the benefit of all privileges, immunities and indemnities provided for the Collateral Agent under this Agreement. The Designated Lockbox Bank may resign as Designated Lockbox Bank in accordance with the provisions of Section 7.08 of either Credit Agreement. SECTION 14. Expenses . Each Debtor agrees that it will, on demand, pay to the Collateral Agent the amount of any and all reasonable out-of-pocket expenses, including the reasonable fees and disbursements of counsel and of any other experts, which the Collateral Agent may incur in connection with (x) the administration or enforcement of this Agreement, including such expenses as are incurred to preserve the value of the Collateral and the validity, perfection, rank and value of any Security Interest, (y) the collection, sale or other disposition of any of the Collateral or (z) the exercise by the Collateral Agent of any of the rights conferred upon it hereunder. The obligation to pay any such amount shall be an additional Secured Obligation hereunder, and each such amount shall bear interest from the time of demand at the rate applicable to Base Rate Loans. SECTION 15. Termination of Security Interests; Release of Collateral . (a) Upon the repayment in full of all Secured Obligations, the termination of the Commitments under the Credit Agreements and the cancellation or expiration of all Letters of Credit, the Security Interests and all obligations of each Debtor under this Agreement shall terminate and all rights to and interests in the Collateral shall revert to such Debtor. (b) Subject to the rights of the Secured Parties hereunder if an Event of Default shall have occurred and be continuing and subject always to the rights of the Senior Secured Parties under the New Agreement, to the rights of the Junior Bank Parties under the Treasury Management Agreement and the Existing 29 31 Agreement and to the rights of NML under the NML Note Agreement, upon any sale or other disposition of any Collateral permitted under Section 5.13 of the Existing Agreement and Section 5.13 of the New Agreement (any such sale or other disposition, a "PERMITTED COLLATERAL SALE"), the Security Interests in the Collateral subject to such Permitted Collateral Sale (but not in any Proceeds thereof) shall cease immediately without any further action on the part of the Collateral Agent. The Collateral Agent shall be fully protected in relying on a certificate from any Debtor stating that a sale or other disposition of any Collateral constitutes a Permitted Collateral Sale. (c) In addition to releases of Collateral effected by subsection (b), at any time and from time to time prior to the termination of the Security Interests, the Collateral Agent may release any of the Collateral with the prior written consent of the Required Banks; provided that the Collateral Agent may release all or substantially all of the Collateral (for purposes of this proviso only, as defined in the Credit Agreements) only with the prior written consent of all of the Banks. (d) Upon the termination of the Security Interests or any release of any Collateral effected or permitted by this Section, the Collateral Agent will promptly, at the expense of each Debtor, execute and deliver to such Debtor such documents as such Debtor shall reasonably request to evidence the termination of the Security Interests or the release of such Collateral, as the case may be, including UCC termination statements, and will duly assign, transfer and deliver to such Debtor or to whomever lawfully shall be entitled to receive the same, such of the Collateral as may be in the possession of the Collateral Agent. (e) Upon the repayment in full of all NML Secured Obligations, NML's rights under this Agreement shall terminate. Upon any such termination, NML will, at the expense of the Debtors, execute and deliver to the Debtors such documents as any Debtor may reasonably request to evidence such termination. SECTION 16. Notices . All notices, communications and distributions to any party hereunder shall be given in accordance with Section 10.01 of the Existing Agreement and Section 8.01 of the New Agreement. SECTION 17. Waivers, Non-Exclusive Remedies . No failure on the part of the Collateral Agent to exercise, and no delay in exercising and no course of dealing with respect to, any right under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise by the Collateral Agent of any right under this Agreement preclude any other or further exercise thereof or the exercise of any other right. The rights in the Financing Documents are cumulative and are not exclusive of any other remedies provided by law. 30 32 SECTION 18 . Successors and Assigns . This Agreement is for the benefit of the Collateral Agent and the other Secured Parties and their successors and assigns, and in the event of an assignment of all or any of the Secured Obligations, the rights hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness. This Agreement shall be binding on each Debtor and the Collateral Agent and their respective successors and assigns. SECTION 19. Changes in Writing . Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only in writing signed by each Debtor and the Collateral Agent with the consent of the Required Banks (or, in the case of Section 15(a) or to the number of Banks whose consent shall be required for the Collateral Agent to take any action under this Section or any other provision of this Agreement, the consent of all the Banks). SECTION 20. New York Law . This Agreement shall be construed in accordance with and governed by the laws of the State of New York, except as otherwise required by mandatory provisions of law and except to the extent that remedies provided by the laws of any jurisdiction other than New York are governed by the laws of such jurisdiction. SECTION 21. Severability . If any provision hereof is invalid or unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Collateral Agent and the other Secured Parties in order to carry out the intentions of the parties hereto as nearly as may be possible; and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. SECTION 22. Counterparts . This Agreement 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. SECTION 23. Guarantees by Subsidiary Debtors . (a) Secured Guarantees. Each Subsidiary Debtor unconditionally guarantees the full and punctual payment of each Secured Obligation when due (whether at stated maturity, upon acceleration or otherwise). If any other Debtor fails to pay any Secured Obligation punctually when due, each Subsidiary Debtor agrees that it will forthwith on demand pay the amount not so paid at the place and in the manner specified in the relevant Financing Document. (b) Secured Guarantees Unconditional. The obligations of each Subsidiary Debtor under its Secured Guarantee shall be unconditional and absolute and, 31 33 without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (i) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of any other Debtor or any other Person under any Related Document, by operation of law or otherwise; (ii) any modification or amendment of or supplement to any Related Document; (iii) any release, impairment, non-perfection or invalidity of any direct or indirect security for any obligation of any other Debtor or any other Person under any Related Document; (iv) any change in the corporate existence, structure or ownership of any Debtor or any other Person or any of their respective subsidiaries, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any Debtor or any other Person or any of their assets or any resulting release or discharge of any obligation of any Debtor or any other Person under any Related Document; (v) the existence of any claim, set-off or other right that such Guarantor may have at any time against any other Debtor, any Secured Party or any other Person, whether in connection with any Related Document or any unrelated transactions, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (vi) any invalidity or unenforceability relating to or against any other Debtor or any other Person for any reason of any Related Document, or any provision of applicable law or regulation purporting to prohibit the payment of any Secured Obligation by any other Debtor or any other Person; or (vii) any other act or omission to act or delay of any kind by any Debtor, any other party to any Related Document, any Secured Party or any other Person, or any other circumstance whatsoever that might, but for the provisions of this clause (vii), constitute a legal or equitable discharge of or defense to any obligation of any Subsidiary Debtor hereunder. (c) Release of Secured Guarantees. (i) All the Secured Guarantees will be released when all the Release Conditions are satisfied. If at any time any payment of a Secured Obligation is rescinded or must be otherwise restored or returned upon the insolvency or receivership of any Debtor or otherwise, the Secured Guarantees shall be reinstated with respect thereto as though such payment had been due but not made at such time. 32 34 (ii) If all the capital stock of a Subsidiary Debtor or all the assets of a Subsidiary Debtor are sold, directly or indirectly, to a Person other than the Company or one of its Subsidiaries in a transaction not prohibited by either Credit Agreement (any such sale, a "SALE OF SUBSIDIARY DEBTOR"), the Collateral Agent shall release such Subsidiary Debtor from its Secured Guarantee; provided that, if such sale is a Reduction Event under either Credit Agreement, arrangements satisfactory to the Administrative Agent have been made to apply the Net Cash Proceeds thereof as required by the Credit Agreements. Such release shall not require the consent of any Secured Party, and the Collateral Agent shall be fully protected in relying on a certificate of the Debtor as to whether any particular sale constitutes a Sale of Subsidiary Debtor and on the Administrative Agent as to whether satisfactory arrangements for applying the Net Cash Proceeds thereof, if needed, have been made. (iii) In addition to any release permitted by subsection (ii), the Collateral Agent may release any Secured Guarantee with the prior written consent of the Required Banks. (d) Waiver by Subsidiary Debtor. Each Subsidiary Debtor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against any other Debtor or any other Person. (e) Subrogation. Each Subsidiary Debtor irrevocably waives any and all rights to which it may be entitled, by operation of law or otherwise, upon making any payment hereunder to be subrogated to the rights of the payee against any Debtor with respect to such payment or against any direct or indirect security therefor, or otherwise to be reimbursed, indemnified or exonerated by or for the account of the Debtor in respect thereof. (f) Contribution; Subordination. Each Subsidiary Debtor (a "CONTRIBUTING SUBSIDIARY Debtor") agrees that, in the event a payment shall be made by any other Subsidiary Debtor under this Agreement or under Article 9 of the Existing Agreement or assets of any other Subsidiary Debtor shall be sold pursuant to this Agreement to satisfy a claim against any Debtor (such other Subsidiary Debtor, the "CLAIMING SUBSIDIARY DEBTOR"), the Contributing Subsidiary Debtor shall indemnify the Claiming Subsidiary Debtor in an amount equal to the amount of such payment or the greater of the book value or the fair market value of such assets, as the case may be, in each case multiplied by a fraction of which the numerator shall be the net worth of the Contributing Subsidiary Debtor on the date the Contributing Subsidiary Debtor becomes a party hereto and the denominator shall be the aggregate net worth of all the Subsidiary Debtors on the date the Contributing Subsidiary Debtor becomes a party hereto. All rights of the Subsidiary Debtors under this Section and any other rights of indemnity, contribution or subrogation under applicable law or otherwise not 33 35 effectively waived pursuant to subsection (e) shall be fully subordinated to the indefeasible payment in full in cash of the Secured Obligations. (g) Stay of Acceleration. If acceleration of the time for payment of any Secured Obligation by a Debtor is stayed by reason of the insolvency or receivership of such Debtor or otherwise, all Secured Obligations otherwise subject to acceleration under the terms of any Related Document shall nonetheless be payable by the Subsidiary Debtors hereunder forthwith on demand by the Collateral Agent. (h) Right of Set-Off. If any Secured Obligation is not paid promptly when due, each of the Secured Parties and their respective affiliates is authorized, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Secured Party or affiliate to or for the credit or the account of any Subsidiary Debtor against the obligations of such Subsidiary Debtor under its Secured Guarantee, irrespective of whether or not such Secured Party shall have made any demand thereunder and although such obligations may be unmatured. The rights of each Secured Party under this subsection are in addition to all other rights and remedies (including other rights of setoff) that such Secured Party may have. (i) Continuing Guarantee. Each Secured Guarantee is a continuing guarantee, shall be binding on the relevant Subsidiary Debtor and its successors and assigns, and shall be enforceable by the Collateral Agent or the Secured Parties. If all or part of any Secured Party's interest in any Secured Obligation is assigned or otherwise transferred, the transferor's rights under each Secured Guarantee, to the extent applicable to the obligation so transferred, shall automatically be transferred with such obligation. (j) Limitation on Obligations of Subsidiary Debtor. The obligations of each Subsidiary Debtor under its Secured Guarantee shall be limited to an aggregate amount equal to the largest amount that would not render such Secured Guarantee subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provisions of applicable law. SECTION 23. Additional Debtors . Any Subsidiary of the Company may become a "Subsidiary Debtor" party hereto and bound hereby by executing a counterpart hereof and delivering same to the Collateral Agent. 34 36 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. ORBITAL SCIENCES CORPORATION By --------------------------------- Name: ----------------------------------- Title: --------------------------------- ENGINEERING TECHNOLOGIES, INC. By --------------------------------- Name: ----------------------------------- Title: --------------------------------- ORBITAL SPACE SYSTEMS, INC. By -------------------------------------- Name: ----------------------------------- Title: --------------------------------- ORBITAL COMMERCIAL SYSTEMS, INC. By --------------------------------- Name: ----------------------------------- Title: --------------------------------- ORBITAL INTERNATIONAL, INC. By --------------------------------- Name: ----------------------------------- Title: --------------------------------- 35 37 ORBITAL SERVICES CORPORATION By --------------------------------- Name: ----------------------------------- Title: --------------------------------- ORBITAL NAVIGATION CORPORATION By --------------------------------- Name: ----------------------------------- Title: --------------------------------- ORBLINK LLC By --------------------------------- Name: ----------------------------------- Title: --------------------------------- MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Collateral Agent By --------------------------------- Name: ----------------------------------- Title: ---------------------------------- BANK OF AMERICA, N.A., as Designated Lockbox Bank and as Treasury Management Bank By --------------------------------- Name: ----------------------------------- Title: ---------------------------------- 36 EX-10.15 9 w47792ex10-15.txt AGREEMENT DATED JULY 7, 2000 1 Exhibit 10.15 July 7, 2000 Robert D. Strain 17919 Hickman Street Poolesville, Maryland 20837 Dear Rob: Orbital Sciences Corporation (the "Company") considers the maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its stockholders. The Company's Board of Directors (the "Board") has determined that it is appropriate and in the best interest of the Company to encourage and motivate certain senior executives of the Company to pursue, negotiate and finalize a sale or other disposition of all or substantially all the assets of the Fairchild Defense Division (the "Division") of the Company. In this connection, the Company recognizes that the possibility of a sale or other disposition of the assets of the Division (the "Transaction") and the uncertainty and questions that 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 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 Transaction. This letter agreement (the "Agreement") sets forth the details of the bonus that the Company agrees to pay to you in the event that a Transaction occurs. In addition, this Agreement sets forth benefits that the Company will provide to you in the event that your employment with the Company terminates after the date of this Agreement for the reasons set forth in this Agreement. This Agreement is not an employment contract nor does it alter your status as an at-will employee of the Company. No bonus will be payable or benefits provided under this Agreement except under the circumstances described in this letter. 1. Term. This Agreement shall commence on the date hereof and shall terminate on June 30, 2001. 2. Bonus As a Result of a Transaction. In the event that a Transaction occurs during the term of this Agreement or within 60 days after the expiration of this Agreement, and, in each case you are an employee of the Company, you shall be entitled to receive a cash bonus in an amount equal to .4% of the "Purchase Price." The term "Purchase Price" means the aggregate amount of cash and the fair market value (on the date of payment) of other property paid or payable to the Company in connection with a Transaction. 2 Robert D. Strain July 7, 2000 Page 2 By way of examples: (i) If the assets of the Division were sold for $80,000,000 in cash, then your cash bonus would be $320,000 as calculated below: Purchase Price = $80,000,000 Cash Bonus = .4% x $80,000,000 = $320,000 (ii) If assets of the Division were sold for $65,000,000 in cash, then your cash bonus would be $260,000 as calculated below: Purchase Price = $65,000,000 Cash Bonus = .4% x $65,000,000 = $260,000 The Company shall pay the cash bonus within fifteen (15) days following the closing of the Transaction. All payments required to be made by the Company to you under this Section 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. 3. Termination of Employment. If during the term of the Agreement or within twelve (12) months following the closing of a Transaction as described in Section 2, your employment is terminated by the Company for (a) Disability or Cause, as described below, or (b) any reason other than Disability or Cause, or by you for Good Reason, as described below, you shall be entitled to the benefits provided in Section 4 of this Agreement. (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 based on (A) the willful and continued failure by you to substantially 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 3 Robert D. Strain July 7, 2000 Page 3 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. (iii) Good Reason. In recognition of the Company's desire that you remain an employee of the Company subsequent to the closing of the Transaction, you agree to review and consider in good faith any employment position, authorities, duties and responsibilities that the Company offers to you. You shall, however, 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, authorities, duties and responsibilities each of which is not at least commensurate in all material respects, including, but not limited to, area of expertise, with the most significant of those held and exercised by and assigned to you as of the date hereof, 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 twelve (12) times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, but excluding any amount paid or payable pursuant to this Agreement, to you by the Company in respect of the 12-month period immediately preceding the month in which the Transaction closes; (C) without your written consent, the Company's requiring you to be based anywhere other than the office of the Company in which you are based prior to the Transaction 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; or (D) the failure by the Company to continue to provide you with benefits or compensation substantially similar to, and at the level of, those enjoyed by and provided to other senior executives of the Company under the Company's health, welfare and other benefit or incentive plans, 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. (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. 4 Robert D. Strain July 7, 2000 Page 4 (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 thirty (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 thirty (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 during the term of the Agreement or within twelve (12) months after the closing of a Transaction (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, including accrued vacation pay, 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 fifteen (15) days following the Date of Termination, a lump sum payment equal to 150% of the sum of (a) your Annual Base Salary and (b) 50% of your Annual Base Salary; provided, however, it shall not include any bonus paid upon completion of a Transaction pursuant to this Agreement. (C) The Company shall also immediately fully vest you in all your account balances under the Company's retirement and deferred compensation 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 5 Robert D. Strain July 7, 2000 Page 5 not vested or would otherwise be forfeited by you under the Plans upon your termination of employment with the Company. (D) For a two-year 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. (E) All options to purchase common stock of the Company that have been granted to you and are outstanding shall become fully vested and immediately exercisable. (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. All payments required to be made by the Company to you under this Section 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. In the event that the receipt of any payment or benefit under this Agreement would cause you to be considered to have received a "parachute payment" within the meaning of Section 280G(b)(2) of the Internal Revenue Code (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) This Agreement shall be binding upon and shall inure to the benefit of you and the Company, the Company's successors and assigns, and your permitted assigns. (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 6 Robert D. Strain July 7, 2000 Page 6 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: 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. 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, except for the Letter Agreement dated as of October 15, 1999 between the Company and you relating to proposed benefits in connection with a change of control. The validity, interpretation, construction and performance of this Agreement shall be governed by the local laws of the State of Delaware (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 continue you as a participant in all incentive compensation, pension, life insurance, health and accident or disability plans in which you were participating when the notice giving rise to dispute was given, unless you have already received all severance benefits payable under this Agreement. Judgment may be entered on the 7 Robert D. Strain July 7, 2000 Page 7 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. Very truly yours, ORBITAL SCIENCES CORPORATION - --------------------------------- David W. Thompson Chief Executive Officer Agreed to: - --------------------------------- Name: Robert D. Strain Date: EX-10.16 10 w47792ex10-16.txt AGREEMENT DATED JANUARY 29, 2001 1 EXHIBIT 10.16 January 29, 2001 Mr. Robert D. Strain 17919 Hickman Street Poolesville, Maryland 20837 Dear Rob: This letter (the "Letter") amends the Agreement dated July 7, 2000 between you and the Company and sets forth the terms and conditions under which Orbital may make certain payments to you. Capitalized terms that are used in this Letter shall have the same meaning as in the Agreement unless defined in this Letter. 1. Amendments to Agreement. a. Section one of the Agreement is amended in entirety to read as follows: "Term. This Agreement shall commence July 7, 2000 and shall terminate on January 9, 2002." b. Section three of the Agreement is amended by: (i) amending in its entirety the first sentence of the Section to delete the words "or within twelve (12) months after the closing of the Transaction." (ii) amending in its entirety Section 3(iii)(A) to read as follows: "(A) without your written consent, the assignment to you of any position, authorities, duties and responsibilities each of which is not at least commensurate in all material respects, including, but not limited to, area of expertise, with the most significant of those held and exercised by and assigned to you as of January 1, 2001, 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;" c. Section four of the Agreement is amended by: (i) amending clause (iii) to delete the words "or within twelve (12) months after the closing of a Transaction;" and 2 Mr. Robert D. Strain January 29, 2001 Page 2 (ii) amending in its entirety iii(B) to read as follows: "(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 fifteen (15) days following Date of Termination, a lump sum payment equal to $344,250." 2. Additional Payments. a. In consideration of your agreement to the amendments in this Letter, the Company agrees to pay to you in connection with the Transaction an additional amount of $229,500. The Company shall pay such additional amount by February 9, 2001. b. The Company is exploring various alternatives with respect to the Sensors division in Pomona, California and the Transportation Management Systems division in Columbia, Maryland (each, a "Division" and collectively, the "Divisions"), including the sale of each of the Divisions to a third party. In consideration of your continued support and assistance in connection with the sale of the Divisions, Orbital agrees to pay you $344,250 on the earlier of (i) the closing of the sale of either Division or (ii) December 31, 2001, provided however that no payment shall be made and the obligation of the Company to make any such payment shall cease in the event that you seek or receive payments pursuant to Section 4(iii) of the Agreement. In the event a payment is made to you under this Section, (i) you shall be entitled to receive, upon termination of your employment with the Company, the benefits set forth in Section 4(iii)(C) and (D) of the Agreement and (ii) all other provisions of the Agreement shall terminate immediately and be of no further force and effect. c. All payments made by the Company to you under this Section 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. 3. Successors; Binding Letter. a. This Letter shall be binding upon and shall inure to the benefit of you and the Company and the Company's successors and assigns. b. This Letter 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 Letter to your devisee, legatee or other designee or if there is no such designee, to your estate. 4. Miscellaneous. No provision of this Letter 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 of Directors of Orbital. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, 3 Mr. Robert D. Strain January 29, 2001 Page 3 any condition or provision of this Letter 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 Letter. The validity, interpretation, construction and performance of this Letter shall be governed by the local laws of the State of Delaware (regardless of the laws that might otherwise govern under principles of conflicts of law). Except as modified or amended by this Letter, the terms, provisions and conditions of the Agreement remain in full force and effect. 5. Validity. The invalidity or unenforceability of any provision of this Letter shall not affect the validity or enforceability of any other provision of this Letter, which shall remain in full force and effect. 6. Counterparts. This Letter 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. 7. Arbitration. Any dispute or controversy arising under or in connection with this Letter shall be settled exclusively by arbitration in Washington, D.C. in accordance with the domestic rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. If this Letter 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. Very truly yours, ORBITAL SCIENCES CORPORATION David W. Thompson Chief Executive Officer Agreed to: - ----------------------------------- Name: Robert D. Strain Date: EX-10.25 11 w47792ex10-25.txt AMENDED AND RESTATED PLEDGE AGREEMENT 1 EXECUTION COPY EXHIBIT 10.25 AMENDED AND RESTATED PLEDGE AGREEMENT AMENDED AND RESTATED PLEDGE AGREEMENT dated as of November 30, 1999 and amended and restated as of February 23, 2001 among ORBITAL SCIENCES CORPORATION (with its successors, the "BORROWER"), each of the Subsidiaries of the Borrower listed on the signature pages hereof and each other Subsidiary of the Borrower that may from time to time become a party to this Agreement (each such Subsidiary, with its successors, a "SUBSIDIARY PLEDGOR" and together with the Borrower, the "PLEDGORS") MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Collateral Agent (with its successors, the "COLLATERAL AGENT" ). W I T N E S S E T H: WHEREAS, the Borrower, certain banks listed therein, Morgan Guaranty Trust Company of New York, as administrative agent (the "ADMINISTRATIVE AGENT") and the Collateral Agent have entered into a 364-Day Senior Credit Agreement dated as of February 23, 2001 (as amended from time to time, the "NEW AGREEMENT"); and WHEREAS, the Borrower and certain of its Subsidiaries, certain banks listed therein, the Collateral Agent and the Administrative Agent are parties to a Third Amended and Restated Credit Agreement dated as of December 21, 1998 (as heretofore amended, as amended and restated by Amendment No. 13 thereto dated as of the date hereof ("AMENDMENT NO. 13") and as the same may be further amended from time to time hereafter, the "EXISTING AGREEMENT"); and WHEREAS, the Pledgors and the Collateral Agent have entered into a Pledge Agreement dated as November 30, 1999 (the "EXISTING PLEDGE AGREEMENT"); and WHEREAS, pursuant to the New Agreement and Amendment No. 13, the Borrower and Subsidiary Pledgors party hereto are required to enter into a pledge agreement substantially in the form hereof; and 2 NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Existing Pledge Agreement is amended and restated in its entirety as follows: SECTION 1. Definitions . Terms defined in the Credit Agreements and not otherwise defined herein have, as used herein, the respective meanings provided for therein. The following additional terms, as used herein, have the following respective meanings: "COLLATERAL" has the meaning assigned to such term in Section 3(a). "CREDIT AGREEMENT" means the New Agreement or the Existing Agreement, and "CREDIT Agreements" means the New Agreement and the Existing Agreement. "DEFAULT" means a Default as defined in either Credit Agreement. "DOMESTIC ISSUER" means any Issuer that is incorporated in the United States or any State thereof. "EVENT OF DEFAULT" means an Event of Default as defined in either Credit Agreement. "EXISTING ISSUER" means each Person listed on Schedule I under the heading "Existing Issuer". "FINANCING DOCUMENT" means any Financing Document as defined in either Credit Agreement. "ISSUER" means (i) each Existing Issuer and (ii) each New Issuer. "JUNIOR BANK PARTIES" means the Administrative Agent under the Existing Agreement, each Bank from time to time party to the Existing Agreement and the Treasury Management Bank. "JUNIOR BANK SECURED OBLIGATIONS" means: (x) with respect to the Borrower, (a) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loan to the Borrower under, or any note issued by the Borrower pursuant to, the Existing Agreement, (b) all Reimbursement Obligations and all interest thereon (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the 2 3 bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding), (c) all other amounts payable by the Borrower under any Financing Document in respect of or relating to the Existing Agreement, and (d) any renewals or extensions of any of the foregoing; and (y) with respect to the Borrower, all amounts payable by the Borrower pursuant to the Treasury Management Agreement; provided that such amounts shall not constitute Junior Bank Secured Obligations to the extent the aggregate amount thereof exceeds $4,300,000; and (z) with respect to each Subsidiary Pledgor, all obligations of such Subsidiary Pledgor incurred by such Subsidiary Pledgor pursuant to Section 23 of the Security Agreement with respect to the obligations described in (x) and (y) above. "JUNIOR SECURED OBLIGATIONS" means the Junior Bank Secured Obligations and the NML Secured Obligations. "JUNIOR SECURED PARTIES" means the Junior Bank Parties and NML. "LETTER OF CREDIT OBLIGATION" means, at any time, any Reimbursement Obligations or other obligation to make a payment in connection with a Letter of Credit issued under the Existing Agreement, including contingent obligations with respect to amounts which are then, or may thereafter become, available for drawing under such Letter of Credit. "NEW ISSUER" has the meaning assigned to such term in clause (i) of Section 3(b). "NML GUARANTY AGREEMENT" means the Guaranty dated as of November 30, 1999 among the Subsidiary Pledgors and NML. "NML NOTE AGREEMENT" means the agreement dated as of June 1, 1995 (as amended from time to time) between the Borrower and The Northwestern Mutual Life Insurance Company (with its successors and assigns, "NML"). "NML SECURED OBLIGATIONS" means: (x) with respect to the Borrower, (a) all principal of and interest on any note issued by the Borrower pursuant to the NML Note Agreement (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding), (b) all other amounts, including without limitation, make-whole amount, if any, payable by the Borrower under the NML Note Agreement and (c) any renewals or extensions of any of the foregoing; and 3 4 (y) with respect to each Subsidiary Pledgor, all obligations of such Subsidiary Pledgor incurred by such Subsidiary Pledgor pursuant to the NML Guaranty Agreement or pursuant to Section 23 of the Security Agreement with respect to the obligations described in (x) above. "PLEDGED INSTRUMENTS" means any instrument required to be pledged to the Collateral Agent pursuant to Section 3(b). "PLEDGED SECURITIES" means the Pledged Instruments and the Pledged Stock. "PLEDGED STOCK" means, with respect to each Pledgor, (i) the capital stock, limited liability company interests, partnership interests or other equity interests of each Existing Issuer described on Schedule I (attached hereto) opposite the name of such Existing Issuer held by such Pledgor and (ii) any other capital stock, limited liability company interests, partnership interests or other equity interests of any Issuer required to be pledged by such Pledgor to the Collateral Agent pursuant to Section 3(b). "REQUIRED BANKS" means (i) until such time as all Loans outstanding under the New Agreement have been paid in full, together with accrued interest thereon and all other amounts then due under the New Agreement, and the Commitments thereunder shall have terminated, the Required Banks as defined in the New Agreement and (ii) thereafter, the Required Banks as defined in the Existing Agreement. "SECURED OBLIGATIONS" means: (x) with respect to the Borrower, (a) the Senior Secured Obligations of the Borrower, (b) the Junior Bank Secured Obligations of the Borrower and (c) the NML Secured Obligations of the Borrower; and (y) with respect to each Subsidiary Pledgor, (a) the Senior Secured Obligations of the Subsidiary Pledgor, (b) the Junior Bank Secured Obligations of such Subsidiary Pledgor and (c) the NML Secured Obligations of such Subsidiary Pledgor. "SECURED PARTIES" means the Senior Secured Parties, the Junior Secured Parties and the Collateral Agent. 4 5 "SECURITY INTERESTS" means the security interests in the Collateral granted hereunder securing the Secured Obligations. "SENIOR SECURED OBLIGATIONS" means: (x) with respect to the Borrower, (a) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loan to the Borrower under, or any note issued by the Borrower pursuant to, the New Agreement, (b) all other amounts payable by the Borrower under any Financing Document in respect of or relating to the New Agreement and (c) any renewals or extensions of any of the foregoing; and (y) with respect to each Subsidiary Pledgor, all obligations of such Subsidiary Pledgor incurred by such Subsidiary Pledgor pursuant to Section 23 of the Security Agreement with respect to the obligations described in (x) above. "SENIOR SECURED PARTIES" means the Administrative Agent under the New Agreement and each bank from time to time party to the New Agreement. "TREASURY MANAGEMENT AGREEMENT" means the treasury management arrangement established by the Treasury Management Bank for the benefit of the Company, as evidenced by, among other things, that certain zero Balance Account Service Agreement dated as of May 15, 1997 and that certain Authorization and Agreement for Treasury Services dated as of the date hereof, including those accounts bearing account numbers 4113052459, 4122852365, 79176554 and 4113052381, and such other accounts as are or may be established in connection therewith. "TREASURY MANAGEMENT BANK" means Bank of America, N.A., in its capacity as provider of treasury management services under the Treasury Management Agreement. The term shall also include any affiliate providing such services under the Treasury Management Agreement. Unless otherwise defined herein, or unless the context otherwise requires, all terms used herein which are defined in the New York Uniform Commercial Code as in effect on the date hereof shall have the meanings therein stated. SECTION 2. Representations and Warranties . Each Pledgor represents and warrants as follows: (a) Title to Pledged Securities. Such Pledgor owns all of the Pledged Securities, free and clear of any Liens other than the Security Interests. The Pledged Stock includes all of the issued and outstanding capital stock or other equity interests of each Issuer held by such Pledgor. All of the Pledged Stock 5 6 constituting capital stock or other equity interests of any Person that is a Subsidiary of such Pledgor has been duly authorized and validly issued, and is fully paid and non-assessable, and is subject to no options to purchase or similar rights of any Person. Such Pledgor is not and will not become party to or otherwise bound by any agreement (other than this Agreement and the NML Note Agreement, which restricts in any manner the rights of any present or future holder of any of the Pledged Securities with respect thereto. The parties hereto acknowledge that the NML Note Agreement contains restrictions on the ability of the Borrower and its Subsidiaries to grant Liens on their respective assets. Each Pledgor represents and warrants that the execution, delivery and performance by such Pledgor of this Agreement (including without limitation the granting by such Pledgor of the Security Interests on such Pledgor's Collateral) does not contradict, or constitute a default under, the NML Note Agreement. (b) Validity, Perfection and Priority of Security Interests. Upon the delivery of the Pledged Instruments and certificates representing the Pledged Stock to the Collateral Agent in accordance with Section 4 hereof, the Collateral Agent will have valid and perfected security interests in the Collateral (other than any Pledged Stock not evidenced by certificates) subject to no prior Lien. Upon the filing of financing statements listing such Pledgor as "debtor" and the Collateral Agent as "secured party" in the locations where such filing must be made under the UCC in order to perfect a security interest in collateral consisting of general intangibles, the Collateral Agent will have valid and perfected security interests in the Collateral of such Pledgor consisting of Pledged Stock not evidenced by certificates, subject to no prior Lien. Except as set forth in the immediately preceding sentence, no registration, recordation or filing with any governmental body, agency or official is required in connection with the execution or delivery of this Agreement or necessary for the validity or enforceability hereof or for the perfection or enforcement of the Security Interests. None of the Pledgor or any of their respective Subsidiaries has performed or will perform any acts which might prevent the Collateral Agent from enforcing any of the terms and conditions of this Agreement or which would limit the Collateral Agent in any such enforcement. (c) UCC Filing Locations. The chief executive office of each Pledgor is located at the address set forth on Schedule II opposite the name of such Pledgor (or on a counterpart of this Agreement executed by such Pledgor and pursuant to which such Pledgor has become a party to this Agreement). Under the Uniform Commercial Code as in effect in the State in which such office is located, a local filing in the office set forth on Schedule II opposite such Pledgor's name (or on such counterpart) is required to perfect a security interest in collateral consisting of general intangibles. 6 7 SECTION 3. The Security Interests . (a) In order to secure the full and punctual payment of the Junior Secured Obligations in accordance with the terms thereof, and to secure the performance of all the obligations of each Pledgor hereunder and under the other Financing Documents with respect thereto, each Pledgor hereby assigns and pledges to and with the Collateral Agent for the benefit of the Junior Secured Parties and grants to the Collateral Agent for the benefit of the Junior Secured Parties security interests in the Pledged Securities held by such Pledgor, and all of its rights and privileges with respect to such Pledged Securities, and all income and profits thereon, and all interest, dividends and other payments and distributions with respect thereto, and all proceeds of the foregoing (the "COLLATERAL"). The Security Interests granted pursuant to this Section 3(a) shall be subordinate to the Security Interests granted pursuant to Section 3(b). (b) In order to secure the full and punctual payment of the Senior Secured Obligations in accordance with the terms thereof, and to secure the performance of all the obligations of each Pledgor hereunder and under the other Financing Documents with respect thereto, each Pledgor hereby assigns and pledges to and with the Collateral Agent for the benefit of the Senior Secured Parties and grants to the Collateral Agent for the benefit of the Senior Secured Parties a continuing security interests in and to all Collateral of such Pledgor. (c) Prior to the execution and delivery hereof, each Pledgor has delivered certificates representing the Pledged Securities held by such Pledgor in pledge hereunder (other than any Pledged Stock not evidenced by certificates). In the event that (i) any Pledgor at any time after the date hereof creates or acquires any new direct Subsidiary or acquires the capital stock, limited liability company interests, partnership interests or other equity interests of any other Person (any such Subsidiary or other Person, a "NEW ISSUER") or (ii) any Issuer at any time issues any additional or substitute shares of capital stock, limited liability company interests, partnership interests or other equity interests of any class or (iii) any Subsidiary of the Borrower (including any New Issuer) owes any Debt to any Pledgor, such Pledgor will within ten days thereafter pledge and deposit with the Collateral Agent certificates (if any) representing all such shares, limited liability company interests, partnership interests or other equity interests or an instrument (if any) evidencing such other Debt as additional security for the Secured Obligations; provided that (1) such Pledgor will not be required to take the actions described in this subsection (c) with respect to the capital stock, limited liability company interests, partnership interests or other equity interests of any New Issuer that is not a Domestic Issuer to the extent the aggregate capital stock, limited liability company interests, partnership interests or other equity interests of such New Issuer subject to a Lien granted to the Collateral Agent for the benefit of the Banks and NML would exceed 66% of the outstanding capital stock, limited liability company interests, partnership interests or other equity interests of such New Issuer and (2) such Pledgor will not be required to take any of the actions described in this subsection (c) with respect to the capital stock, limited 7 8 liability company interests, partnership interests or other equity interests of any New Issuer to the extent any such action is prohibited by the terms of any agreement or instrument to which (aa) such New Issuer is a party or is bound as in effect on the date such New Issuer becomes a direct Subsidiary of such Pledgor, so long as such agreement or instrument was not entered into in contemplation of such New Issuer becoming a Subsidiary of such Pledgor or (bb) such Pledgor or any of its wholly-owned Subsidiaries incorporated in the United States or any State thereof (other than such New Issuers) is a party or is bound as in effect on October 15, 1999. All such shares and other equity interests, notes and instruments constitute Pledged Securities and are subject to all provisions of this Agreement. 8 9 (d) The Security Interests are granted as security only and shall not subject the Collateral Agent, any Bank or NML to, or transfer or in any way affect or modify, any obligation or liability of each Pledgor or any of its Subsidiaries with respect to any of the Collateral or any transaction in connection therewith. SECTION 4. Delivery of Pledged Securities . All Pledged Instruments held by each Pledgor shall be delivered to the Collateral Agent by such Pledgor pursuant hereto indorsed to the order of the Collateral Agent, and accompanied by any required transfer tax stamps, all in form and substance satisfactory to the Collateral Agent. All certificates representing Pledged Stock delivered to the Collateral Agent by each Pledgor pursuant hereto shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, with signatures appropriately guaranteed, and accompanied by any required transfer tax stamps, all in form and substance satisfactory to the Collateral Agent. SECTION 5. Further Assurances . (a) Each Pledgor agrees that it will, at its expense and in such manner and form as the Collateral Agent may require, execute, deliver, file and record any financing statement, specific assignment or other paper and take any other action that may be necessary or desirable, or that the Collateral Agent may request, in order to create, preserve, perfect or validate any Security Interest or to enable the Collateral Agent to exercise and enforce its rights hereunder with respect to any of the Collateral. To the extent permitted by applicable law, each Pledgor hereby authorizes the Collateral Agent to execute and file, in the name of such Pledgor or otherwise, Uniform Commercial Code financing statements (which may be carbon, photographic, photostatic or other reproductions of this Agreement or of a financing statement relating to this Agreement) which the Collateral Agent in its sole discretion may deem necessary or appropriate to further perfect the Security Interests. (b) Each Pledgor agrees that it will not change (i) its name, identity or corporate structure in any manner or (ii) the location of its chief executive office unless it shall have given the Collateral Agent not less than 30 days' prior notice thereof. SECTION 6. Record Ownership of Pledged Stock . The Collateral Agent may at any time or from time to time following the occurrence and during the continuance of an Event of Default, in its sole discretion, cause any or all of the Pledged Stock to be transferred of record into the name of the Collateral Agent or its nominee. Each Pledgor will promptly give to the Collateral Agent copies of any notices or other communications received by it with respect to Pledged Stock registered in the name of such Pledgor and the Collateral Agent will promptly give to such Pledgor copies of any notices and communications received by the Collateral Agent with respect to Pledged Stock registered in the name of the Collateral Agent or its nominee. 9 10 SECTION 7. Right to Receive Distributions on Collateral . The Collateral Agent shall have the right to receive and, during the continuance of any Default, to retain as Collateral hereunder all dividends, interest and other payments and distributions made upon or with respect to the Collateral and each Pledgor shall take all such action as the Collateral Agent may deem necessary or appropriate to give effect to such right. All such dividends, interest and other payments and distributions which are received by such Pledgor shall be received in trust for the benefit of the Collateral Agent, the Secured Parties and, if the Collateral Agent so directs during the continuance of a Default, shall be segregated from other funds of such Pledgor and shall, forthwith upon demand by the Collateral Agent during the continuance of a Default, be paid over to the Collateral Agent as Collateral in the same form as received (with any necessary endorsement). After all Defaults have been cured, the Collateral Agent's right to retain dividends, interest and other payments and distributions under this Section 7 shall cease and the Collateral Agent shall pay over to such Pledgor any such Collateral retained by it during the continuance of a Default. SECTION 8. Right to Vote Pledged Stock . Unless a Default shall have occurred and be continuing, each Pledgor shall have the right, from time to time, to vote and to give consents, ratifications and waivers with respect to the Pledged Stock. If a Default shall have occurred and be continuing, the Collateral Agent shall have the right to the extent permitted by law and such Pledgor shall take all such action as may be necessary or appropriate to give effect to such right, to vote and to give consents, ratifications and waivers, and take any other action with respect to any or all of the Pledged Stock with the same force and effect as if the Collateral Agent were the absolute and sole owner thereof. SECTION 9. General Authority . Each Pledgor hereby irrevocably appoints the Collateral Agent its true and lawful attorney, with full power of substitution, in the name of such Pledgor, the Collateral Agent, the Secured Parties or otherwise, for the sole use and benefit of the Collateral Agent, the Secured Parties, but at the expense of such Pledgor, to the extent permitted by law to exercise, at any time and from time to time while an Event of Default has occurred and is continuing, all or any of the following powers with respect to all or any of the Collateral: (a) to demand, sue for, collect, receive and give acquittance for any and all monies due or to become due upon or by virtue thereof, (b) to settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto, 10 11 (c) to sell, transfer, assign or otherwise deal in or with the same or the proceeds or avails thereof, as fully and effectually as if the Collateral Agent were the absolute owner thereof, and (d) to extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference thereto; provided that the Collateral Agent shall give such Pledgor not less than ten days' prior notice of the time and place of any sale or other intended disposition of any of the Collateral except any Collateral which is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. The Collateral Agent and the Pledgors agree that such notice constitutes "reasonable notification" within the meaning of Section 9-504(3) of the Uniform Commercial Code. SECTION 10. Remedies upon Event of Default . If any Event of Default shall have occurred and be continuing, the Collateral Agent may exercise on behalf of the Secured Parties all the rights of a secured party under the Uniform Commercial Code (whether or not in effect in the jurisdiction where such rights are exercised) and, in addition, the Collateral Agent may, without being required to give any notice, except as herein provided or as may be required by mandatory provisions of law, (i) apply the cash, if any, then held by it as Collateral as specified in Section 13 and (ii) if there shall be no such cash or if such cash shall be insufficient to pay all the Secured Obligations in full, sell the Collateral or any part thereof at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery, and at such price or prices as the Collateral Agent may deem satisfactory. Any Bank or NML may be the purchaser of any or all of the Collateral so sold at any public sale (or, if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations, at any private sale). The Collateral Agent is authorized, in connection with any such sale, if it deems it advisable so to do, (A) to restrict the prospective bidders on or purchasers of any of the Pledged Securities to a limited number of sophisticated investors who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or sale of any of such Pledged Securities, (B) to cause to be placed on certificates for any or all of the Pledged Securities or on any other securities pledged hereunder a legend to the effect that such security has not been registered under the Securities Act of 1933 and may not be disposed of in violation of the provision of said Act, and (C) to impose such other limitations or conditions in connection with any such sale as the Collateral Agent deems necessary or advisable in order to comply with said Act or any other law. Each Pledgor will execute and deliver such documents and take such other action as the Collateral Agent deems necessary or advisable in order that any such sale may be made in compliance with law. Upon any such sale the Collateral Agent shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold. Each purchaser at any such 11 12 sale shall hold the Collateral so sold absolutely and free from any claim or right of whatsoever kind, including any equity or right of redemption of such Pledgor which may be waived, and such Pledgor, to the extent permitted by law, hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter adopted. The notice (if any) of such sale required by Section 9 shall (1) in the case of a public sale, state the time and place fixed for such sale, (2) in the case of a sale at a broker's board or on a securities exchange, state the board or exchange at which such sale is to be made and the day on which the Collateral, or the portion thereof so being sold, will first be offered for sale at such board or exchange, and (3) in the case of a private sale, state the day after which such sale may be consummated. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix in the notice of such sale. At any such sale the Collateral may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may determine. The Collateral Agent shall not be obligated to make any such sale pursuant to any such notice. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In the case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by the Collateral Agent until the selling price is paid by the purchaser thereof, but the Collateral Agent shall not incur any liability in the case of the failure of such purchaser to take up and pay for the Collateral so sold and, in the case of any such failure, such Collateral may again be sold upon like notice. The Collateral Agent, instead of exercising the power of sale herein conferred upon it, may proceed by a suit or suits at law or in equity to foreclose the Security Interests and sell the Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction. SECTION 11. Expenses . Each Pledgor agrees that it will forthwith upon demand pay to the Collateral Agent: (a) the amount of any taxes which the Collateral Agent may have been required to pay by reason of the Security Interests or to free any of the Collateral from any Lien thereon, and (b) the amount of any and all out-of-pocket expenses, including the reasonable fees and disbursements of counsel and of any other experts, which the Collateral Agent may incur in connection with (i) the administration or enforcement of this Agreement, including such expenses as are incurred to preserve the value of the Collateral and the validity, perfection, rank and value of any Security Interest, (ii) the collection, sale or other disposition of any of the Collateral, (iii) the exercise by the Collateral Agent of any of the rights conferred upon it hereunder or (iv) any Default or Event of Default. 12 13 Any such amount not paid on demand shall bear interest at the rate applicable to Base Rate Loans and shall be an additional Secured Obligation hereunder. SECTION 12. Limitation on Duty of Collateral Agent in Respect of Collateral . Beyond the exercise of reasonable care in the custody thereof, the Collateral Agent shall have no duty as to any Collateral in its possession or control or in the possession or control of any agent or bailee or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords its own property, and shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any Collateral Agent or bailee selected by the Collateral Agent in good faith. SECTION 13. Application of Proceeds . (a) Upon the occurrence and during the continuance of an Event of Default, the proceeds of any sale of, or other realization upon, all or any part of the Collateral and any cash held shall be applied by the Collateral Agent in the following order of priorities: first, to payment of the expenses of such sale or other realization, including reasonable compensation to agents and counsel for the Collateral Agent, and all expenses, liabilities and advances incurred or made by the Collateral Agent in connection therewith, and any other unreimbursed expenses for which the Collateral Agent is to be reimbursed pursuant to any Financing Document and unpaid fees owing to the Collateral Agent under any Financing Document; second, to payment of any unreimbursed expenses for which any Senior Secured Party is to be reimbursed pursuant to any Financing Document, and unpaid fees owing to the Administrative Agent under the New Agreement; third, to the ratable payment of accrued but unpaid interest on the Senior Secured Obligations; fourth, to the ratable payment of Senior Secured Obligations consisting of unpaid principal of Loans made under the New Agreement; fifth, to the ratable payment of all other Senior Secured Obligations, until all such Secured Obligations have been repaid in full; 13 14 sixth, to the ratable payment of any unreimbursed expenses for which any Junior Secured Party is to be reimbursed pursuant to any Financing Document, unpaid fees owing to the Administrative Agent under the Existing Agreement and unpaid amount owing to the Treasury Management Bank under the Treasury Management Agreement which are Junior Bank Secured Obligations; seventh, to the ratable payment of accrued but unpaid interest on the Junior Bank Secured Obligations and the NML Secured Obligations; eighth, to the ratable payment of (x) Junior Bank Secured Obligations consisting of unpaid principal of Loans made under the Existing Agreement and, subject to the second sentence of subsection (b), Letter of Credit Obligations and (y) NML Secured Obligations; ninth, to the ratable payment of all other Junior Bank Secured Obligations and NML Secured Obligations, until all such Secured Obligations have been repaid in full; and finally, to payment to each Pledgor or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. (b) The Collateral Agent may make distributions hereunder in cash or in kind or, on a ratable basis, in any combination thereof. If at any time any monies collected or received by the Collateral Agent are distributable pursuant to this Section in respect of a Letter of Credit Obligation which is a contingent obligation at such time, then the Collateral Agent shall invest such amounts in Liquid Investments (as defined in the Security Agreement) selected by it and shall hold all such amounts so distributable and all such Liquid Investments and the net proceeds thereof in trust for application to the payment of such Letter of Credit Obligation at such time as such Letter of Credit Obligation is no longer a contingent obligation. If the Collateral Agent holds any amounts which were distributable in respect of any Letter of Credit Obligations after all Letters of Credit have expired and all amounts payable with respect thereto have been paid, such amounts shall be applied in the order set forth in subsection (a) above. (c) In making the determinations and allocations required by this Section, the Collateral Agent shall have no liability to any Secured Party for actions taken in reliance on information supplied by such Secured Party as to the amounts of the Secured Obligations held by them. All distributions made by the Collateral Agent pursuant to this Section shall be final, and the Collateral Agent shall have no duty to inquire as to the application by any Secured Party of any amount distributed to them. However, if at any time the Collateral Agent determines that an allocation or 14 15 distribution previously made pursuant to this Section was based on a mistake of fact (including, without limiting the generality of the foregoing, mistakes based on any assumption that principal or interest has been paid by payments which are subsequently recovered from the recipient thereof through the operation of any bankruptcy, reorganization, insolvency or other laws or otherwise), the Collateral Agent may in its discretion, but shall not be obligated to, adjust subsequent allocations and distributions hereunder so that, on a cumulative basis, the Collateral Agent and the other Secured Parties receive the distributions to which they would have been entitled if such mistake of fact had not been made. SECTION 14. Concerning the Collateral Agent . The provisions of Article 7 of the Credit Agreements shall inure to the benefit of the Collateral Agent in respect of this Agreement and shall be binding upon the parties to the Credit Agreements and the parties hereto in such respect. In furtherance and not in derogation of the rights, privileges and immunities of the Collateral Agent therein set forth: (a) The Collateral Agent is authorized to take all such action as is provided to be taken by it as Collateral Agent hereunder and all other action reasonably incidental thereto. As to any matters not expressly provided for herein (including, without limitation, the timing and methods of realization upon the Collateral) the Collateral Agent shall act or refrain from acting in accordance with written instructions from the Required Banks or, in the absence of such instructions, in accordance with its discretion. (b) The Collateral Agent shall not be responsible for the existence, genuineness or value of any of the Collateral or for the validity, perfection, priority or enforceability of the Security Interests in any of the Collateral, whether impaired by operation of law or by reason of any action or omission to act on its part hereunder. The Collateral Agent shall have no duty to ascertain or inquire as to the performance or observance of any of the terms of this Agreement by each Pledgor. SECTION 15. Appointment of Co-Agents . At any time or times, in order to comply with any legal requirement in any jurisdiction, the Collateral Agent may appoint another bank or trust company or one or more other persons, either to act as co-agent or co-agents, jointly with the Collateral Agent, or to act as separate agent or agents on behalf of the Secured Parties with such power and authority as may be necessary for the effectual operation of the provisions hereof and may be specified in the instrument of appointment (which may, in the discretion of the Collateral Agent, include provisions for the protection of such co-agent or separate agent similar to the provisions of Section 14). SECTION 16. Termination of Security Interests; Release of Collateral . (a) Upon the repayment in full of all Secured Obligations, the termination of the Commitments under the Credit Agreements and the cancellation or expiration of all Letters of Credit, the Security Interests and all obligations of each Pledgor under 15 16 this Agreement shall terminate and all rights to and interests in the Collateral shall revert to such Pledgor. (b) Subject to the rights of the Secured Parties hereunder if an Event of Default shall have occurred and be continuing and subject always to the rights of the Senior Secured Parties under the New Agreement, to the rights of the Junior Bank Parties under the Treasury Management Agreement and the Existing Agreement and to the rights of NML under the NML Note Agreement, upon any sale or other disposition of any Collateral permitted under Section 5.13 of the Existing Agreement and Section 5.13 of the New Agreement (any such sale or other disposition, a "PERMITTED COLLATERAL SALE"), the Security Interests in the Collateral subject to such Permitted Collateral Sale (but not in any Proceeds thereof) shall cease immediately without any further action on the part of the Collateral Agent. The Collateral Agent shall be fully protected in relying on a certificate from any Pledgor stating that a sale or other disposition of any Collateral constitutes a Permitted Collateral Sale. (c) In addition to releases of Collateral effected by subsection (b), at any time and from time to time prior to the termination of the Security Interests, the Collateral Agent may release any of the Collateral with the prior written consent of the Required Banks; provided that the Collateral Agent may release all or substantially all of the Collateral (for purposes of this proviso only, as defined in the Credit Agreements) only with the prior written consent of all of the Banks. (d) Upon the termination of the Security Interests or any release of any Collateral effected or permitted by this Section, the Collateral Agent will promptly, at the expense of each Pledgor, execute and deliver to such Pledgor such documents as such Pledgor shall reasonably request to evidence the termination of the Security Interests or the release of such Collateral, as the case may be, including UCC termination statements, and will duly assign, transfer and deliver to such Pledgor or to whomever lawfully shall be entitled to receive the same, such of the Collateral as may be in the possession of the Collateral Agent. (e) Upon the repayment in full of all NML Secured Obligations, NML's rights under this Agreement shall terminate. Upon any such termination, NML will, at the expense of the Pledgors, execute and deliver to the Pledgors such documents as any Pledgor may reasonably request to evidence such termination. SECTION 17. Notices . All notices hereunder shall be given in accordance with Section 8.01 of the New Agreement, Section 10.01 of the Existing Agreement or Section 9.6 of the NML Note Agreement, as the case may be. SECTION 18. Waivers, Non-Exclusive Remedies . No failure on the part of the Collateral Agent to exercise, and no delay in exercising and no course of dealing with respect to, any right under this Agreement shall operate as a waiver thereof; 16 17 nor shall any single or partial exercise by the Collateral Agent of any right under the Credit Agreement or this Agreement preclude any other or further exercise thereof or the exercise of any other right. The rights in this Agreement and the Credit Agreement are cumulative and are not exclusive of any other remedies provided by law. SECTION 19. Successors and Assigns . This Agreement is for the benefit of the Collateral Agent, the Secured Parties and their successors and assigns, respectively, and in the event of an assignment of all or any of the Secured Obligations, the rights hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness. This Agreement shall be binding on each Pledgor and its successors and assigns. SECTION 20. Changes in Writing . Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only in writing signed by each Pledgor and the Collateral Agent with the consent of the Required Banks (or, in the case of any change to the first sentence of Section 16 or to the number of Banks whose consent shall be required for the Collateral Agent to take any action under this Section or any other provision of this Agreement, the consent of all the Banks). SECTION 21. New York Law . This Agreement shall be construed in accordance with and governed by the laws of the State of New York, except as otherwise required by mandatory provisions of law and except to the extent that remedies provided by the laws of any jurisdiction other than New York are governed by the laws of such jurisdiction. SECTION 22. Severability . If any provision hereof is invalid or unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Collateral Agent and the Secured Parties in order to carry out the intentions of the parties hereto as nearly as may be possible; and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. SECTION 23. Restrictions on MDH . The Borrower will ensure that: (a) MDH does not incur any Debt; (b) MDH does not incur or suffer to exist any Lien on any of its assets except the Lien permitted by Section 5.12(g) of each Credit Agreement; (c) MDH does not merge or consolidate with or into any other Person; 17 18 (d) MDH does not transfer or otherwise dispose of any shares of MDA, except pursuant to a Reduction Event; (e) MDH does not engage in any business or activity whatsoever or acquire any assets, other than the holding of the shares of MDA owned by it on the Effective Date and the sale thereof in a Reduction Event; and (f) MDH does not enter into any agreement, other than (1) the Amended and Restated Shareholders' Agreement dated as of June 29, 2000 among MDH and certain other shareholders of MDA, as in effect on the Effective Date, (2) the Amended and Restated Secondary Option Agreement dated as of June 29, 2000 among MDH and certain other shareholders of MDA, as in effect on the Effective Date, or (3) [CODE3]. SECTION 24. Additional Pledgors . Any Subsidiary of the Borrower may become a "Subsidiary Pledgor" party hereto and bound hereby by executing a counterpart hereof, setting forth the address of the chief executive office of such Pledgor, and delivering same to the Collateral Agent. 18 19 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. ORBITAL SCIENCES CORPORATION By: --------------------------------- Name: Title: ENGINEERING TECHNOLOGIES, INC. By: --------------------------------- Name: Title: ORBITAL COMMERCIAL SYSTEMS, INC. By: --------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Collateral Agent By: --------------------------------- Name: Title: 19 20 SCHEDULE I EXISTING ISSUERS
Percentage Jurisdiction of Shares Existing of Number of Outstanding Certificate PLEDGOR Issuer Incorporation Type of Shares Shares Being Pledged Number - ------------------------------------------------------------------------------------------------------------- Orbital Sciences Engineering Virginia Common 354,297 100% 40 Corporation Technologies, Inc. Class A Voting Common 21,500 12 Class B Non- Voting - ------------------------------------------------------------------------------------------------------------- Engineering Orbital Space Virginia Common 100,000 100% 1 Technologies, Inc. Systems, Inc. - ------------------------------------------------------------------------------------------------------------- Orbital Sciences Orbital Virginia Common 1,000 100% 1 Corporation Commercial Systems, Inc. - ------------------------------------------------------------------------------------------------------------- Orbital Commercial Orbital Virginia Common 100 100% 1 Systems, Inc. International, Inc. - ------------------------------------------------------------------------------------------------------------- Orbital Sciences Orbital Services Delaware Common 100 100% 1 Corporation Corporation - ------------------------------------------------------------------------------------------------------------- Orbital Sciences Orbital Delaware Common 100 100% 1 Corporation Navigation Corporation - ------------------------------------------------------------------------------------------------------------- Orbital Sciences Orblink LLC Delaware Uncertificated N/A 100% None Corporation membership interest - ------------------------------------------------------------------------------------------------------------- Orbital Sciences MDA Holdings Delaware Common 100 100% 1 Corporation Corporation - ------------------------------------------------------------------------------------------------------------- Orbital Sciences Magellan Delaware Common 666,666 66% FBU 0001 Corporation Corporation 49,333,234 MC 0061 100 7 - -------------------------------------------------------------------------------------------------------------
20 21 SCHEDULE II CHIEF EXECUTIVE OFFICE
- ----------------------------------------------------------------------------------------------- Pledgor Chief Executive Office Address - ----------------------------------------------------------------------------------------------- Orbital Sciences Corporation 21700 Atlantic Boulevard Dulles, Virginia 20166 - ----------------------------------------------------------------------------------------------- Engineering Technologies, Inc. 21700 Atlantic Boulevard Dulles, Virginia 20166 - ----------------------------------------------------------------------------------------------- Orbital Commercial Systems, Inc. 21700 Atlantic Boulevard Dulles, Virginia 20166 - -----------------------------------------------------------------------------------------------
21 EX-23.1 12 w47792ex23-1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-84296, 33-62277, 33-64517, 333-53585, 333-69887, 333-69885, and 333-27999) of ORBITAL SCIENCES CORPORATION of our reports dated April 16, 2001 relating to the consolidated financial statements and financial statement schedules of Orbital Sciences Corporation and our report dated April 16, 2001 related to the financial statements of Orbital Imaging Corporation, which appear in this Form 10-K. /s/ PricewaterhouseCoopers LLP McLean, Virginia April 16, 2001 EX-23.2.1 13 w47792ex23-2_1.txt CONSENT OF KPMG LLP REGARDING THE COMPANY 1 Exhibit 23.2.1 Accountants' Consent The Board of Directors Orbital Sciences Corporation and subsidiaries: We consent to the incorporation by reference in the registration statements on Forms S-8 (Nos. 33-84296, 33-62277, 33-64517, 333-53585, 333-69887, 333-69885, and 333-27999) of Orbital Sciences Corporation and subsidiaries of our reports dated February 16, 1999, except as to note 3A which is as of April 17, 2000, relating to the consolidated statements of operations, stockholders' equity, and cash flows, and the related consolidated financial statement schedule, of Orbital Sciences Corporation and subsidiaries for the year ended December 31, 1998, before the reclassification to reflect Magellan Corporation as a discontinued operation as described in Note 2 to the consolidated financial statements, which reports appear in the December 31, 2000 annual report on Form 10-K of Orbital Sciences Corporation. KPMG LLP Washington, DC April16, 2001 EX-23.2.2 14 w47792ex23-2_2.txt CONSENT OF KPMG LLP REGARDING ORBCOMM 1 Exhibit 23.2.2 Accountants' Consent The Board of Directors Orbital Sciences Corporation and subsidiaries: We consent to the incorporation by reference in the registration statements on Forms S-8 (Nos. 33-84296, 33-62277, 33-64517, 333-53585, 333-69887, 333-69885, and 333-27999) of Orbital Sciences Corporation and subsidiaries of our report dated March 30, 1999, relating to the consolidated statements of operations and comprehensive loss, partners' capital, and cash flows, of ORBCOMM Global, L.P. and subsidiaries for the year ended December 31, 1998, which reports appear in the December 31, 2000 annual report on Form 10-K of Orbital Sciences Corporation. KPMG LLP Washington, DC April 16, 2001 EX-23.2.3 15 w47792ex23-2_3.txt CONSENT OF KPMG LLP REGARDING ORBIMAGE 1 Exhibit 23.2.3 Accountants' Consent The Board of Directors Orbital Sciences Corporation and subsidiaries: We consent to the incorporation by reference in the registration statements on Forms S-8 (Nos. 33-84296, 33-62277, 33-64517, 333-53585, 333-69887, 333-69885, and 333-27999) of Orbital Sciences Corporation and subsidiaries of our report dated January 22, 1999, except as to the second paragraph on Note 4 which is as of March 23, 2000, relating to the consolidated statements of operations, stockholders' equity, and cash flows, of Orbital Imaging Corporation and subsidiaries for the year ended December 31, 1998, which reports appear in the December 31, 2000 annual report on Form 10-K of Orbital Sciences Corporation. KPMG LLP Washington, DC April 16, 2001 EX-23.3 16 w47792ex23-3.txt CONSENT OF ARTHUR ANDERSEN LLP 1 Exhibit 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated April 12. 2001 included in this Form 10-K, into Orbital Sciences Corporation's previously filed Registration Statements on Form S-8. (File Nos. 33-84296, 33-62277, 33-64517, 333-53585, 333-69887, 333-69885 and 333-27999) Arthur Andersen LLP April 12, 2001 Vienna, Virginia EX-99.1 17 w47792ex99-1.txt REPORT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 99.1 REPORT OF INDEPENDENT ACCOUNTANTS To The Board of Directors and Stockholders of Orbital Imaging Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity, and cash flows present fairly, in all material respects, the financial position of Orbital Imaging Corporation and its subsidiary at December 31, 1999 and December 31, 2000, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has experienced continuing operating losses, defaulted on its senior notes and requires additional financing to meet its capital requirements to launch its high resolution satellites and its operating requirements through December 31, 2001. These matters raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. PricewaterhouseCoopers LLP April 16, 2001 McLean, Virginia 2 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Orbital Imaging Corporation: We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of Orbital Imaging Corporation and subsidiaries for the year ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Orbital Imaging Corporation and subsidiaries for the year ended December 31, 1998, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Washington, D.C. January 22, 1999, except for the second paragraph of Note 4 which is as of March 23, 2000. 3 ORBITAL IMAGING CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, ---------------------------- 1999 2000 ---------- ---------- ASSETS Current assets: Cash and cash equivalents................................................ $ 4,855 $ 4,146 Available-for-sale securities, at fair value............................. 32,407 - Restricted held-to-maturity securities, at amortized cost................ 12,932 - Receivables and other current assets, net of allowances of $80 and $64, respectively.................................................... 5,525 10,752 ---------- ---------- Total current assets............................................... 55,719 14,898 Property, plant and equipment, at cost, less accumulated depreciation of $10,841 and $14,268, respectively........................ 31,937 36,619 Satellites and related rights, at cost, less accumulated depreciation and amortization of $30,973 and $39,578, respectively.................... 261,622 283,543 Other assets................................................................ 10,560 9,269 ---------- ---------- Total assets....................................................... $ 359,838 $ 344,329 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued expenses..................................... $ 14,341 $ 15,435 Current portion of deferred revenue 9,277 8,904 Senior notes.............................................................. - 216,154 ---------- ---------- Total current liabilities........................................... 23,618 240,493 Senior notes................................................................ 214,575 - Deferred revenue, net of current portion.................................... 15,334 6,970 Deferred tax liabilities.................................................... 77 - ---------- ---------- Total liabilities................................................... 253,604 247,463 Preferred stock subject to repurchase, par value $0.01; 10,000,000 shares authorized; Series A 12% cumulative convertible, 2,000,000 shares authorized, 772,561 and 868,052 shares issued and outstanding, respectively (liquidation value of $78,801 and $88,541, respectively) 91,563 106,103 Stockholders' equity (deficit): Common stock, par value $0.01; 75,000,000 shares authorized; 25,214,000 shares issued and outstanding........................................ 252 252 Additional paid-in-capital.............................................. 87,285 87,469 Accumulated deficit..................................................... (72,866) (96,958) ---------- ---------- Total stockholders' equity (deficit)................................ 14,671 (9,237) ---------- ----------- Total liabilities and stockholders' equity (deficit)............ $ 359,838 $ 344,329 ========== ==========
See accompanying notes to consolidated financial statements. 4 ORBITAL IMAGING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31, --------------------------------------------------- 1998 1999 2000 ------------- ------------- ------------- Revenues................................................... $ 11,663 $ 18,587 $ 24,123 Direct expenses............................................ 15,215 21,212 26,696 ------------- ------------- ------------- Gross loss................................................. (3,552) (2,625) (2,573) Selling, general and administrative expenses............... 7,328 10,362 9,216 ------------- ------------- ------------- Loss from operations....................................... (10,880) (12,987) (11,789) Interest income............................................ 1,915 2,636 2,160 ------------- ------------- ------------- Loss before benefit for income taxes....................... (8,965) (10,351) (9,629) Benefit for income taxes................................... (3,286) (3,629) (77) ------------- ------------- ------------- Net loss................................................... $ (5,679) $ (6,722) $ (9,552) ============= ============= ============= Loss per common share -- basic and diluted (1)............. $ (1.05) $ (0.79) $ (0.96) Loss available to common stockholders...................... $ (26,538) $ (19,796) $ (24,092) Weighted average shares outstanding - basic and diluted(1) 25,214,000 25,214,000 25,214,000
- ---------- (1) All potentially dilutive securities, such as preferred stock subject to repurchase, warrants and stock options, are antidilutive and are excluded due to the net loss for each year presented. See accompanying notes to consolidated financial statements. 5 ORBITAL IMAGING CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT SHARE DATA)
ADDITIONAL COMMON STOCK PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT TOTAL ---------- ------ -------- ---------- ---------- BALANCE AS OF DECEMBER 31, 1997............. 25,214,000 252 75,285 (26,532) 49,005 Common stock warrants issued, net -- -- 7,594 -- 7,594 Deemed dividends on issuance of preferred stock subject to repurchase................................ -- -- -- (9,975) (9,975) Issuance of compensatory stock options................................... -- -- 323 -- 323 Preferred stock dividends................... -- -- -- (10,884) (10,884) Capital contributed......................... -- -- 3,580 -- 3,580 Net loss.................................... -- -- -- (5,679) (5,679) ---------- ------ -------- ---------- ---------- BALANCE AS OF DECEMBER 31, 1998............. 25,214,000 252 86,782 (53,070) 33,964 Issuance of stock options................... -- -- 413 -- 413 Capital contributed......................... -- -- 90 -- 90 Preferred stock dividends................... -- -- -- (13,074) (13,074) Net loss.................................... -- -- -- (6,722) (6,722) ---------- ------ -------- ---------- ---------- BALANCE AS OF DECEMBER 31, 1999............. 25,214,000 252 87,285 (72,866) 14,671 Issuance of stock options................... -- -- 184 -- 184 Preferred stock dividends................... -- -- -- (14,540) (14,540) Net loss.................................... -- -- -- (9,552) (9,552) ---------- ------ -------- ---------- ---------- BALANCE AS OF DECEMBER 31, 2000............. 25,214,000 $ 252 $ 87,469 $ (96,958) $ (9,237) ========== ====== ======== ========== ===========
See accompanying notes to consolidated financial statements. 6 ORBITAL IMAGING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------------------------------- 1998 1999 2000 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss............................................................... $ (5,679) $ (6,722) $ (9,552) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation, amortization and other................................ 12,857 14,258 14,923 Deferred tax benefit................................................ (3,286) (3,629) (77) Changes in assets and liabilities: Increase in receivables and other current assets.................... (700) (4,502) (4,873) (Increase) decrease in other assets................................. (532) 357 (59) Increase (decrease) in accounts payable and accrued expenses.......................................................... 12,370 (2,686) 1,076 Decrease in deferred revenue........................................ (5,172) (7,609) (8,736) ---------- ---------- ---------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES.............. 9,858 (10,533) (7,298) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures................................................... (108,533) (92,388) (38,445) Purchases of restricted held-to-maturity securities (32,185) (7,306) -- Purchases of available-for-sale securities............................. (119,783) (53,698) (23,491) Maturities of restricted held-to-maturity securities 7,568 19,691 12,984 Maturities of available-for-sale securities............................ 60,905 38,362 46,699 Sales of available-for-sale securities................................. 35,818 17,671 8,842 Payment for business acquisition....................................... (5,000) -- -- ---------- ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES............................. (161,210) (77,668) (6,589) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of long-term obligations.................... 136,682 67,974 -- Net proceeds from issuance of common stock warrants.................... 7,594 -- -- Net proceeds from issuance of preferred stock subject to Repurchase........................................................... 21,275 -- -- ---------- ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES......................... 165,551 67,974 -- ---------- ---------- ---------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...................... 14,199 (20,227) (709) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.............................. 10,883 25,082 4,855 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS, END OF YEAR.................................... $ 25,082 $ 4,855 $ 4,146 ========== ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid........................................................... $ 9,009 $ 20,582 $ 26,163 ========== ========== ========== NON-CASH ITEMS: Preferred stock dividends $ 10,884 $ 13,074 $ 14,540 Deemed dividend on issuance of preferred stock subject to repurchase............................................................ 9,975 -- -- Capital contributed -- tax basis adjustment............................. 3,580 90 -- Capitalized compensatory stock options 119 174 161 Capitalized lease obligation............................................ 223 -- --
See accompanying notes to consolidated financial statements. 7 ORBITAL IMAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) RELATIONSHIP WITH ORBITAL In 1991, the ORBIMAGE operating division of Orbital Sciences Corporation ("Orbital") was established to manage the development of remote imaging satellites which would collect, process and distribute digital imagery of land areas, oceans and the atmosphere. In 1992, Orbital Imaging Corporation ("ORBIMAGE") was incorporated in Delaware as a wholly owned subsidiary of Orbital. On May 8, 1997 and July 3, 1997, ORBIMAGE issued preferred stock to private investors to fund a significant portion of the remaining costs of existing projects (the "Private Placement"). Orbital also purchased additional common stock, bringing its total common equity investment to approximately $91.5 million. Also on May 8, 1997, ORBIMAGE executed certain contracts with Orbital whereby all assets and liabilities of Orbital's operating division, ORBIMAGE, were sold to ORBIMAGE at the historical cost. ORBIMAGE had four contracts with Orbital at the beginning of 2000: (i) the ORBIMAGE System Procurement Agreement dated November 18, 1996, as amended (the "System Procurement Agreement"), (ii) the OrbView-2 License Agreement dated May 8, 1997 (the "OrbView-2 License"), (iii) the Amended and Restated Administrative Services Agreement dated May 8, 1997 (the "Administrative Services Agreement"), and (iv) the Stock Purchase Agreement dated October 26, 1999, as amended (the "Stock Purchase Agreement"). Under the System Procurement Agreement, ORBIMAGE purchased (i) the OrbView-1 satellite, (ii) an exclusive license entitling ORBIMAGE to all of the economic rights and benefits of the OrbView-2 satellite, (iii) the OrbView-3 satellite and launch service, (iv) the OrbView-4 satellite and launch service and (v) the ground system assets used to command and control the satellites as well as receive and process imagery. Pursuant to the System Procurement Agreement through December 31, 2000, ORBIMAGE has committed to purchase various satellites, rights and ground systems for approximately $279.9 million, net of $31.0 million which will be funded by the U.S. Air Force through a contract with Orbital. ORBIMAGE incurred costs of approximately $94.3 million, $33.0 million and $4.8 million for the years ended December 31, 1998, 1999 and 2000, respectively, under the System Procurement Agreement. As of December 31, 2000, ORBIMAGE has remaining commitments under the System Procurement Agreement of $17.6 million, net of $31.0 million, which will be funded by the U.S. Air Force through a contract with Orbital. In March 2000, the System Procurement Agreement was amended to increase the cost of the OrbView-3 and OrbView-4 satellites by $14 million. In exchange for permitting ORBIMAGE to pay this cost increase in the form of post-launch, on-orbit incentives, the Stock Purchase Agreement was amended to reduce Orbital's stock purchase commitment to $12.5 million from $25.0 million. On June 29, 2000, the Stock Purchase Agreement was terminated. In connection with the termination of the Stock Purchase Agreement, the System Procurement Agreement was amended to require Orbital to advance ORBIMAGE on January 31, 2001 $20.0 million previously paid by ORBIMAGE under the System Procurement Agreement (the "Orbital Advance"). Orbital is entitled to reinvoice ORBIMAGE for this amount on the earlier of nine months after the launch of OrbView-4 or six months after the launch of OrbView-3, but in no event earlier than November 30, 2001. As further detailed in Note 17 below, Orbital has not made the Orbital Advance. The amended System Procurement Agreement also requires Orbital to pay ORBIMAGE a $2.5 million cash penalty if OrbView-4 is not launched by May 31, 2001, and an additional $2.5 million cash penalty if neither OrbView-3 nor OrbView-4 is launched by July 31, 2001. As further discussed in Note 17 below, Orbital made a $1 million advance payment on the May 31, 2001 $2.5 million cash penalty. Under the OrbView-2 License Agreement, Orbital has granted an exclusive worldwide license to ORBIMAGE to use and sell OrbView-2 imagery. Pursuant to the terms of the OrbView-2 License Agreement, Orbital has assigned to ORBIMAGE all amounts that are due or become due to Orbital under a contract Orbital has with NASA to deliver OrbView-2 imagery, and ORBIMAGE has sole responsibility for operating and controlling the satellite. 8 Under the Administrative Services Agreement, ORBIMAGE is reimbursing Orbital for management, legal, financial services, office space and other administrative services, as well as certain direct and indirect operating services provided by Orbital. ORBIMAGE incurred costs of approximately $2.7 million, $2.1 million and $2.7 million for the years ended December 31, 1998, 1999 and 2000, respectively, under the Administrative Services Agreement. The term of the Administrative Services Agreement is expected to terminate on or before December 31, 2001. In 1998, ORBIMAGE entered into an agreement with Orbital and MacDonald, Dettwiler and Associates Ltd. ("MDA"), a Canadian subsidiary of Orbital, under which ORBIMAGE acquired the exclusive worldwide distribution rights for the RadarSat-2 satellite imagery (the "RadarSat-2 License"). Under the RadarSat-2 License, MDA would own and operate the RadarSat-2 satellite, and would provide operations, data reception, processing, archiving and distribution services to ORBIMAGE. ORBIMAGE's acquisition of the RadarSat-2 License was to cost $60.0 million, of which $30.0 million was paid in 1999. The remaining payments were not to exceed $15.0 million in 2001, $10.0 million in 2002 and $5.0 million upon the successful on-orbit checkout of RadarSat-2. Approximately $260.0 million of RadarSat-2's $320 million estimated total cost will be funded by the Canadian Space Agency through a contract with Orbital and MDA. As discussed in Note 17 below, the RadarSat-2 License Agreement was terminated on February 9, 2001 and replaced with a new RadarSat-2 Territorial License agreement (the "RadarSat-2 Territorial License"), pursuant to which MDA granted to ORBIMAGE an exclusive territorial license to distribute and sell RadarSat-2 imagery in the United States for $40 million. The $30 million of RadarSat-2 payments previously remitted to MDA under the original RadarSat-2 License agreement were applied to the $40 million license fee under the RadarSat-2 Territorial License. The remaining $10 million obligation is to be paid by ORBIMAGE in two equal installments of $5 million each on July 2, 2002 and December 31, 2002. ORBIMAGE is also obligated to pay 60 percent of the operating costs for RadarSat-2, up to a maximum of $6 million per year. On February 9, 2001, ORBIMAGE and Orbital entered into a purchase agreement whereby Orbital agreed to purchase receivables from ORBIMAGE for an aggregate purchase price of $10 million (the "Purchase Agreement"). Orbital is obligated to make up to two $5 million cash purchases of receivables to coincide with the payment dates set forth in the RadarSat-2 Territorial License. Orbital's obligation to make each purchase under the Purchase Agreement is conditioned, among other things, on ORBIMAGE notifying Orbital of its inability to make such payments to MDA due to financial hardship. Amounts due to Orbital of $9.2 million, $0.6 million, and $2.1 million as of December 31, 1998, 1999 and 2000, respectively, were included in accounts payable and accrued expenses. For the year ended December 31, 2000, ORBIMAGE recorded revenue of $0.3 million on contracts with Orbital. Two ORBIMAGE directors are also directors of Orbital. (2) NATURE OF OPERATIONS The OrbView-1 satellite was launched in 1995 and provides severe weather and atmospheric images, including global lightning information and measurements used in analyzing atmospheric temperature information. The OrbView-2 satellite was launched on August 1, 1997, and completed its on-orbit checkout in October 1997. ORBIMAGE recognized revenues related to the OrbView-2 satellite of $9.1 million, $10.5 million and $10.6 million for the years ended December 31, 1998, 1999 and 2000, respectively. The OrbView-4 satellite is currently scheduled to be launched in the third quarter of 2001 and will provide one-meter panchromatic and four-meter multispectral imagery of the Earth. The OrbView-3 satellite is currently expected to be launched in the first quarter of 2002 and will provide one-meter panchromatic, four-meter multispectral and eight-meter hyperspectral imagery of the Earth. The imagery provided by both OrbView-3 and OrbView-4 will have a broad range of applications for U.S. and foreign national security and many commercial and scientific markets. ORBIMAGE acquired the current RadarSat Territorial License in February 2001. RadarSat-2 is currently expected to be launched in 2003 and will provide high-resolution commercial radar imaging. 9 (3) ABILITY TO CONTINUE AS A GOING CONCERN On February 15, 2001, ORBIMAGE announced that it would not make the $13.1 million interest payment scheduled to be made on March 1, 2001 to the holders of its senior notes, and that it had retained a financial advisor to assist in, among other things, restructuring these notes. ORBIMAGE also disclosed that it is having discussions with Orbital, its preferred shareholders and others in pursuit of additional sources of capital to meet its funding needs. Subsequent to March 31, 2001, the note holders can demand redemption of the senior notes and/or file an involuntary bankruptcy petition against ORBIMAGE under chapter 11 of the U.S. Bankruptcy Code. All amounts relating to the senior notes have been classified as current liabilities in the accompanying December 31, 2000 balance sheet. Accordingly, substantial doubt exists regarding ORBIMAGE's ability to continue as a going concern. ORBIMAGE's ability to continue as a going concern is dependent on restructuring the senior notes, receiving adequate financing on favorable terms, a timely and successful launch of one of the OrbView high-resolution satellites, the continued expansion of commercial services, adequate customer acceptance of ORBIMAGE's products and services, and other factors. At December 31, 2000, ORBIMAGE had approximately $4.1 million of cash and cash equivalents. Assuming a successful restructuring of the senior notes (which would include, among other things, a waiver from making interest payments for the period), management estimates additional financing of approximately $20 million will be necessary to launch the OrbView-4 satellite and to meet ORBIMAGE's capital and operating requirements through December 31, 2001. ORBIMAGE has incurred losses since its inception, and management believes that it will continue to do so for the foreseeable future. ORBIMAGE does not expect to generate net positive cash flow from operations sufficient to fund both operations and capital expenditures until the second quarter of 2002, when both OrbView-3 and OrbView-4 are currently expected to be operational. Although ORBIMAGE is currently pursuing other financing sources to meet its capital and operating requirements, including new equity and debt financing and further investments from its existing shareholders, there can be no assurance that additional financing will be available on favorable terms or on a timely basis, if at all. If ORBIMAGE is unable to achieve its plan, it may be forced to liquidate its assets for significantly less than their current carrying value. (4) SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. In connection with the 1999 Form 10-K filing, management restated its previously issued consolidated financial statements as of and for the year ended December 31, 1998. Accordingly, the original Annual Report on Form 10-K for 1998 was amended and an Annual Report on Form 10-K/A was filed in March 2000. Principles of Consolidation The consolidated financial statements include the accounts of ORBIMAGE and, in 1999 and 2000, its wholly owned subsidiary. All material intercompany transactions and accounts have been eliminated in consolidation. Revenue Recognition ORBIMAGE's principal source of revenue is the sale of satellite imagery to customers, value-added 10 resellers and distributors. Such sales often require ORBIMAGE to provide imagery over the term of a multi-year sales contract. Accordingly, ORBIMAGE recognizes revenues on imagery contracts on a straight-line basis over the delivery term of the contract. Deferred revenue represents receipts in advance of the delivery of imagery. ORBIMAGE recognizes revenue on the contracts to construct OrbView-3 and OrbView-4 distributor ground stations and contracts to provide image processing services using the percentage-of-completion method of accounting. Revenue on these contracts is recognized based on costs incurred in relation to total estimated costs. To the extent that estimated costs of completion are adjusted, revenue and profit recognized from a particular contract will be affected in the period of the adjustment. Anticipated contract losses are recognized as they become known. Services Provided by Orbital A substantial part of ORBIMAGE's administrative services, including information systems and human resources, is provided to ORBIMAGE at cost by Orbital. ORBIMAGE believes that the cost of these services, as provided for in the accompanying statements of operations, approximates the cost of similar services if obtained directly by ORBIMAGE. Stock-Based Compensation Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123") requires companies to recognize as expense the fair value of all stock-based awards on the date of grant, or (ii) continue to apply the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and provide pro forma net income (loss) disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS 123 had been applied. ORBIMAGE has elected to continue to apply the provision of APB 25 and provide the pro forma disclosure provisions of SFAS 123 (see Note 15). Compensation expense is recognized over the vesting period for stock option grants to employees that have market values in excess of the strike price. To the extent that ORBIMAGE grants stock options to non-employee consultants or advisors, ORBIMAGE records costs equal to the fair value of the options granted as of the measurement date as determined using a Black-Scholes model. Cash and Cash Equivalents ORBIMAGE considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Securities Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when ORBIMAGE has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income. The held-to-maturity securities were restricted by provisions of the senior notes. Securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in a separate component of stockholders' equity. The amortized cost of available-for-sale securities is adjusted for amortization of premiums and accretion of discounts to maturity. Amortization, accretion, and realized gains and losses are included in interest income. The cost of securities sold is based on the specific identification method. 11 Securities with original maturities of more than three months, but not more than one year, are classified as current assets. Securities with original maturities of more than one year are classified as long-term assets. As of December 31, 1999, ORBIMAGE had available-for-sale securities invested primarily in commercial paper with an amortized cost basis of $32.4 million. There were no differences between the amortized cost basis of the available-for-sale securities and their fair values. As of December 31, 2000 there were no available-for-sale securities. As of December 31, 1999, ORBIMAGE had held-to-maturity securities invested in U.S. Treasury securities with fair values of $12.9 million and amortized cost base of $12.9 million. These securities were pledged as security for repayment of interest on the senior notes. As of December 31, 2000 there were no held-to-maturity securities. Included in cash and cash equivalents was $2.4 million of commercial paper as of December 31, 1999. No commercial paper was held as of December 31, 2000. Financial Instruments The carrying amounts for ORBIMAGE's cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair value. The fair values for securities (see above) and senior notes (see Note 11) are based on quoted market prices. Two foreign distributors have issued letters of credit to ORBIMAGE as credit enhancements for the construction of regional distributor ground stations. One letter of credit has a face value of $13.5 million and expires on July 31, 2001 and the other letter of credit has a face value of $4.0 million and expires on May 4, 2001. The face values for the letters of credit approximate fair value. ORBIMAGE does not have any derivative financial instruments as of December 31, 2000, and believes that the interest rate risk associated with its senior notes and the market risk associated with its securities are not material to the results of operations of ORBIMAGE. Satellites and Related Rights and Property, Plant and Equipment ORBIMAGE is purchasing the OrbView-1, OrbView-3 and OrbView-4 satellites, the OrbView-2 License and the ground system assets pursuant to the System Procurement Agreement. ORBIMAGE is purchasing the RadarSat-2 Territorial License pursuant to a separate agreement with MDA. Amortization of the capitalized costs begins when the assets are placed in service. ORBIMAGE capitalizes interest costs in connection with the construction of satellites and related ground system assets. The capitalized interest is recorded as part of the historical cost of the asset to which it relates and will be amortized over the asset's useful life when placed in service. For the years ended December 31, 1998, 1999 and 2000, capitalized interest totaled $10.9 million, $23.7 million and $28.8 million, respectively. Depreciation and amortization are provided using the straight-line method as follows: Ground system assets...... 8 years Furniture and equipment... 3 to 5 years OrbView-1................. 3 years OrbView-2................. 7 1/2 years Leasehold improvements.... Shorter of estimated useful life of lease or lease term
Income Taxes ORBIMAGE recognizes income taxes using the asset and liability method. Under the asset and liability 12 method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are provided as necessary. (5) EMPLOYEE BENEFIT PLAN ORBIMAGE's employees participate in the Orbital Imaging Corporation Retirement Savings Plan, as amended, a defined contribution plan (the "Plan") in accordance with Section 401(k) of the Internal Revenue Code of 1986, as amended. ORBIMAGE's contributions to the Plan are made based on certain plan provisions and at the discretion of the Board of Directors. For the years ended December 31, 1998, 1999 and 2000, ORBIMAGE's contribution expense was $0.3 million, $0.5 million and $0.2, respectively. (6) COMPREHENSIVE INCOME (LOSS) As of January 1, 1998, ORBIMAGE adopted Statement of Financial Accounting Standard ("SFAS") No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS No. 130 had no impact on ORBIMAGE's net loss or stockholders' equity. For the years ended December 31, 1998, 1999 and 2000, there were no material differences between net loss as reported and comprehensive income (loss). (7) LOSS PER COMMON SHARE The computations of basic and diluted loss per common share for the years ended December 31, 1998, 1999 and 2000 were as follows (in thousands, except share data):
YEARS ENDED DECEMBER 31, --------------------------------------------------------- 1998 1999 2000 ------------- ------------- ------------- Numerator for basic and diluted loss per common share: Net loss.................................................. $ (5,679) $ (6,722) $ (9,552) Preferred stock dividends................................. (20,859) (13,074) (14,540) ------------- ------------- ------------- Loss available to common stockholders........................ $ (26,538) $ (19,796) $ (24,092) ============= ============= ============= Denominator for basic and diluted loss per common share -- weighted average shares (1)................................ 25,214,000 25,214,000 25,214,000 Loss per common share -- basic and diluted (1)............... $ (1.05) $ (0.79) $ (0.96) ============= ============= =============
- ---------- (1) All potentially dilutive securities, such as preferred stock subject to repurchase, warrants and stock options, are antidilutive and are excluded due to the net loss for each year presented. (8) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment as of December 31, 1999 and 2000 consisted of the following (in thousands):
DECEMBER 31, ------------------------- 1999 2000 --------- --------- Land........................................ $ 213 $ 213 Ground system assets........................ 38,189 45,908 Furniture and equipment..................... 2,569 2,888 Leasehold improvements...................... 1,807 1,878 Accumulated depreciation and amortization... (10,841) (14,268) --------- --------- Total............................. $ 31,937 $ 36,619 ========= =========
Depreciation and amortization totaled $2.5 million, $3.2 million and $3.4 million for the years ended 13 December 31, 1998, 1999 and 2000, respectively. (9) SATELLITES AND RELATED RIGHTS Satellites and related rights as of December 31, 1999 and 2000 consisted of the following (in thousands):
DECEMBER 31, ---------------------------- 1999 2000 ---------- ---------- In service: OrbView-1.................... $ 12,327 $ 12,327 Accumulated depreciation..... (12,327) (12,327) OrbView-2 License............ 64,543 64,543 Accumulated amortization..... (18,646) (27,251) ---------- ---------- 45,897 37,292 Satellites and rights in process 215,725 246,251 ---------- ---------- Total $ 261,622 $ 283,543 ========== ==========
Satellite depreciation and amortization totaled $9.4 million, $8.6 million and $8.6 million for the years ended December 31, 1998, 1999 and 2000, respectively. (10) INCOME TAXES The benefit for income taxes for the years ended December 31, 1998, 1999 and 2000 consisted of the following (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------------------------ 1998 1999 2000 -------- -------- -------- Current benefit: U.S. Federal.......................... $ -- $ -- $ -- State................................. -- -- -- -------- -------- -------- Total current benefit......... -- -- -- Deferred benefit: U.S. Federal.......................... 2,979 3,460 72 State................................. 307 169 5 -------- -------- -------- Total deferred benefit........ 3,286 3,629 77 -------- -------- -------- Total benefit for income taxes $ 3,286 $ 3,629 $ 77 ======== ======== ========
The income tax benefit for the years ended December 31, 1998, 1999 and 2000 were different from those computed using the statutory U.S. Federal income tax rate as follows:
YEARS ENDED DECEMBER 31, ----------------------------------------------- 1998 1999 2000 ------ ------ ------ (RESTATED) U.S. Federal statutory rate (34.0)% (34.0)% (34.0)% State income taxes......... (2.3) (1.7) (2.5) Valuation allowance........ -- -- 37.4 Other...................... (0.4) 0.6 (1.7) ------ ------ ------ Effective rate............. (36.7)% (35.1)% (0.8)% ====== ====== ======
14 The tax effects of significant temporary differences as of December 31, 1999 and 2000 were as follows (in thousands):
DECEMBER 31, -------------------------- 1999 2000 --------- --------- Deferred tax assets: Differences in revenue recognition. $ 8,866 $ 5,948 Net operating loss carryforward.... 9,726 15,994 Other.............................. 830 877 --------- --------- Deferred tax assets................... 19,422 22,819 Less: valuation allowance............ -- (3,600) --------- ---------- Net deferred tax assets............... 19,422 19,219 Deferred tax liabilities: Differences in the tax treatment of satellites and related rights.... 19,499 19,219 --------- --------- Net deferred tax liability............ $ 77 $ -- ========= =========
The increase in valuation allowance is principally the result of current year operating losses. Management believes it is more likely than not that its existing deferred tax assets will not be realized. As of December 31, 2000, ORBIMAGE had net operating loss carryforwards totaling $44.8 million, which expire beginning the year ending December 31, 2013. Such net operating loss carryforwards are subject to certain limitations and other restrictions. (11) SENIOR NOTES General On February 25, 1998, ORBIMAGE issued 150,000 units consisting of senior notes and 1,312,746 warrants for common stock, raising net proceeds of approximately $144.6 million. The gross proceeds of the units offering of $150.0 million were allocated: $142.1 million to the senior notes and $7.9 million to the value of the warrants recorded as a debt discount. On April 22, 1999, ORBIMAGE completed an add-on debt offering raising net proceeds of approximately $68.1 million. The debt discount and issuance costs are amortized using the interest method as an adjustment to interest expense over the term of the senior notes resulting in an effective yield of approximately 13.4%. As of December 31, 2000, the senior notes had a fair value of $33.8 million as estimated by quoted market prices. Interest Interest on the senior notes accrues at a rate of 11 5/8% per annum and is payable semi-annually in arrears on March 1 and September 1. As discussed in Note 3 above, ORBIMAGE announced on February 15, 2001 that it would not make the $13.1 million interest payment scheduled to be made on March 1, 2001 to the holders of its senior notes, and that it had retained a financial advisor to assist, among other things, in restructuring these notes. ORBIMAGE purchased U.S. Treasury securities in an amount sufficient to pay the interest on the senior notes through March 1, 2000. As of December 31, 1999, held-to-maturity securities restricted for the payment of interest on the senior notes totaled $12.9 million. On March 1, 2000, restricted held-to-maturity securities and the related accrued interest were used to pay the semi-annual interest due on the senior notes of $13.0 million. Mandatory Redemption The senior notes mature on March 1, 2005. ORBIMAGE is not required to make mandatory redemption or sinking fund payments with respect to the senior notes. However, ORBIMAGE may be obligated, under certain circumstances, to make an offer to purchase: (i) all outstanding senior notes at a redemption price of 101% of the principal amount thereof, plus accrued and unpaid interest and liquidated damages (if any) to the date of purchase, upon a change of control, and (ii) outstanding senior notes with a portion of the net proceeds of certain asset sales at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest and liquidated damages (if any) to the date of the purchase. 15 Covenants The indenture for the senior notes restricts, among other things, ORBIMAGE's ability to pay dividends. (12) LEASE COMMITMENTS Aggregate minimum rental commitments under non-cancelable operating and capital leases (primarily for office space and equipment) as of December 31, 2000 were as follows (in thousands):
OPERATING CAPITAL -------- ------ 2001................... $ 212 $ 20 2002................... 211 13 2003................... 199 - 2004................... 211 - 2005................... 219 - Thereafter............. 738 - -------- ------ $ 1,790 33 ======== Less: interest at 18% (5) Less: current portion (16) ------ Total.................. $ 12 ======
(13) PREFERRED STOCK SUBJECT TO REPURCHASE ORBIMAGE has authorized 10,000,000 shares of $0.01 par value preferred stock, of which: (a) 2,000,000 shares of the Series A preferred stock have been authorized, of which 868,052 shares were issued and outstanding as of December 31, 2000; (b) 2,000,000 shares of the Series B preferred stock have been authorized, none of which have been issued and (c) 2,000,000 shares of the Series C preferred stock have been authorized, none of which have been issued. Dividends The Series A preferred stock is assigned a stated value of $100 per share and is entitled to a cumulative dividend of 12% per annum payable semi-annually on May 1 and November 1 of each year, in cash or, in lieu thereof, payable in-kind in shares of Series A preferred stock on the basis of 120 shares of Series A preferred stock for each 1,000 shares of Series A preferred stock outstanding. To date, all dividends have been paid in-kind. As of December 31, 2000, cumulative preferred stock dividends in arrears totaled 17,361 shares. Upon mandatory conversion prior to the fourth anniversary of the issuance of any Series A preferred stock, a Series A holder shall also receive the dividends with respect to the Series A preferred stock that would have accrued from the date of the mandatory conversion to the fourth anniversary of the initial issuance of the Series A preferred stock. Ranking Series A holders have certain preferences upon dividend distributions, distributions upon liquidation or distributions upon merger, consolidation or sale of assets over the holders of Series B preferred stock (if and when issued), Series C preferred stock (if and when issued), the common holders and any other class of stock ranking junior to the Series A preferred stock. Voting Rights Each Series A holder is entitled to such number (rounded to the nearest whole number) of votes as such Series A holder would be entitled if such Series A holder had converted its Series A preferred stock into shares of common stock. Conversion Rights The Series A holders have the option, at any time, or from time to time, to convert their Series A preferred stock into fully paid and non-assessable shares of common stock. The number of shares of 16 common stock issued upon such conversion will be determined by multiplying each Series A holder's number of Series A preferred stock by a fraction, the numerator of which is the Series A preferred stock Stated Value and the denominator of which is a conversion price, subject to anti-dilutive adjustments. The per share conversion price is currently $4.17. The Series A preferred stock shall be automatically converted into shares of common stock upon the earliest to occur of any one of the following events: - the closing, under certain circumstances, of a public offering of the common stock; - the culmination of a 180-day period in which the average price of the common stock exceeds a certain level relative to the conversion price or - the proposed sale of no less than 70% of the common stock on a fully diluted basis. Change of Control Although not redeemable at the option of the holders, ORBIMAGE has certain obligations to our Series A holders upon a "change of control" as deemed in the stock purchase agreement. If a change of control occurs before the latest of: - the successful on-orbit checkout of OrbView-3, - the closing of an initial public offering that meets certain criteria, or - the end of a 180-day period in which the average price of the common stock exceeds a certain level relative to the conversion price of the Series A preferred stock, then ORBIMAGE must offer to purchase, subject to the rights of the holders of the senior notes, all outstanding shares of Series A preferred stock for a purchase price of 101% of the liquidation amount of the stock. If the change of control occurs before the fourth anniversary of the initial 1997 sale of the Series A preferred stock, then ORBIMAGE must also pay each Series A holder an amount equal to the dividends that would have accrued on such holder's shares of Series A preferred stock from the date of the change of control through the fourth anniversary of the initial 1997 sale of the Series A preferred stock. The activity in the preferred stock subject to repurchase was as follows for the years ended December 31, 1998, 1999 and 2000 (dollars in thousands):
SHARES AMOUNT ------- --------- BALANCE AS OF DECEMBER 31, 1997........................... 392,887 $ 36,355 Shares issued in private offering, net................ 227,295 21,275 Preferred stock dividends paid in shares.............. 67,394 8,906 Deemed dividend on issuance of preferred stock subject to repurchase............................... - 9,975 Accrual of preferred stock dividends.................. - 1,978 ------- --------- BALANCE AS OF DECEMBER 31, 1998 .......................... 687,576 78,489 Preferred stock dividends paid in shares.............. 84,985 10,758 Accrual of preferred stock dividends.................. - 2,316 ------- --------- BALANCE AS OF DECEMBER 31, 1999........................... 772,561 91,563 Preferred stock dividends paid in shares.............. 95,491 13,916 Accrual of preferred stock dividends.................. - 624 ------- --------- BALANCE AS OF DECEMBER 31, 2000........................... 868,052 $106,103 ======= ========
(14) COMMON STOCK WARRANTS In connection with the units offering on February 25, 1998, ORBIMAGE issued 150,000 warrants, which entitle the holders to acquire 1,312,746 shares of ORBIMAGE's common stock. The exercise price is $0.01 per share and as of December 31, 1999, the warrants are exercisable. Each warrant entitles the holder 17 to buy 8.75164 shares of common stock. The warrants expire on March 1, 2005. (15) STOCK OPTION PLAN Through ORBIMAGE's stock option plan, as amended (the "Plan"), ORBIMAGE may issue to its employees, Orbital's employees, consultants or advisors incentive or non-qualified options to purchase up to 4,800,000 shares of ORBIMAGE's common stock. Under the Plan, stock options may not be granted with an exercise price less than 85% of the stock's fair market value at the date of the grant as determined by the Board of Directors. ORBIMAGE's options generally vest in one-third increments over either a two-year or a three-year period. The following table summarizes the activity relating to the Plan for the years ended December 31, 1998, 1999 and 2000:
WEIGHTED OUTSTANDING NUMBER OF OPTION PRICE AVERAGE AND SHARES PER SHARE EXERCISE PRICE EXERCISABLE ---------- ------------ -------------- ----------- OUTSTANDING AS OF DECEMBER 31, 1997.............. 1,884,000 $ 3.60-4.17 $ 3.75 707,250 Granted...................................... 761,500 4.17-5.10 4.55 Exercised.................................... -- -- -- Canceled or expired.......................... (9,000) 4.17-5.10 4.69 ---------- ----------- ------- --------- OUTSTANDING AS OF DECEMBER 31, 1998.............. 2,636,500 3.60-5.10 3.98 1,181,451 Granted...................................... 786,323 6.25 6.25 Exercised.................................... -- -- -- Canceled or expired.......................... (129,251) 4.17-6.25 4.92 ---------- ----------- ------- --------- OUTSTANDING AS OF DECEMBER 31, 1999.............. 3,293,572 3.60-6.25 4.48 1,916,611 Granted...................................... 522,347 7.25 7.25 Exercised.................................... -- -- -- Canceled or expired.......................... (304,239) 3.60-7.25 5.91 ---------- ----------- ------- --------- OUTSTANDING AS OF DECEMBER 31, 2000 ................................................. 3,511,680 $ 3.60-7.25 $ 4.77 2,510,455 ========== =========== ======= =========
As of December 31, 2000, the weighted average remaining contractual life of the options outstanding was 7.1 years. Had ORBIMAGE determined compensation expense based on the fair value at the grant date for its stock options in accordance with the fair value method prescribed by SFAS 123, ORBIMAGE's pro forma net loss and pro forma basic loss per common share would have been approximately $6.3 million and $1.08, respectively, for the year ended December 31, 1998; $7.7 million and $0.82, respectively, for the year ended December 31, 1999; and $11.0 million and $1.01, respectively, for the year ended December 31, 2000. Pro forma diluted loss per common share for the years ended December 31, 1998, 1999 and 2000 would be the same as the pro forma basic loss per share shown above since all potentially dilutive securities are antidilutive and are excluded due to the net loss for each year presented.. Pro forma net loss as stated above is not necessarily representative of the effects of reported net income (loss) for future years due to, among other things, the vesting period of the stock options and the fair value of the additional stock options in future years. ORBIMAGE used the Black-Scholes options pricing model for the year ended December 31, 1999 and 2000 for options issued to employees and directors to determine the pro forma impact to its net loss. For the year ended December 31, 1998, ORBIMAGE used the minimum value method, which does not consider volatility. Both models utilize certain information, such as the interest rate on a risk-free security maturing generally at the same time as the option being valued, and requires certain assumptions, such as the expected amount of time an option will be outstanding until it is exercised or it expires, to calculate the weighted-average fair value per share of stock options granted. The assumptions used to determine the pro forma impact for the years ended December 31, 1998, 1999 and 2000 were as follows:
YEARS ENDED DECEMBER 31, ------------------------ 1998 1999 2000 ------------------- ------------------- ------------------- Volatility................................. 0.0% 30.0% 34.0% Dividend yield............................. 0.0% 0.0% 0.0% Risk-free interest rate.................... 5.5% 6.6% 6.2% Expected average life...................... 6.0 years 6.0 years 6.0 years Weighted average exercise price per share.. $ 3.98 $ 4.48 $ 4.77
18 The fair value of the options granted to employees and directors during the years ended December 31, 1998, 1999 and 2000 were estimated at $1.26 per share, $2.69 per share and $3.26 per share, respectively. Compensation expense recognized during each of the years ended December 31, 1998, 1999 and 2000 on stock options granted to employees and directors was $0.2 million. On January 24, 2001, ORBIMAGE granted 779,945 options to purchase shares of common stock to employees, directors and consultants. The stock options were granted with an exercise price of $1.50 and generally vest in one-third increments over a two-year period. ORBIMAGE will expense the value of the 5,000 compensatory options that were issued to consultants over the two-year vesting period of the options. (16) SEGMENT INFORMATION In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which establishes reporting standards for a company's operating segments and related disclosures about its products, services, geographic areas and major customers. SFAS No. 131 requires comparative segment information; however, ORBIMAGE operated as a single segment for the years ended December 31, 1998, 1999 and 2000. ORBIMAGE recognized revenues related to contracts with the National Aeronautics and Space Administration of approximately $9.6 million, $9.4 million and $9.0 million for the years ended December 31, 1998, 1999 and 2000, respectively, representing approximately 82%, 51% and 37%, respectively, of total revenues recognized during those years. (17) SUBSEQUENT EVENTS RadarSat-2 Territorial License In January 2001, ORBIMAGE was obligated to make a $15 million payment to MDA under the RadarSat-2 License Agreement. On February 9, 2001, ORBIMAGE and MDA reached an agreement whereby the RadarSat-2 License agreement was terminated and replaced with the RadarSat-2 Territorial License agreement under which MDA granted to ORBIMAGE an exclusive territorial license to distribute and sell RadarSat-2 imagery in the United States in exchange for $40 million. The $30 million of RadarSat-2 payments previously remitted to MDA under the RadarSat-2 License were applied to the RadarSat-2 Territorial License. The remaining $10 million obligation is to be paid by ORBIMAGE in two equal installments of $5 million each on July 2, 2002 and December 31, 2002. ORBIMAGE is also obligated to pay 60 percent of the operating costs for RadarSat-2, up to a maximum of $6 million per year. Orbital provided a guarantee of ORBIMAGE's performance under the RadarSat-2 Territorial License agreement. On February 9, 2001, ORBIMAGE and Orbital entered into a purchase agreement whereby Orbital agreed to purchase trade accounts receivable from ORBIMAGE for an aggregate purchase price of $10 million. Orbital is obligated to make up to two $5 million cash purchases of receivables to coincide with the payment dates set forth in the RadarSat-2 Territorial License agreement. Orbital's obligation to make each purchase under the purchase agreement is conditioned, among other things, on ORBIMAGE notifying Orbital of its inability to make such payments to MDA due to financial hardship. Orbital Advance On January 31, 2001, ORBIMAGE did not receive the $20 million Orbital Advance. On February 9, 2001, ORBIMAGE notified Orbital that it was in breach of the $20 million Orbital Advance and requested full payment of the amount outstanding. ORBIMAGE intends to dispute any assertions Orbital may make that it is not obligated to make the Orbital Advance. The parties have agreed to resolve this matter as part of the overall restructure of ORBIMAGE's senior notes. ORBIMAGE has not waived the existence of any events of default nor any events giving rise to termination rights, which may have occurred or may hereafter occur with respect to the System Procurement Agreement. On March 13, 2001, Orbital notified ORBIMAGE that OrbView-4 would not be launched by May 31, 2001, and accordingly entered into an agreement with ORBIMAGE whereby Orbital agreed to pay ORBIMAGE $1 million of the $2.5 million cash penalty due May 31, 2001 immediately in exchange for a $50,000 reduction in the remaining amount of the cash penalty. EX-99.2 18 w47792ex99-2.txt CONSOLIDATED FINANCIAL STATEMENTS 1 EXHIBIT 99.2 ORBCOMM GLOBAL, L.P. Consolidated Financial Statements As of December 31, 2000 and 1999 Together with reports of independent public accountants 2 ORBCOMM GLOBAL, L.P. Consolidated Financial Statements as of December 31, 2000 and 1999 TABLE OF CONTENTS Report of Independent Public Accountants 1 Independent Auditors' Report 2 Consolidated Balance Sheets as of December 31, 2000 and 1999 3 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2000, 1999 and 1998 4 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 5 Consolidated Statements of Partners' Capital (Deficit) for the Years Ended December 31, 2000, 1999 and 1998 6 Notes to Consolidated Financial Statements 7 - 20
3 Report of Independent Public Accountants To ORBCOMM Global, L.P.: We have audited the accompanying consolidated balance sheets of ORBCOMM Global, L.P. (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of operations and comprehensive loss, partners' capital (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of the Company for the year ended December 31, 1998, were audited by other auditors whose report dated March 30, 1999, expressed an unqualified opinion on those statements. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ORBCOMM Global, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has a net capital deficiency and in February 2001, the Company filed a motion pursuant to the United States Bankruptcy Code to permit the sale of substantially all of its assets or alternatively the orderly liquidation of the Company. Management's plans in regard to these matters are also described in Note 1. These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the amount and classification of liabilities that might result from the outcome of this uncertainty. /s/ Arthur Andersen LLP Vienna, VA April 12, 2001 4 INDEPENDENT AUDITORS' REPORT The Partners ORBCOMM Global, L.P.: We have audited the accompanying consolidated statements of operations and comprehensive loss, partner's capital, and cash flows of ORBCOMM Global L.P. and subsidiaries for the year ended December 31, 1998. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of ORBCOMM Global, L.P. and subsidiaries for the year ended December 31, 1998, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Washington, D.C. March 30, 1999 5 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, DECEMBER 31, 2000 1999 --------------------- --------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,168 $ 8,722 Accounts receivable, net of allowance of $6,306 in 2000 and $237 in 1999 1,702 1,264 Inventory 0 15,964 Prepaid expenses and other current assets 500 5,171 Deferred and prepaid contract costs 525 0 --------------------- --------------------- Total Current Assets 3,895 31,121 Mobile Communications Satellite System and other property, plant and equipment, net 7,000 346,042 Other assets, net 0 5,543 Investments in and advances to affiliates 1,000 6,722 Goodwill, net 0 384 --------------------- --------------------- TOTAL ASSETS $ 11,895 $ 389,812 ===================== ===================== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE Accounts payable and accrued liabilities (December 31, 2000 amounts are post-petition) $ 2,935 $ 20,030 Accounts payable and accrued liabilities - Orbital Sciences Corporation 0 107,513 Notes to Teleglobe Holding Corporation (post-petition) 13,720 0 --------------------- --------------------- Total Current Liabilities Not Subject to Compromise 16,655 127,543 Revenue participation accrued interest 0 1,520 Long-term debt 0 170,000 Liabilities subject to compromise (pre-petition) 291,877 0 Minority interest (pre-petition) 7,820 0 --------------------- --------------------- Total Liabilities 316,352 299,063 COMMITMENTS AND CONTINGENCIES PARTNERS' CAPITAL (DEFICIT): Teleglobe Mobile Partners (186,373) 70,079 Orbital Communications Corporation (118,084) 20,670 --------------------- --------------------- Total Partners' Capital (Deficit) (304,457) 90,749 --------------------- --------------------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 11,895 $ 389,812 ===================== =====================
The accompanying notes are an integral part of these consolidated financial statements. 3 6 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ---------------------------------------------------- 2000 1999 1998 ---------------- --------------- ---------------- REVENUES: Service and product sales $ 7,797 $ 2,772 $ 1,262 ---------------- --------------- ---------------- EXPENSES: Cost of product sales 67,226 3,186 1,242 Engineering expenses 20,186 25,492 17,007 Marketing, administrative and other expenses 55,705 43,051 34,961 ---------------- --------------- ---------------- Total expenses 143,117 71,729 53,210 ---------------- --------------- ---------------- LOSS FROM OPERATIONS BEFORE DEPRECIATION, LOSS ON IMPAIRMENT, AND AMORTIZATION (135,320) (68,957) (51,948) Depreciation 39,124 47,035 11,048 Loss on impairment of long-lived assets 334,837 0 0 Goodwill amortization 36 42 0 ---------------- --------------- ---------------- LOSS FROM OPERATIONS (509,317) (116,034) (62,996) OTHER INCOME AND EXPENSES: Interest income 227 335 914 Interest expense and other financial charges (18,537) (25,866) (2,814) Loss on impairment of investments and loss on sale of affiliates (5,196) 0 0 Equity in net losses of affiliates (5,671) (2,983) (4,732) ---------------- --------------- ---------------- LOSS BEFORE REORGANIZATION ITEMS (538,494) (144,548) (69,628) REORGANIZATION ITEMS: Professional fees (903) 0 0 Write off of debt issuance costs (3,868) 0 0 Interest earned on accumulated cash and cash equivalents during Chapter 11 proceedings 38 0 0 ---------------- --------------- ---------------- NET LOSS (543,227) (144,548) (69,628) OTHER COMPREHENSIVE INCOME (LOSS): Currency translation adjustments (59) 348 0 ---------------- --------------- ---------------- COMPREHENSIVE LOSS $ (543,286) $ (144,200) $ (69,628) ================ =============== ================
The accompanying notes are an integral part of these consolidated financial statements. 4 7 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, -------------------------------------------------------- 2000 1999 1998 ------------------ ---------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (543,227) $ (144,548) $ (69,628) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES: Items not affecting cash: Depreciation 39,124 47,035 11,048 Amortization 616 1,084 837 Equity in net losses of affiliates 5,671 2,983 4,732 Loss on impairment of inventory and other assets 63,282 0 0 Loss on impairment of long-lived assets 334,837 0 0 Loss on impairment of investments and loss on sale of affiliates 5,196 0 0 Write off of debt issuance costs 3,868 0 0 ------------------ ---------------- ----------------- Sub-total (90,633) (93,446) (53,011) Net changes in non-cash working capital items: Decrease (increase) in accounts receivable 1,270 (1,264) 0 Increase in inventory (1,422) (9,276) (4,528) (Increase) decrease in prepaid expenses and other current assets (1,364) (4,923) 1,683 Increase in deferred and prepaid contract costs (3,041) 0 0 Increase in accounts payable and accrued liabilities 1,721 4,224 2,095 Increase in revenue participation accrued interest 0 921 585 Liabilities subject to compromise: Increase in accounts payable and accrued liabilities 11,651 0 0 Decrease in accounts payable and accrued liabilities - Orbital Sciences Corporation (23,626) 0 0 Increase in deferred revenue 2,067 0 0 Increase in revenue participation accrued interest 314 0 0 ------------------ ---------------- ----------------- NET CASH USED IN OPERATING ACTIVITIES (103,063) (103,764) (53,176) ------------------ ---------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (36,370) (11,867) (45,915) Increase in investments in and advances to affiliates (2,386) (6,874) (2,105) Purchase of investments 0 0 (7,228) Proceeds from sale of investments 0 390 29,594 Proceeds from sale of affiliates 865 0 0 Others 0 (36) (390) ------------------ ---------------- ----------------- NET CASH USED IN INVESTING ACTIVITIES (37,891) (18,387) (26,044) ------------------ ---------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt 0 (1,190) (1,087) Partners' contributions 120,936 130,159 68,000 Notes from Teleglobe Holding Corporation 13,720 0 0 Financing fees paid and other (1,256) (1,895) 0 ------------------ ---------------- ----------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 133,400 127,074 66,913 ------------------ ---------------- ----------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (7,554) 4,923 (12,307) CASH AND CASH EQUIVALENTS: Beginning of year 8,722 3,799 16,106 ------------------ ---------------- ----------------- CASH AND CASH EQUIVALENTS: End of year $ 1,168 $ 8,722 $ 3,799 ================== ================ ================= SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ 11,900 $ 23,860 $ 23,965 ================== ================ ================= Non-cash capital expenditures and increase in accrued liabilities - Orbital Sciences Corporation $ 0 $ 53,264 $ 29,700 ================== ================ ================= Conversion of Orbital Sciences Corporation accrued liabilities to Orbital Communications Corporation partner's capital $ 36,634 $ 0 $ 0 ================== ================ =================
The accompanying notes are an integral part of these consolidated financial statements. 5 8 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) (IN THOUSANDS)
TELEGLOBE MOBILE PARTNERS ------------------------------------------------------ ACCUMULATED OTHER PARTNER'S COMPREHENSIVE CAPITAL INCOME TOTAL -------------- --------------------- --------------- PARTNERS' CAPITAL, DECEMBER 31, 1997 $ 57,834 $ 0 $ 57,834 Capital contributions 33,500 0 33,500 Net loss (34,814) 0 (34,814) -------------- --------------------- --------------- PARTNERS' CAPITAL, DECEMBER 31, 1998 56,520 0 56,520 Capital contributions 85,659 0 85,659 Net loss (72,274) 0 (72,274) Share of ORBCOMM Japan Ltd.'s currency translation adjustment 0 174 174 -------------- --------------------- --------------- PARTNERS' CAPITAL, DECEMBER 31, 1999 69,905 174 70,079 Capital contributions 120,936 0 120,936 Net loss (368,755) 0 (368,755) Repurchase of Orbital Communications Corporation stock (845) 0 (845) Reallocation of partners' capital (7,688) 0 (7,688) Deemed distribution upon contribution of interest in affiliates (63) 0 (63) Share of ORBCOMM Japan Ltd.'s currency translation adjustment 0 (37) (37) -------------- --------------------- --------------- PARTNERS' DEFICIT, DECEMBER 31, 2000 $ (186,510) $ 137 $ (186,373) ============== ===================== ===============
ORBITAL COMMUNICATIONS CORPORATION --------------------------------------------- ACCUMULATED OTHER PARTNER'S COMPREHENSIVE CAPITAL INCOME TOTAL TOTAL -------------- ------------- -------------- -------------- PARTNERS' CAPITAL, DECEMBER 31, 1997 $ 48,584 $ 0 $ 48,584 $ 106,418 Capital contributions 34,500 0 34,500 68,000 Net loss (34,814) 0 (34,814) (69,628) -------------- ------------- -------------- -------------- PARTNERS' CAPITAL, DECEMBER 31, 1998 48,270 0 48,270 104,790 Capital contributions 44,500 0 44,500 130,159 Net loss (72,274) 0 (72,274) (144,548) Share of ORBCOMM Japan Ltd.'s currency translation adjustment 0 174 174 348 -------------- ------------- -------------- -------------- PARTNERS' CAPITAL, DECEMBER 31, 1999 20,496 174 20,670 90,749 Capital contributions 36,634 0 36,634 157,570 Net loss (174,472) 0 (174,472) (543,227) Repurchase of Orbital Communications Corporation stock (409) 0 (409) (1,254) Reallocation of partners' capital (132) 0 (132) (7,820) Deemed distribution upon contribution of interest in affiliates (353) 0 (353) (416) Share of ORBCOMM Japan Ltd.'s currency translation adjustment 0 (22) (22) (59) -------------- ------------- -------------- -------------- PARTNERS' DEFICIT, DECEMBER 31, 2000 $ (118,236) $ 152 $ (118,084) $ (304,457) ============== ============= ============== ==============
The accompanying notes are an integral part of these consolidated financial statements. 6 9 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) NATURE OF OPERATIONS Organization In 1993, Teleglobe Mobile Partners ("Teleglobe Mobile"), a partnership established by affiliates of Teleglobe Inc. ("Teleglobe"), and Orbital Communications Corporation ("Orbital Communications"), a majority owned subsidiary of Orbital Sciences Corporation ("Orbital"), formed ORBCOMM Global, L.P. ("ORBCOMM" or the "Company"), a Delaware limited partnership. Orbital Communications and Teleglobe Mobile also formed two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM International"), to market services using the ORBCOMM low-earth orbit satellite-based data communication system (the "ORBCOMM System") in the United States and internationally, respectively. In 1995, the Company became a general and limited partner in ORBCOMM USA with a 98% participation interest and Orbital Communications' direct partnership interest was reduced to 2% and Teleglobe Mobile's direct partnership interest was eliminated entirely. Simultaneously, the Company became a general and limited partner in ORBCOMM International with a 98% participation interest and Teleglobe Mobile's direct partnership interest was reduced to 2% and Orbital Communications' direct partnership interest was eliminated entirely. Effective as of January 1, 2000, ORBCOMM entered into an agreement with Teleglobe, Teleglobe Mobile, Orbital and Orbital Communications (the "Omnibus Agreement") pursuant to which Teleglobe Mobile became the Company's sole general partner and majority owner, with an equity interest of approximately 64% as of January 1, 2000 (approximately 68% as of December 31, 2000), and Orbital Communications remained a limited partner, with a minority ownership equity interest of approximately 36% as of January 1, 2000 (approximately 32% as of December 31, 2000). On January 26, 2000, Orbital Communications and Teleglobe Mobile each contributed to the Company its 2% direct participation interest in ORBCOMM USA and ORBCOMM International, respectively (the "Merger"). As a result of the Merger, these companies ceased doing business as separate entities and the Company assumed their business operations. The participation interests contributed to ORBCOMM represented net liabilities of $353,000 and $63,000 for ORBCOMM USA and ORBCOMM International, respectively, which have been accounted for as distributions to Orbital Communications and Teleglobe Mobile. In February 1999, the Company formed ORBCOMM Investment Corporation, a Delaware corporation, as a wholly owned unrestricted subsidiary for the purpose of making strategic investments in the Company's existing and prospective international service licensees, other service distributors and various third parties. In April 1999, the Company and ORBCOMM Enterprises Corporation, a Delaware corporation and wholly owned subsidiary of the Company, formed ORBCOMM Enterprises, L.P., a Delaware limited partnership ("ORBCOMM Enterprises"), as an unrestricted subsidiary of the Company for the purpose of marketing and distributing the Company's monitoring, tracking and messaging services to customers and developing applications with respect thereto. Bankruptcy and Liquidation On September 15, 2000, the Company along with seven of its subsidiaries (collectively the "Debtor") filed petitions for relief under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") (Case Nos. 00-3636 through 00-3643). Under Chapter 11, prosecution of certain claims ("Pre-Petition Claims") against the Debtor in existence prior to the filing of the petition for relief are stayed by operation of the Federal bankruptcy laws while the Debtor continues business operations as Debtor-in-Possession and attempts to develop a plan of reorganization. As of December 31, 2000, the Company had not developed its plan of reorganization pursuant to Chapter 11. 7 10 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (1) NATURE OF OPERATIONS - (CONTINUED) Pre-Petition Claims are reflected in the December 31, 2000, consolidated balance sheet as Liabilities subject to compromise. Additional claims may be determined by the Bankruptcy Court (or agreed by parties in interest) subsequent to the filing date as a result of the Company's rejection of executory contracts, including leases, and allowed claims for contingencies and other disputed amounts, which will also be classified as Liabilities subject to compromise in the consolidated balance sheets. The liabilities in the accompanying consolidated balance sheets do not include all such additional claims which may arise subsequent to December 31, 2000. Claims secured against the Debtor's assets ("Secured Claims") also are stayed by operation of law, although the holders of such claims have the right to move the court for relief from the stay. Secured Claims are secured primarily by liens on the Debtor's property, plant, and equipment. In February 2001, the Company filed a motion with the Bankruptcy Court to approve bidding procedures for, and ultimately the sale of, all or substantially all of the Debtor's assets, or alternatively to convert the cases to cases under Chapter 7 of the United States Bankruptcy Code in the event no sale was consummated. On February 28, 2001, the Company entered into an asset purchase agreement (the "Agreement") with the bidder that was determined to have made the highest and best bid during the auction process, Advanced Communications Technologies, Inc. ("ACT"). Pursuant to the Agreement, ACT agreed to purchase substantially all the assets of the Company and its subsidiaries excluding cash and cash equivalents on hand and certain other assets including any undrawn Teleglobe Holding Corporation ("Teleglobe Holding") Debtor-in-Possession Financing proceeds (see Note 6) as of the closing date. The sale to ACT was not consummated. On April 9, 2001, the Company announced it had reached a tentative asset sale agreement to sell substantially all the assets of the Company and its subsidiaries excluding cash and cash equivalents on hand as of the closing date with International Licensees, LLC ("International Licensees"), subject to finalizing certain terms and conditions, definitive documentation and International Licensees' investors' approval. International Licensees is a consortium consisting of certain international licensees and other business partners of the Company. The consideration to be paid at closing consists of $2,000,000 in cash and a $5,000,000 promissory note to be paid by International Licensees for distribution to Teleglobe Holding. In addition, upon confirmation of a consensual liquidating plan of reorganization, the Company will receive 5% of the equity of a company to be formed by International Licensees to effect the purchase and $6,500,000 of Orbital common stock subject to a valuation mechanism. This consideration will be distributed in accordance with the terms of the liquidating plan of reorganization. The sale is subject to Bankruptcy Court approval. There is no certainty at this time that either the sale to International Licensees will be consummated or that the contemplated liquidating plan of reorganization will be confirmed and consummated. The ORBCOMM System Description ORBCOMM was formed to develop, construct, operate and market the ORBCOMM System. The space assets currently consist of a constellation of 35 in-orbit satellites, 30 of which are operational and in commercial service at December 31, 2000. The ground and control assets consist of gateways strategically located throughout the world and the facilities to monitor and manage all network elements. In addition, ORBCOMM operates a network control center, which is designed to support the full constellation of ORBCOMM System satellites. The subscriber assets consist of various models of subscriber units, some of which are intended for general use, while others are designed to support specific applications. 8 11 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (1) NATURE OF OPERATIONS - (CONTINUED) Regulatory Status Construction and operation of communications satellites in the United States requires licenses from the Federal Communications Commission (the "FCC"). Orbital Communications has been granted full operational authority for the ORBCOMM System by the FCC. Similar licenses are required from foreign regulatory authorities to permit ORBCOMM System services to be offered outside the United States. Primary responsibility for obtaining licenses outside the United States resides with entities who become international licensees. In January 2000, Orbital Communications agreed to file an application with the FCC to transfer to the Company the FCC licenses held by Orbital Communications with respect to the ORBCOMM System if an aggregate of $75,000,000 in additional capital contributions or similar equity investments were made to the Company by any entity after January 1, 2000 and provided the Company stays current with its obligations to Orbital. During 2000, capital contributions or similar equity investments exceeding $75,000,000 were made to the Company. However, an application to transfer the FCC licenses to the Company has not yet been filed due to the Company's failure to stay current with its obligations to Orbital. The proposed sale to International Licensees contemplates that, subject to certain conditions, Orbital Communications will transfer the FCC licenses to a company to be formed by International Licensees to hold the FCC licenses. Risks and Uncertainties In addition to the issues surrounding its bankruptcy filing, the Company's operations are subject to certain risks and uncertainties that are inherent in the satellite communication industry. The Company has suffered recurring losses from operations and has a net partners' capital deficiency. During 2000, adequate funding was not received from Teleglobe or other sources. The Company expects to have continuing losses until completion of the Company's bankruptcy case occurs, at which time the Company expects to dissolve. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States. These statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Prior to the Merger in January 2000 and pursuant to the terms of the relevant partnership agreements: (i) Teleglobe Mobile controlled the operational and financial affairs of ORBCOMM International; and (ii) Orbital Communications controlled the operational and financial affairs of ORBCOMM USA. Since the Company was unable to control, but was able to exercise significant influence over, ORBCOMM International's and ORBCOMM USA's operating and financial policies, the Company accounted for its investments in ORBCOMM International and ORBCOMM USA using the equity method of accounting. Therefore, ORBCOMM's proportionate share of the net income and losses of each of ORBCOMM USA and ORBCOMM International was recorded under the caption "Equity in net losses of affiliates" in its consolidated financial statements. ORBCOMM's investment in each of ORBCOMM USA and ORBCOMM International was carried at cost, and was subsequently adjusted for the proportionate share of the net income and losses, additional capital contributions and distributions under the caption "Investments in and advances to affiliates." As a result of the Merger, ORBCOMM USA and ORBCOMM International ceased doing business as separate entities and ORBCOMM assumed their business operations. 9 12 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) Accordingly, ORBCOMM's consolidated financial statements include ORBCOMM USA's and ORBCOMM International's assets, liabilities and operating revenues and expenses beginning after the Merger. The Merger resulted in non-cash changes in balance sheet accounts as follows (in thousands): Increase in accounts receivable $ 7,281 Increase in deferred and prepaid contract costs 38,342 Increase in accounts payable and accrued liabilities 923 Increase in deferred revenue 47,315 As of September 15, 2000, the date of the Company's petition for protection under Chapter 11, the Company adopted the financial reporting and accounting policies required for companies operating pursuant to Chapter 11 as prescribed in the American Institute of Certified Public Accountant's Statement of Position 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"). In accordance with SOP 90-7, the Company has classified in the accompanying consolidated balance sheets as of December 31, 2000, liabilities subject to compromise separately from those that are not subject to compromise. The Company has reported separately in the accompanying consolidated statements of operations and comprehensive loss for the year ended December 31, 2000, revenues, expenses, gains and losses relating to the reorganization. The Company recorded interest expense for the period from January 1, 2000 through September 15, 2000. In accordance with SOP 90-7, interest expense is not recorded during the Chapter 11 proceedings except to the extent that it is probable that it will be allowed. The Company's management does not believe it is probable that interest expense incurred during the Chapter 11 proceedings will be allowed and therefore no interest expense for the period from September 16, 2000 through December 31, 2000 has been recorded. Use of Estimates The preparation of 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, as well as 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. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventory Inventory is stated at the lower of cost or market and primarily consists of subscriber units available for sale to customers. Cost is computed on a specific identification basis. During 2000, the Company determined that certain inventory would not be realizable. The Company recorded inventory write-downs aggregating $16,459,000 in 2000, which have been classified as a component of cost of product sales in the accompanying consolidated statements of operations and comprehensive loss. 10 13 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) Depreciation and Recoverability of Long-Lived Assets The Company depreciates its operational assets over their estimated economic useful life using the straight-line method as follows: Space segment assets: generally 8 years Ground segment assets: 3 to 10 years Other property, plant and equipment: generally 5 years The Company's policy is to review its long-lived assets, including its Mobile Communications Satellite System, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company recognizes impairment losses when the sum of the undiscounted expected future cash flows is less than the carrying amount of the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. With regard to satellites, the Company recognizes impairment losses on a satellite-by-satellite basis. During 2000, the Company assessed its long-lived assets for impairment and concluded, as a result of certain events, including the Company's Chapter 11 filing, that certain long-lived assets were impaired. The Company recorded an impairment loss of $334,837,000 in 2000 to reduce the carrying value of these long-lived assets to their estimated fair value. The Company's estimate of the fair value was based on the expected proceeds to be received from the sale of the assets of the Company and its subsidiaries. Other Assets Other assets principally consisted of deferred debt issuance costs. These costs were amortized over the term of the related debt and such amortization was reported as a component of interest expense and other financial charges. As a result of the Chapter 11 filing, the Company recorded a non-cash charge to expense of $3,868,000 for deferred debt issuance costs having no future benefit. Investments in Affiliates The Company uses the equity method of accounting for its investments in and earnings of affiliates in which the Company has the ability to exercise significant influence over, but does not control, such affiliates' operations. In accordance with the equity method of accounting, the Company's carrying amount of an investment in an affiliate is initially recorded at cost, and is increased to reflect its share of the affiliate's income and reduced to reflect its share of the affiliate's losses. The Company's investment is also increased to reflect contributions to, and decreased to reflect distributions received from, the affiliate. Investments in which the Company does not have the ability to exercise significant influence over operating and financial policies are accounted for under the cost method of accounting. On December 22, 2000, the Company completed the sale of Dolphin Software Services ULC ("DSS"), a wholly owned subsidiary, to Terion Acquisition Corporation ("Terion") for $1,000,000, which was received in 2001. The Company recorded a loss on the sale of $617,000. The Company periodically reviews the underlying value of its investments by comparing their carrying amount to their net recoverable amount. The determination of the net recoverable amount consists of evaluating forecasted income and cash flows. Any impairment of such value is written off to expense. 11 14 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) During 2000, the Company assessed its investments in affiliates for impairment and concluded as a result of certain events, including the Company's Chapter 11 filing, that certain investments in affiliates were impaired. The Company recorded an impairment loss of $4,579,000 in 2000 to reduce the carrying value of these investments in affiliates to their estimated fair value. The Company's estimate of the fair value was based on the expected proceeds to be received from the sale of the assets of the Company and its subsidiaries. In January 2001, the Company sold its investment in Aeris Communications, Inc. for $1,000,000. Because the Company had reduced the carrying value of this investment from $3,000,000 to $1,000,000 in 2000, the Company will recognize no gain or loss as a result of the sale in 2001. Goodwill In 1998, the Company acquired the assets of Dolphin Software Systems, Inc. ("Dolphin"). Goodwill, which represented the excess of costs over the fair value of identifiable assets acquired from Dolphin, was amortized on a straight-line basis over 10 years. The Company periodically reviewed the underlying value of its goodwill by comparing its carrying amount to its net recoverable amount. The determination of the net recoverable amount consisted of evaluating forecasted income and cash flows. Any impairment of such value was written off to expense. As a result of the sale of DSS to Terion, all goodwill was written off and included as a component of the $617,000 loss on the sale. Partners' Capital (Deficit) As of December 31, 1999, Teleglobe Mobile and Orbital Communications were both general and limited partners in the Company and each partner's limited and general partner accounts were combined into one single capital account and presented as such in the consolidated balance sheets and consolidated statements of partners' capital (deficit). As of December 31, 2000 and pursuant to the terms of the Omnibus Agreement (see Note 1), the Company's sole general partner and majority owner, Teleglobe Mobile, had an equity interest of approximately 68% and the limited partner, Orbital Communications, had a minority ownership equity interest of approximately 32%. Revenue Recognition Prior to January 1, 2000, revenue from product sales was generally recognized when products were shipped or when customers accepted the products, depending on contractual terms. Service revenues were generally recognized when services were rendered. License fees from service license or similar agreements were generally accounted for as deferred revenues and recognized ratably over the term of the agreements. In December 1999, the Securities and Exchange Commission (the "SEC") issued "Staff Accounting Bulletin No. 101, Revenue Recognition" ("SAB No. 101"). SAB No. 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. The Company adopted SAB No. 101 in 2000, effective January 1, 2000. As a result, revenues from product sales and activation of subscriber units are accounted for as deferred revenues and recognized ratably over the expected customer life, generally 5 years. Revenues from gateway sales and service license and other similar agreements are accounted for as deferred revenues and recognized ratably over the life of the related service license or similar agreements. The impact of adopting SAB No. 101, including cumulative effect, was not material to the Company's 2000 results of operations. 12 15 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) The cumulative effect of adopting SAB No. 101 as of January 1, 2000 was to defer $4,549,000 of revenues primarily from gateway sales of ORBCOMM International (resulting from related revenues of $23,638,000 and related costs of $19,089,000), which was merged with the Company on January 26, 2000. Foreign Currency Translation The Company has determined the functional currency of its Canadian subsidiaries, DSS and ORBCOMM Canada Inc. ("ORBCOMM Canada") (together the "Canadian Subsidiaries"), to be the U.S. dollar. Consequently, the Canadian subsidiaries' financial statements are remeasured into U.S. dollars on the following basis: -- monetary assets and liabilities are remeasured at the current exchange rate; -- all non-monetary items that reflect prices from past transactions are remeasured using historical exchange rates, while all non-monetary items that reflect prices from current transactions are remeasured using the current exchange rate; and -- revenues and expenses are remeasured at the average exchange rates prevailing at the time the transactions occurred, except those expenses related to non-monetary items, which are remeasured at historical exchange rates. Exchange gains/losses resulting from the remeasurement process are reported on the consolidated statements of operations and comprehensive loss under "Interest expense and other financial charges." Income Taxes As a partnership, Federal and state income taxes are the direct responsibility of each partner. Accordingly, no income taxes have been recorded by the Company within the accompanying consolidated financial statements. Stock Based Compensation ORBCOMM and its subsidiary, ORBCOMM DIS Corporation, formerly known as Dolphin Information Services, Inc., ("DIS"), account for stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which requires companies to (i) recognize as expense the fair value of all stock-based awards on the date of grant, or (ii) continue to apply the provisions of Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB No. 25") and provide pro forma net income (loss) data for employee stock option grants as if the fair-value-based method as defined in SFAS No. 123 had been applied. ORBCOMM and DIS elected to continue to apply the provisions of APB No. 25 and to provide the pro forma disclosure in accordance with the provisions of SFAS No. 123. Segment Information Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"), establishes standards for reporting financial information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company's revenues are primarily derived from customers in the United States. The Company's operations for 2000 and 1999 constitute a single segment. 13 16 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) Comprehensive Income As of January 1, 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and presentation of comprehensive income and its components. Comprehensive loss consists of net loss and currency translation adjustments and is presented in the consolidated statements of operations and comprehensive loss. SFAS No. 130 requires only additional disclosures in the consolidated financial statements; it does not affect the Company's financial position or results of operations. Reclassification of Prior Years' Balances Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the current year presentation. (3) MOBILE COMMUNICATIONS SATELLITE SYSTEM AND OTHER PROPERTY, PLANT AND EQUIPMENT The Mobile Communications Satellite System and other Property, Plant and Equipment consist of the following assets:
DECEMBER 31, (IN THOUSANDS) -------------------------------------- 2000 1999 ------------------ ----------------- Space segment assets ........................................ $ 378,752 $ 350,771 Ground segment assets ....................................... 49,990 50,064 Other property, plant and equipment ......................... 20,725 16,841 ------------------ ----------------- Total ....................................................... 449,467 417,676 Less: accumulated depreciation and loss on impairment ....... (442,467) (71,634) ------------------ ----------------- Total, net .................................................. $ 7,000 $ 346,042 ================== =================
During construction of the Mobile Communications Satellite System, the Company capitalized substantially all construction costs. The Company also capitalized a portion of the engineering direct labor costs that related to hardware and system design and development and coding of the software products that enhance the operation of the Mobile Communications Satellite System. For the years ended December 31, 1999 and 1998, $559,000 and $5,041,000, respectively, of such costs were capitalized (none for the year ended December 31, 2000). For the year ended December 31, 1998, total interest costs were $24,550,000, of which $22,573,000 had been capitalized as a part of the historical cost of the Mobile Communications Satellite System. The Company stopped capitalizing interest costs related to the ORBCOMM System after the launch of full commercial service of the ORBCOMM System in the United States and Canada in November 1998. For the years ended December 31, 2000 and 1999, total interest costs were $17,028,000 and $24,784,000, none of which were capitalized. (4) LIABILITIES SUBJECT TO COMPROMISE As of December 31, 2000, Liabilities subject to compromise consist of the following (in thousands): 14 17 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (4) LIABILITIES SUBJECT TO COMPROMISE - (CONTINUED) Accounts payable and accrued liabilities $ 17,104 Deferred revenue 41,804 Accounts payable and accrued liabilities - Orbital Sciences Corporation 47,253 Long-term debt (see Note 5) 170,000 Revenue participation accrued interest 1,834 Accrued interest on long-term debt 13,882 ------------- $ 291,877 =============
(5) LONG-TERM DEBT In August 1996, the Company and ORBCOMM Global Capital Corp. issued $170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with Revenue Participation Interest (the "Old Notes"). All of the Old Notes were exchanged for an equal principal amount of registered 14% Series B Senior Notes due 2004 with Revenue Participation Interest (the "Notes"). Revenue Participation Interest represents an aggregate amount equal to 5% of ORBCOMM System revenues generated from August 1996 through September 15, 2000 and is payable on the Old Notes and the Notes on each interest payment date subject to certain covenant restrictions. The Notes are fully and unconditionally guaranteed on a joint and several basis by Teleglobe Mobile and Orbital Communications, and were guaranteed by ORBCOMM USA and ORBCOMM International prior to the Merger. The guarantees are non-recourse to the shareholders and/or partners of the guarantors, limited only to the extent necessary for each such guarantee not to constitute a fraudulent conveyance under applicable law. The Indenture governing the Notes contains certain financial covenants providing for, among other things, limitations on payments and cash transfers between the credit parties and Teleglobe and Orbital, limitations on transactions between ORBCOMM and its affiliates, limitations on the incurrence of additional indebtedness and restrictions on the sale of ORBCOMM's assets. The Indenture also imposes limitations governing the conduct of ORBCOMM's business and creates restrictions relating to ORBCOMM's investment activities. On August 15, 2000, due to the limited amount of funds available, the Company failed to pay an $11,900,000 interest payment due on the Notes. As a result of the Company's nonpayment of interest and failure to successfully restructure the Notes by September 14, 2000, the last day of the grace period permitted by the Notes' terms, the Notes were in default. On April 5, 2001, the Indenture Trustee for the Notes made demand upon Teleglobe Mobile and Orbital Communications for the amounts due and owing on the Notes. (6) RELATED PARTY TRANSACTIONS The Company paid Orbital $54,474,000 (including $41,460,000 paid pursuant to the Omnibus Agreement as described below), $537,000, and $5,641,000 for the years ended December 31, 2000, 1999, and 1998, respectively. Payments were made for work performed or services provided pursuant to the ORBCOMM System Design, Development, and Operations Agreement dated as of September 12, 1995 (the "1995 Procurement Agreement"), the ORBCOMM System Procurement Agreement dated as of February 1, 1999 (the "1999 Procurement Agreement"), the Administrative Services Agreement (the "Administrative Services Agreement") dated as of January 1, 1997 (for provision of ongoing administrative support to the Company), and a Sublease Agreement dated as of February 15, 1998 for office space in Sterling, Virginia. The Administrative Services Agreement was terminated as of May 19, 2000, at the same time that the Company signed two additional Sublease Agreements with Orbital for office space in Dulles, Virginia. Teleglobe, as the guarantor under one of these Sublease Agreements, paid $1,445,000 in 2000 to 15 18 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (6) RELATED PARTY TRANSACTIONS - (CONTINUED) Orbital on the Company's behalf. Additionally, as of December 31, 2000 and 1999, Orbital deferred invoicing $40,753,000 and $91,300,000, respectively, under the Company's 1995 and 1999 Procurement Agreements with Orbital. As of December 31, 2000, the Company also accrued an additional $6,500,000 under the 1995 Procurement Agreement, which is due in installments from 2001 to 2005. As of December 31, 1999, the Company accrued an additional $16,213,000 under the 1995 Procurement Agreement and the Administrative Services Agreement. Pursuant to the Omnibus Agreement, the Company made arrangements to settle the $91,300,000 of deferred invoiced amounts as of December 31, 1999, and during the year ended December 31, 2000, the following transactions took place: - On January 26, 2000, ORBCOMM paid $41,460,000 to Orbital. The funds for this payment came from an equity contribution to ORBCOMM made on that date by Teleglobe Mobile, - On March 3, 2000, Orbital invoiced ORBCOMM $33,082,000 and simultaneously assigned such invoice to Orbital Communications. Orbital Communications subsequently requested that ORBCOMM convert, and ORBCOMM converted, the full amount of this invoice into an equity contribution to ORBCOMM, and - The parties agreed that the remaining $16,758,000, together with accrued interest, would be paid by ORBCOMM to Orbital in two equal installments on each of March 31, 2001, and June 30, 2001. The payment due on March 31, 2001 has not been paid, and this liability has been included with the Company's liabilities subject to compromise under the caption "Accounts payable and accrued liabilities - Orbital Sciences Corporation" (see Note 4). In addition, in January 2000, Orbital Communications requested that ORBCOMM convert, and ORBCOMM converted, into an equity contribution to ORBCOMM $2,962,000 of invoices due to Orbital Communications pursuant to the Administrative Services Agreement and previously accrued by ORBCOMM as of December 31, 1999. As of May 19, 2000, pursuant to the Omnibus Agreement, Teleglobe sold to ORBCOMM the business of ORBCOMM Canada, a majority owned subsidiary of Teleglobe and ORBCOMM's international licensee for Canada, and Orbital sold to ORBCOMM the net assets of Orbital's GEMtrak division, which ORBCOMM has operated since March 1999. As required for transactions between related parties, ORBCOMM recorded the assets and liabilities acquired in both transactions using their carryover basis. In connection with the purchase of ORBCOMM Canada, the Company assumed ORBCOMM Canada's obligations related to $7,404,000 of preferred stock of ORBCOMM Canada held by Teleglobe and Meder Communications, which is owned by a previous officer of ORBCOMM. Such preferred stock is reflected on ORBCOMM's consolidated balance sheets under the caption "Minority Interest." Certain provisions of the partnership agreement among ORBCOMM, Teleglobe Mobile, and Orbital Communications require ORBCOMM to reimburse Orbital Communications for Orbital Communications' repurchase of certain shares of Orbital Communications' common stock issued pursuant to the Orbital Communications' 1998 Stock Option Plan (the "Stock Option Plan"). For the years ended December 31, 2000 and 1999, ORBCOMM reimbursed Orbital Communications $1,254,000 and $0, respectively, under the Stock Option Plan. 16 19 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (6) RELATED PARTY TRANSACTIONS - (CONTINUED) On September 25, 2000, the Company entered into a credit facility with Teleglobe Holding ("Debtor-in-Possession Financing" or "DIP") permitting the Company to borrow up to an aggregate principal amount not to exceed $17,000,000 (the "Note to Teleglobe Holding"). The Note to Teleglobe Holding bears an interest rate of 17% per annum and is fully and unconditionally guaranteed on a joint and several basis by the Company and certain of its subsidiaries. As amended on October 10, 2000, the DIP matured on March 31, 2001. In connection with the proposed asset sale to International Licensees, Teleglobe Holding has agreed to extend the maturity of the DIP. As of December 31, 2000, the outstanding balance under the DIP was $13,720,000, which included $170,000 of accrued interest. The Company paid ORBCOMM Canada, $1,335,200, $494,000 and $216,300 for the years ended December 31, 2000, 1999 and 1998, respectively, pursuant to a consulting agreement dated March 18, 1998, in consideration for services provided by employees of ORBCOMM Canada. Effective January 1, 1999, the Company commenced allocating to ORBCOMM USA and ORBCOMM International their respective share of expenses incurred by the Company on behalf of ORBCOMM USA and ORBCOMM International. For the year ended December 31, 1999, the Company allocated to ORBCOMM USA and ORBCOMM International $8,944,000 of expenses (none for the year ended December 31, 1998). As discussed in Note 2, in 2000, the companies ceased doing business as separate entities. Therefore, no expenses were allocated to ORBCOMM USA and ORBCOMM International for the year ended December 31, 2000. In May 1999, ORBCOMM USA transferred approximately $700,000 of its product development assets associated with the marketing and distribution of the Company's monitoring, tracking and messaging services and associated applications to ORBCOMM Enterprises, an entity formed by the Company to distribute value-added products and services using the ORBCOMM System. The Company sold an aggregate of $1,212,000 and $1,008,000 of products to ORBCOMM USA and ORBCOMM International for the years ended December 31, 1999 and 1998, respectively. (7) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of the Company's cash and cash equivalents, receivables, prepaid expenses and accounts payable and accrued liabilities approximates fair value since all such instruments are short-term in nature. Fair value for the Company's long-term debt is determined based on quoted market rates or other information. The table below compares the carrying and the fair value of the Company's long-term debt as of December 31, 2000 and 1999.
DECEMBER 31, 2000 DECEMBER 31, 1999 (IN THOUSANDS) (IN THOUSANDS) ---------------------- ----------------------- CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE ------ ---------- ------ ---------- Long-term debt....................... $170,000 $ 6,150 $170,000 $115,600
17 20 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (8) STOCK OPTION PLAN During the second quarter of 1999, the Company and ORBCOMM Corporation, a Delaware corporation and wholly owned subsidiary of the Company (the "Corporation"), adopted The Amended and Restated 1999 Equity Plan of ORBCOMM Corporation and ORBCOMM Global, L.P. (the "Equity Plan"). The Equity Plan provides for grants of incentive or non-qualified stock options to purchase common stock of the Corporation to officers, employees, consultants and independent directors of the Corporation and its affiliates and to officers, employees and consultants of the Company. Under the terms of the Equity Plan, incentive or non-qualified stock options may not be granted at less than 100% of the fair market value at the date of grant. The options vest at a rate set forth in each individual option agreement, generally in full three years from the date of grant, subject to acceleration under certain conditions. In 1999, 709,325 shares of the Corporation's common stock were granted (none in 2000) under the Equity Plan, of which 473,900 and 65,375 were subsequently cancelled as of December 31, 2000 and 1999, respectively. All of these options have been granted at an exercise price of $14.97, which price represented the fair market value of the Corporation's common stock on the date of grant. As of December 31, 2000 and 1999, none of these options were exercisable and the weighted average remaining contractual life of these options was 8.67 and 9.67 years, respectively. In 1998, DIS adopted the Dolphin Information Services, Inc. 1998 Stock Option Plan (the "DIS Plan"). The DIS Plan provided for grants of incentive or non-qualified stock options to purchase DIS common stock to officers, employees and outside directors of DIS, the Company and their respective affiliates. Under the terms of the DIS Plan, incentive stock options could not be granted at less than 100% of the fair market value of DIS common stock at the date of grant and non-qualified stock options could not be granted at less than 85% of the fair market value of DIS common stock at the date of grant. The options vested at a rate set forth in each individual option agreement, generally in full three years from the date of grant, subject to acceleration under certain conditions. The following table summarizes information regarding options under the DIS Plan:
NUMBER OF OPTION PRICE PER SHARES SHARE ----------------- ------------------- Outstanding as of December 31, 1998 1,237,500 $0.08 Granted 278,000 $1.00 ----------------- Outstanding as of December 31, 1999 1,515,500 $0.08-$1.00 Cancelled (1,515,000) $0.08-$1.00 ----------------- Outstanding as of December 31, 2000 0 N/A =================
As of December 31, 1999, all stock options had been granted at the fair market value of DIS common stock on the date of grant and none were exercisable. No stock options were granted in 2000. The weighted average remaining contractual life of the outstanding stock options was 8.98 years as of December 31, 1999. (9) STOCK BASED COMPENSATION The Company uses the Black-Scholes option-pricing model to determine the pro forma impact of stock option grants under SFAS No. 123 on the Company's net loss. The model uses certain information, such as the interest rate on a risk-free security maturing generally at the same time as the option being valued, and requires certain assumptions, such as the expected amount of time an option will be outstanding until it is exercised or it expires, to calculate the weighted-average fair value per share of stock options granted. 18 21 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (9) STOCK BASED COMPENSATION - (CONTINUED) This information and the assumptions used for 2000 and 1999 for the Equity Plan and the DIS Plan are summarized as follows:
ADDITIONAL SHARES WEIGHTED-AVERAGE FAIR VALUE RISK-FREE AVAILABLE AS OF DECEMBER 31, PER SHARE AT GRANT DATE INTEREST RATE ---------------------------- ----------------------- ------------- 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- ORBCOMM 1,329,950 856,050 N/A $14.97 N/A 5.61% DIS N/A 1,484,500 N/A $0.25 N/A 5.61%
The assumed volatility, dividend yield and average expected life was 30%, zero percent and 4.5 years, respectively, for the Equity Plan for the year ended December 31, 2000 and for both plans for the year ended December 31, 1999. Had the Company determined compensation cost based on the fair value at the grant date for the stock options in accordance with the fair value method prescribed by SFAS No. 123, the Company's net loss would have been $543,241,000 and $144,795,000 for the years ended December 31, 2000 and 1999, respectively. (10) EMPLOYEE SAVINGS PLAN The Company maintains the ORBCOMM Retirement Savings Plan (the "Plan"), which is a 401(k) profit sharing plan. All U.S. employees who are scheduled to work 1,000 hours or more in a consecutive 12-month period are eligible to participate in the Plan on their dates of employment. Employees may contribute 15% of eligible compensation to the Plan and the Company matches 100% of the amount contributed by each employee up to 4% of such compensation. In addition, the Plan contains a discretionary contribution component, pursuant to which the Company may make an additional annual contribution to the Plan. As of December 31, 1999, Company contributions vested over a five-year period from the employee's date of employment. Subsequent to year end 1999, the vesting period was shortened to three years. Company contributions (both the Company matching contribution and the annual discretionary contribution) for the years ended December 31, 2000, 1999, and 1998 were $969,000, $1,227,000, and $1,127,000, respectively. (11) COMMITMENTS AND CONTINGENCIES 1999 Procurement Agreement Under the 1999 Procurement Agreement with Orbital, as amended, the Company was to purchase, at a minimum, among other things, 14 additional satellites, two satellite propulsion rings and two separate Pegasus launch vehicles at a total cost not to exceed $107,000,000. As of December 31, 2000, the Company's remaining obligation under this agreement is approximately $63,000,000. . Lease Commitments The Company leases facilities and equipment under agreements classified as operating leases. Rental expense for 2000, 1999 and 1998 was $3,703,000, $2,227,000, and $2,074,000, respectively, of which $2,097,000, $815,000, 19 22 ORBCOMM GLOBAL, L.P. (DEBTOR-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (11) COMMITMENTS AND CONTINGENCIES - (CONTINUED) and $939,000, respectively, represents rental expense charged to the Company by Orbital as part of the Administrative Services Agreement and the Sublease Agreements. The future minimum rental payments under non-cancelable operating leases currently in place are as follows:
PERIODS IN THOUSANDS ------- ------------ 2001................................................................. $ 3,053 2002................................................................. 2,981 2003................................................................. 2,992 2004................................................................. 2,908 2005................................................................. 2,312 Thereafter........................................................... 21,210 ------------- Total minimum lease commitments................................... $ 35,456 =============
Pursuant to the protections afforded under the Federal bankruptcy laws, the Company is entitled to reject certain leases to which it is a party, subject to certain guidelines and restrictions. In connection with a sale of substantially all of the Company's assets, a buyer generally may request the Company to assume and assign to the buyer any ongoing operating leases the buyer desires to retain in connection with its purchased assets. Where possible, the Company expects to reject any leases not so retained by a buyer. Contingencies From time to time, the Company is involved in claims from licensees or potential licensees. While the outcome of these matters is uncertain, in management's opinion, there will be no material adverse impact on the financial condition or results of operations of the Company as a result of such claims. 20 23 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Orbital Sciences Corporation Our audit of the consolidated financial statements referred to in our report dated April 16, 2001 appearing in this Annual Report on Form 10-K also included an audit of the financial statement schedule as of and for the year ended December 31, 2000 listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP McLean, VA April 16, 2001 EX-99.3 19 w47792ex99-3.txt FINANCIAL STATEMENTS FOR ORBITAL COMM CORP. 1 Report of Independent Public Accountants To the Board of Directors and Stockholders of Orbital Communications Corporation: We have audited the accompanying consolidated balance sheet of Orbital Communications Corporation (the "Company") as of December 31, 1999, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Orbital Communications Corporation as of December 31, 1999, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 10 to the financial statements, the Company has suffered recurring net losses, has a net stockholders' deficiency, during 2000 wrote off substantially all of its investment in ORBCOMM Global, L.P. and was notified in April 2001 by certain creditors of ORBCOMM Global, L.P. of their demand for $170 million of amounts due and owing pursuant to guarantees made by the Company. Management's plans in regard to these matters are also described in Note 10. These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty. Vienna, VA February 3, 2000 (except with respect to the matters discussed in Note 10, as to which the date is April 12, 2001) 2 ORBITAL COMMUNICATIONS CORPORATION CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, 1999 ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 10 Accounts receivable and other current assets 830 --- Total Current Assets 840 Investments in affiliates 30,699 ------ TOTAL ASSETS $31,539 ======= LIABILITIES AND STOCKHOLDERS' DEFICIT LIABILITIES: Accounts payable and other accrued liabilities - current $ 270 Due to parent and affiliates - non-current 173,358 ------- Total Liabilities 173,628 Non-controlling interest in net assets of consolidated subsidiary (8,656) COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' DEFICIT: Common stock, par value $0.01: 8,000,000 shares authorized: 4,818,892 shares issued; 4,713,620 and 4,688,320 shares outstanding, respectively 48 Additional paid-in capital 732 Treasury stock, at cost, 105,272 shares (1,193) Accumulated deficit (133,020) --------- Total Stockholders' Deficit (133,433) --------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 31,539 ========
See accompanying footnotes to the consolidated financial statements. 2 3 ORBITAL COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1999 ---------------------------- SERVICE AND PRODUCT SALES $ 2,126 EXPENSES: Costs of sales 584 Marketing, administrative and other expenses 6,541 ----- Total expenses 7,125 ----- LOSS FROM OPERATIONS (4,999) OTHER INCOME AND EXPENSES: Equity in net losses of affiliates (69,914) Non-controlling interest in net losses of consolidated subsidiary 2,360 ----- NET LOSS $ (72,553) ==========
See accompanying footnotes to the consolidated financial statements. 3 4 ORBITAL COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31 ---------------------- 1999 ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (72,553) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES: Items not affecting cash: Equity in net losses of affiliates 69,914 Non-controlling interest in net loses of consolidated subsidiary (2,360) ------- SUB-TOTAL 67,554 Net change in non-cash working capital items: Decrease (increase) in accounts receivable and other current assets 417 Increase (decrease) in accounts payable and other accrued liabilities (617) ----- NET CASH USED IN OPERATING ACTIVITIES (5,199) ------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in affiliates (44,502) -------- NET CASH USED IN INVESTING ACTIVITIES (44,502) -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock to employees 280 Purchases of treasury stock (260) Repayments of promissory notes 0 Net borrowings from parent and affiliates 49,681 ------ NET CASH PROVIDED BY FINANCING ACTIVITIES 49,701 ------ NET DECREASE IN CASH AND CASH EQUIVALENTS 0 CASH AND CASH EQUIVALENTS: Beginning of period 10 CASH AND CASH EQUIVALENTS: End of period $ 10 =========
Non-Cash Transaction: As discussed in note 7 of the accompanying footnotes, during 1999, 9700 common shares were repurchased for cash of $260,000 and a promissory note of $163,000. See accompanying notes to consolidated financial statements. 4 5 ORBITAL COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (IN THOUSANDS, EXCEPT SHARE DATA)
Common Stock Additional ------------- Paid-in Shares Amount Capital ------ ------ ------- BALANCE, DECEMBER 31, 1998 4,783,892 48 452 -------------------------- Shares issued to employees 35,000 0 280 Treasury stock purchased 0 0 0 Net loss 0 0 0 - - - BALANCE, DECEMBER 31, 1999 4,818,892 $48 $732 -------------------------- ========= === ====
Treasury Stock Accumulated -------------- Earnings Shares Amount Deficit Total ------ ------ ------- ----- BALANCE, DECEMBER 31, 1998 95,572 (770) (60,467) (60,737) -------------------------- Shares issued to employees 0 0 0 280 Treasury stock purchased 9,700 (423) 0 (423) Net loss 0 0 (72,553) (72,553) - - -------- -------- BALANCE, DECEMBER 31, 1999 105,272 $(1,193) $(133,020) $(133,433) -------------------------- ======= ======== ========== ==========
See accompanying footnotes to the consolidated financial statements 5 6 ORBITAL COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) NATURE OF OPERATIONS Organization Orbital Communications Corporation ("Orbital Communications") is a majority owned and controlled subsidiary of Orbital Sciences Corporation ("Orbital") and is included in Orbital's consolidated financial statements. In 1993, Orbital Communications and Teleglobe Mobile Partners ("Teleglobe Mobile"), a partnership established by affiliates of Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. ("ORBCOMM"), a Delaware limited partnership, and two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM International"). As of December 31, 1999, each of Orbital Communications and Teleglobe Mobile is a 50% general partner in ORBCOMM, and ORBCOMM is a 98% general partner in each of the two marketing partnerships. Additionally, Orbital Communications is a 2% general partner in ORBCOMM USA, and Teleglobe Mobile is a 2% general partner in ORBCOMM International. Directly and indirectly, as of December 31, 1999 Orbital Communications holds and controls 51% and 49% of ORBCOMM USA and ORBCOMM International, respectively. In January 2000, ORBCOMM USA and ORBCOMM International ceased doing business as separate entities and ORBCOMM assumed their business operations (see note 9). Pursuant to the terms of the relevant partnership agreements, and prior to the merger referred to in note 9, as of December 31, 1999: (i) Orbital Communications and Teleglobe Mobile share equal responsibility for the operational and financial affairs of ORBCOMM; (ii) Orbital Communications controls and consolidates the operational and financial affairs of ORBCOMM USA; and (iii) Teleglobe Mobile controls the operational and financial affairs of ORBCOMM International. Since Orbital Communications is unable to control, but is able to exercise significant influence over ORBCOMM's and ORBCOMM International's operating and financial policies, Orbital Communications accounts for its investments in ORBCOMM and ORBCOMM International using the equity method of accounting. In April 1999, ORBCOMM formed ORBCOMM Enterprises, L.P. ("ORBCOMM Enterprises"), a Delaware limited partnership for the purpose of marketing and distributing ORBCOMM's monitoring, tracking and messaging services to customers and developing applications with respect thereto. In May 1999, ORBCOMM USA transferred approximately $700,000 of its assets to ORBCOMM Enterprises. The ORBCOMM System Description ORBCOMM was formed to develop, construct, operate and market the ORBCOMM low-Earth orbit ("LEO") satellite data communication system (the "ORBCOMM System"). The ORBCOMM System is comprised of three operational segments: (i) a space segment consisting of a 35 LEO satellites, 26 of which were in commercial service at December 31, 1999; (ii) a ground and control segment consisting of a network control center, which serves as the global control for the satellites' gateway Earth stations which send signals to and receive signals from the satellites, and (iii) a subscriber segment consisting of various models of subscriber units, some of which are intended for general use, while others are designed to support specific applications. Regulatory Status Construction and operation of communications satellites in the United States requires licenses from the Federal Communications Commission (the "FCC"). Orbital Communications has received licenses from the FCC 6 7 granting Orbital Communications full operational authority for the ORBCOMM System. Similar licenses are required from foreign regulatory authorities to permit ORBCOMM System services to be offered outside the United States. Primary responsibility for obtaining licenses outside the United States will reside with the entities that become international licensees. In January 2000, Orbital Communications agreed to transfer the FCC licenses if certain events occur (see Note 9). (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Preparation of Consolidated Financial Statements The preparation of 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 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. Actual results could differ from these estimates. Certain reclassifications have been made to the 1998 and 1997 consolidated financial statements to conform to the 1999 consolidated financial statement presentation. Principles of Consolidation The consolidated financial statements include the accounts of Orbital Communications and ORBCOMM USA. All material transactions and accounts between consolidated entities have been eliminated. Revenue Recognition ORBCOMM USA provides subscriber unit hardware to commercial customers. Revenues from product sales are recognized when products are shipped or when customers have accepted the products, depending on contractual terms. Service revenues are recognized when service is rendered. Income Taxes Orbital Communications is included in Orbital's consolidated Federal income tax returns. Orbital Communications determines its provision for income taxes as if it were filing on a separate return basis. Orbital Communications recognizes income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Investments in Affiliates and Recoverability of Long-Lived Assets Orbital Communications uses the equity method of accounting for its investments in, and equity in earnings (losses) of, affiliates, in which Orbital Communications has the ability to significantly influence, but not control the affiliates' operations. In accordance with the equity method of accounting, Orbital Communications' carrying amount of an investment in an affiliate is initially recorded at cost and is increased to reflect its proportionate share of the affiliate's income and is reduced to reflect its proportionate share of the affiliate's losses. Orbital Communications' investment is also increased to reflect contributions to, and decreased to reflect distributions from, the affiliate. Any excess of the amount of Orbital Communications' investment over the amount of Orbital Communications' underlying equity in each affiliate's net assets is amortized over a period of 20 years. 7 8 Orbital Communications' policy is to review its long-lived assets, including its investments in affiliates, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Orbital Communications recognizes an impairment loss when the sum of expected future cash flows is less than the carrying amount of the asset. Fair Value of Financial Instruments The carrying value of Orbital Communications' current assets and current liabilities approximate fair value since all such instruments are short-term in nature. Stock Based Compensation Orbital Communications accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which requires companies to: (i) recognize as expense the fair value of all stock-based awards on the date of grant, or (ii) continue to apply the provisions of Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25") and provide pro forma net income (loss) data for employee stock option grants as if the fair-value-based method as defined in SFAS 123 had been applied. Orbital Communications has elected to continue to apply the provisions of APB 25 and to provide the pro forma disclosure in accordance with the provisions of SFAS 123. (3) INVESTMENTS IN AFFILIATES At December 31, 1999, Orbital Communications had approximately $30,699,000 in investments in affiliates relating to ORBCOMM and ORBCOMM International. At December 31, 1999, ORBCOMM had $389,812,000 in total assets, $299,063,000 in total liabilities and $90,749,000 of total partners' capital, respectively. ORBCOMM recorded $2,772,000 in revenues and $144,548,000 in net losses for the year ended December 31, 1999. The difference between Orbital Communications' investment in ORBCOMM and the amount of Orbital Communications' underlying equity in ORBCOMM is primarily due to ORBCOMM accounting for its interests in ORBCOMM USA using the equity method of accounting, while Orbital Communications consolidates its interests in ORBCOMM USA. Based on the amended terms of the Partnership Agreement as explained in note 9, and its current assessment of the overall business prospects of the ORBCOMM System, Orbital Communications currently believes its investments in ORBCOMM and ORBCOMM International are fully recoverable. If in the future, the ORBCOMM business is not successful, Orbital Communications may be required to expense part or all of its investments. (4) RELATED PARTY TRANSACTIONS Orbital Communications obtains virtually all of its funding for its operations and for its capital investments in ORBCOMM from Orbital via a non-interest bearing intercompany borrowing arrangement. As of December 31, 1999, Orbital Communications owed Orbital $154,973,000, none of which is currently payable. As of December 31, 1999, Orbital Communications owed ORBCOMM $393,000. ORBCOMM USA currently obtains all of its funding from ORBCOMM via a non-interest bearing intercompany borrowing arrangement. As of December 31, 1999, ORBCOMM USA owed ORBCOMM $17,992,000. This liability was extinguished in connection with the merger described in note 9. (5) INCOME TAXES Orbital Communications had no current or deferred provision for income taxes for the year ended December 31, 1999. 8 9 The differences between the actual taxes and taxes computed at the U.S. Federal income tax rate are summarized as follows:
Year Ended December 31, ----------------------- 1999 ---- U.S. Federal statutory rate (35%) Change in valuation allowance 35% --- Effective rate 0% ===
The tax effects of significant temporary differences are as follows:
Year Ended December 31, ----------------------- (In Thousands) 1999 ---- Deferred Tax Asset: Net operating loss carryforward and other $ 72,902 Valuation allowance (48,870) -------- Tax assets net 24,032 Deferred Tax Liabilities: Book/Tax differences attributable to partnership items (24,032) -------- Net deferred tax assets $ 0 ========
Orbital Communications provides a valuation allowance against its net deferred tax assets given the trend of taxable losses in prior years. (6) COMMITMENTS AND CONTINGENCIES In August 1996, ORBCOMM and ORBCOMM Global Capital Corp. issued $170,000,000 senior unsecured notes due in 2004 (the "Notes") to institutional investors. The Notes bear interest at a fixed rate of 14% and provide for noteholder participation in future ORBCOMM system revenues. The Notes are fully and unconditionally guaranteed on a joint and several basis by Orbital Communications and Teleglobe Mobile and were guaranteed by ORBCOMM USA and ORBCOMM International prior to the merger described in note 9. The guarantees are non-recourse to Orbital Communications' shareholders (including Orbital) and Teleglobe Mobile's partners (including Teleglobe). (7) STOCK OPTION PLAN Certain provisions of the Orbital Communications Plan require Orbital Communications to repurchase, with cash or promissory notes, the common stock acquired pursuant to the options. The total amount of cash for stock repurchases and promissory note repayments is restricted to $1,000,000 per year, in accordance with the terms of the Notes (See Note 6). During 1999, Orbital Communications repurchased 9,700 common shares, by paying $260,000 in cash. A promissory note of $163,000 was issued in 1999 in connection with the repurchase of the 9,700 common shares. 9 10 Orbital Communications' Board of Directors is required to determine the fair value of Orbital Communications' common stock semiannually in March and September. The Board of Directors has not yet determined the fair value of the common stock as of September 1999, to be used in its offer to repurchase shares. The price that will eventually be used may be contested by certain shareholders. The maximum number of shares that may be repurchased is approximately 43,000. The aggregate repurchase amount is not expected to exceed $2,000,000, however, the maximum amount that would be paid is limited to $1,000,000 per year as described in the preceding paragraph. The following two tables summarize information regarding options under the Orbital Communications Plan for the last year:
NUMBER OPTION PRICE OF SHARES PER SHARE -------------------- ------------------------------------------ OUTSTANDING AT DECEMBER 31, 1998 1,004,830 $ 1.50 - $39.75 Granted 36,000 $ 39.75 - $43.67 Exercised (35,000) $ 1.50 - $26.50 Canceled or Expired (287,825) $ 4.00 - $43.67 -------------- ------------ ------- OUTSTANDING AT DECEMBER 31, 1999 718,005 $ 1.50 - $43.67 ============== ========== ======
WEIGHTED OUTSTANDING AVERAGE AND EXERCISE PRICE EXERCISABLE --------------------- ---------------------- OUTSTANDING AT DECEMBER 31, 1998 $ 20.40 520,864 Granted $ 43.34 Exercised $ 8.02 Canceled or Expired $ 27.84 --------- OUTSTANDING AT DECEMBER 31, 1999 $ 19.18 531,739 ========== =======
OPTIONS OUTSTANDING ---------------------------------------------------------------------------------------- NUMBER WEIGHTED AVERAGE RANGE OF OUTSTANDING REMAINING WEIGHTED AVERAGE EXERCISE PRICES AT DEC. 31, 1999 CONTRACTUAL LIFE EXERCISE PRICE -------------------- --------------------------- --------------------------- --------------------------- $ 1.50 - $ 4.00 217,040 2.83 $ 2.41 $ 5.25 - $ 25.00 144,790 4.56 $ 14.44 $ 26.50 235,500 7.83 $ 26.50 $ 39.75 - $ 43.67 120,675 8.48 $ 40.72 ----------------- -------------- ------- ---------- $ 1.50 - $ 43.67 718,005 5.77 $ 19.18 ================== ============== ======= ==========
OPTIONS EXERCISABLE ---------------------------------------------------- NUMBER RANGE OF EXERCISABLE WEIGHTED AVERAGE EXERCISE PRICES AT DEC. 31, 1999 EXERCISE PRICE -------------------- --------------------------- ---------------------- $ 1.50 - $ 4.00 217,040 $ 2.41 $ 5.25 - $ 25.00 139,165 $ 14.01 $ 26.50 145,709 $ 26.50 $ 39.75 - $ 43.67 29,825 $ 39.75 ----------------- ------------- ---------- $ 1.50 - $ 43.67 531,739 $ 14.14 ================== ============= ==========
(8) STOCK BASED COMPENSATION Orbital Communications uses the Black-Scholes option-pricing model to determine the pro forma impact of stock option grants under SFAS 123 on Orbital Communications' net loss. The model utilizes certain information, such as the interest rate on a risk-free security maturing generally at the same time as the option being valued, and requires certain assumptions, such as the expected amount of time an option will be outstanding until it is exercised or it expires, to calculate the weighted-average fair value per share of stock options granted. This information and the assumptions used in the option pricing model for 1999 is as follows: volatility 30%; dividend yield, zero percent; average expected life, 4.5 years; risk free interest rate, 5.6%, additional shares available, 308,750, and weighted-average exercise price per option grant, $43.34. Had the company determined compensation cost based on the fair value at the grant date for its stock options in accordance with the fair value method prescribed by SFAS 123, Orbital Communications' net loss would have been $72,885,000 for the year ended December 31, 1999. (9) SUBSEQUENT EVENTS Effective as of January 1, 2000, Orbital Communications entered into an agreement with ORBCOMM, Teleglobe, Orbital, and Teleglobe Mobile pursuant to which: - Teleglobe Mobile became ORBCOMM's sole general partner and majority owner, with an interest of approximately 64% as of January 1, 2000; and 10 11 - Orbital Communications remained as a limited partner to ORBCOMM, with a minority ownership interest of approximately 36% as of January 1, 2000. On January 26, 2000, Orbital Communications and Teleglobe Mobile contributed to ORBCOMM its 2% direct participation interest in ORBCOMM USA and ORBCOMM International, respectively. As a result of this contribution, these companies ceased doing business as separate entities and ORBCOMM assumed their business operations. Orbital Communications agreed to file an application with the FCC to transfer to ORBCOMM the FCC licenses held by Orbital Communications with respect to the ORBCOMM low-Earth orbit satellite system if ORBCOMM has paid all amounts invoiced under the 1995 and 1999 procurement agreements between Orbital and ORBCOMM, and if an aggregate of $75,000,000 of additional capital contributions or similar equity investments is made to ORBCOMM by an entity after January 1, 2000. (10) ADDITIONAL SUBSEQUENT EVENTS MEMORANDUM OF UNDERSTANDING In August 2000, Teleglobe, Teleglobe Mobile, Orbital, ORBCOMM and Orbital Communications entered into a Memorandum of Understanding ("MOU"). The MOU provided for, among other things, that: - ORBCOMM devote commercially reasonable efforts to implement a new business plan agreed to by the parties, - Orbital continue discussions with potential investors in ORBCOMM, - ORBCOMM work with its creditors to restructure its debt in a manner consistent with the business plan and to take such other steps as may be appropriate in the event that ORBCOMM and its partners decide to pursue a filing under Chapter 11 of the United States Bankruptcy Code, and, - an affiliate of Teleglobe provide an aggregate of $17,000,000 of interim debt financing to ORBCOMM, a portion of which will be provided in the form of a secured loan and the remainder of which will be provided in a form to be determined by Teleglobe. THE FCC LICENSES HELD BY ORBITAL COMMUNICATIONS CORPORATION HAVE NOT BEEN TRANSFERRED TO ORBCOMM. ORBCOMM BANKRUPTCY, LITIGATION AND OCC WRITE-OFF OF INVESTMENT IN ORBCOMM On September 15, 2000, ORBCOMM along with seven of its subsidiaries (collectively the "Debtor") filed petitions for relief under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") (Case Nos. 00-3636 through 00-3643). As a result of ORBCOMM's Chapter 11 filing, Orbital Communications recorded a charge in the third quarter of 2000 to write off its investment in ORBCOMM. As of December 31, 2000, ORBCOMM had not developed its plan of reorganization pursuant to Chapter 11. In February 2001, ORBCOMM filed a motion with the Bankruptcy Court to approve bidding procedures for, and ultimately the sale of, all or substantially all of the Debtor's assets, or alternatively to convert the cases to cases under Chapter 7 of the United States Bankruptcy Code in the event no sale was consummated. On February 28, 2001, ORBCOMM entered into an asset purchase agreement (the "Agreement") with the bidder that was determined to have made the highest and best bid during the auction process, Advanced Communications Technologies, Inc. ("ACT"). Pursuant to the Agreement, ACT agreed to purchase substantially all the assets of ORBCOMM and its subsidiaries excluding cash and cash equivalents on hand and certain other assets including any undrawn Teleglobe Holding Corporation ("Teleglobe Holding") Debtor-in-Possession Financing proceeds as of the closing date. The sale to ACT was not consummated. 11 12 On April 9, 2001, ORBCOMM announced it had reached a tentative asset sale agreement to sell substantially all of its assets and its subsidiaries excluding cash and cash equivalents on hand as of the closing date with International Licensees, LLC ("International Licensees"), subject to finalizing certain terms and conditions, definitive documentation and International Licensees' investors' approval. International Licensees is a consortium consisting of certain international licensees and other business partners of ORBCOMM. The consideration to be paid at closing consists of $2,000,000 in cash and a $5,000,000 promissory note to be paid by International Licensees for distribution to Teleglobe Holding. In addition, upon confirmation of a consensual liquidating plan of reorganization, ORBCOMM will receive 5% of the equity of a company to be formed by International Licensees to effect the purchase and $6,500,000 of Orbital common stock subject to a valuation mechanism. This consideration will be distributed in accordance with the terms of the liquidating plan of reorganization. The sale is subject to Bankruptcy Court approval. There is no certainty at this time that either the sale to International Licensees will be consummated or that the contemplated liquidating plan of reorganization will be confirmed and consummated. On September 14, 2000, ORBCOMM was in default on $170,000,000 of its 14% Series B Senior Notes with Revenue Participation Interest (the "Notes") due 2004. On April 5, 2001, the indenture trustee for the Notes made demand upon Orbital Communications Corporation for the amounts due and owing on the Notes. Orbital Communications will not be able to make these payments. In addition to ORBCOMM's bankruptcy, the write-off of Orbital Communications's investment in ORBCOMM andthe demand for payment from ORBCOMM's creditors related to the $170,000,000 Notes, Orbital Communications has incurred recurring net losses and has a net stockholders' deficit which raises substantial doubt about Orbital Communications's ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty. 12 -----END PRIVACY-ENHANCED MESSAGE-----