-----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, UmrLgGLXI8V6xY7uXnsma1aoIOTU9VoNAswZg1Zc/ufXGmRBIFJIy68hMzDRInxE qpspeVXTnPZNYO4ZrvvmcA== 0000950133-02-001211.txt : 20020415 0000950133-02-001211.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950133-02-001211 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020327 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-14279 FILM NUMBER: 02587317 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-K405 1 w58627e10-k405.txt 10-K405 FOR ORBITAL SCIENCES CORPORATION SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 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.)
21839 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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- COMMON STOCK, PAR VALUE $.01 PER SHARE THE NEW YORK STOCK EXCHANGE WARRANTS TO SUBSCRIBE FOR COMMON STOCK 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. [X] 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 March 19, 2002 was approximately $254,547,372. As of March 12, 2002, 42,469,731 shares of the Registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement to be filed on or about March 31, 2002 are incorporated by reference in Part III of this Report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
ITEM PAGE - ---- ---- PART I Item 1. Business........................................................... 1 Item 2. Properties......................................................... 12 Item 3. Legal Proceedings.................................................. 12 Item 4. Submission of Matters to a Vote of Security Holders................ 12 Item 4A. Executive Officers of the Registrant............................... 12 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................................................... 15 Item 6. Selected Financial Data............................................ 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................ 18 Item 7A. Quantitative and Qualitative Disclosures About Market Risk......... 30 Item 8. Financial Statements and Supplementary Data........................ 31 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................. 62 PART III Item 10. Directors and Executive Officers of the Registrant................. 63 Item 11. Executive Compensation............................................. 63 Item 12. Security Ownership of Certain Beneficial Owners and Management..... 63 Item 13. Certain Relationships and Related Transactions..................... 63 PART IV Item 14.... Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 64
---------------------- 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; and OrbView and ORBIMAGE are registered service marks of Orbital Imaging Corporation. PART I ITEM 1. BUSINESS BACKGROUND Orbital Sciences Corporation, together with its subsidiaries ("Orbital" or the "company"), is a space technology company that designs, manufactures, operates and markets a broad range of space-related systems for commercial, civil government and military customers. Our primary products and services are grouped into three segments: - launch vehicles and advanced programs, including ground- and air-launched rockets that deliver satellites into orbit, and suborbital launch vehicles and missile defense boosters that are used as interceptor and target vehicles for missile defense systems; - spacecraft and related space systems, including low-orbit, geosynchronous-orbit and planetary spacecraft for communications, remote sensing and scientific missions, and space-related technical services; and - electronic systems consisting of satellite-based transportation management systems for public transit agencies and private vehicle fleet operators. Orbital was incorporated in Delaware in 1987 to consolidate the assets, liabilities and operations of two entities established in 1982 and 1983, Space Systems Corporation and Orbital Research Partners, L.P., respectively. Since inception, it has been our general strategy to develop and expand a core integrated business of space systems technologies and products, focused on the design and manufacturing of lightweight rockets, small satellites and other affordable space systems intended to capitalize on increasing commercial and governmental uses 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 and the first operational low-Earth orbit commercial communications network. During 2001, as a result of our liquidity needs and our goal to conduct our operations more efficiently and profitably, we continued to implement a strategy that we had initiated in 2000 to sharpen our focus on the company's core space technology businesses, primarily involving launch vehicles, satellites and related space systems. Part of this strategy involved the sale of certain non- core assets. Between May and July 2001, our wholly owned subsidiary, Orbital Holdings Corporation, sold its remaining interest in MacDonald, Dettwiler and Associates Ltd. ("MDA"), raising gross proceeds of approximately $169.2 million. In July 2001, subsidiaries of Thales, S.A. acquired by merger our majority-owned subsidiary, Magellan Corporation ("Magellan"), and purchased our 60% ownership interest in Navigation Solutions LLC ("NavSol"), for which we received gross proceeds of approximately $65.5 million. In September 2001, we sold our sensors systems division to the Hamilton Sundstrand unit of United Technologies Corporation resulting in gross proceeds from the sale of approximately $19.0 million. We used a significant portion of the proceeds from these business unit dispositions to reduce our outstanding debt obligations and to fund operations. We are continuing to explore the disposition of other non-core assets. 1 In the 1990s, we developed and funded several space-based services businesses, primarily through the following entities: - ORBCOMM Global, L.P. ("ORBCOMM"), which operated a low-Earth orbit satellite communications system designed to serve the global market for two-way data communications; and - Orbital Imaging Corporation ("ORBIMAGE"), which develops and operates commercial remote imaging satellites. In the fourth quarter of 2001, the United States Bankruptcy Court for the District of Delaware confirmed a Chapter 11 liquidating plan of reorganization for ORBCOMM and the plan became effective on December 31, 2001. We do not have an ownership interest in ORBCOMM's successor entity, although we could obtain up to a 40% equity interest under certain circumstances. The liquidating plan provided for mutual releases and waivers of claims by and against us, ORBCOMM and its various stakeholders. Also, pursuant to the liquidating plan, in the fourth quarter of 2001, we contributed 1,709,627 shares of our common stock to the ORBCOMM estate. ORBIMAGE is negotiating a consensual plan of reorganization under Chapter 11 of the U.S. Federal Bankruptcy Code with its major creditors and shareholders, including Orbital. If ORBIMAGE is unable to proceed with such consensual plan of reorganization, we could be subject to litigation brought by ORBIMAGE, its other shareholders and/or its creditors. Orbital is ORBIMAGE's supplier of satellites and launch services. DESCRIPTION OF ORBITAL'S PRODUCTS AND SERVICES Our products and services are grouped into three reportable segments that are described more fully below: launch vehicles and advanced programs, satellites and related space systems and electronic systems. Our business is not seasonal. Customers that accounted for 10% or more of our consolidated 2001 revenues were the National Aeronautics and Space Administration ("NASA"), the U.S. Department of Defense ("DoD") and Lockheed Martin Corporation. LAUNCH VEHICLES AND ADVANCED PROGRAMS. We developed and produce the Pegasus, Taurus and Minotaur space launch vehicles that place small satellites into low-Earth orbit. Our Pegasus launch vehicle is launched from beneath our L-1011 carrier aircraft to deploy relatively lightweight satellites into low-Earth orbit. The Taurus launch vehicle is a ground-launched derivative of the Pegasus vehicle that can carry heavier payloads to orbit. The ground-launched Minotaur launch vehicle combines Minuteman II rocket motors with our Pegasus technology to launch payloads into low-Earth orbit. From 1990 through the date of this report, the Pegasus, Taurus and Minotaur rockets have performed a total of 39 launches. The Taurus experienced its first launch failure in September 2001. We did not have any Pegasus missions in 2001; we had a successful Pegasus launch in February 2002. We also design and produce suborbital launch vehicles that 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. Various branches of the U.S. military and the Missile Defense Agency typically use our suborbital launch vehicles as targets for defense-related applications such as ballistic 2 missile interceptor and related experiments. Since 1982, Orbital, including a predecessor company, has performed 109 suborbital missions. In late 2001, we received an initial contract from The Boeing Company to develop and build a ground-launched booster vehicle for the DoD's national missile defense program. The company's booster vehicle, a modified version of our Pegasus rocket, would be used as a major operational element (rather than just as a target vehicle in the testing phase) in the U.S. national missile defense system. The final contract with Boeing was awarded in March 2002. 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, space maneuvering vehicles, hypersonic aircraft and missile defense systems. For example, since the late 1990s, we have been developing the Hyper-X hypersonic research launcher for NASA and designing advanced space launchers for NASA and the U.S. Air Force. Our first mission of the Hyper-X research launcher failed in 2001; we are continuing to work on the next two vehicles to be delivered under the Hyper-X contract. SATELLITES AND RELATED SPACE SYSTEMS. We design and manufacture spacecraft, including low-orbit and geosynchronous-orbit satellites for communications, remote sensing and scientific missions. Since 1982, we, including two predecessor companies, have built and delivered 84 satellites for various commercial and governmental customers for a wide range of communications, broadcasting, remote imaging, scientific and military missions. During 2001, we completed and delivered two geosynchronous satellites, one geosynchronous satellite platform and two low-Earth orbit satellites. In December 2001, we were selected by NASA to develop and build a planetary spacecraft that will orbit main-belt asteroids. 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 and production services for U.S. government agencies, such as NASA, the Jet Propulsion Laboratory, DoD, the Naval Research Laboratory and the U.S. Department of Energy. Since 1982, we have supplied such systems and services on 24 space missions, including the recent Hubble Space Telescope servicing mission performed by NASA in March 2002. ELECTRONIC SYSTEMS. Our electronic systems division develops and produces fleet management systems that have been used primarily for metropolitan mass transit operators in the United States. Our transportation management systems combine global positioning satellite ("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, Phoenix, Baltimore, Washington, DC, Atlanta, Los Angeles, Santa Clara and San Mateo (California) and Las Vegas, a number of smaller state and municipal transit systems, and private vehicle fleet operators. Prior to the sale of our sensors systems division in September 2001, we developed and manufactured sophisticated sensors and analytical instruments for space, defense and industrial applications within our electronic systems business segment. 3 ORBIMAGE We have also been involved in satellite-based remote imaging services through ORBIMAGE, a provider of global space-based imagery that currently operates one satellite that collects, processes and distributes digital imagery of the Earth's surface, atmosphere and weather conditions. We own 99.9% of ORBIMAGE's outstanding common stock and approximately 52% of the voting interests in ORBIMAGE as of December 31, 2001 (after giving effect to the conversion of ORBIMAGE's convertible preferred stock), with the remainder of the voting interests owned primarily by third party preferred stockholders. As a result of certain rights granted to the preferred stockholders, we do not control the operational and financial affairs of ORBIMAGE. Under a fixed-price procurement agreement between Orbital and ORBIMAGE, we have produced and launched ORBIMAGE's satellites, and we are continuing to construct the OrbView-3 satellite and related launch vehicle and ground segment. OrbView-3 is scheduled for launch in the second half of 2002. In September 2001, Orbital's Taurus rocket that was carrying the OrbView-4 satellite for ORBIMAGE did not achieve the mission's intended orbit and the satellite was lost. We also have provided ORBIMAGE with certain administrative services and technical support, generally on a cost-reimbursable basis. At December 31, 2001, ORBIMAGE owed us approximately $7 million under our procurement agreement and our administrative services agreement, which we are seeking to resolve as part of the restructuring described below. ORBIMAGE has $225 million of Senior Notes due in 2005 that are non-recourse to us. We do not believe that ORBIMAGE will have sufficient funds available to meet the entirety of its next interest payment that is due in March 2002. In September 2001, ORBIMAGE, certain of its major common and preferred shareholders, including us, and an Informal Committee representing the holders of approximately half of ORBIMAGE's Senior Notes, entered into a non-binding agreement in principle (the "Agreement in Principle") to proceed with a financial restructuring designed to strengthen ORBIMAGE's financial condition. The Agreement in Principle provided for, among other things, an agreement by us to defer payment of amounts owing to us by ORBIMAGE, and general mutual releases of claims by and among ORBIMAGE and its various stakeholders, including us. The voting agreement in support of the Agreement in Principle has expired in accordance with its terms. The Agreement in Principle is currently being renegotiated among ORBIMAGE and its various stakeholders. There can be no assurance that a restructuring plan will be negotiated to the mutual satisfaction of the interested parties or consummated, in which case we could be subject to litigation brought by ORBIMAGE, its other shareholders and/or its creditors. For a fuller description of the risks we could face with respect to ORBIMAGE, see "Risk Factors Related to Our Business and Our Industry -- ORBIMAGE's Inability to Consummate a Consensual Plan of Reorganization Could Present a Litigation Risk." DISCONTINUED OPERATIONS In 2001, we sold our sensor systems division and our respective interests in Magellan, NavSol and MDA. In 2000, we sold our Fairchild Defense electronics business unit. The financial results of these businesses are no longer included in our results from continuing operations. The gains and losses on the sales of these businesses, as well as the results of their operations, are reported as "discontinued operations." * * * 4 Financial information about our 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 our consolidated financial statements, and is incorporated herein by reference. COMPETITION We believe that competition for sales of our products and services is based on performance, other technical features, reliability, price, scheduling and customization, and we believe that we compete favorably on the basis of these factors. Previously, the primary domestic competition for the Pegasus and Taurus launch vehicles came from the Athena launch vehicles developed by Lockheed Martin. In 2001, Lockheed Martin discontinued the Athena program. 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 and Indian 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 primary competition for the missile defense booster vehicle that we are building under our contract with Boeing comes from Lockheed Martin. Our satellites and spacecraft subsystems products compete with products produced or provided by government entities and numerous private entities, including Boeing, Lockheed Martin, TRW Inc., Ball Aerospace and Technology Corporation, Spectrum Astro, Inc., EADS/Astrium, Alenia Aerospazio and Alcatel. Our primary competitor in electronic systems is Siemens Corporation. 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 many with 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 and to enhance existing products and services. Our research and development expenses totaled approximately $7.7 million, $10.1 million and $18.9 million for the years ended December 31, 2001, 2000 and 1999, 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, particularly with respect to our launch vehicle and satellite products. 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. The majority of our U.S. patents relating to the Pegasus vehicle expire between 2007 and 2016, and most of our U.S. patents relating to our satellites expire beginning in 2013. Our significant trademarks include our Pegasus and Taurus 5 launch vehicle names. The U.S. registrations for these names expire in 2010 and 2003, respectively, and are subject to renewal. COMPONENTS, RAW MATERIALS AND CARRIER AIRCRAFT We purchase a significant percentage of our product components, structural assemblies and certain key satellite components and instruments 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. Generally, 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. We have a sole source supplier for motors used on all our launch vehicles. While alternative sources would be available, the inability of such supplier to provide us with motors could result in significant delays, expenses and loss of revenues. 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 a 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 2001, 2000 and 1999, approximately 55%, 45% and 48%, respectively, 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. Orbital's major contracts with the U.S. government primarily fall into three categories: cost-plus-fee contracts, firm fixed-price contracts and fixed-price incentive fee contracts. Approximately 54%, 34%, 11% and 1% of revenues from U. S. government contracts in 2001 were derived from cost-plus-fee contracts, firm fixed-price contracts, fixed-price incentive fee contracts and other contracts, respectively. 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 our performance in terms of the criteria stated in the contract. 6 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 loss if completion of performance would have resulted in a loss. From time to time we experience contract suspensions and terminations. For example, in March 2001, NASA terminated for convenience our X-34 reusable launch vehicle research and development contract. For a fuller description of risks relating to the U.S. government contract industry, see "Risk Factors Related to Our Business and Our Industry -- We Derive a Significant Portion of Our Revenues From U.S. Government Contracts, Which are Dependent on Continued Political Support and Funding and are Subject to Termination by the U.S. Government at any Time for any Reason. In Addition, Payments Under U.S. Government Contracts are Subject to Potential Adjustment Upon Audit." 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 ("DoT") and operation of our L-1011 aircraft requires licenses from certain agencies of the DoT, including the Federal Aviation Administration. We also require licenses from the U.S. State Department with respect to work we do for foreign customers or with foreign subcontractors. BACKLOG Our firm backlog was approximately $582.5 million at December 31, 2001 and $492.0 million at December 31, 2000, excluding the backlog of businesses sold during 2001. 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 $2.55 billion at December 31, 2001. Total backlog includes firm backlog in addition to unexercised options, undefinitized orders, contract award selections and indefinite quantity contracts. Backlog at December 31, 2001 does not give effect to new orders received or any terminations or cancellations since that date. 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 of the U.S. government. Most of our 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 and 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. 7 EMPLOYEES As of March 1, 2002, Orbital had approximately 1,800 full-time permanent employees. None of our employees is subject to collective bargaining agreements. We believe our employee relations are good. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 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 ability to satisfy future capital and operating requirements; - whether the U.S. government terminates or suspends our contracts; - whether there is continued U.S. government support and funding for key space and defense programs; - our ability to timely fund and implement innovative and novel technologies involving complex systems in a cost-effective manner in the face of rapidly changing technology; - the establishment and expansion of commercial markets and customer acceptance of our products; - the effects that competition may have on our ability to win new contracts; - the potential effect on our business if foreign countries were to subsidize our foreign competitors or impose other protectionist measures; and - the other risks and uncertainties as are described below and as may be detailed from time to time in our public filings with the Securities and Exchange Commission. RISK FACTORS RELATED TO OUR BUSINESS AND OUR INDUSTRY WE HAVE EXPERIENCED SIGNIFICANT OPERATING LOSSES AND HAVE AN ACCUMULATED DEFICIT, AND WE MAY NOT HAVE THE ABILITY TO SATISFY ALL CAPITAL AND OPERATING REQUIREMENTS. OUR AUDITORS' REPORT ON OUR CONSOLIDATED FINANCIAL STATEMENTS DISCUSSED SUBSTANTIAL DOUBT WITH RESPECT TO OUR ABILITY TO CONTINUE AS A GOING CONCERN. 8 We incurred a loss from continuing operations of $95.6 million (or 23% of revenues) for the year ended December 31, 2001. We also incurred losses from continuing operations of $313.5 million (or 83% of revenues) and $184.3 million (or 40% of revenues) for the years ended December 31, 2000 and 1999, respectively. Our accumulated deficit was $445.6 million as of December 31, 2001. Our 2002 beginning cash balance, operating cash flow and the available borrowing capacity under our new credit facility will be insufficient to repay our $100 million subordinated convertible notes that become due on October 1, 2002. We are exploring various alternatives in order to repay or restructure the convertible notes. These alternatives include seeking to raise additional equity capital and/or debt in order to repay the notes, or pursuing an exchange offer whereby we would make an offer to the noteholders to exchange the notes for new debt and/or equity securities. We are also continuing to explore sales of non-core assets. There can be no assurance that we will successfully raise enough capital in order to repay the notes, nor can there be any assurance that any exchange offer on terms acceptable to us can be implemented and accepted by our existing noteholders. While we currently expect that our 2002 beginning cash balance and our primary credit facility will be sufficient to meet our operating and capital expenditure requirements in 2002, there can be no assurance that this will be the case. We have suffered recurring losses from operations, have a net working capital deficit and have not yet repaid or restructured the convertible notes. Our independent auditors have concluded, therefore, that there exists substantial doubt as to our ability to continue as a going concern and, accordingly, included a "going concern" uncertainty paragraph in their report on our December 31, 2001 consolidated financial statements. WE DERIVE A SIGNIFICANT PORTION OF OUR REVENUES FROM U.S. GOVERNMENT CONTRACTS, WHICH ARE DEPENDENT ON CONTINUED POLITICAL SUPPORT AND FUNDING AND ARE SUBJECT TO TERMINATION BY THE U.S. GOVERNMENT AT ANY TIME FOR ANY REASON. IN ADDITION, PAYMENTS UNDER U.S. GOVERNMENT CONTRACTS ARE SUBJECT TO POTENTIAL ADJUSTMENT UPON AUDIT. During 2001, approximately 55% of our total annual revenues, and at December 31, 2001, approximately 51% of our firm contract backlog, were derived from contracts with the U.S. government and its agencies or were derived 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 could materially adversely affect our financial condition and 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. For example, in March 2001, NASA terminated for convenience our X-34 reusable launch vehicle research and development contract. There can be no assurance that other government contracts will not be terminated or suspended in the future, or that contract suspensions or terminations will not result in unreimbursable expenses or charges or other adverse effects on our financial condition. 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. 9 OUR LIQUIDITY CONSTRAINTS AND FINANCIAL CONDITION MAY IMPAIR OUR ABILITY TO WIN NEW CONTRACTS AND/OR TO COMPLY WITH EXISTING CONTRACTS. Our liquidity constraints and financial condition may adversely affect our ability to bid for and win new U.S. government contracts and may impact a customer's determination to exercise options under existing contracts. 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 electronic systems contracts typically require us to post performance bonds or letters of credit pending completion of work. We also have a satellite contract and a launch vehicle contract with a foreign government customer that require us to post letters of credit supporting performance and refund obligations under the contracts. Due to our liquidity constraints, we may not be able to issue performance bonds or letters of credit in accordance with our contractual requirements. In such circumstances, the customer may be entitled to withhold future payments or terminate its contract with us, and this could result in charges or other adverse effects on our financial condition. OUR SUCCESS DEPENDS ON OUR ABILITY TO PENETRATE AND RETAIN MARKETS FOR OUR EXISTING PRODUCTS AND TO CONTINUE TO CONCEIVE, DESIGN, MANUFACTURE AND MARKET NEW PRODUCTS AND SERVICES ON A COST-EFFECTIVE AND TIMELY BASIS. THERE CAN BE NO ASSURANCE THAT OUR PRODUCTS WILL BE SUCCESSFULLY LAUNCHED OR OPERATED OR THAT THEY WILL BE DEVELOPED OR WILL PERFORM AS INTENDED. Most of the products we develop and manufacture are technologically advanced and sometimes include novel systems that must function under demanding operating conditions and are subject to significant technological change and innovation. We have experienced product failures and other operational problems. In 2001, we experienced a launch failure on our Taurus launch vehicle and our Hyper-X hypersonic research launcher. We will likely experience some product and service failures, schedule delays and other problems in connection with our launch vehicles, satellites and other products in the future. 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. Negative publicity from product failures may also impair our ability to win new contracts. We anticipate that we will continue to incur expenses to design and develop new products and services. There can be no assurance that we will be able to achieve the technological advances necessary to remain competitive and profitable, that new products and services will be developed and manufactured on schedule or on a cost-effective basis or that our existing products and services will not become technologically obsolete. WE OPERATE IN A REGULATED INDUSTRY, AND OUR INABILITY TO SECURE OR MAINTAIN THE LICENSES OR APPROVALS NECESSARY TO OPERATE OUR BUSINESS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 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 DoT and operation of our L-1011 aircraft requires licenses 10 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. Exports of our products, services and technical information frequently require licenses from the U.S. Department of State. Our inability 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 our financial condition and results of operations. THE MAJORITY OF OUR CONTRACTS ARE LONG-TERM CONTRACTS, AND OUR REVENUE RECOGNITION AND PROFITABILITY UNDER SUCH CONTRACTS MAY BE ADVERSELY AFFECTED TO THE EXTENT THAT ACTUAL COSTS EXCEED ESTIMATES OR THAT THERE ARE DELAYS IN COMPLETING SUCH 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 our 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. WE FACE SIGNIFICANT COMPETITION IN EACH OF OUR LINES OF BUSINESS, AND OUR COMPETITORS MAY POSSESS SIGNIFICANTLY MORE RESOURCES THAN WE DO. 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 many with 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. ORBIMAGE'S INABILITY TO CONSUMMATE A CONSENSUAL PLAN OF REORGANIZATION COULD PRESENT A LITIGATION RISK. ORBIMAGE has experienced serious financial difficulties. ORBIMAGE is negotiating a consensual plan of reorganization under Chapter 11 of the U.S. Federal Bankruptcy Code with its major creditors and shareholders, including us. We are ORBIMAGE's supplier of satellites and launch services. If ORBIMAGE is unable to proceed with a consensual plan of reorganization, we could be subject to litigation brought by ORBIMAGE, its other shareholders and/or its creditors. The outcome of any such litigation is uncertain. During the second quarter of 2000, we agreed to temporarily refund $20 million 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 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. We believe that as a result, our obligation to temporarily refund $20 million was extinguished. ORBIMAGE has notified us of its position that, notwithstanding the renegotiation of the license agreement, the $20 million refund is now due and payable. We dispute that position. In our negotiations of a consensual plan of reorganization for ORBIMAGE, we are 11 seeking general mutual releases of potential claims, such as the one described above and any others that may be asserted. THE LOSS OF EXECUTIVE OFFICERS COULD ADVERSELY AFFECT OUR OPERATIONS. Our inability to retain our executive officers and other key employees in the future could have an adverse effect on our operations. ITEM 2. PROPERTIES We lease approximately 1,000,000 square feet of office, engineering and manufacturing space in various locations in the United States, as summarized in the table below:
BUSINESS UNIT PRINCIPAL LOCATION(S) ------------- --------------------- Corporate Headquarters Dulles, Virginia Launch Vehicles and Advanced Programs Dulles, Virginia; Chandler, Arizona Satellites and Related Space Systems Dulles, Virginia; Greenbelt, Maryland Electronic Systems Columbia, Maryland
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 has been pledged as collateral to our primary lenders. We believe that our existing facilities are adequate for our requirements. ITEM 3. LEGAL PROCEEDINGS On December 6, 2001, the company and P.T. Media Citra Indostar agreed to settle claims that the parties were arbitrating. The settlement did not materially impact the company's financial condition and results of operations. 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 2001. 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, 2002. All executive officers are elected annually and serve at the discretion of the Board of Directors.
NAME AGE POSITION - ---- --- -------- David W. Thompson............................ 47 Chairman of the Board and Chief Executive Officer James R. Thompson............................ 65 Director, President and Chief Operating Officer, Acting General Manager/Electronic Systems Group
12
NAME AGE POSITION - ---- --- -------- Garrett E. Pierce............................ 57 Director, Executive Vice President and Chief Financial Officer Leslie C. Seeman............................. 49 Executive Vice President, General Counsel and Secretary Ronald J. Grabe.............................. 56 Executive Vice President and General Manager/Launch Systems Group Antonio L. Elias............................. 52 Executive Vice President and General Manager/Advanced Programs Group John M. Danko................................ 60 Senior Vice President and Acting General Manager/Space Systems Group
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 is a Fellow of the American Institute of Aeronautics and Astronautics, the American Astronautical Society and the Royal Aeronautical Society and was recently elected to the U.S. National Academy of Engineering. 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. He has been Acting General Manager of our Electronic Systems Group since 2001. 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 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 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 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 a wholly owned subsidiary in 1989. From 1972 to 1980, Mr. Pierce held various management positions with AlliedSignal. 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. 13 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. Antonio L. Elias has been Executive Vice President and General Manager/Advanced Programs Group since October 2001, and was Senior Vice President and General Manager/Advanced Programs Group since August 1997. From January 1996 until August 1997, Dr. Elias served as Senior Vice President and Chief Technical Officer of Orbital. 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. He was elected to the National Academy of Engineering in 2001. John M. Danko has served as Senior Vice President and Acting General Manager/Space Systems Group since January 2002. From 1998 until the end of 2001, he served as Deputy General Manager/ Space Systems Group. He previously was in charge of our Technical Services Division, a position he had held since 1989 at one of our predecessor companies. Mr. Danko held various positions with OAO Corporation from 1975 until 1989, including general manager of the aerospace division when it was formed in 1980. 14 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS On March 15, 2002, there were 1,472 Orbital stockholders of record. Our common stock trades on the New York Stock Exchange ("NYSE") under the symbol ORB. The range of high and low sales prices of Orbital common stock, as reported on the NYSE, was as follows:
2001 HIGH LOW ---- ------ ------ 4th Quarter $4.35 $1.20 3rd Quarter $4.25 $1.62 2nd Quarter $6.08 $2.64 1st Quarter $8.59 $4.25
2000 HIGH LOW ---- ------ -------- 4th Quarter $ 9.00 $ 3.69 3rd Quarter $15.50 $ 7.63 2nd Quarter $15.31 $ 11.00 1st Quarter $19.50 $ 12.81
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. Moreover, we are prohibited from paying cash dividends under our credit facility. The transfer agent for our common stock and the warrant agent for our outstanding common stock warrants is: EquiServe Trust Company, N.A. P.O. Box 43010 Providence, RI 02940 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 RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIES On December 12, 2001, we issued 100,000 shares of our common stock to Mr. Thomas van der Heyden in settlement for claims that we and Mr. van der Heyden had been arbitrating. The shares were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities 15 Act"), based upon representations made by the purchasers as to their investment intent and sophistication in purchasing the shares. The shares were not sold by any form of general solicitation. On December 31, 2001, we issued 1,709,627 shares of our common stock to the ORBCOMM estate in connection with the liquidating plan of reorganization for ORBCOMM Global, L.P. These shares were issued pursuant to an exemption from registration under Section 1145 of the U.S. Federal Bankruptcy Code by Orbital, as an affiliate participating in a joint plan with ORBCOMM, in exchange for claims against interests in or claims for administrative expenses in ORBCOMM's Chapter 11 reorganization case. On February 27, 2002, we issued 300,000 shares of our common stock to PT Media Citra Indostar and its law firm in settlement for claims that we and PT Media Citra Indostar had been arbitrating. The shares were issued pursuant to Section 4(2) of the Securities Act based upon representations made by the purchasers as to their investment intent and sophistication in purchasing the shares. The shares were not sold by any form of general solicitation. We did not receive any cash proceeds from the above issuances of our common stock. On March 20, 2001, we issued 14,500 shares of our common stock to Scotiabank Inc. pursuant to its exercise of warrants dated January 15, 2000. The warrants were issued pursuant to our then primary credit facility. The company received $145 in proceeds from the warrant exercise. The shares were issued pursuant to Section 4(2) of the Securities Act based upon representations made by the purchaser as to its investment intent and sophistication in purchasing the shares. The shares were not sold by any form of general solicitation. On August 31, 2001, we issued 4,631,121 common stock warrants to a class of shareholder plaintiffs in settlement of a class action lawsuit. The warrants have an exercise price of $4.82 per share and expire on August 31, 2004. The warrants were issued pursuant to Section 3(a)(10) of the Securities Act. We did not receive any cash proceeds from the issuance of the warrants. None of these warrants had been exercised as of December 31, 2001. 16 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 6. SELECTED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data of the company for the years ended December 31, 2001, 2000, 1999, 1998 and 1997 have been derived from the company's audited consolidated financial statements. This information should be read in conjunction with the consolidated financial statements and the related notes thereto appearing elsewhere in this Annual Report on Form 10-K. Certain reclassifications have been made to the prior period financial statements to conform to the presentation used in the December 31, 2001 consolidated financial statements.
YEARS ENDED DECEMBER 31, -------------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT SHARE DATA) OPERATING DATA: Revenues................................... $ 415,249 $ 379,539 $ 459,700 $ 422,117 $ 312,332 Costs of goods sold........................ 387,433 379,504 437,409 327,756 242,373 ---------- ---------- ---------- ---------- ---------- Gross profit............................... 27,816 35 22,291 94,361 69,959 Operating expenses......................... 80,789 165,499 95,849 72,577 69,095 ---------- ---------- ---------- ---------- ---------- Income (loss) from operations.............. (52,973) (165,464) (73,558) 21,784 864 Allocated share of losses of affiliates.... (26,495) (119,183) (97,008) (76,815) (25,094) Other income (expense), net................ (16,146) (18,929) (13,714) 431 23,017 ---------- ---------- ---------- ---------- ---------- Income (loss) before provision for income taxes and discontinued operations........ (95,614) (303,576) (184,280) (54,600) (1,213) (Provision) benefit for income taxes....... -- (9,886) -- 1,127 (10,894) ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations... (95,614) (313,462) (184,280) (53,473) (12,107) Income (loss) from discontinued operations............................... 114,565 35,272 62,343 (3,079) 702 ---------- ---------- ---------- ---------- ---------- Net income (loss).......................... $ 18,951 $ (278,190) $ (121,937) $ (56,552) $ (11,405) ========== ========== ========== ========== ========== INCOME (LOSS) PER COMMON SHARE(1): Income (loss) from continuing operations... $ (2.49) $ (8.36) $ (4.94) $ (1.50) $ (0.37) Income (loss) from discontinued operations............................... 2.98 0.94 1.67 (0.09) 0.02 ---------- ---------- ---------- ---------- ---------- Net income (loss).......................... $ 0.49 $ (7.42) $ (3.27) $ (1.59) $ (0.35) ========== ========== ========== ========== ========== Shares used in computing per share amounts.................................. 38,424,363 37,467,520 37,281,065 35,624,888 32,283,138 BALANCE SHEET DATA: Cash, restricted cash and short-term investments.............................. $ 74,030 $ 52,049 $ 77,099 $ 7,922 $ 8,735 Net working capital........................ (63,384) (160,963) (39,032) 24,038 53,298 Total assets............................... 432,734 516,213 855,991 782,643 669,634 Short-term borrowings...................... 103,710 134,431 85,397 24,588 28,233 Long-term obligations, net................. 4,665 108,291 235,454 176,522 196,475 Stockholders' equity....................... 94,285 44,151 306,792 419,352 313,984
- --------------- (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 1997 through 2001 are the same as the per share amounts shown in this table. 17 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 "Consolidated Results of Operations for the Years Ended December 31, 2001, 2000 and 1999," "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 -- Special Note Regarding Forward-Looking Statements" and "-- Risk Factors Related to Our Business and Our Industry," may affect our actual results and may cause actual results to differ materially from those anticipated or expected in any forward-looking statement. Orbital designs, manufactures, operates and markets a broad range of space-related systems for commercial, civil government and military customers. Our primary products include low-orbit, geosynchronous-orbit and planetary spacecraft for communications, remote sensing and scientific missions; ground-and air-launched rockets that deliver satellites into orbit; and missile defense boosters that are used as interceptor and target vehicles for missile defense systems. We also offer space-related technical services to government agencies and develop and build satellite-based transportation management systems for public transit agencies and private vehicle fleet operators. During 2001, we continued to implement our strategy to focus on our core space technology businesses. Part of this strategy included the sale of certain non-core businesses. In 2000, we sold our Fairchild Defense electronics business unit ("Fairchild"). In 2001, we sold Magellan Corporation ("Magellan"), our 60% interest in Navigation Solutions LLC ("NavSol"), our sensors systems division ("Sensors"), and our entire remaining interest in MacDonald Dettwiler and Associates Ltd. ("MDA"). The financial results of these businesses are no longer included in our results from continuing operations. The gains and losses on the sales of these businesses, as well as the results of their operations, are reported as "discontinued operations." CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES The preparation of consolidated financial statements requires management to make judgments based upon estimates and assumptions that are inherently uncertain. Such judgments affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management continuously evaluates its estimates and assumptions, including those related to long-term contracts and incentives, inventories, long-lived assets, warranty obligations, income taxes, contingencies and litigation, and the carrying values of assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The following is a summary of Orbital's most critical accounting policies used in the preparation of our consolidated financial statements. - Our revenue is derived primarily from long-term contracts. Revenues on long-term fixed-price contracts are generally recognized using the percentage-of-completion method of accounting. Such revenues are recorded based on the percentage that costs incurred in the applicable reporting period bear to the most recent estimates of total costs to complete each contract. 18 Estimating future costs and, therefore, revenues and profits, is a process requiring a high degree of management judgment, including management's assumptions regarding future operations of the company as well as general economic conditions. In the event of a change in total estimated contract cost or profit, the cumulative effect of such change is recorded in the period the change in estimate occurs. Frequently, the period of performance of a contract extends over a long period of time and, as such, revenue recognition and our profitability from a particular contract may be adversely affected to the extent that estimated cost to complete or incentive or award fee estimates are revised, delivery schedules are delayed, or progress under a contract is otherwise impeded. Accordingly, our recorded revenues and gross profits from year to year can fluctuate significantly. In the event cost estimates indicate a loss on a contract, the total amount of such loss, excluding allocated general and administrative expense, is recorded in the period in which the loss is first estimated. Certain contracts include incentive provisions for increased or decreased revenue and profit based on actual performance against established targets. Incentive and award fees are included in estimated contract revenue at the time the amounts can be reasonably determined and are reasonably assured based on historical experience and other objective criteria. Should we fail to perform sufficiently under such contracts, previously recognized revenues could be reversed and/or future period revenues could be reduced. - We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and the estimated realizable or market value based on assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. - We self-construct some of our ground and airborne support equipment and special test equipment utilized in the manufacture, production and delivery of some of our products. We capitalize direct costs incurred in constructing such equipment and certain allocated indirect costs. Recovery of these assets is subject to the continuation of certain of our long-term contracts and could be adversely impacted by technological changes and innovation. - We record a liability in connection with various warranty obligations of the company. Our warranty obligations are affected by product failure rates and material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required resulting in additional income statement charges. - We have recorded a full valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax valuation allowance would increase income in the period such determination is made. - We use the equity method of accounting for affiliates that the company has the ability to significantly influence but not control. In accordance with the equity method of accounting, we record our proportionate share of the affiliate's income or losses. We continue to recognize equity losses of an affiliate even if such losses exceed our book value of such affiliate, as long as we consider providing additional funding to such affiliate. 19 CONSOLIDATED RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 Revenues - Our consolidated revenues were $415.2 million, $379.5 million and $459.7 million in 2001, 2000 and 1999, respectively. Revenues increased in 2001 primarily as a result of new launch vehicle contracts and new and existing electronic systems contracts. Consolidated revenues in 2000 and 1999 included $12.1 million and $80.6 million, respectively, from sales to our unconsolidated affiliates, ORBCOMM Global, L.P. ("ORBCOMM") and Orbital Imaging Corporation ("ORBIMAGE"). We stopped recognizing revenues on sales to ORBCOMM and ORBIMAGE effective June and July 2000, respectively, as a result of the weakened financial condition of these entities. The decrease in revenues from 1999 to 2000 related primarily to the suspension of revenue recognition on ORBCOMM and ORBIMAGE contracts in 2000. Gross Profit - Our consolidated gross profit was $27.8 million, $35,000 and $22.3 million in 2001, 2000 and 1999, respectively. Gross profit is affected by a number of factors, including the mix of contract types and costs incurred thereon in relation to revenues recognized. Such costs include the costs of personnel, materials, subcontracts and overhead. Gross profit in 2001 includes a $13.0 million favorable revenue and gross profit adjustment as a result of an X-34 contract settlement reached with the National Aeronautics and Space Administration ("NASA") that is discussed below. Our gross profit in 2001 was adversely affected by a $20.7 million charge in the fourth quarter of 2001 to write down inventory related to the OrbView-3 satellite and to accrue for the expected remaining costs to complete this contract, and by $4.0 million of other contract-related charges. Gross profit in 2001 was also adversely impacted by cost overruns and contract losses related to certain other satellite construction contracts, although these losses were not as large as similar contract losses in 2000. Gross profit in 2000 was adversely affected by significant cost overruns and contract losses related to a few major satellite contracts, including the company's procurement contract with ORBIMAGE to construct the OrbView-3 and OrbView-4 satellites. Costs related to the termination of an electronic systems contract also contributed to the lower gross profit in 2000. Research and Development Expenses - Research and development expenses represent our self-funded product research and development activities and exclude direct customer-funded development activities. Research and development expenses were $7.7 million (2% of revenues), $10.1 million (3% of revenues) and $18.9 million (4% of revenues) in 2001, 2000 and 1999, respectively. Research and development expenses in 2001 and 2000 related primarily to the development of improved launch vehicles and satellites. In 1999, significant research and development expenses were incurred for the development of electronic systems proprietary software. Selling, General and Administrative Expenses - Selling, general and administrative expenses were $61.6 million (15% of revenues), $68.5 million (18% of revenues) and $55.6 million (12% of revenues) in 2001, 2000 and 1999, respectively. 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. The decrease in selling, general and administrative expenses from 2000 to 2001 was primarily attributable to the absence in 2001 of certain specific charges that were incurred in 2000 as discussed below, and to the reversal in 2001 of a $3.4 million provision for X-34-related receivables. Selling, general and administrative expenses in 2001 also included, however, a $4.9 million provision for unoccupied office space and facility sublease losses and a $4.3 million provision for estimated unrecoverable amounts related to the OrbView-4 satellite construction program recorded in 2001. The increase from 1999 to 2000 was primarily attributable to a $5.2 million provision for unoccupied office space and facility sublease 20 losses, a $3.4 million provision for X-34-related receivables and a $2.7 million provision for ORBIMAGE-related receivables that were recorded in 2000. In March 2001, NASA terminated for convenience the X-34 reusable launch vehicle program. At that time, due to the uncertainties related to recovering uncompensated costs from NASA, the company determined that its estimated future cash flows from X-34-related property, plant and equipment would not be sufficient to recover the recorded cost. In the fourth quarter of 2000, we recorded an asset impairment charge of $15.9 million to write down X-34-related property, plant and equipment to their estimated realizable value, and a $3.4 million provision for potentially uncollectible receivables, which was recorded as selling, general and administrative expense. In August 2001, we received a $10.0 million provisional settlement payment from NASA and we reversed the previously-recorded $3.4 million provision for uncollectible receivables in the second quarter of 2001. In January 2002, NASA and Orbital agreed to settle and close out the contract for an additional payment of $13.0 million to Orbital. Accordingly, a $13.0 million contract revenue adjustment was recorded in the fourth quarter of 2001. Litigation-Related Settlements - In the third and fourth quarters of 2001, we agreed to settle several disputes that were the subject of arbitration proceedings. The company recorded charges totaling $5.4 million in 2001 for these litigation-related settlements. In 2000, an $11.5 million charge was recorded in connection with the July 2000 settlement of a class-action lawsuit against the company. Interest Expense - Interest expense, before deducting capitalized interest, was $21.7 million, $25.9 million and $22.9 million for 2001, 2000 and 1999, respectively. No interest was capitalized in 2001, and $1.8 million and $3.1 million was capitalized in 2000 and 1999, respectively. Interest expense in 2001 includes $4.5 million related to a vendor financing agreement. Interest expense in 2001 on bank debt and other borrowings decreased, but not in proportion to the decrease in outstanding debt as a result of one-time fees incurred in 2001 to amend our primary credit facility and to enter into a second credit facility. In addition, interest expense in 2001 included the acceleration of the amortization of prepaid financing costs related to the permanent reduction of borrowing capacity on these facilities. Interest expense increased in 2000 from 1999 as a result of higher average borrowings and higher interest rates. Other Income, Net - Other income, net, was $5.5 million, $5.1 million and $6.1 million for 2001, 2000 and 1999, respectively. Interest earnings on cash equivalents, short-term investments and realized gains and losses on investments included in other income was $1.4 million, $3.2 million and $3.8 million for 2001, 2000 and 1999, respectively. Interest income decreased in 2001 as compared to 2000 as a result of smaller average investments and lower interest rates. Other income in 2001 included $3.7 million of insurance proceeds that we received related to the BSAT-2b satellite launch failure in July 2001. Other income in 2000 also included $1.2 million of insurance proceeds that we received related to ORBCOMM satellites. Provision for Doubtful ORBCOMM Accounts - In September 2000, ORBCOMM and its subsidiaries commenced a reorganization under Chapter 11 of the U.S. Bankruptcy Code. As a result, we recorded a $53.7 million charge to write down ORBCOMM receivables to their estimated realizable value in 2000. In 2000, we also wrote off our investment in ORBCOMM as discussed below. Asset Impairment Charges - In 2000, we recorded a $15.9 million asset impairment charge related to the termination of the X-34 program as discussed previously. In 1999, we recorded a $15.2 million 21 asset impairment charge when we determined that the carrying value of a specialized voice communications satellite system that we had constructed and launched would no longer be recoverable through the expected future sales of the related products and services. Allocated Share of Losses of Affiliates - The allocated share of losses of unconsolidated affiliates was as follows (in thousands):
YEARS ENDED DECEMBER 31, --------------------------------- 2001 2000 1999 -------- --------- -------- ORBCOMM(1)................................... $ (6,500) $ (92,723) $(73,560) ORBIMAGE(2).................................. (19,091) (28,223) (5,614) Other(3)..................................... (904) 1,763 (17,834) -------- --------- -------- $(26,495) $(119,183) $(97,008) ======== ========= ========
(1) We accounted for our limited partnership interest in ORBCOMM using the equity method of accounting through the second quarter of 2000. As a result of ORBCOMM's Chapter 11 filing in September 2000, we wrote off our $56.9 million investment in ORBCOMM in 2000 and, accordingly, we ceased recognizing equity losses for ORBCOMM. ORBCOMM's liquidating plan of reorganization became effective in the fourth quarter of 2001. In connection with confirmation of the reorganization plan, we contributed approximately 1.7 million shares of our common stock to the ORBCOMM estate and recorded a $6.5 million charge for the fair value of such shares. (2) We own 99.9% of the common stock of ORBIMAGE or approximately 52% of the outstanding equity of ORBIMAGE at December 31, 2001, assuming conversion of all of ORBIMAGE's outstanding convertible preferred stock. We are able to exercise significant influence over ORBIMAGE's operational and financial affairs, but we do not control such affairs. Accordingly, we use the equity method of accounting for our ownership interest in ORBIMAGE. In 1999, 2000 and through June 30, 2001, we recognized 100% of ORBIMAGE's losses, including preferred stock dividends, in allocated share of losses of affiliates in the statements of operations. In 2000 and 2001, such losses exceeded our investment in ORBIMAGE. While we are not legally obligated for the liabilities of ORBIMAGE, we recognized such additional losses because of our 99.9% common stock ownership and our previous intentions regarding potential funding of ORBIMAGE. As a result of the further deterioration of ORBIMAGE's financial position, in the third quarter of 2001, we determined that we would not provide any future funding to ORBIMAGE beyond our then existing commitments. Additionally, we determined that the recognized losses exceeded any future funding or investment that we would provide to ORBIMAGE and any likely exposure should claims by ORBIMAGE, its other shareholders and/or its creditors be brought against us. Furthermore, we determined that if an acceptable ORBIMAGE restructuring plan is not completed, we would abandon our investment in ORBIMAGE. Accordingly, we ceased recognizing ORBIMAGE losses as of July 1, 2001. As of December 31, 2001 and 2000, recognized losses exceeded our investment in ORBIMAGE by $40.6 million and $21.5 million, respectively, and such amounts are reported as "allocated losses of affiliate in excess of cost of investment" on the consolidated balance sheets. The disposition of the $40.6 million balance is dependent upon the future of ORBIMAGE as an entity, and could include, among other outcomes, a full or partial reversal of this balance from future earnings of ORBIMAGE or, in 22 the event that ORBIMAGE were to restructure through bankruptcy or liquidate and dissolve, the remaining balance would be reversed at that time. (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. In 1999, we concluded that our investment in CCI was impaired and we recorded a charge of $11.1 million to write off this investment. Provision for Income Taxes - We did not record an income tax benefit in 2001, 2000 or 1999 related to the losses for these periods because such benefit could not be reasonably assured from future operating results. In 2000, we recorded a $9.9 million income tax provision to provide a full valuation allowance for our deferred tax assets. Valuation allowances are used to reduce net deferred tax assets to the amount considered more likely than not to be realized. Discontinued Operations - During 2001, 2000 and 1999, we sold various equity investments, divisions and subsidiaries. During 2001, we sold Sensors, our interests in Magellan and NavSol and our remaining interest in MDA. In 2000, we sold Fairchild and MDA completed an initial public offering of common stock. In 1999, MDA issued common stock to a group of minority investors. These transactions resulted in net gains of $114.7 million, $39.7 million and $58.6 million in 2001, 2000 and 1999, respectively, which are reported as a component of discontinued operations. The combined net financial position and operating results of Magellan, NavSol, Sensors, MDA and Fairchild have been presented in the accompanying financial statements as discontinued operations for all periods presented. The income (losses) related to these businesses were ($0.2) million, ($4.4) million and $3.7 million in 2001, 2000 and 1999, respectively. Net Income (Loss) - Our consolidated losses from continuing operations were $95.6 million, $313.5 million and $184.3 million in 2001, 2000 and 1999, respectively. Our income from discontinued operations, including the gains on the sales of such operations, was $114.6 million, $35.3 million and $62.3 million in 2001, 2000 and 1999, respectively. Net income (loss) was $18.9 million, ($278.2) million and ($121.9) million in 2001, 2000 and 1999, respectively. 23 SEGMENT RESULTS Our products and services are grouped into three reportable segments: (i) launch vehicles and advanced programs, (ii) satellites and related space systems and (iii) electronic systems. All other activities of the company, as well as consolidating eliminations and adjustments, are reported in corporate and other. The following tables summarize revenues and income (loss) from operations from our reportable business segments and corporate and other (in thousands):
YEARS ENDED DECEMBER 31, --------------------------------- 2001 2000 1999 -------- --------- -------- REVENUES Launch Vehicles and Advanced Programs........ $146,429 $ 124,099 $165,074 Satellites and Related Space Systems......... 207,745 219,499 260,189 Electronic Systems........................... 65,061 53,487 43,138 Corporate and Other.......................... (3,986) (17,546) (8,701) -------- --------- -------- TOTAL........................................ $415,249 $ 379,539 $459,700 ======== ========= ======== INCOME (LOSS) FROM OPERATIONS Launch Vehicles and Advanced Programs........ $ 19,305 $ (15,762) $ (6,682) Satellites and Related Space Systems......... (47,851) (43,462) (20,118) Electronic Systems........................... 1,553 (8,873) (12,387) Corporate and Other.......................... (20,560) (32,154) (34,371) ORBCOMM Write Off............................ -- (53,713) -- Litigation-related Settlements............... (5,420) (11,500) -- -------- --------- -------- TOTAL........................................ $(52,973) $(165,464) $(73,558) ======== ========= ========
Launch Vehicles and Advanced Programs - Revenues in this segment increased in 2001 as compared to 2000 due to a $23.8 million increase in revenues from launch vehicles that was partly offset by a $1.5 million decrease in revenues from advanced programs. The increase in launch vehicle revenues was largely attributable to increased suborbital business, including $18.5 million in new contract work on initial design and development activity on an interceptor booster system in support of the National Missile Defense program and a considerable increase in revenues on the Supersonic Sea Skimming Target (SSST) development program for the U.S. Navy, which contributed $17.6 million in revenue in 2001, or $15.1 million more than in the prior year. Offsetting these 2001 increases in launch vehicle revenues was the absence of revenue on the ORBIMAGE and ORBCOMM contracts in 2001, which totaled $7.0 million in 2000, and a slowdown in our Minotaur space launch program with the U.S. Air Force. Revenues from advanced programs decreased in 2001 primarily as a result of NASA's termination for convenience of the X-34 program in March 2001. As discussed previously, we recorded an asset impairment charge of $15.9 million to write down X-34-related property, plant and equipment to their estimated realizable values and a $3.4 million provision for potentially uncollectible receivables 24 in the fourth quarter of 2000. In connection with the related provisional and final settlements of the contract closeout, we reversed the $3.4 million provision for uncollectible receivables in the second quarter of 2001 and we recorded a $13.0 million favorable revenue adjustment in the fourth quarter of 2001. Revenues from launch vehicles and advanced programs decreased significantly from 1999 to 2000 primarily due to the suspension of revenue recognition under our procurement agreements with ORBCOMM and ORBIMAGE. Additionally, revenues from advanced programs decreased in 2000 due to a decrease in the percentage of the X-34 contract completed in 2000 as compared to 1999. Operating income from launch vehicles and advanced programs increased in 2001 as compared to 2000 primarily due to the X-34 adjustments recorded in 2000 and 2001 discussed above. Launch vehicle operating income was higher in 2001 as compared to 2000 primarily due to profits on contracts awarded in 2001 for new suborbital business and improved margins on space launch vehicle programs, offset in part by $4.0 million of other contract-related charges. Operating losses from launch vehicles and advanced programs increased in 2000 as compared to 1999 primarily due to cost growth on launch vehicle programs, which was caused by schedule delays, $19.3 million of X-34-related charges in 2000 and a $1.7 million provision for facility sublease losses. Operating income in 1999 also was negatively affected by a $14.8 million write down related to certain software and inventory produced under a contract that was cancelled in 1999. Satellites and Related Space Systems - Revenues from satellites and related space systems decreased in 2001 as compared to 2000, in spite of the significant increase in revenues attributable to our geosynchronous communication satellites product line, which increased from $90.0 million in 2000 to $118.5 million in 2001. Revenues from our other product lines decreased by $40.3 million from 2000 to 2001 due in part to the completion of the construction phase in 2000 of a scientific satellite for NASA, the absence in 2001 of ORBCOMM and ORBIMAGE procurement contract revenues, which totaled $10.5 million in 2000, and an approximately $8.0 million decrease in revenues from our technical services business. The decrease in technical services revenues is primarily due to the fact that we are no longer the prime contractor on certain engineering support contracts as a result of the U.S. government's policy of awarding such prime contracts to small and minority-owned businesses, although we generally continue to perform as a subcontractor on the same or comparable contracts. 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 foreign customer as a result 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. The operating loss from satellites and related space systems increased in 2001 as compared to 2000 primarily as a result of a $20.7 million charge in the fourth quarter of 2001 to write down inventory related to the OrbView-3 satellite and to accrue the expected remaining costs to complete this contract. Excluding the OrbView-3 satellite charge, the operating loss from satellites and related space systems decreased $16.3 million in 2001 as compared to 2000 largely due to the completion of certain satellite construction contracts for which we had experienced significant cost overruns in 2000. We continued to experience cost growth in 2001 on several other programs, primarily 25 attributable to the non-recurring development and production activities on our geosynchronous satellite construction contracts. However, these contract losses were not as significant in 2001 as they were in 2000. The operating loss from satellites and related space systems increased in 2000 as compared to 1999 primarily due to significant cost growth resulting in contract losses on a number of satellite construction programs. Electronic Systems - Revenues from electronic systems increased in 2001 as compared to 2000 and in 2000 as compared to 1999, primarily as a result of new contracts won in each period. Operating income from electronic systems increased in 2001 as compared to 2000 due primarily to a decrease in product development costs in 2001 and contract termination costs incurred in 2000. The operating loss from electronic systems decreased in 2000 as compared to 1999 primarily due to a decrease in development costs related to proprietary software. Corporate and Other - Revenue adjustments in corporate and other include the elimination of intercompany revenues, as well as adjustments to properly report revenues on certain contracts that are performed by more than one business unit. The reduction in such eliminations and adjustments in 2001 as compared to 2000 was primarily attributable to a reduction of intercompany revenues and the absence in 2001 of consolidation adjustments related to the ORBIMAGE, ORBCOMM and X-34 contracts. The increase in the eliminations and adjustments in 2000 as compared to 1999 was attributable to intercompany contract adjustments relating to the ORBIMAGE and ORBCOMM contracts. Corporate and other expenses include various corporate general and administrative activities that are not allocated to the operating segments, as well as consolidating adjustments for intracompany contracts. Corporate and other expenses in 2001 include a $4.3 million provision for potentially unrecoverable amounts related to the OrbView-4 satellite construction program and a $4.9 million provision for unoccupied office space and facility sublease losses. Corporate and other expenses in 2000 included a $2.7 million write off related to ORBIMAGE administrative services accounts receivable, a $4.9 million write off of other assets and a $3.5 million provision for unoccupied office space and facility sublease losses. In addition, corporate and other expenses for 2000 and 1999 included consolidating entries related to the ORBCOMM and ORBIMAGE contracts. ORBCOMM Write Off - As discussed previously, in 2000 we recorded a $53.7 million charge to write down ORBCOMM receivables to their estimated realizable value. LIQUIDITY AND CAPITAL RESOURCES Our liquidity has been, and continues to be, constrained. As of December 31, 2001, we had $63.2 million of unrestricted cash and cash equivalents. Our 2002 beginning cash balance, operating cash flow and available borrowing capacity in 2002 will be insufficient to repay our $100 million subordinated convertible notes that become due on October 1, 2002. While we currently expect that our 2002 beginning cash balance and our primary credit facility (discussed below) will be sufficient to meet our operating and capital expenditure requirements in 2002, there can be no assurance that this will be the case. During 2001, we funded our capital requirements for operations through cash from operations, cash on hand, bank debt, vendor financing and the proceeds from dispositions of various business 26 units. During 2001, we also consolidated certain business operations, reduced our workforce and implemented other cost-cutting measures. We reported a $73.0 million net use of cash from continuing operations in 2001, as compared to $1.2 million of cash provided from continuing operations in 2000 and a $44.1 million net use of cash from continuing operations in 1999. The $73.0 million of cash used in continuing operations in 2001 was primarily attributable to our operating loss, compounded by a $39.5 million increase in receivables. In 2000, cash used to fund our operating loss was largely offset by a reduction of receivables and an increase in payables and accrued expenses. The $44.1 million of cash used in continuing operations in 1999 was primarily attributable to operating losses, compounded by a net decrease in working capital. Our investing activities provided $237.0 million and $42.7 million in cash during 2001 and 2000, respectively, primarily due to the sales of assets and subsidiary equity in those years. In 2001, we sold our entire remaining interest in MDA, our interest in Magellan and NavSol and our Sensors unit for net proceeds of $244.9 million. In 2000, the sale of Fairchild and MDA's initial public offering of common stock provided net proceeds of $115.6 million. In 2001 and 2000, the primary uses of cash for investing activities were capital expenditures in our continuing operations and capital expenditures and the acquisition of businesses in our discontinued operations. In 1999, we reported a $97.0 million net use of cash for investing activities. In 1999, we received net proceeds of $73.4 million from our sale of MDA shares, we used cash in our continuing operations for capital expenditures and investments in affiliates, such as NavSol and ORBCOMM, and our discontinued businesses used cash for capital expenditures and acquisitions of businesses. Our financing activities used $137.9 million and $86.6 million of cash in 2001 and 2000, respectively, and provided $123.3 million of cash in 1999. During the second and third quarters of 2001, we repaid our primary credit facility using cash proceeds from the sales of businesses as required under the terms of that credit facility. At December 31, 2001, no borrowings were outstanding under this facility, which was formally terminated in January 2002. The primary use of cash for financing activities during 2000 was for repayments of our primary credit facility and the repayment of an advance from a joint venture partner. The cash provided by financing activities in 1999 was a result of a net increase in our borrowings under our primary credit facility. Our $100 million subordinated convertible notes become due on October 1, 2002. We are considering various alternatives in order to repay or restructure these notes. These alternatives include seeking to raise additional equity and/or debt capital in order to repay the notes or pursuing an exchange offer whereby we would make an offer to the noteholders to exchange the notes for new debt and/or equity securities. There can be no assurance that we will successfully raise enough capital in order to repay the notes, nor can there be any assurance that an exchange offer on terms acceptable to us can be implemented and accepted by our existing noteholders. A default by us on the convertible notes would also result in a default on our new primary credit facility described below. Our ability to continue as a going concern is contingent upon, among other factors, a successful refinancing or restructuring of the convertible notes. In March 2002, we entered into a new three-year primary credit facility with Foothill Capital Corporation as arranger and agent ("Foothill"). The facility includes (i) a $25 million term loan (the "Term Loan") and (ii) a $35 million revolver (the "Revolver"), of which up to $30 million may be available for borrowing depending on a monthly borrowing base calculation that is determined according to our billed and unbilled receivables. In the event that we achieve certain 27 financial performance levels based on cash and cash flow on or after September 30, 2002, the maximum available amount under the Revolver may be increased to $35 million. The Term Loan has an interest rate equal to the prime rate publicly announced from time to time by Wells Fargo Bank, National Association (the "Prime Rate") plus 6.00%, but not less than 11%. Borrowings under the Revolver accrue interest at a rate equal to the Prime Rate plus 2.25%, but not less than 7%. The loan agreement also provides for a letter of credit facility whereby up to $20 million of the amounts available for borrowing under our Revolver may be used for the purpose of having letters of credit issued on our behalf. The borrowings under the facility are collateralized by all of our assets, including accounts receivable, intellectual property, inventory, equipment, real estate and other assets. The loan agreement generally prohibits the sale of assets, payment of cash dividends, the making of investments and the incurrence of new debt. The loan agreement requires us to achieve specified earnings before interest, taxes, depreciation and amortization ("EBITDA") on a quarterly basis and capital expenditure targets on an annual basis. We are also required to maintain a minimum level of firm contract backlog and we are required on a monthly basis to demonstrate that we are generally executing our major contracts within estimated cost parameters. The loan agreement also imposes restrictions on our ability to refinance existing indebtedness (subject to certain exceptions) and, accordingly, Foothill's consent may be required in order to refinance our convertible notes. ORBIMAGE is negotiating a consensual plan of reorganization under Chapter 11 of the U.S. Federal Bankruptcy Code with its major creditors and shareholders, including Orbital (see Note 5 to the accompanying financial statements). There can be no assurance that a restructuring plan will be negotiated to the mutual satisfaction of the parties or consummated, in which case Orbital could be subject to litigation brought by ORBIMAGE, its other shareholders and/or its creditors. During the second quarter of 2000, Orbital agreed to temporarily refund $20 million 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 million was extinguished. ORBIMAGE has notified Orbital of its position that, notwithstanding the renegotiation of the license agreement, the $20 million refund is now due and payable. Orbital disputes that position. In our negotiation of a consensual plan of reorganization for ORBIMAGE, we are seeking general mutual releases of all potential claims among ORBIMAGE, its various stakeholders and Orbital. In 2001, ORBIMAGE entered into a new license agreement with MDA for exclusive U.S. RadarSat-2 imagery distribution rights. Under the new RadarSat-2 license agreement, two $5 million installments will be due from ORBIMAGE to MDA in 2002. If ORBIMAGE is unable to make these payments to MDA, Orbital has agreed to make such payments on its behalf in exchange for receivables from ORBIMAGE in an amount equal to the payments, to the extent that receivables are available. There can be no assurance that ORBIMAGE's receivables will be collectible. 28 The following summarizes Orbital's obligations associated with debt and leases at December 31, 2001, and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in millions):
TIME TO MATURITY -------------------------- LESS THAN ONE TO AFTER ONE THREE THREE TOTAL(1) YEAR(1) YEARS YEARS -------- --------- ------ ----- Debt(2)................................. $107 $103 $ 4 $-- Operating leases........................ 139 14 39 86 Capital leases.......................... 2 1 1 -- ---- ---- --- --- TOTAL................................... $248 $118 $44 $86 ==== ==== === ===
(1) Excludes $48.8 million in vendor financing as of December 31, 2001. (2) Assumes the $100 million convertible notes are paid in full in 2002. In 2000, we secured vendor financing from a launch services provider that permitted the deferral of payments due by us under certain contracts. The deferred payments, along with accrued interest at the annual interest rate of 10.5%, are due in 2002. As of December 31, 2001, $48.8 million of deferred vendor payments and accrued interest were recorded in accounts payable. This financing arrangement commits us to make progress payments to the vendor, with all payments due prior to the launch, which is expected to occur in the second quarter of 2002. Certain international contracts and many of our electronic systems contracts customarily require us to post performance bonds or letters of credit pending completion of work. We had $6.8 million of standby letters of credit outstanding at December 31, 2001. We have a satellite contract and a launch vehicle contract with a foreign government customer that requires us to post letters of credit supporting our performance and refund obligations under the contracts. Due to our liquidity constraints, we may not be able to issue performance bonds or letters of credit in accordance with our contractual requirements. In such circumstances, the customer may be entitled to withhold future payments or terminate its contract with us and this could result in charges or other adverse effects on our financial condition. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations initiated after June 30, 2001, be accounted for as a purchase. Under SFAS No. 142, goodwill and other intangible assets with indefinite lives are no longer amortized but are reviewed at least annually for impairment. The company is required to adopt SFAS No. 142 effective January 1, 2002. The adoption of SFAS No. 142 will eliminate $6.0 million in amortization expense in 2002 which would have been recorded under the prior accounting rules. At December 31, 2001, the company had goodwill of approximately $109.1 million which will be tested for impairment upon adoption of SFAS No. 142. Any impairment loss resulting from the transitional impairment tests will be reflected as the cumulative effect of a change in accounting principle. The company has not yet 29 determined what effect these impairment tests will have on the company's earnings and financial position. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement establishes standards for accounting for obligations associated with the retirement of tangible long-lived assets. This standard will be effective on January 1, 2003. The company is currently reviewing the provisions of SFAS No. 143 to determine the standard's impact upon adoption. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 provides guidance on the accounting for the impairment or disposal of long-lived assets and was effective for the company on January 1, 2002. Management believes that the adoption of SFAS No. 144 will not have a material impact on its financial statements. 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 on specific receivables denominated in Japanese Yen. Accordingly, the company 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. At December 31, 2001, the company had foreign currency forward exchange contracts to sell a total of 4.4 billion Japanese Yen for $34.9 million. The market value of these contracts was $36.0 million as of December 31, 2001. At December 31, 2001, the majority of the company's debt consisted of its $100 million 5% convertible subordinated notes that are due in October 2002. The fair market value of these convertible securities fluctuates with the company's stock price and was $73.6 million at December 31, 2001. The company has a deferred compensation plan for senior managers and executive officers, with a total liability balance of $4.8 million at December 31, 2001. This liability is subject to fluctuation based upon the market value of underlying securities. 30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Accountants........................... 32 Consolidated Statements of Operations....................... 33 Consolidated Balance Sheets................................. 34 Consolidated Statements of Stockholders' Equity............. 35 Consolidated Statements of Cash Flows....................... 36 Notes to Consolidated Financial Statements.................. 37
31 REPORT OF INDEPENDENT ACCOUNTANTS To 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 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 of ORBCOMM Global, L.P., an equity affiliate, which statements reflect total assets of $11,895,000, total revenues of $7,797,000, and net losses of $543,227,000 as of and for the year ended December 31, 2000. We did not audit the financial statements of Orbital Communications Corporation, a majority owned subsidiary, which statements reflect total assets of $31,539,000, equity in net losses of affiliates of $69,914,000, and total revenues of $2,126,000 as of and 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 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 reports of other auditors provide a reasonable basis for our 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, has a net working capital deficit, and has $100 million of subordinated convertible notes due on October 1, 2002 that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters, including efforts to raise additional debt and/or equity capital to refinance its outstanding convertible subordinated notes, are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /S/ PRICEWATERHOUSECOOPERS LLP McLean, Virginia March 7, 2002 32 ORBITAL SCIENCES CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 2001 2000 1999 ---------- ---------- ---------- REVENUES.......................................... $ 415,249 $ 379,539 $ 459,700 Costs of goods sold............................... 387,433 379,504 437,409 ---------- ---------- ---------- GROSS PROFIT...................................... 27,816 35 22,291 Research and development expenses................. 7,722 10,133 18,911 Selling, general and administrative expenses...... 61,626 68,503 55,646 Amortization of goodwill.......................... 6,021 5,739 6,075 Provision for doubtful ORBCOMM accounts........... -- 53,713 -- Asset impairment charges.......................... -- 15,911 15,217 Litigation-related settlements.................... 5,420 11,500 -- ---------- ---------- ---------- LOSS FROM OPERATIONS.............................. (52,973) (165,464) (73,558) Interest expense, net of amounts capitalized...... (21,671) (24,037) (19,820) Other income, net................................. 5,525 5,108 6,106 Allocated share of losses of affiliates........... (26,495) (119,183) (97,008) ---------- ---------- ---------- Loss before provision for income taxes and discontinued operations......................... (95,614) (303,576) (184,280) Provision for income taxes........................ -- (9,886) -- ---------- ---------- ---------- LOSS FROM CONTINUING OPERATIONS................... (95,614) (313,462) (184,280) Discontinued operations: Income (loss) from operations................... (155) (4,381) 3,733 Gain on disposal................................ 114,720 39,653 58,610 ---------- ---------- ---------- Income from discontinued operations............... 114,565 35,272 62,343 ---------- ---------- ---------- NET INCOME (LOSS)................................. $ 18,951 $ (278,190) $ (121,937) ========== ========== ========== Income (loss) per common and dilutive share: Loss from continuing operations................. $ (2.49) $ (8.36) $ (4.94) Income from discontinued operations............. 2.98 0.94 1.67 ---------- ---------- ---------- Net income (loss)............................... $ 0.49 $ (7.42) $ (3.27) ========== ========== ========== Shares used in computing per share amounts........ 38,424,363 37,467,520 37,281,065 ========== ========== ==========
See accompanying notes to consolidated financial statements. 33 ORBITAL SCIENCES CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, -------------------- 2001 2000 -------- -------- ASSETS Current Assets: Cash and cash equivalents................................. $ 63,215 $ 45,076 Restricted cash and cash equivalents...................... 10,815 6,973 Receivables, net.......................................... 125,538 86,472 Inventories, net.......................................... 21,627 34,227 Other current assets...................................... 3,403 5,167 -------- -------- Total current assets.............................. 224,598 177,915 -------- -------- Non-current assets of discontinued operations, net.......... -- 122,316 Property, plant and equipment, net.......................... 88,795 94,088 Goodwill, net............................................... 109,088 114,597 Other non-current assets.................................... 10,253 7,297 -------- -------- Total Assets...................................... $432,734 $516,213 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term borrowings and current portion of long-term obligations............................................ $103,710 $134,431 Accounts payable.......................................... 78,621 74,312 Accrued expenses.......................................... 81,765 76,523 Net current liabilities of discontinued operations........ -- 10,236 Deferred revenues......................................... 23,886 43,376 -------- -------- Total current liabilities......................... 287,982 338,878 -------- -------- Long-term obligations, net of current portion............... 4,665 108,291 Other non-current liabilities............................... 5,216 3,387 Allocated losses of affiliate in excess of cost of investment................................................ 40,586 21,506 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, 41,240,870 and 37,729,476 shares outstanding, respectively.............................. 412 377 Additional paid-in capital................................ 539,458 515,462 Accumulated other comprehensive loss...................... -- (7,152) Accumulated deficit....................................... (445,585) (464,536) -------- -------- Total stockholders' equity........................ 94,285 44,151 -------- -------- Total Liabilities and Stockholders' Equity........ $432,734 $516,213 ======== ========
See accompanying notes to consolidated financial statements. 34 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 INCOME (LOSS) (DEFICIT) TOTAL ---------- ------ ---------- ------------- --------- --------- 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 loss: 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 Shares issued to employees, officers and directors......... 1,685,593 17 5,619 -- -- 5,636 Warrants issued for litigation settlement............ -- -- 11,500 -- -- 11,500 Shares issued to ORBCOMM and others............ 1,825,801 18 6,877 -- -- 6,895 Comprehensive income: Net income.............. -- -- -- -- 18,951 18,951 Translation adjustment............ -- -- -- 7,487 -- 7,487 Unrealized gain on short-term investments........... -- -- -- (335) -- (335) --------- Total comprehensive income.................. -- -- -- 26,103 ---------- ---- -------- --------- --------- --------- Balance, December 31, 2001... 41,240,870 $412 $539,458 $ -- $(445,585) $ 94,285 ========== ==== ======== ========= ========= =========
See accompanying notes to consolidated financial statements. 35 ORBITAL SCIENCES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------- 2001 2000 1999 --------- --------- --------- Cash Flows From Operating Activities: Loss from continuing operations........................... $ (95,614) $(313,462) $(184,280) Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities: Depreciation and amortization expense................... 22,707 22,503 21,115 Amortization of prepaid financing costs................. 3,472 5,048 1,782 Allocated share of losses of affiliates................. 26,495 119,183 97,008 Stock contributions to defined contribution plan........ 4,208 -- -- Asset impairment charges................................ -- 15,911 15,217 Deferred income taxes................................... -- 9,886 -- Provision for doubtful ORBCOMM accounts................. -- 53,713 -- Other................................................... 949 (1,094) 11,252 Changes in assets and liabilities, net of divestitures and acquisitions: Receivables............................................. (39,500) 64,525 (18,054) Inventories............................................. 12,600 (14,147) (488) Other assets............................................ (9,353) 8,561 (19,871) Accounts payable and accrued expenses................... 18,613 35,038 40,493 Deferred revenue........................................ (19,490) (6,717) (10,929) Other liabilities....................................... 1,900 2,237 2,702 --------- --------- --------- Net cash provided by (used in) continuing operations......................................... (73,013) 1,185 (44,053) Net cash provided by (used in) discontinued operations......................................... (7,976) 34,400 71,209 --------- --------- --------- Net cash provided by (used in) operating activities......................................... (80,989) 35,585 27,156 --------- --------- --------- Cash Flows From Investing Activities: Capital expenditures...................................... (11,369) (24,883) (35,868) Net proceeds from sales of subsidiary equity and assets... 244,863 115,605 73,432 Sales and maturities of available-for-sale investment securities.............................................. -- 6,585 2,500 Investments in and advances to affiliates................. -- (595) (63,560) --------- --------- --------- Net cash provided by (used in) continuing operations.... 233,494 96,712 (23,496) Net cash provided by (used in) discontinued operations........................................... 3,486 (54,037) (73,533) --------- --------- --------- Net cash provided by (used in) investing activities..... 236,980 42,675 (97,029) --------- --------- --------- Cash Flows From Financing Activities: Short-term borrowings, net of (repayments)................ (8,145) 1,800 338 Principal payments on long-term obligations............... (156,273) (82,014) (121,942) Net proceeds from issuances of long-term obligations...... 30,000 -- 241,342 Net proceeds from issuances of common stock............... 1,016 2,176 7,387 Repayments to joint venture partner....................... -- (28,418) -- --------- --------- --------- Net cash provided by (used in) continuing operations......................................... (133,402) (106,456) 127,125 Net cash provided by (used in) discontinued operations......................................... (4,450) 19,891 (3,871) --------- --------- --------- Net cash provided by (used in) financing activities......................................... (137,852) (86,565) 123,254 --------- --------- --------- Net increase (decrease) in cash and cash equivalents........ 18,139 (8,305) 53,381 Cash and cash equivalents, beginning of period.............. 45,076 53,381 -- --------- --------- --------- Cash and cash equivalents, end of period.................... $ 63,215 $ 45,076 $ 53,381 ========= ========= =========
See accompanying notes to consolidated financial statements. 36 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 space technology company that designs, manufactures, operates and markets a broad range of affordable space systems, including launch vehicles, satellites and related space systems and electronic systems. 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 financial statements, the company reported losses from operations and net losses from continuing operations for the past several years. In addition, the company's 2002 beginning cash balance, operating cash flow and available borrowing capacity in 2002 will be insufficient to repay the outstanding subordinated convertible notes that become due on October 1, 2002, as discussed below. The company's accumulated deficit was $445.6 million as of December 31, 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 upon its ability to restructure its outstanding subordinated notes, meet its 2002 cash flow plan and comply with the terms of its new credit facility. The company's liquidity has been, and continues to be, constrained. As discussed in Note 2, to meet the company's capital and operating requirements, the company sold its interests in four businesses in 2001 and used a substantial amount of the proceeds from these divestitures to reduce debt. The company is also considering the sale of additional non-core assets. During 2001, the company also consolidated certain business operations, reduced its workforce and implemented other cost-cutting measures. As of December 31, 2001, the company had $63.2 million of unrestricted cash and cash equivalents. In March 2002, Orbital entered into a new three-year primary credit facility, which includes (i) a $25 million term loan and (ii) a $35 million revolving line of credit facility (see Note 7). The company's $100 million subordinated convertible notes become due on October 1, 2002. The company is exploring various alternatives in order to repay or restructure these notes. These alternatives include seeking to raise additional equity capital and/or debt in order to repay the notes or pursuing an exchange offer whereby the company would make an offer to the noteholders to exchange the notes for new debt and/or equity securities. There can be no assurance that the company will successfully raise enough capital in order to repay the notes, nor can there be any assurance that an exchange offer on terms acceptable to the company can be implemented and accepted by the company's existing noteholders. A default by the company on the subordinated convertible notes would also result in a default on the company's new primary credit facility described above. 37 PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Orbital and all wholly and majority owned subsidiaries controlled by Orbital. All significant intercompany balances and transactions have been eliminated. UNCONSOLIDATED AFFILIATES Orbital uses the equity method of accounting for affiliates that the company has the ability to significantly influence but not control. In accordance with the equity method of accounting, Orbital records the company's proportionate share of the affiliate's income or losses. Orbital continues to recognize equity losses of an affiliate even if such losses exceed the company's book value of such affiliate, as long as the company considers providing additional funding to such affiliate. Orbital uses a modified equity method of accounting for those affiliates for which Orbital has provided substantially all of the investee's funding whereby 100% of the investee's current period losses are recognized. Orbital does not recognize revenues on sales to investees for which Orbital has provided substantially all of such investee's funding. Orbital uses the cost method of accounting for investments in which it has no significant influence. 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 future contract costs and earnings. Such estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and earnings during the current reporting period. Management periodically assesses and evaluates the adequacy and/or deficiency of estimated liabilities recorded for various reserves, liabilities, contract risks and uncertainties. Actual results could differ from these estimates. Certain reclassifications have been made to the 2000 and 1999 financial statements to conform to the 2001 financial statement presentation. All financial amounts are stated in U.S. dollars unless otherwise indicated. REVENUE RECOGNITION Orbital's revenue is derived primarily from long-term contracts. Revenues on cost-plus-fee contracts are recognized to the extent of costs incurred plus a proportionate amount of fee earned. Revenues on long-term fixed-price contracts are generally recognized using the percentage-of-completion method of accounting. Such revenues are recorded based on the percentage that costs incurred in the applicable reporting period bear to the most recent estimates of total costs to complete each contract. Estimating future costs and, therefore, revenues and profits, is a process requiring a high degree of management judgment, including management's assumptions regarding future operations of Orbital as well as general economic conditions. In the event of a change in total estimated contract cost or profit, the cumulative effect of such change is recorded in the period the change in estimate occurs. Frequently, the period of performance of a contract extends over a long period of time and, as such, revenue recognition and the company's profitability from a particular contract may be adversely affected to the extent that estimated cost to complete or incentive or 38 award fee estimates are revised, delivery schedules are delayed or progress under a contract is otherwise impeded. Accordingly, the company's recorded revenues and gross profits from year to year can fluctuate significantly. In the event cost estimates indicate a loss on a contract, the total amount of such loss, excluding allocated general and administrative expenses, is recorded in the period in which the loss is first estimated. Certain contracts include incentive provisions for increased or decreased revenue and profit based on actual performance against established targets. Incentive and award fees are included in estimated contract revenue at the time the amounts can be reasonably determined and are reasonably assured based upon historical experience and other objective criteria. Should Orbital fail to perform sufficiently under such contracts, previously recognized revenues could be reversed and/or future period revenues could be reduced. COMPREHENSIVE INCOME (LOSS) Orbital's comprehensive income (loss) is presented in the consolidated statements of stockholders' equity. Other comprehensive income (loss) consists primarily of foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities. HEDGING ACTIVITY Orbital uses forward contracts to manage certain foreign currency exposures. Derivative instruments, such as forward contracts, are viewed as risk management tools by Orbital and are not used for trading or speculative purposes. Derivatives used for hedging purposes must be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accordingly, changes in fair value of the derivative contract must be highly correlated with changes in the fair value of the underlying hedged item at inception of the hedge and over the life of the hedge contract. Effective January 1, 2001, the company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. The new accounting standard requires that all derivative instruments be recorded on the balance sheet at fair value. The new accounting standard requires that the ineffective portion of all hedges, if any, is recognized currently in earnings. The adoption of this new accounting standard did not have a material impact on the company's financial statements. RESEARCH AND DEVELOPMENT EXPENSES Expenditures for company-sponsored research and development projects are expensed as incurred. Customer-sponsored research and development projects performed under contracts are accounted for as contract costs as the work is performed. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Major improvements are capitalized while expenditures for maintenance, repairs and minor improvements are charged to expense. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation and amortization are eliminated from the accounts and any resulting gain or loss is reflected in income. 39 Depreciation expense is determined using the straight-line method based on the following useful lives: Buildings...................... 18 to 20 years Machinery, equipment, software and intellectual property.... 3 to 12 years Leasehold improvements......... Shorter of estimated useful life or lease term
RECOVERABILITY OF LONG-LIVED ASSETS Orbital's policy is to evaluate its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of goodwill is evaluated based on the expected future cash flows of the related acquired businesses. When an evaluation indicates that the future undiscounted cash flows are not sufficient to recover the carrying value of the assets, an impairment loss is recognized and the asset is adjusted to its estimated fair value. Given the inherent technical and commercial risks within the space industry, combined with the special purpose use of certain of the company's assets, future impairment charges could be required if the company were to change its current expectation that it will recover the carrying amount of its long-lived assets from future operations. INCOME TAXES Orbital recognizes income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recorded 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. The company records valuation allowances 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 SFAS No. 123, "Accounting for Stock-Based Compensation," 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 No. 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 No. 123. 40 EARNINGS PER SHARE Net income (loss) per common share is calculated using the weighted average number of common shares outstanding during the periods. Diluted earnings per share include the weighted average effect of all dilutive securities outstanding during the periods. Diluted per share loss is the same as basic per share loss when there is a loss from continuing operations. If the company had reported income from continuing operations, the number of shares, assuming conversion of the convertible notes (see Note 7) and the dilutive impact of outstanding stock options (see Note 10), would have been approximately 42.0 million for 2001, approximately 41.1 million for 2000 and approximately 41.6 million for 1999. CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM INVESTMENTS Cash and cash equivalents consist of cash and short-term, highly liquid investments with original maturities of 90 days or less. Restricted cash and short-term investments consist of compensating cash balances for contractual obligations and investments in securities that do not meet the definition of cash equivalents. 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 are included in net investment income. INVENTORIES Inventories consist of components and raw materials inventory, work-in-process inventory and finished goods inventory and are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out ("FIFO") or specific identification basis. Components and raw materials are purchased to support future production efforts. Given the specialized nature of certain inventory items, recoverability could be impaired should future demand for the company's products decline. 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 selling, general and administrative costs. SELF-CONSTRUCTED ASSETS The company self-constructs some of its ground and airborne support and special test equipment utilized in the manufacture, production and delivery of some of its products. Orbital capitalizes direct costs incurred in constructing such equipment and certain allocated indirect costs. Orbital also 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. General and administrative and research and development costs are expensed as incurred. 41 GOODWILL Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired companies. The company amortizes goodwill on a straight-line basis over its estimated useful life, generally 10 to 40 years. Goodwill is net of accumulated amortization of $39.2 million and $33.3 million at December 31, 2001 and 2000, respectively. SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets," were issued in June 2001. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for as a purchase. Under SFAS No. 142, goodwill and other intangible assets with indefinite lives are no longer amortized, but are reviewed at least annually for impairment. The company is required to adopt SFAS No. 142 effective January 1, 2002. The adoption of SFAS No. 142 will eliminate $6.0 million in amortization expense in 2002, which would have been recorded under the prior accounting rules. At December 31, 2001, the company had goodwill of $109.1 million. Such goodwill will be tested for impairment upon adoption of SFAS No. 142 and any impairment loss will be reported as the cumulative effect of a change in accounting principle. The company has not yet determined what effect this impairment test will have on the company's earnings and financial position. DEFERRED REVENUE The company occasionally receives advances and payments from customers in excess of costs incurred and revenues recognized on certain contracts. These advances and payments are reported as deferred revenues on the balance sheet. WARRANTIES The company occasionally assumes warranty obligations in connection with certain contracts. The company records a liability for estimated warranty claims related to revenue recognized. 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. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement establishes standards for accounting for obligations associated with the retirement of tangible long-lived assets. This standard will be effective on January 1, 2003. The company is currently reviewing the provisions of SFAS No. 143 to determine the standard's impact upon adoption. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 provides guidance on the accounting for the impairment or 42 disposal of long-lived assets and was effective for the company on January 1, 2002. Management believes that the adoption of SFAS No. 144 will not have a material impact on its financial statements. 2. DISCONTINUED OPERATIONS In September 2001, the company sold its Pomona, California-based sensors systems division ("Sensors") to the Hamilton Sundstrand unit of United Technologies Corporation. The proceeds from the sale were approximately $19.0 million before transaction fees and expenses and resulted in a $7.1 million gain on the sale. In October 2000, the company sold its Fairchild Defense electronics business ("Fairchild") for $100 million, and recorded a $42.0 million gain in 2000 and a $0.5 million gain in 2001 related to post-closing adjustments. Sensors and Fairchild comprised a segment of the company's business that has now been treated as discontinued in the accompanying financial statements. In the second and third quarters of 2001, Orbital's wholly owned subsidiary, Orbital Holdings Corporation, sold its remaining interest in MacDonald Dettwiler and Associates Ltd. ("MDA"). The company received gross proceeds of $169.2 million before transaction fees and expenses, and recorded a $111.3 million gain in 2001. In 2000, MDA completed an initial public offering of common stock, raising gross proceeds of approximately $18.8 million for Orbital and $43.1 million for itself and other selling shareholders. Orbital recognized a $30.7 million gain on the sale of such stock in 2000. In December 1999, Orbital's then wholly owned subsidiary, MDA, issued common stock to a group of minority investors, and immediately provided a dividend to Orbital for the gross amount of the proceeds from the sale of $75 million. Pursuant to its policy with respect to issuances of subsidiary equity, the company recorded a $58.6 million gain on the sale of such stock. Orbital's ownership interest in MDA was approximately 52% and 66% at December 31, 2000 and 1999, respectively. On July 13, 2001, subsidiaries of Thales, S.A. acquired the company's majority owned subsidiary Magellan Corporation ("Magellan") and purchased the company's 60% ownership interest in Navigation Solutions LLC ("NavSol") for $70 million. At closing, after allocating $4.5 million of the proceeds to Magellan's minority stockholders, Orbital received gross proceeds of $65.5 million before transaction fees and expenses. As a result of the company adopting a formal plan to sell its interest in Magellan and NavSol, the company recorded a $33.1 million accrual in the fourth quarter of 2000 for the estimated loss on disposal of Magellan and NavSol, including a provision of $4.5 million for the estimated losses from operations during the 2001 phase-out period. Magellan's and NavSol's actual losses for the phase-out period exceeded the original estimates by $3.2 million, resulting in an additional loss from discontinued operations in 2001. The fees and expenses associated with closing the sale of Magellan and NavSol exceeded the original estimates, resulting in an additional $4.2 million loss on the sale of these businesses recorded in 2001. 43 The assets and liabilities of discontinued operations and the related results of operations have been reclassified for all periods presented. The carrying values of assets and liabilities of discontinued operations at December 31, 2000 were as follows (in thousands):
MAGELLAN AND NAVSOL MDA SENSORS TOTAL -------- -------- ------- -------- Current assets (liabilities), net....... $ 9,212 $(25,097) $5,649 $(10,236) ------- -------- ------ -------- Non-current assets, net: Investments in affiliates............. 20,312 2,327 -- 22,639 Property, plant and equipment, net.... 5,692 33,396 1,229 40,317 Goodwill and other, net............... 27,971 29,127 2,262 59,360 ------- -------- ------ -------- Net non-current assets............. 53,975 64,850 3,491 122,316 ------- -------- ------ -------- Net assets of discontinued operations...................... $63,187 $ 39,753 $9,140 $112,080 ======= ======== ====== ========
The following summarizes the operating results of discontinued operations (in thousands):
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 2001 2000 1999 -------- -------- -------- Revenues: Magellan and NavSol......................... $ 43,900 $ 97,311 $108,539 MDA......................................... 120,142 253,230 199,792 Sensors and Fairchild....................... 23,603 92,900 106,880 -------- -------- -------- $187,645 $443,441 $415,211 ======== ======== ======== Income (loss) from operations: Magellan and NavSol......................... $ (3,166) $(16,913) $(16,808) MDA......................................... 2,218 3,205 9,681 Sensors and Fairchild....................... 793 9,327 10,860 -------- -------- -------- (155) (4,381) 3,733 -------- -------- -------- Gain (loss) on disposal: Magellan and NavSol......................... (4,206) (33,053) -- MDA......................................... 111,340 30,724 58,610 Sensors and Fairchild....................... 7,586 41,982 -- -------- -------- -------- 114,720 39,653 58,610 -------- -------- -------- Income from discontinued operations........... $114,565 $ 35,272 $ 62,343 ======== ======== ========
44 3. SPECIAL GAINS AND CHARGES During 2001, 2000 and 1999, the company recorded the following special gains and charges: In the third and fourth quarters of 2001, the company agreed to settle several disputes that were the subject of arbitration proceedings. The company recorded charges totaling $5.4 million in 2001 for these litigation-related settlements. In 1996, Orbital began 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. At that time, due to the uncertainties related to recovering uncompensated costs from NASA, the company determined that its estimated future cash flows from X-34-related property, plant and equipment would not be sufficient to recover the recorded cost. In the fourth quarter of 2000, the company recorded an asset impairment charge of $15.9 million to write down X-34-related property, plant and equipment to their estimated realizable values and a $3.4 million provision for potentially uncollectible receivables that was recorded as selling, general and administrative expense. In August 2001, Orbital received a $10.0 million provisional settlement payment from NASA and the company reversed the previously-recorded $3.4 million provision for uncollectible receivables in the second quarter of 2001. In January 2002, NASA and the company agreed to settle and close out the contract for an additional payment of $13.0 million to the company. Accordingly, a $13.0 million contract revenue adjustment was recorded in the fourth quarter of 2001. Orbital recorded provisions totalling $4.9 million in 2001 and $5.2 million in 2000 for unoccupied office space and facility sublease losses. These provisions were recorded in selling, general and administrative expenses. In 2000, an $11.5 million charge was recorded in connection with the July 2000 settlement of a class-action lawsuit against the company. In 2001, the company issued warrants determined under the settlement agreement to have a fair value of $11.5 million related to the settlement of the lawsuit (see Note 10). In 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 $15.2 million asset impairment charge with respect to this asset in 1999. In addition, a commercial airline navigation and communications contract was cancelled in 1999. Consequently, the $14.8 million carrying value of the software and inventory 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 three reportable segments: (i) launch vehicles and advanced programs, (ii) satellites and related space systems, and (iii) electronic systems. Reportable segments are generally organized based upon product lines. Corporate and other includes certain corporate office general and administrative expenses that have not been attributed to a particular segment. The company's investments in, as well as its share of the income or loss of unconsolidated affiliates, are also included in corporate and other. 45 In 2001, the company realigned the composition of certain reportable segments as a result of the sale of certain businesses. In addition, in 2001 goodwill and other intangible assets and the related amortization expense were reclassified from corporate and other to the applicable business segments. The corresponding segment information for the prior years has been reclassified to conform to the 2001 presentation. 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. Substantially all of the company's assets and operations are located within the United States. The following table presents operating information and identifiable assets by reportable segment (in thousands):
YEARS ENDED DECEMBER 31, --------------------------------- 2001 2000 1999 -------- --------- -------- LAUNCH VEHICLES AND ADVANCED PROGRAMS: Revenues............................................ $146,429 $ 124,099 $165,074 Operating income (loss) (1) (2)..................... 17,305 (19,329) (6,682) Identifiable assets................................. 114,403 112,120 142,551 Capital expenditures................................ 1,424 4,073 13,665 Depreciation and amortization....................... 7,780 7,822 8,625 SATELLITES AND RELATED SPACE SYSTEMS: Revenues............................................ $207,745 $ 219,499 $260,189 Operating income (loss) (1) (2)..................... (50,851) (61,903) (20,118) Identifiable assets................................. 132,047 132,339 147,191 Capital expenditures................................ 6,177 8,920 7,481 Depreciation and amortization....................... 8,945 8,869 8,164 ELECTRONIC SYSTEMS: Revenues............................................ $ 65,061 $ 53,487 $ 43,138 Operating income (loss) (1) (2)..................... 1,553 (11,115) (12,387) Identifiable assets................................. 66,749 51,022 63,027 Capital expenditures................................ 548 431 639 Depreciation and amortization....................... 2,163 1,931 1,894 CORPORATE AND OTHER: Revenues............................................ $ (3,986) $ (17,546) $ (8,701) Operating income (loss) (1) (2)..................... (20,980) (73,117) (34,371) Allocated share of losses of affiliates............. (26,495) (119,183) (97,008) Identifiable assets................................. 119,535 220,732 503,222 Capital expenditures................................ 3,220 11,459 14,083 Depreciation and amortization....................... 3,819 3,881 2,432 CONSOLIDATED: Revenues............................................ $415,249 $ 379,539 $459,700 Operating income (loss) (1) (2)..................... (52,973) (165,464) (73,558) Allocated share of losses of affiliates............. (26,495) (119,183) (97,008) Identifiable assets................................. 432,734 516,213 855,991 Capital expenditures................................ 11,369 24,883 35,868 Depreciation and amortization....................... 22,707 22,503 21,115
46 (1) In 2000, the company recorded a $53.7 million provision for doubtful ORBCOMM accounts that negatively impacted operating income as follows (in thousands): Launch Vehicles and Advanced Programs................ $ 3,567 Satellites and Related Space Systems................. 18,441 Electronic Systems................................... 2,242 Corporate and Other.................................. 29,463 ------- Consolidated......................................... $53,713 =======
(2) In 2001 and 2000, the company recorded litigation-related settlement expenses of $5.4 million and $11.5 million, respectively, that negatively impacted operating income as follows (in thousands):
2001 2000 ------ ------- Launch Vehicles and Advanced Programs......... $2,000 $ -- Satellites and Related Space Systems.......... 3,000 -- Electronic Systems............................ -- -- Corporate and Other........................... 420 11,500 ------ ------- Consolidated.................................. $5,420 $11,500 ====== =======
EXPORT SALES AND MAJOR CUSTOMERS Orbital sales by geographic area were as follows (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- United States................... $376,065 $322,038 $357,391 Canada.......................... -- 848 19,004 Southeast Asia.................. 2,919 453 605 Middle East and other........... 55 4,633 10,035 Far East........................ 35,985 51,227 72,021 Europe.......................... 225 340 644 -------- -------- -------- Total......................... $415,249 $379,539 $459,700 ======== ======== ========
Approximately 55%, 45% and 48% of the company's revenues in 2001, 2000 and 1999, respectively, were generated under contracts with the U.S. government and its agencies or under subcontracts with the U.S. government's prime contractors. 47 5. INVESTMENTS IN AND TRANSACTIONS WITH AFFILIATES The allocated share of losses of affiliates was as follows (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------- 2001 2000 1999 -------- --------- -------- ORBCOMM........................ $ (6,500) $ (92,723) $(73,560) ORBIMAGE....................... (19,091) (28,223) (5,614) Other (1)...................... (904) 1,763 (17,834) -------- --------- -------- $(26,495) $(119,183) $(97,008) ======== ========= ========
(1) In 1999, the company recorded an $11.1 million charge to write off an equity investment. ORBCOMM In 1993, the company's subsidiary, Orbital Communications Corporation ("OCC"), and Teleglobe Mobile Partners ("Teleglobe Mobile"), an affiliate of Teleglobe Inc. ("Teleglobe"), formed a partnership, ORBCOMM Global, L.P. ("ORBCOMM"), for the design, development, construction, integration, testing and operation of a low-Earth orbit satellite communications system (the "ORBCOMM system"). Through December 31, 1999, OCC and Teleglobe Mobile were both 50% general partners in ORBCOMM. 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 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 $15.4 million in 2000 as an increase in additional paid-in capital. Until 2000, Orbital was the primary supplier to ORBCOMM for its communications satellites, launch vehicles and certain of its satellite ground systems and software. During the second quarter of 2000, ORBCOMM failed to meet payment obligations to Orbital under the ORBCOMM system procurement agreements. Accordingly, effective June 2000, the company ceased recognizing revenue on the ORBCOMM system procurement agreements. During 2000 and 1999, Orbital recorded revenues on sales to ORBCOMM totaling $21.4 million and $43.9 million, respectively. During 2000 and 1999, Orbital recognized operating losses of $1.8 million and $0.3 million, respectively, on sales to ORBCOMM. In September 2000, ORBCOMM and its subsidiaries commenced reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code. As a result, Orbital recorded non-cash charges totaling $113.1 million in 2000 to fully write off its investment in ORBCOMM and to write down ORBCOMM-related receivables and related inventory to their estimated recoverable value. Orbital has discontinued recognizing ORBCOMM equity losses since June 2000. 48 In the fourth quarter of 2001, the United States Bankruptcy Court for the District of Delaware confirmed a Chapter 11 liquidating plan of reorganization for ORBCOMM and the plan became effective on December 31, 2001. The liquidating plan provided for mutual releases and waivers of claims by and against the company, OCC, ORBCOMM and its various stakeholders. Pursuant to the liquidating plan, in the fourth quarter of 2001, the company contributed approximately 1.7 million shares of its common stock to the ORBCOMM estate and, as a consequence, recorded a $6.5 million charge for the fair value of such shares. This charge was reported in "allocated share of losses of affiliates" on the accompanying consolidated statement of operations. ORBIMAGE Orbital owns 99.9% of the common stock of Orbital Imaging Corporation ("ORBIMAGE"), or approximately 52% of the outstanding equity of ORBIMAGE at December 31, 2001, assuming conversion of all of ORBIMAGE's outstanding convertible preferred stock. As a result of certain rights granted to ORBIMAGE's preferred stockholders, Orbital is able to exercise significant influence over, but is unable to control, ORBIMAGE's operational and financial affairs. Accordingly, the company uses the equity method of accounting for its ownership interest in ORBIMAGE. ORBIMAGE has $225 million Senior Notes due in 2005 ("Senior Notes") that are non-recourse to Orbital. Orbital does not believe that ORBIMAGE will have sufficient funds available to meet the entirety of its next interest payment obligation that is due in March 2002. In September 2001, ORBIMAGE, certain of its major common and preferred shareholders, including Orbital, and an Informal Committee representing the holders of approximately half of its Senior Notes, entered into a non-binding agreement in principle (the "Agreement in Principle") to proceed with a financial restructuring designed to strengthen ORBIMAGE's financial condition. The Agreement in Principle provided for, among other things, an agreement by Orbital to defer payment of amounts owing to Orbital by ORBIMAGE, and for general mutual releases of claims by and among ORBIMAGE and its various stakeholders, including Orbital, that would be effective upon a consensual plan of reorganization. The voting agreement in support of the Agreement in Principle has expired in accordance with its terms. The Agreement in Principle is currently being renegotiated by ORBIMAGE and its various stakeholders, including Orbital. There can be no assurance that a consensual plan of reorganization will be negotiated to the mutual satisfaction of the interested parties or consummated, in which case Orbital could be subject to litigation brought by ORBIMAGE, its other shareholders and/or its creditors (see Note 8). Through June 30, 2001, the company recognized 100% of ORBIMAGE's losses, including preferred stock dividends, in allocated share of losses of affiliates in the accompanying statement of operations. During 2000 and 2001, such losses exceeded the company's investment in ORBIMAGE. While Orbital is not legally obligated for the liabilities of ORBIMAGE, the company recognized such additional losses because of its 99.9% common stock ownership and its previous intentions regarding potential funding of ORBIMAGE. As a result of the further deterioration of ORBIMAGE's financial position, in the third quarter of 2001, Orbital determined that it would not provide any future funding to ORBIMAGE beyond what was contemplated by the Agreement in Principle. Additionally, Orbital determined that the recognized losses exceed any future funding or investment that Orbital would provide to ORBIMAGE and any likely exposure should claims by ORBIMAGE, its other shareholders and/or its creditors be brought against Orbital. Furthermore, Orbital determined that if an ORBIMAGE restructuring plan is not completed, Orbital would abandon its investment in ORBIMAGE. Accordingly, the company ceased recognizing ORBIMAGE 49 losses as of July 1, 2001. As of December 31, 2001 and 2000, recognized losses exceeded the company's investment in ORBIMAGE by $40.6 million and $21.5 million, respectively, and such amounts are reported as "allocated losses of affiliate in excess of cost of investment" on the accompanying consolidated balance sheets. The disposition of the $40.6 million balance is dependent upon the future of ORBIMAGE as an entity, and could include, among other outcomes, a full or partial reversal of this balance from future earnings of ORBIMAGE or, in the event that ORBIMAGE were to restructure through bankruptcy or liquidate and dissolve, the remaining balance would be reversed at that time. Under a fixed-price procurement agreement between Orbital and ORBIMAGE, Orbital has produced and launched ORBIMAGE's satellites, and is continuing to construct the OrbView-3 satellite and related launch vehicle and ground segment. As a result of ORBIMAGE's lack of liquidity and weakened financial condition, Orbital ceased recognizing revenues on the ORBIMAGE system procurement contract beginning with the third quarter of 2000 and commenced accounting for its contract with ORBIMAGE using the completed contract method. During the year ended December 31, 1999, Orbital recorded sales to ORBIMAGE of approximately $36.7 million. Due to significant contract cost increases, Orbital reversed approximately $9.3 million of revenues in 2000. Orbital recognized operating losses of $22.9 million and $13.1 million in 2000 and 1999, respectively, on the ORBIMAGE procurement contract. Pursuant to the procurement agreement, Orbital paid $5.0 million in cash to ORBIMAGE in 2001 in satisfaction of launch delay penalties and recorded this charge as a contract cost. On September 21, 2001, Orbital's Taurus rocket, which was carrying the OrbView-4 satellite for ORBIMAGE, did not achieve the mission's intended orbit and the satellite was lost. Through the date of the launch, the company had recorded $16.0 million of inventory with respect to the OrbView-4 satellite, net of payments received from ORBIMAGE and contract losses recognized. The company recovered $11.7 million of this amount through insurance proceeds, and the remaining $4.3 million is due from ORBIMAGE. Given ORBIMAGE's current financial condition, there is no assurance that the company will be able to recover this amount. Accordingly, the company recorded a $4.3 million provision in selling, general and administrative expenses in the third quarter of 2001 to fully reserve the receivable from ORBIMAGE. Given the current uncertainty surrounding the outcome of the ongoing renegotiations of the Agreement in Principle and ORBIMAGE's ability to make future payments to Orbital under the procurement agreement, Orbital recorded a $20.7 million charge to cost of goods sold in the fourth quarter of 2001. This charge included a full write-down of inventory related to the OrbView-3 satellite and launch vehicle in addition to an accrual for the expected remaining costs to complete this contract. The liabilities associated with the ORBIMAGE contract exceeded the related assets by $16.4 million and $9.4 million, as of December 31, 2001 and 2000, respectively (see Note 6). Orbital provides certain administrative services and technical support to ORBIMAGE on a cost-reimbursable basis. During 2001, 2000 and 1999, Orbital was reimbursed approximately $0.2 million, $0.5 million and $1.5 million, respectively, for such administrative services. At December 31, 2001 and 2000, the company had total receivables due from ORBIMAGE of approximately $0.2 million and $0.5 million, respectively. In 2001, ORBIMAGE entered into a new license agreement with MDA for exclusive U.S. RadarSat-2 imagery distribution rights. Under the new RadarSat-2 license agreement, two $5 million installments will be due from ORBIMAGE to MDA in 2002. If ORBIMAGE is unable to make 50 these payments to MDA, Orbital has agreed to make such payments on its behalf in exchange for receivables from ORBIMAGE in an amount equal to the payments, to the extent that receivables are available. There can be no assurance that ORBIMAGE's receivables will be collectible. The following summarizes ORBIMAGE's balance sheets and statements of operations (in thousands):
BALANCE SHEETS --------------------------- DECEMBER 31, 2001 2000 --------- -------- Total current assets......................... $ 48,050 $ 5,599 Total assets................................. 191,475 343,829 Total current liabilities.................... 271,581 239,993 Total liabilities............................ 271,622 246,963 Preferred stock.............................. 110,039 106,103 Total stockholders' deficit.................. (190,186) (9,237)
STATEMENTS OF OPERATIONS --------------------------------- FOR THE YEARS ENDED DECEMBER 31, 2001 2000 1999 --------- -------- -------- Revenues..................................... $ 18,755 $ 24,123 $ 18,587 Net loss..................................... (177,046) (9,552) (6,722) Net losses available to common stockholders after considering preferred stock dividend................................... (180,982) (24,092) (19,796)
6. BALANCE SHEET ACCOUNTS RESTRICTED CASH AND CASH EQUIVALENTS At December 31, 2001 and 2000, the company had $10.8 million and $7.0 million, respectively, of cash and cash equivalents restricted primarily to collateralize outstanding letters of credit and foreign exchange hedging contracts. At December 31, 2000, available-for-sale securities with a fair value of $10.4 million were included in net current liabilities of discontinued operations. Unrealized gains on these securities were $0.3 million at December 31, 2000. 51 INVENTORY Inventories, net of allowances for obsolescence, consisted of the following (in thousands):
DECEMBER 31, ----------------- 2001 2000 ------- ------- Components and raw materials................. $10,622 $17,609 Work-in-process.............................. 12,395 20,018 Allowance for inventory obsolescence......... (1,390) (3,400) ------- ------- Total...................................... $21,627 $34,227 ======= =======
RECEIVABLES The components of receivables were as follows (in thousands):
DECEMBER 31, ------------------- 2001 2000 -------- -------- Billed and billable........................ $ 43,457 $ 49,095 Unbilled recoverable costs and accrued profit................................... 78,445 53,134 Retainages due upon contract completion.... 5,668 4,351 Allowance for doubtful accounts............ (2,032) (20,108) -------- -------- Total................................. $125,538 $ 86,472 ======== ========
Approximately 89% of unbilled recoverable costs and accrued profit and retainages at December 31, 2001 are due within one year and will be billed on the basis of contract terms and delivery schedules. At December 31, 2001 and 2000, $12.9 million and $0.9 million, respectively, were receivable from non-U.S. customers. Fully reserved receivables of $12.3 million at December 31, 2000 that were related to a specific contract were written off in 2001. A $3.4 million allowance recorded in 2000 in connection with the X-34 contract was reversed in 2001 (see Note 3). 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 direct and indirect costs charged to any such contract. Additionally, substantial portions of the payments to the company under government contracts are provisional payments that are subject to potential adjustment upon audit by such agencies. The company has entered into foreign currency forward exchange contracts to hedge against foreign currency fluctuations on specific receivables denominated in Japanese Yen. Hedge accounting is used for these foreign currency forward contracts. Unrealized gains and losses are classified in the same manner as the item being hedged and are recognized in income when the transaction is complete. Accordingly, the company 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. At December 31, 2001, the company had foreign currency forward exchange contracts to sell a total of 4.4 billion Japanese Yen for $34.9 million. The market value of these contracts was $36.0 million as of December 31, 2001. 52 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands):
DECEMBER 31, -------------------- 2001 2000 -------- -------- Land...................................................... $ 4,061 $ 4,061 Buildings and leasehold improvements...................... 35,204 31,510 Furniture, fixtures and equipment......................... 123,647 126,089 Software, intellectual property and technical drawings.... 11,051 11,790 Accumulated depreciation and amortization................. (85,168) (79,362) -------- -------- Total................................................ $ 88,795 $ 94,088 ======== ========
Interest expense totaling $1.8 million and $3.1 million was capitalized during 2000 and 1999, respectively, as part of the historical cost of buildings and equipment under construction. No interest was capitalized in 2001. ACCRUED EXPENSES Accrued expenses consisted of the following (in thousands):
DECEMBER 31, ------------------ 2001 2000 ------- ------- Payroll, payroll taxes and fringe benefits.................. $25,237 $20,379 Accrued subcontractor costs................................. 6,159 5,460 Accrued losses on fixed-price contracts..................... 23,470 25,096 Accrued litigation settlement............................... 5,000 11,500 Other accrued expenses...................................... 21,899 14,088 ------- ------- Total..................................................... $81,765 $76,523 ======= =======
Accrued losses on fixed-price contracts includes $16.4 million and $9.4 million as of December 31, 2001 and 2000, respectively, related to the ORBIMAGE procurement agreement (see Note 5). VENDOR FINANCING In 2000, the company secured vendor financing from a launch service provider that permitted the deferral of payments due by Orbital under certain contracts. The deferred payments, along with accrued interest at the annual interest rate of 10.5%, are due in 2002. As of December 31, 2001 and 2000, $48.8 million and $31.6 million, respectively, of deferred vendor payments and accrued interest were recorded in accounts payable. This financing arrangement commits the company to make progress payments to the vendor, with all payments due prior to the launch, which is expected to occur in the second quarter of 2002. 53 7. DEBT OBLIGATIONS The following table sets forth long-term obligations, excluding capital lease obligations (see Note 8) (in thousands):
DECEMBER 31, ---------------------- 2001 2000 --------- --------- 7.6% -- 14.57% notes, principal and interest due monthly through 2004.......................................... $ 6,894 $ 11,102 15% note, interest due semi-annually, principal due in June 2001............................................. -- 6,666 Bank credit facility, interest due quarterly at the rate of LIBOR plus 3.75%................................... -- 115,000 Convertible subordinated notes, interest at the rate of 5% due semi-annually, principal due in October 2002... 100,000 100,000 --------- --------- 106,894 232,768 LESS CURRENT PORTION.................................... (103,244) (125,875) --------- --------- LONG-TERM PORTION....................................... $ 3,650 $ 106,893 ========= =========
The 7.6% -- 14.57% notes are collateralized by certain office, computer and test equipment and the company's L-1011 aircraft. The 15% note was paid in full in 2001 using proceeds from the sale of MDA shares. During the third quarter of 2001, Orbital paid off the outstanding balance under its primary credit facility using cash proceeds from the divestiture of certain businesses (see Note 2). At December 31, 2001, no borrowings were outstanding under this facility, which was formally terminated in January 2002. At December 31, 2000, the facility provided for borrowings of $115 million, all of which was drawn and outstanding. In March 2002, Orbital entered into a new three-year primary credit facility with Foothill Capital Corporation as arranger and agent ("Foothill"). The facility includes (i) a $25 million term loan (the "Term Loan") and (ii) a $35 million revolver (the "Revolver"), of which up to $30 million may be available for borrowing depending on a monthly borrowing base calculation that is determined according to Orbital's billed and unbilled receivables. In the event that the company achieves certain financial performance levels based on cash and cash flow on or after September 30, 2002, the maximum available amount under the Revolver may be increased to $35 million. The Term Loan has an interest rate equal to the prime rate publicly announced from time to time by Wells Fargo Bank, National Association (the "Prime Rate") plus 6.00%, but not less than 11%. Borrowings under the Revolver accrue interest at a rate equal to the Prime Rate plus 2.25%, but not less than 7%. The loan agreement also provides for a letter of credit facility whereby up to $20 million of the amounts available for borrowing under the company's Revolver may be used for the purpose of having letters of credit issued on Orbital's behalf. The borrowings under the facility are collateralized by all of the company's assets, including accounts receivable, intellectual property, inventory, equipment, real estate and other assets. The loan agreement generally prohibits the sale of assets, payment of cash dividends, the making of investments, and the incurrence of new debt. The loan agreement requires Orbital to achieve specified earnings before interest, taxes, depreciation and amortization ("EBITDA") on a quarterly basis and capital expenditure targets on an annual basis. 54 Orbital is also required to maintain a minimum level of firm contract backlog and Orbital is required on a monthly basis to demonstrate that it is generally executing its major contracts within estimated cost parameters. The loan agreement also imposes restrictions on Orbital's ability to refinance existing indebtedness (subject to certain exceptions) and, accordingly, Foothill's consent may be required in order to refinance Orbital's convertible notes. In September 1997, Orbital sold $100 million of 5% convertible subordinated notes due October 1, 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. Since the notes are due in 2002, the entire balance is reported as a current liability. Orbital is considering alternatives with respect to the repayment or refinancing of these notes (see Note 1). The fair value of Orbital's convertible subordinated notes at December 31, 2001 and 2000 was estimated at approximately $73.6 million and $45.5 million, 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, 2006 are $103.2 million, $1.5 million, $1.6 million, $0.6 million and zero, respectively. 8. COMMITMENTS AND CONTINGENCIES LEASES Aggregate minimum rental commitments under non-cancellable operating and capital leases (primarily for office space and equipment) at December 31, 2001 were as follows (in thousands):
OPERATING CAPITAL --------- ------- 2002...................................................... $ 13,698 $ 559 2003...................................................... 13,539 436 2004...................................................... 13,488 350 2005...................................................... 11,833 206 2006...................................................... 10,786 69 2007 and thereafter....................................... 75,502 49 -------- ------ $138,846 1,669 -------- Less interest............................................. (188) Less current portion...................................... (466) ------ Long-term portion......................................... $1,015 ======
Rent expense for 2001, 2000 and 1999 was approximately $13.3 million, $11.2 million and $8.8 million, respectively. LITIGATION The company is party to certain litigation or other legal proceedings arising in the ordinary course of business. In the opinion of management, the outcome of such legal matters will not have a material adverse effect on the company's results of operations or financial condition. 55 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 the company's 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 the company's financial condition and/or results of operations. CONTINGENCIES During the second quarter of 2000, Orbital agreed to temporarily refund $20 million 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 then existing license agreement for worldwide RadarSat-2 satellite distribution rights with MDA by January 2001. The then existing RadarSat-2 license 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 million was extinguished. ORBIMAGE has notified Orbital of its position that, notwithstanding the renegotiation of the license agreement, the $20 million refund is now due and payable. Orbital disputes that position. As described in Note 5 above, ORBIMAGE, the Informal Committee and certain of its major common and preferred shareholders, are renegotiating an Agreement in Principle that contemplated, among other things, general mutual releases of claims by and among ORBIMAGE and its various stakeholders, including Orbital. There can be no assurance that a restructuring plan will be negotiated to the mutual satisfaction of the interested parties or consummated, in which case Orbital could be subject to litigation brought by ORBIMAGE, its other shareholders and/or its creditors, including but not limited to claims such as the one described above. The outcome of any such litigation is uncertain. In 2001, ORBIMAGE entered into a new license agreement with MDA for exclusive U.S. RadarSat-2 imagery distribution rights. Under the new RadarSat-2 license agreement, two $5 million installments will be due from ORBIMAGE to MDA in 2002. If ORBIMAGE is unable to make these payments to MDA, Orbital has agreed to make such payments on its behalf in exchange for receivables from ORBIMAGE in an amount equal to the payments, to the extent that receivables are available. There can be no assurance that ORBIMAGE's receivables will be collectible. 9. INCOME TAXES There were no current or deferred income tax provisions or benefits for 2001 and 1999. The entire provision for income taxes in 2000 consisted of a provision to fully reserve net deferred tax assets. 56 The income tax provisions from continuing operations were different from those computed using the statutory U.S. Federal income tax rate as set forth below:
YEARS ENDED DECEMBER 31, --------------------------- 2001 2000 1999 ----- ----- ----- U.S. Federal statutory rate........................ (35.0)% (35.0)% (35.0)% Changes in valuation allowance..................... 29.0 31.6 26.4 Investments in affiliates and minority interests in net assets of consolidated subsidiaries.......... 7.3 0.9 (1.3) Intangible amortization............................ 2.2 0.7 1.5 Other, net......................................... (3.5) 5.1 8.4 ----- ----- ----- Effective rate................................ 0.0% 3.3% 0.0% ===== ===== =====
The tax effects of significant temporary differences were as follows (in thousands):
DECEMBER 31, ---------------------- 2001 2000 --------- --------- TAX ASSETS: U.S. Federal and state net operating loss carryforward....................................... $ 166,752 $ 168,277 Other accruals, credits and reserves.................. 43,612 62,497 U.S. Federal and foreign tax credit carryforward...... 2,998 2,998 Intangible assets..................................... 5,738 6,029 --------- --------- 219,100 239,801 Valuation allowance................................... (202,734) (214,063) --------- --------- Tax assets, net.................................... $ 16,366 $ 25,738 ========= ========= TAX LIABILITIES: Excess deductions for tax reporting purposes.......... $ 8,379 $ 13,568 Excess tax depreciation............................... 4,153 4,027 Investments in subsidiaries/affiliates................ 529 5,441 Percentage-of-completion accounting................... 3,305 2,702 --------- --------- Tax liabilities.................................... $ 16,366 $ 25,738 ========= =========
At December 31, 2001, the company had U.S. federal net operating loss carryforwards (portions of which expire beginning in 2004) of approximately $432.4 million, and U.S. research and experimental tax credit carryforwards of approximately $3.0 million. Such net operating loss carryforwards and tax credits are subject to certain limitations and other restrictions. The valuation allowance was reduced primarily due to the company recognizing a net gain on its discontinued operations. The valuation allowance has been adjusted to eliminate net deferred tax assets due to management's assessment of anticipated future taxable income. 57 10. COMMON STOCK AND STOCK OPTION PLANS In August 2001, the company issued warrants in connection with the settlement of a class action lawsuit (see Note 3). The warrants are exercisable for up to 4,631,121 shares of the company's common stock at an exercise price of $4.82 per share, for a period of three years from the date of their issuance. None of these warrants had been exercised as of December 31, 2001. In January 2000, the company issued 100,000 warrants to the banks that were party to the company's then primary credit facility. Each warrant is exercisable for one share of the company's common stock at an exercise price of $0.01 per share, for a period of five years from the date of their issuance. As of December 31, 2001, 14,500 of these warrants had been exercised. 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 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. 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 the beginning or the end of the offering period. During 2001 and 2000, eligible employees purchased 1 million shares of Orbital's common stock under the ESPP. Orbital is seeking shareholder approval to add an additional 2 million shares of Orbital's common stock to the ESPP. As of December 31, 2001, the company's 1997 Stock Option and Incentive Plan, as amended (the "1997 Plan"), provided for awards of up to 8.6 million 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 April 2001 were vested one-third immediately, with the remaining two-thirds vesting in equal increments over two years. Options granted in December 2001 vest in one-half 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. 58 The following two tables summarize information regarding the company's stock options 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, 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 Cancelled 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 Granted............................ 3,138,499 1.30- 4.30 3.75 Exercised.......................... -- -- -- Cancelled or expired............... (1,997,120) 3.51-36.50 24.94 ---------- Outstanding at December 31, 2001..... 8,116,380 $ 1.30-43.31 $14.03 4,753,881
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------- --------------------------------- WEIGHTED NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE PRICES AT DEC. 31, 2001 CONTRACTUAL LIFE EXERCISE PRICE AT DEC. 31, 2001 EXERCISE PRICE - --------------- ---------------- ---------------- -------------- ---------------- -------------- $ 1.30-$ 4.00 2,976,014 9.58 $ 3.73 573,685 $ 4.00 4.17-17.88 2,705,875 6.28 13.29 2,106,317 13.83 18.13-43.31 2,434,491 6.66 27.46 2,073,879 27.24 ------------- --------- ---- ------ --------- ------ $ 1.30-$43.31 8,116,380 7.61 $14.03 4,753,881 $18.49 ============= ========= ==== ====== ========= ======
11. STOCK-BASED COMPENSATION The company uses the Black-Scholes option-pricing model to determine the pro forma impact under SFAS No. 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 59 fair value per share of stock options granted. This information and the assumptions used for 2001, 2000 and 1999 is summarized as follows:
2001 2000 1999 --------- ------- ------- Additional shares available at December 31...... 1,192,999 969,012 277,085 Volatility...................................... 82% 59% 58% Risk-free interest rate......................... 4.1% 6.3% 5.4% Weighted average fair value per share at grant date.......................................... $3.75 $12.34 $25.88
- --------------- The assumed expected dividend yield was zero for all years. The assumed average expected life of options was 4.5 years. Had the company determined compensation expense in accordance with the provisions of SFAS No. 123, based on the calculated fair value of stock options at the grant date, the company's net income (loss) and net income (loss) per common and dilutive share would have been $12.8 million and $0.33, respectively, for the year ended December 31, 2001; ($296.2) million and ($7.90), respectively, for the year ended December 31, 2000; and ($141.4) million and ($3.78), respectively, for the year ended December 31, 1999. Net income (loss) and net income (loss) per common and dilutive share includes compensation expense related to stock option plans of discontinued operations. Pro forma net income (loss) reflects only options granted in 2001, 2000 and 1999 and, therefore, may not be representative of the effects for future periods. The company issued 200,000, 50,000 and 200,000 stock appreciation rights in 2001, 2000 and 1999, respectively. The rights granted in 1999 expired in 2001. Payment is dependent on appreciation of the company's common stock over the vesting period. The company's stock has not appreciated above the targeted level and, accordingly, no compensation expense has been recorded for these stock appreciation rights. 12. SUPPLEMENTAL DISCLOSURES DEFINED CONTRIBUTION PLAN At December 31, 2001, the company had a defined contribution plan (the "Plan") generally covering all full-time employees. Company contributions to the Plan are made based on certain plan provisions and at the discretion of the Board of Directors, and were $6.1 million, $5.0 million and $5.1 million during 2001, 2000 and 1999, respectively. The company's 2001 contributions consisted of 1.4 million shares of company common stock, which employees are permitted to exchange into other investment alternatives. In addition, the company has a deferred compensation plan for senior managers and executive officers. At December 31, 2001 and 2000, liabilities related to this plan totaling $4.8 million and $6.1 million, respectively, were included in accrued expenses. The liability amounts are based on the market value of the investments elected by the plan participants. 60 CASH FLOWS Cash payments for interest and income taxes were as follows (in thousands):
YEARS ENDED DECEMBER 31, --------------------------- 2001 2000 1999 ------- ------- ------- Interest paid...................................... $20,734 $23,591 $18,458 Income taxes paid, net of refunds.................. -- 7,981 2,257
13. SUMMARY SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The company reclassified its 2001 and 2000 quarterly consolidated statements of operations to reflect Fairchild, Sensors and MDA as discontinued operations (Magellan and NavSol were reflected as discontinued operations in 2000). The following is a summary of selected quarterly financial data for the previous two years (in thousands, except share data):
QUARTERS ENDED --------------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 -------- -------- --------- -------- 2001 Revenues............................... $94,889 $108,489 $ 91,008 $120,863 Gross profit........................... 10,647 6,598 12,192 (1,621) Income (loss) from operations.......... (4,513) (8,491) (16,920) (23,049) Income (loss) from continuing operations.......................... (22,692) (25,137) (16,278) (31,507) Income (loss) from discontinued operations.......................... 1,125 91,709 21,895 (164) Income (loss) per common and dilutive share, continuing operations........ (0.60) (0.66) (0.42) (0.80) Income (loss) per common and dilutive share, discontinued operations...... 0.03 2.41 0.57 0.00 2000 Revenues............................... $113,721 $118,864 $ 80,073 $ 66,881 Gross profit........................... 17,314 10,312 (4,900) (22,691) Income (loss) from operations.......... 1,323 (20,822) (82,660) (63,305) Income (loss) from continuing operations.......................... (24,295) (46,258) (152,025) (90,884) Income (loss) from discontinued operations.......................... 116 1,783 30,703 2,670 Income (loss) per common and dilutive share, continuing operations........ (0.65) (1.24) (4.05) (2.42) Income (loss) per common and dilutive share, discontinued operations...... -- 0.05 0.82 0.07
61 ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is included in Item 4A above and under the caption "Election of Directors -- Directors to be Elected at the 2002 Annual Meeting, -- Directors Whose Terms Expire in 2003 and -- Directors Whose Terms Expire in 2004" and "Section 16(a) Beneficial Ownership Reporting Compliance" of the Proxy Statement to be filed pursuant to Regulation 14A on or about March 31, 2002 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 During 2001 and December 31, 2001 Option Values," "Indemnification Agreements," "Executive Employment Agreements" and "Information Concerning the Board and Its Committees" of the Proxy Statement to be filed pursuant to Regulation 14A on or about March 31, 2002 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 to be filed pursuant to Regulation 14A on or about March 31, 2002 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 to be filed pursuant to Regulation 14A on or about March 31, 2002 and is incorporated herein by reference. 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 report of PricewaterhouseCoopers 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 Stockholders' Equity E. Consolidated Statements of Cash Flows F. Notes to Consolidated Financial Statements 2. Financial Statements of 50% Owned Subsidiaries and Financial Statement Schedules. 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 The financial statements of Orbital Imaging Corporation are transmitted with this report as Exhibit 99.1. Certain financial statements of ORBCOMM Global, L.P. and Orbital Communications Corporation are incorporated by reference herein as Exhibit 99.2 and Exhibit 99.3, respectively. 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. 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: March 26, 2002 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: March 26, 2002
Signature: Title: /s/ David W. Thompson Chairman of the Board and Chief Executive - ------------------------------------------------ Officer, Director David W. Thompson /s/ James R. Thompson President and Chief Operating Officer, - ------------------------------------------------ Director James R. Thompson /s/ Garrett E. Pierce Executive Vice President and Chief Financial - ------------------------------------------------ Officer, Director Garrett E. Pierce /s/ N. Paul Brost Senior Vice President, Finance - ------------------------------------------------ N. Paul Brost /s/ Hollis M. Thompson Vice President and Controller - ------------------------------------------------ Hollis M. Thompson /s/ Kelly H. Burke Director - ------------------------------------------------ Kelly H. Burke /s/ Bruce W. Ferguson Director - ------------------------------------------------ Bruce W. Ferguson /s/ Daniel J. Fink Director - ------------------------------------------------ Daniel J. Fink
64
/s/ Lennard A. Fisk Director - ------------------------------------------------ Lennard A. Fisk /s/ Robert M. Hanisee Director - ------------------------------------------------ Robert M. Hanisee /s/ Robert J. Hermann Director - ------------------------------------------------ Robert J. Hermann /s/ Roderick M. Hills Director - ------------------------------------------------ Roderick M. Hills /s/ Jack L. Kerrebrock Director - ------------------------------------------------ Jack L. Kerrebrock /s/ Janice I. Obuchowski Director - ------------------------------------------------ Janice I. Obuchowski /s/ Frank L. Salizzoni Director - ------------------------------------------------ Frank L. Salizzoni /s/ Harrison H. Schmitt Director - ------------------------------------------------ Harrison H. Schmitt /s/ Scott L. Webster Director - ------------------------------------------------ Scott L. Webster
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 March 7, 2002 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, 2001, 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 March 7, 2002 ORBITAL SCIENCES CORPORATION SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FORM 10-K FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS)
ADDITIONS ----------------------------- BALANCE AT CHARGED TO CHARGED/CREDITED BALANCE START OF COSTS AND TO OTHER AT END OF DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD(2) - ----------- ---------- ---------- ---------------- ------------- --------- 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... 14,480 281 -- (1,970) 12,791 Deferred income tax valuation reserve......................... 150,844 63,219 -- -- 214,063 YEAR ENDED DECEMBER 31, 2001 Allowance for doubtful accounts.... 25,170 437 -- (23,575) 2,032 Allowance for obsolete inventory... 12,791 -- -- (11,401) 1,390 Deferred income tax valuation reserve......................... 214,063 -- -- (11,329) 202,734
- --------------- (1) Deductions relate primarily to accounts written off and, in 2001, to discontinued operations (see Note 2 below). (2) Schedule II includes amounts for the company's Magellan, MDA and Sensors business units, which are reported as discontinued operations in the accompanying financial statements. Magellan, MDA and Sensors balances have been netted against non-current liabilities of discontinued operations as of December 31, 2000 in the 2001 financial statements, but have been provided in the appropriate allowance accounts for purposes of this schedule. The reconciliation of the December 31, 2000 balances in this Schedule II to the allowance balances per Note 6 in the accompanying consolidated financial statements is as follows:
(IN THOUSANDS) Allowance for doubtful accounts in Schedule II............. $25,170 Less amounts for discontinued operations: Magellan................................................. (2,543) MDA...................................................... (2,469) Sensors.................................................. (50) ------- Allowance for doubtful accounts in Note 6 in the accompanying consolidated financial statements........... $20,108 ======= Allowance for obsolete inventory in Schedule II............ $12,791 Less amounts for discontinued operations: Magellan................................................. (7,296) MDA...................................................... (438) Sensors.................................................. (1,657) ------- Allowance for obsolete inventory in Note 6 in the accompanying consolidated financial statements........... $ 3,400 =======
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... 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). 4.6... 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... Purchase Agreement between Orbital Sciences Corporation and Orbital Imaging Corporation dated February 9, 2001 (transmitted herewith). 10.2... 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). 10.3... 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). 10.4... Lease Agreement by and between Boston Properties Limited Partnership and Orbital Sciences Corporation dated May 18, 1999. (transmitted herewith). 10.5... Lease Agreement by and between Boston Properties Limited Partnership and Orbital Sciences Corporation dated April 5, 1999. (transmitted herewith).
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.6... Lease Agreement by and between Boston Properties Limited Partnership and Orbital Sciences Corporation dated December 1, 1999. (transmitted herewith). 10.7... Office Lease, dated July 17, 1992, between S.C. Realty, Inc. and Orbital Sciences Corporation (incorporated by reference to Exhibit 10.3 to the company's Annual Report on Form 10-K for the year ended December 1, 1992). 10.8... Sale/Leaseback Agreement, dated September 29, 1989, by and among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P. and Space Data Corporation (incorporated by reference to Exhibit 10.2 to the company's Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990). 10.9... First Amendment to Sale/Leaseback Agreement, dated as of December 27, 1990, by and among Corporate Property Associates 8, L.P., Corporate Property Associates 9, L.P. and Space Data Corporation (incorporated by reference to Exhibit 10.2.1 to the company's annual Report on Form 100-K for the year ended December 31, 1991). 10.10.. 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).* 10.11.. Orbital Sciences Corporation 1990 Stock Option Plan for Non-Employee Directors, restated as of April 27, 1995 (incorporated by reference to Exhibit 10.5.2 to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995).* 10.12.. 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).* 10.13.. Performance Share Agreement dated May 18, 2001 between the company and Mr. D. W. Thompson (transmitted herewith).* 10.14.. Performance Share Agreement between the company and James R. Thompson dated May 18, 2001 (transmitted herewith).* 10.15.. Performance Share Agreement between the company and Garrett E. Pierce dated May 18, 2001 (transmitted herewith).* 10.16.. 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).* 10.17.. 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).* 10.18.. 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.. 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).* 10.20.. 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).*
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.21.. Agreement and Plan of Merger, dated as of May 25, 2001, by and among the company, Magellan Corporation, Thales North America, Inc. and Thomson-CSF Electronics, Inc. (incorporated by reference to Exhibit 10.1 to the company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2001 filed on August 14, 2001). 10.22.. Purchase Agreement, dated as of May 25, 2001, by and among the company, Orbital Navigation Corporation and Thales North America, Inc. (incorporated by reference to Exhibit 10.2 to the company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2001 filed on August 14, 2001). 10.23.. Loan and Security Agreement by and among Orbital Sciences Corporation, the lenders that are signatories hereto and Foothill Capital Corporation, as the Arranger and Agent dated March 1, 2002 (transmitted herewith). 21.. Subsidiaries of the Company (transmitted herewith). 23.1... Consent of PricewaterhouseCoopers LLP (transmitted herewith). 23.2... Consent of Arthur Andersen LLP (transmitted herewith). 99.1... Financial Statements of Orbital Imaging Corporation. (transmitted herewith). 99.2... Financial Statements of ORBCOMM Global, L.P. (incorporated by reference from the Financial Statements of ORBCOMM Global L.P. for the years ended December 31, 2000 and December 31, 1999 filed as part of Exhibit 99.2 to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 99.3... Financial Statements of Orbital Communication Corporation for the year ended December 31, 1999 (incorporated by reference from Exhibit 99.3 to the company's Annual Report on Form 10-K/A Amendment No. 1 for the fiscal year ended December 31, 2000).
- --------------- * Management Contract or Compensatory Plan or Arrangement. EX-10.1 3 w58627ex10-1.txt PURCHASE AGREEMENT EXHIBIT 10.1 PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (the "Agreement") is entered into this 9th day of February, 2001 between Orbital Sciences Corporation, a Delaware corporation ("Orbital") and Orbital Imaging Corporation, a Delaware corporation ("ORBIMAGE"). WHEREAS Orbital and ORBIMAGE are parties to that certain Termination of Radarsat-2 License Agreement and Grant of Territorial License dated February 9, 2001 by and among Orbital, ORBIMAGE and MacDonald, Dettwiler and Associates Ltd., a Canadian corporation ("MDA") (the "MDA Agreement") pursuant to which Orbital has agreed to make certain accommodations to MDA in accordance with this Agreement. NOW, THEREFORE, in consideration of the agreements and covenants contained herein, the parties hereto agree as follows: 1. AGREEMENT TO PURCHASE (a) Subject to the conditions set forth in subparagraph (b) below and pursuant to the terms set forth herein, Orbital hereby agrees to purchase receivables from ORBIMAGE for an aggregate purchase price of up to $10,000,000, which receivables amount would be discounted to the present value at the time of purchase at a discount rate sufficient to enable Orbital to recover the purchase price plus interest on the unrecovered amount of the purchase price at an annual rate of 8% (assuming payment consistent with prior payment patterns). Orbital will make up to two $5,000,000 cash purchases, due and payable in full no later than the due date of any applicable license payment owed by ORBIMAGE under the MDA Agreement,, of (i) receivables under contracts for satellite imagery or other ORBIMAGE products and services generated by the ORBVIEW-2 satellite and (ii) such other receivables of ORBIMAGE reasonably acceptable to each of ORBIMAGE and Orbital, which, when added to the ORBVIEW-2 receivables, are reasonably expected to generate payments in the aggregate of not less than $4 million in any given year. Receivables proposed to be sold to Orbital must be reasonably satisfactory to Orbital. (b) Orbital's obligation to make each purchase set forth in subparagraph (a) above is conditioned upon the following: (i) ORBIMAGE shall have notified Orbital in writing five (5) business days before a license fee payment is due under the MDA Agreement that ORBIMAGE will be unable to make such payment to MDA due to financial hardship; (ii) the Third Amended and Restated Credit and Reimbursement Agreement between Orbital, Morgan Guaranty Trust Company of New York as collateral agent and the other banks shall be matured in accordance with its terms on July 1, 2002 and no loans or commitments to loan to Orbital shall remain outstanding; and (iii) Such receivables shall be valid and of good quality (including lack of any encumbrances continuing in effect on or after the purchase date and free of claims of offset), and ORBIMAGE shall have taken all actions necessary either to cause an assignment of the contracts or rights to the receivables to Orbital to be effective concurrent with the installment purchase or to make arrangements reasonably satisfactory to Orbital for the continued collection of the receivables by ORBIMAGE and the prompt remission of amounts collected by ORBIMAGE to Orbital. Orbital is entitled to make any filings necessary under the Uniform Commercial Code with and submit notices to account debtors as necessary with respect to the receivables. (c) ORBIMAGE agrees that it shall take such actions that are reasonably necessary to ensure that the contracts relating to the purchased receivables continue in full force and effect in accordance with their terms, or on terms no less favorable to Orbital. (d) ORBIMAGE shall not enter into any agreement with MDA that affects the amounts of the license fee payments or their due dates under the MDA Agreement without Orbital's prior consent, unless such agreements cause such payments to be decreased or postponed. 2. IRREVOCABLE DIRECTION TO PAY; ASSIGNMENT (a) ORBIMAGE hereby irrevocably directs Orbital to remit any payments to be made hereunder directly to MDA to be applied to ORBIMAGE's Radarsat-2 license fee obligations under the MDA Agreement. (b) ORBIMAGE hereby assigns to MDA all amounts to become due from Orbital hereunder. 3. REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION; LIMITATION OF LIABILITY (a) Each party represents and warrants to the other that it has full right and authority to enter into this Agreement and to perform its obligations hereunder. (b) Each party agrees to indemnify and hold harmless the other, and its officers, directors, employees, agents and representatives from and against all claims, demands or liabilities (including reasonable attorneys' fees) of third parties arising from or in connection with the other party's breach of any representations, warranties, covenants or agreements contained herein. (c) IN NO EVENT SHALL ORBITAL OR ORBIMAGE BE LIABLE TO EACH OTHER UNDER THIS AGREEMENT FOR ANY INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, EVEN IF SUCH PARTY HAD OR SHOULD HAVE HAD KNOWLEDGE OF THE POSSIBILITY OF SUCH DAMAGES. 4. CONSENT TO ASSUMPTION. Orbital acknowledges that it is aware (a) of ORBIMAGE's current financial condition and results of operations and (b) that ORBIMAGE is considering various alternatives to restructure its operations, which alternatives include without limitation the filing of a petition under Chapter 11 of Title 11 of the United States Code (together with the Federal Rules of Bankruptcy Procedure and all other rules and judicial decisions and orders thereunder, the "Bankruptcy Law"). In the event ORBIMAGE files such a petition, Orbital hereby expressly consents to the assumption of this Agreement by ORBIMAGE (subject to applicable bankruptcy court approval under Bankruptcy Code Sections 364 and 365, as applicable) in any proceeding under Bankruptcy Law, notwithstanding the existence of any provisions under Bankruptcy Law that would provide Orbital with a defense to such assumption. 5. MISCELLANEOUS (a) Neither party shall assign its rights or obligations hereunder without the prior written consent of the other party, which shall not be unreasonably withheld. (b) All notices, requests and other communications to any party hereunder shall be in writing (including any facsimile transmission or similar writing), and shall be sent either by telecopy, by reputable overnight courier or delivered in person addressed as follows: (i) If to Orbital, to it at: 21700 Atlantic Blvd. Dulles, VA 20166 Telecopy: (703) 406-5572 Attention: General Counsel (ii) If to ORBIMAGE, to it at: 21700 Atlantic Blvd. Dulles, VA 20166 Telecopy: (703) 406-5552 Attention: Gil Rye with a copy to General Counsel or to such other persons or addresses as any party may designate by written notice to any other. Each such notice, request or other communication shall be effective (A) if given by telecopy, when such telecopy is transmitted and the appropriate answerback is received; (B) if given by reputable overnight courier, on one (1) business day after being delivered or (C) if given by any other means, when received at the address specified in this paragraph. (c) This Agreement shall be binding upon the parties, their successors and permitted assigns. (d) This Agreement contains the entire understanding between Orbital and ORBIMAGE and supersedes all prior written and oral understandings relating to the subject hereof. No representations, agreements, modifications or understandings not contained herein shall be valid or effective unless agreed to in writing and signed by both parties. Any modification or amendment of this Agreement must be in writing and signed by all parties. (e) The construction, interpretation and performance of this Agreement, as well as the legal relations of the parties arising hereunder, shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia, without giving effect to the conflict or choice of law provisions hereof. The parties agree that service of process may be made upon each other in any such action in the same manner in which notice may be given pursuant to this Agreement. No party may bring any action for a claim under this Agreement later than one (1) year after the termination of this Agreement; provided that claims under any provision of this Agreement that survive termination of this Agreement may be brought within one (1) year of the later of the occurrence of the event giving rise to the claim and actual knowledge thereof by the party asserting such claim. (f) It is understood and agreed that no failure or delay by any party in exercising any right, power or privilege hereunder 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 hereunder. No waiver of any terms or conditions of this Agreement shall be deemed to be a waiver of any subsequent breach of any term or condition. All waivers must be in writing and signed by the party sought to be bound. (g) If any part of this Agreement shall be held unenforceable, the remainder of this Agreement will nevertheless remain in full force and effect, unless such unenforceability impairs the fundamental purpose or expectations of the parties hereto. (h) Headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. (i) ORBIMAGE and Orbital are independent contractors to one another, and with respect to this Agreement, no party has the authority to bind any other in any way or to any third party, and nothing in this Agreement shall be construed as granting any party the right or authority to act as a representative, agent, employee or joint venturer of any other. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first written above. ORBITAL SCIENCES CORPORATION By: ------------------------------------------------ David W. Thompson Chairman and Chief Executive Officer ORBITAL IMAGING CORPORATION By: ------------------------------------------------ Gilbert D. Rye President and Chief Executive Officer EX-10.4 4 w58627ex10-4.txt LEASE AGREEMENT EXHIBIT 10.4 LEASE AGREEMENT BY AND BETWEEN BOSTON PROPERTIES LIMITED PARTNERSHIP AND ORBITAL SCIENCES CORPORATION TABLE OF CONTENTS
Page ---- ARTICLE I THE PREMISES.....................................................1 ARTICLE II TERM.............................................................2 ARTICLE III BASE RENT........................................................4 ARTICLE IV ADDITIONAL RENT..................................................5 ARTICLE V SECURITY DEPOSIT.................................................14 ARTICLE VI USE OF PREMISES..................................................17 ARTICLE VII ASSIGNMENT AND SUBLETTING........................................19 ARTICLE VIII MAINTENANCE AND REPAIRS..........................................23 ARTICLE IX ALTERATIONS......................................................24 ARTICLE X SIGNS, EQUIPMENT AND FURNISHINGS.................................27 ARTICLE XI INSPECTION BY LANDLORD...........................................28 ARTICLE XII INSURANCE........................................................29 ARTICLE XIII SERVICES AND UTILITIES...........................................31 ARTICLE XIV LIABILITY OF LANDLORD............................................35 ARTICLE XV RULES AND REGULATIONS............................................38 ARTICLE XVI DAMAGE OR DESTRUCTION............................................39 ARTICLE XVII CONDEMNATION.....................................................41 ARTICLE XVIII DEFAULT..........................................................41 ARTICLE XIX BANKRUPTCY.......................................................46 ARTICLE XX SUBORDINATION; MORTAGES..........................................47 ARTICLE XXI HOLDING OVER.....................................................49 ARTICLE XXII COVENANTS OF LANDLORD............................................49 ARTICLE XXIII PARKING..........................................................50 ARTICLE XXIV REPRESENTATIONS AND WARRANTIES...................................50 ARTICLE XXV RENEWAL..........................................................52 ARTICLE XXVI COMMUNICATIONS EQUIPMENT.........................................54 ARTICLE XXVII TENANT'S PURCHASE OPTION.........................................56 ARTICLE XXVIII TENANT'S RIGHT OF FIRST OFFER....................................59 ARTICLE XXIX GENERAL PROVISIONS...............................................61 ARTICLE XXX DIRECTORY OF DEFINED TERMS.......................................67
EXHIBIT A--Survey Depicting the Land EXHIBIT A-1--Diagram of the Premises [to be added when available pursuant to Section 1.1] EXHIBIT A-2--Survey of the Complex EXHIBIT B--Form of Estoppel Certificate EXHIBIT C--Brokerage Agreement EXHIBIT D--Form of Letter of Credit EXHIBIT E--Rules and Regulations EXHIBIT F--Form of Management Agreement -i- DEED OF LEASE AGREEMENT THIS DEED OF LEASE AGREEMENT (this "LEASE") is made as of the 18th day of May, 1999 (the "EFFECTIVE DATE"), by and between BOSTON PROPERTIES LIMITED PARTNERSHIP, a Delaware limited partnership (hereinafter referred to as "LANDLORD"), and ORBITAL SCIENCES CORPORATION, a Delaware corporation (hereinafter referred to as "TENANT" or "ORBITAL"). RECITALS: A. Landlord is the fee simple owner of that certain real property containing approximately 5.35 acres of land currently known as [Lot 10B], The Corporate Center at Steeplechase, Section I ("STEEPLECHASE"), Loudoun County, Virginia (the "LAND"), which Land is more particularly depicted on or described on Exhibit A-1 attached hereto (and which is subject to adjustment in the subdivision process described in Section 1.4 below) which Land is part of the office complex development located on land depicted on Exhibit A-2 attached hereto and known as the Orbital Campus (the "COMPLEX"). B. Concurrently with the execution of this Lease, Landlord and Tenant have entered into that certain Build to Suit Agreement and Agreement to Lease dated of even date herewith (the "DEVELOPMENT AGREEMENT") with respect to, among other things, the financing, design and construction by Landlord of one (1) building on the Land containing approximately [92,604] gross square feet of space (the "BUILDING"), including all necessary or appropriate loading, landscaping, site work, parking area and other infrastructure. The Development Agreement contains terms, conditions and agreements governing the development of the Land, the construction of the Building and additional buildings on other parcels of land in the Complex, and Landlord's and Tenant's respective options with regard to same. C. Landlord and Tenant wish to set forth herein the terms and conditions upon which Landlord (i) shall lease the Land and the Building to Tenant and (ii) shall grant to Tenant an option to purchase the Land and the Building. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: ARTICLE I THE PREMISES 1.1 Landlord hereby leases and demises to Tenant and Tenant hereby leases and accepts from Landlord, for the term and upon the terms and conditions hereinafter set forth, the Land and the Building (collectively, the "PREMISES"). Upon the design of the Building and completion of construction documents, a diagram of each floor of the Building, which together with the Land, comprise the Premises, shall be added to this Lease as Exhibit A-1. 1.2 The Lease of the Premises includes the right to use the adjacent parking areas which shall be generally described on the [Revised Site Plan Building 3], as defined in the -1- Development Agreement, and the right to use any common areas and facilities (including the Building's loading docks, doors, platforms, staging areas and service elevators) and all other facilities and areas that are located in and adjacent to the Building, unless specifically excluded in this Lease. The lease of the Premises also is subject to all covenants, conditions and restrictions of record as of the date hereof or recorded hereafter with the agreement of Tenant. 1.3 The area of the Building is expected to be approximately [92,604] square feet of Gross Floor Area and approximately [87,416] square feet of "net rentable" area. The parameters for the size and design of the Building, and other terms and conditions upon which the Land will be developed and the Building will be constructed are set forth in the Development Agreement. The number of rentable square feet in the Building shall be determined by Ai, the Project Architect, as defined in the Development Agreement, upon design and construction of the Building, and shall be confirmed in the declaration described in Section 2.3 below. For the purposes hereof, rentable area shall be calculated in accordance with the 1996 Building Owners and Managers Associated Standard Method of Measurement, as in effect as of the date of this Lease. The Project Architect shall provide Landlord and Tenant with its calculations for the measurement of the Building. 1.4 Landlord and Tenant agree that the legal description of the Land shall be adjusted as a result of the legal resubdivision of the Land as described in Section 3(d) of the Development Agreement. When such adjustment occurs, Landlord and Tenant agree to execute an amendment to this Lease, or such other documentation, reflecting such adjustment. ARTICLE II TERM 2.1 The term of this Lease (hereinafter referred to as the "LEASE TERM") shall commence on the Lease Commencement Date, as determined pursuant to Section 2.2 below, and continue for a period of fifteen (15) years thereafter, unless such Lease Term shall be extended, renewed or terminated earlier in accordance with the provisions hereof. Notwithstanding the foregoing, if the Lease Commencement Date shall occur on a day other than the first day of a month, the Lease Term shall commence on such date and continue for the balance of such month and for a period of fifteen (15) years thereafter. The term "Lease Term" shall include any and all renewals and extensions of the term of this Lease. 2.2 (a) The "LEASE COMMENCEMENT DATE" shall be the earlier of (i) the date on which the Building is, or is deemed to be, substantially complete as determined pursuant to Section 7 of the Development Agreement and (ii) the date on which Tenant commences the conduct of its business upon any portion of the Premises comprising, in the aggregate, seventy-five percent (75%) or more of the rentable area of the Building. (b) Tenant and its contractors shall be allowed access to the Building approximately forty-five (45) days prior to Landlord's estimated date of substantial completion of the Premises for the purpose of installing Tenant's communication equipment and associated wiring and such persons shall have access to the Premises approximately fifteen (15) days prior to Landlord's estimated date of substantial completion of the Premises for the purpose of -2- installing Tenant's other special equipment, fixtures and furniture (all such installations pursuant to this Section 2.2(b) being referred to herein as "TENANT INSTALLATIONS") and, the provisions of Section 2.2(a) or 2.2(c) to the contrary notwithstanding, such Tenant Installations and related activity shall not be considered the commencement of business operations in the Premises by Tenant. Landlord shall use reasonable efforts to provide Tenant with approximately sixty (60) days prior written notice of Landlord's estimated date of substantial completion of the Premises and shall promptly respond to any written request of Tenant inquiring as to Landlord's estimated date of substantial completion. Any and all Tenant Installations and other related activity by Tenant or its contractors prior to the Lease Commencement Date (i) shall be subject to Landlord's and its contractor's reasonable scheduling and sequencing requirements and (ii) shall be coordinated with Landlord and its general contractor to insure that Tenant's work in and to the Premises does not hinder, delay, inhibit or otherwise interfere with the work being performed by Landlord and its contractors, the parties hereby acknowledging and agreeing that the schedule for the performance of the construction and the development of the Building does not provide additional time for the performance by Tenant of the Tenant Installations. Notwithstanding anything herein to the contrary neither Tenant nor its agents or contractors shall have access to the Premises during the times specified by Landlord or its general contractor as times that may cause unreasonable delay or interference with the activities of or on behalf of Landlord in the Premises or the Building. All terms and conditions of this Lease including, without limitation, the insurance, release and waiver of liability provisions of Articles XIII and XV hereof shall apply to and be effective during such period of occupancy by Tenant, except for Tenant's obligation to pay Annual Base Rent and additional rent attributable to Expenses. (c) If one or more full floors within the Premises is substantially complete prior to the Lease Commencement Date, and if Tenant desires to occupy all or a portion of such full floor(s) for the conduct of its business prior to the Lease Commencement Date, then, unless and until such early occupancy includes 75% or more of the rentable area of the Building, such early occupancy shall not cause the Lease Commencement Date to occur, but all the terms of this Lease (including, without limitation, the requirement that Tenant pay Annual Base Rent and additional rent (each, as hereinafter defined) with respect to such full or partial floors) shall apply with respect to each space thus occupied by Tenant from the date that Tenant takes occupancy thereof for the conduct of its business therein. In the case of any such partial occupancy prior to the Lease Commencement Date, Annual Base Rent shall be determined based on the ratio of the rentable area so occupied to the total rentable area of the Building. 2.3 Promptly after the Lease Commencement Date is ascertained, Landlord and Tenant shall execute a written declaration setting forth the Lease Commencement Date, the date upon which the Lease Term will expire, the exact number of square feet of rentable area in the Premises, and the Annual Base Rent. The form of such declaration is attached hereto as Exhibit B and made a part hereof. 2.4 For purposes of this Lease, the term "LEASE YEAR" shall mean either (a) each period of twelve (12) consecutive calendar months commencing on the first day of the month immediately following the month in which the Lease Commencement Date occurs, and on each anniversary of such date, except that the first Lease Year shall also include the period from the Lease Commencement Date to the first day of the following month; or (b) if the Lease -3- Commencement Date shall occur on the first day of a calendar month, each period of twelve (12) consecutive calendar months commencing on the Lease Commencement Date and on each anniversary of such date; whichever is applicable. ARTICLE III BASE RENT 3.1 (a) During the first Lease Year, Tenant shall pay to Landlord as Annual Base Rent, net of all Expenses (which term is defined in Section 4.2 below), for the Premises, without set-off, deduction or demand, an amount equal to the Formula Rent (as hereinafter defined), which amount shall be increased on an annual basis as provided in Section 3.2 below. (b) The "FORMULA RENT" shall be an amount equal to the product of (i) the Project Costs, as defined in the Development Agreement, multiplied by (ii) Nine and Six Tenths Percent (9.6%). (c) The Annual Base Rent payable hereunder during each Lease Year shall be divided into equal monthly installments and such monthly installments shall be due and payable in advance on the first day of each month during such Lease Year. If the Lease Commencement Date (determined pursuant to Section 2.2 hereof) occurs prior to a date when final Project Costs are ascertained, then Annual Base Rent shall initially be determined and payable based on projections of such costs as of the Lease Commencement Date, as reasonably determined by Landlord and Tenant, and shall thereafter be recalculated when such costs are ascertained. Upon such recalculation, Landlord shall deliver to Tenant a written notice specifying (i) the calculation of Annual Base Rent based upon actual Project Costs, (ii) the Annual Base Rent that is payable to Landlord hereunder for the period commencing on the Lease Commencement Date and continuing through the date of such notice based on actual Project Costs, and (iii) the Annual Base Rent that was in fact paid to Landlord for the same time period. If the amount of Annual Base Rent paid by Tenant for such time period exceeds the amount of Annual Base Rent payable for such time period based on actual Project Costs, Landlord shall credit the net overpayment against the next monthly installment(s) of Annual Base Rent and additional rent due hereunder. Conversely, if Tenant's actual liability for Annual Base Rent for such time period exceeds the sums theretofore paid by Tenant on account thereof, Tenant shall pay the amount of the deficiency within thirty (30) days following Tenant's receipt of Landlord's notice. In either event, there shall be added to the excess that is to be credited or the deficiency that is to be paid (whichever is applicable) a sum equal to interest on each monthly component of the amount to be credited or paid from the date each monthly component would have been payable if actual Project Costs had been known on the Lease Commencement Date to the date of the credit or payment pursuant to the reconciliation statement calculated at the Interest Rate (as hereinafter defined). Effective as of the date of such notice (the "RENT RECALCULATION DATE"), Tenant shall begin paying Annual Base Rent at the recalculated rate. Any dispute between Landlord and Tenant as to the amount of the Project Costs (whether projected or final) shall be determined in accordance with the provisions of the Development Agreement. -4- (d) For purposes of calculating the Formula Rent payable hereunder, the term "PROJECT COSTS" shall be determined in accordance with the provisions of Section 10(a) of the Development Agreement. 3.2 Commencing on (i) the first day of the second (2nd), third (3rd), fourth (4th) and fifth (5th) Lease Years, the Annual Base Rent payable for such Lease Year shall be increased over the escalated Annual Base Rent in effect during the preceding Lease Year by two percent (2%), (ii) the first day of the sixth (6th), seventh (7th), eighth (8th), ninth (9th) and tenth (10th) Lease Years the Annual Base Rent payable for such Lease Year shall be increased over the escalated Annual Base Rent in effect during the preceding Lease Year by two and one-half percent (2.5%) and (iii) the first day of the eleventh (11th), twelfth (12th), thirteenth (13th) fourteenth (14th) and fifteenth (15th) Lease Years the Annual Base Rent payable for such Lease Year shall be increased over the escalated Annual Base Rent in effect during the preceding Lease Year by three percent (3%). 3.3 All rent shall be paid to Landlord, without set-off, deduction or demand, in legal tender of the United States (i) at the address to which notices to Landlord are to be given or to such other address as Landlord may designate from time to time by written notice to Tenant, or (ii) by wire transfer in accordance with wiring instructions to be provided to Tenant by Landlord at least thirty (30) days prior to the Lease Commencement Date (or such alternative wiring instructions as Landlord may designate from time to time by written notice to Tenant). Any failure by Landlord to timely notify Tenant of such wiring instructions shall not excuse the payment of rent by Tenant; however, Tenant shall not be obligated to make any rent payment hereunder sooner than five (5) business days following Tenant's receipt of Landlord's wiring instructions. If Landlord shall at any time accept rent after it shall come due and payable, such acceptance shall not excuse a delay upon subsequent occasions, or constitute or be construed as a waiver of any of Landlord's rights hereunder. ARTICLE IV ADDITIONAL RENT 4.1 Tenant shall bear the costs and expenses incurred each year in the operation of the Building and the Land. For so long as Tenant is the sole lessee of the Building, Tenant shall have the right to provide input into the determination of such annual costs and expenses, as follows. Not more than thirty (30) days prior to the Lease Commencement Date, Landlord shall prepare and submit to Tenant a proposed budget for the operation and maintenance of the Building and the Land, the parties acknowledging and agreeing that such budget shall represent Landlord's reasonable expectation of such costs and expenses as the Building will not have been substantially completed at the time of the preparation of such budget. On or before November 15 of each calendar year during the Lease Term, Landlord shall prepare and submit to Tenant (i) a proposed budget or other form of summary identifying with reasonable detail the anticipated categories of expenditures to be made, proposed major vendors to provide services and proposed scope of services (including, but not limited to, security services) to be provided by Landlord for the ensuing calendar year in the operation and maintenance of the Building and the Land and (ii) after the first year of operation of the Building, the operating history of the Building for the previous year (the "OPERATING PLAN"). It is the intention of Landlord and Tenant that Operating Expenses, as defined below, and the individual components thereof shall not materially exceed -5- prevailing market costs and rates for like items and services, however, the parties acknowledge and agree that there may be occasions from time to time where it is in the best interests of the Building for a particular item to be performed or purchased at a cost or expense which exceeds prevailing market rates. If Tenant has reasonable additions, deletions or modifications to any elements of Landlord's proposed Operating Plan, Tenant shall notify Landlord of same within thirty (30) days following receipt of the proposed Operating Plan and Landlord shall incorporate Tenant's reasonable additions, deletions and modifications into Landlord's proposed Operating Plan and shall operate the Building substantially in accordance therewith; provided that, in no event shall Landlord be obligated to operate the Building or the Land in a manner that is inconsistent with the standards of a Class A suburban office building in the Market Area. The Operating Plan (as it may be revised with Tenant's input as aforesaid) shall serve as a general guide to the scope of services to be provided and expenditures to be made in the operation and maintenance of the Building and Land and Landlord shall not deviate therefrom in any material manner without first obtaining Tenant's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. and shall be deemed given if not withheld in writing within seven (7) business days following Landlord's notice thereof to Tenant; provided that, in case of emergency or in any case in which Landlord reasonably believes delay might cause injury to persons, material injury to property or a violation of any Legal Requirement, Landlord may act without Tenant's prior written consent. Any failure of Landlord to timely provide an annual Operating Plan to Tenant as provided herein shall not relieve Tenant of its obligation to pay additional rent pursuant to this Article IV. 4.2 The costs and expenses (the "EXPENSES") for which Tenant shall be responsible are defined as follows: (a) "OPERATING EXPENSES" shall mean and include those direct reasonable and customary expenses actually incurred and paid in operating and maintaining the Building and the Land in a manner consistent with the operating and maintenance standards observed at similar Class A suburban office buildings located in the Market Area, including, but not limited to, the following: (1) electricity, gas, water, sewer and other utility charges of every type and nature; (2) premiums and other charges for insurance (including, but not limited to, property insurance, rent loss insurance and liability insurance) incurred in accordance with Section 12.2 hereof; (3) all management fees incurred in the management of the Building (subject to the limitation set forth below); (4) all costs incurred in connection with service and maintenance contracts; (5) maintenance and repair expenses and supplies; (6) amortization (calculated on a straight-line basis over the useful life of the improvement, with interest at Landlord's applicable cost of funds or, if the improvement is not financed, at the prime rate reported in The Wall Street Journal) for capital expenditures made by Landlord, but only to the extent that they (i) are made after the first two (2) years of the Lease Term and are intended to decrease Operating Expenses or improve safety, or (ii) are made after the expiration of the tenth (10th) Lease Year of the Lease Term as a result of Legal Requirements enacted after the date of this Lease, provided, however, that Landlord shall be entitle to recoup the cost of capital improvements which result in energy savings to the Building within the savings period attributable to such improvement and provided further that commencing in the sixth (6th) Lease Year, Landlord may pass through directly to Tenant the entire actual cost incurred by Landlord in connection with the maintenance, repair and replacement of major components of any Building systems which -6- prematurely fail due to Tenant's mandated hours of operation of such system(s) in excess of sixty-eight (68) hours per week; (7) salaries, wages, benefits and other expenses of Building personnel, together with the costs of maintaining engineering, maintenance and/or management offices in the Building (which costs shall not include imputed rent for the space in the Building occupied for such purposes); provided, however, that if during the Lease Term such personnel or entities are working on projects other than the Building, then their wages, salaries, fees and related expenses shall be appropriately allocated among all of such projects and only that portion of such expenses reasonably allocable to the Building shall be included in Operating Expenses; (8) legal fees (except as excluded below), administrative expenses, and accounting, architectural and other professional fees and expenses, except those that are normally absorbed by the property manager and not charged separately to Landlord in addition to management fees; (9) costs of any service not provided to the Building on the Lease Commencement Date but thereafter provided by Landlord pursuant to the then current Operating Plan established pursuant to Section 4.1 above, provided pursuant to the request of Tenant, otherwise provided pursuant to Section 4.1 above, or, during any time that Orbital is not the sole lessee of the Building, provided in the prudent management of the Building; (10) charges for concierge, security, janitorial, char and cleaning services and supplies furnished to the Building (except that costs of furnishing char and janitorial service to any space in the Building shall be excluded with respect to such space for so long as Tenant is furnishing its own char and janitorial service to such space in accordance with the provisions of this Lease); (11) costs associated with the provision or operation of any common facilities, including (without limitation) parking areas, landscaped areas, access roads, and the Building's loading dock; (12) fees and assessments payable pursuant to any declaration of covenants recorded against the Land or any property owners' association affecting the Land, which covenants if recorded against the Land after the effective date of this Lease and if Orbital is the lessee of fifty-one percent (51%) of the Building at such time, shall be subject to Orbital's approval; (13) Supplemental Land Costs, as defined in Section 4.2(c) below; and (14) any other reasonable expense incurred by Landlord in maintaining, repairing or operating the Building or the Complex. Any provision herein to the contrary notwithstanding, Operating Expenses shall not include the following: (i) the cost of any work performed (such as preparing a tenant's space for occupancy, including painting and decorating) or services provided (such as separately metered electricity) for any tenant (including Tenant) at such tenant's cost, or provided by Landlord without charge (such as free rent or improvement allowances); (ii) salaries, benefits and other compensation of Landlord's officers, partners, its headquarters staff and personnel located outside of the Complex, except to the extent includible pursuant to clause (7) above; (iii) the cost of any work performed or service provided for any tenant of the Building (other than Tenant, if any) to a materially greater extent or in a materially more favorable manner than that furnished generally to the other tenants and occupants; -7- (iv) the cost of any items for which Landlord is reimbursed by insurance proceeds (or would have been so reimbursed if Landlord had maintained the insurance required pursuant to Section 12.2 hereof), condemnation awards, or otherwise, or the cost of any item or service for which Landlord is actually reimbursed or is entitled to be reimbursed by another tenant of the Building, provided, however, that Landlord may include any insurance deductible in Operating Expenses; (v) depreciation of the Building and the cost of any additions, changes, or replacements to the Building, or amortization thereof, which under generally accepted accounting principles are properly classified as capital expenditures, except to the extent includable pursuant to clause (6) above and subject to Tenant's obligations with respect to capital expenditures pursuant to Section 4.2(a)(6) above and Sections 4.8 and 6.2 below; (vi) the cost of any repair made in response to any fire or casualty damage (except for the amount of any commercially reasonable "deductible" under Landlord's property insurance) or any condemnation; (vii) interest and principal payments on any debt, depreciation, and rental under any ground lease or other underlying lease; (viii) any real estate brokerage commissions or other costs incurred in procuring tenants, or any fee in lieu of commission; (ix) property management fees in excess of two and one-half percent (2.5%) of the Annual Base Rent payable hereunder from time to time; (x) any costs representing an amount paid to an entity related to or affiliated with Landlord to the extent in excess of the amount which would have been paid in the absence of such a relationship; (xi) any expenses for repairs or maintenance which are covered by warranties, guaranties or service contracts (excluding any mandatory deductibles); (xii) legal expenses arising out of the construction, sale, financing or refinancing of the Land or the Building, or the enforcement or defense of the provisions of any tenant's lease or organizational matters of Landlord or of any other proceeding by or against Landlord with respect to matters not specifically intended to be included as Operating Expenses; (xiii) insurance premiums to the extent of any refunds thereof; (xiv) incremental costs necessitated by or resulting from the negligence or willful misconduct of Landlord, its managing agent, or its employees or -8- from the gross negligence or willful misconduct of Landlord's independent contractors or other agents; (xv) costs arising out of a sale, financing or refinancing of the Land or the Building or any interests therein; (xvi) costs and taxes associated with the operation of the business entity of Landlord, including partnership audit, business entity accounting, and business entity legal matters; (xvii) costs, legal expenses, interest, fines and penalties associated with Landlord's making any late payments; (xviii) any costs or expenses incurred in connection with the remediation or removal of Hazardous Materials; (xix) acquisition or leasing costs of sculpture, paintings or other objects of art; (xx) except as provided in Section 4.2(a)(6) above, costs for repairing, replacing or otherwise correcting defects (but not the costs of repair or normal wear and tear) in the initial construction of the Premises; (xxi) costs of initial construction of the Premises, including all Project Costs; (xxii) rent for any on-site offices of Landlord or its managing agent; provided, however that Tenant shall make available to Landlord, without cost to Landlord, a minimum of 600 rentable square feet of space in Building 1 and Building 3 in the aggregate for a management office and/or building engineer's shop, which space shall be included in the rentable area of the Building when determining the Base Rent to be paid by Tenant under Article III hereof; and (xxiii) charitable or political contributions. In the event a single expenditure pays for the provision of a good or service to both the Building and any other building in the Complex or owned by Landlord, then Expenses shall include only the portion of such payment that is equitably allocable to the Building, as reasonably determined by Landlord and disclosed in writing to Tenant. Similarly, if any expenditure (whether in the nature of Operating Expenses or Real Estate Taxes (as defined below) benefits or otherwise relates to the Land and/or Building hereunder, as well as other land and/or buildings (including any land that may have been excluded from the Land hereunder pursuant to Section 1.4 hereof), then Expenses shall include only the portion of such expenditure that is equitably allocable to the Land and/or Building hereunder (as they may be constituted from time to time), as reasonably determined by Landlord and disclosed in writing to Tenant. -9- (b) "REAL ESTATE TAXES" shall mean and include (i) all real property taxes, including general and special assessments, if any, which are imposed upon Landlord in connection with the Building and/or the Land or assessed against the Building and/or the Land; (ii) any other present or future taxes or governmental charges which are imposed upon Landlord in connection with the Building and/or the Land, or assessed against the Building and/or the Land, including, but not limited to, any tax levied on or measured by the rents payable by tenants in the Building which are in the nature of, or in substitution for, real property taxes; and (iii) all taxes which are imposed upon Landlord, and which are assessed against the value of any improvements to the Premises made by Tenant or any machinery, equipment, fixtures or other personal property of Tenant used therein. In no event shall "Real Estate Taxes" include (A) income or net profit taxes imposed upon Landlord, except to the extent such taxes are in substitution for real property taxes, (B) the amount of any special taxes or special assessments actually paid by Landlord in any calendar year in excess of the minimum installment of special taxes or special assessments required to be paid by Landlord during such calendar year (it being agreed that Landlord shall elect the longest period of time allowed by the authority imposing the tax or assessment in which to pay installments of special taxes or special assessments that are to be prorated over several years), (C) franchise, stock and inheritance or estate taxes and sales, use or excise taxes imposed on rent, except to the extent such taxes are imposes in lieu of real estate taxes, (D) any transfer taxes, recording fees, tap fees, excises, levies, license fees, permit fees, impact fees, inspection fees or other authorization fees and any other similar charges which are included in the term "Project Costs". Tenant may request that all real estate taxing authorities, when issuing notices of assessment and real estate tax bills with respect to the Building or the Land, issue such notices and bills to both Landlord and Tenant simultaneously, and Landlord shall cooperate with such request. If any such taxing authority will not agree to same, then Tenant shall so notify Landlord and Landlord shall thereafter use reasonable efforts to furnish to Tenant a copy of each such notice of assessment or real estate tax bill that Landlord receives from such taxing authority with respect to the Building and/or the Land within thirty (30) days following Landlord's receipt thereof and shall be obligated to furnish to Tenant a copy thereof (if available) within ten (10) days following Landlord's receipt of Tenant's written request therefor. Landlord shall make a determination whether or not to challenge or appeal such assessment based on Landlord's reasonable judgment of which course is in the best interest of the Building. So long as Orbital is leasing not less than fifty-one percent (51%) of the rentable area of the Building, Landlord shall inform Tenant of such determination, and shall make available appropriate personnel to discuss with Tenant the reasons underlying such determination. In the event Landlord determines not to challenge or appeal such assessment (or, having undertaken to appeal or challenge such an assessment, does not pursue the appeal or challenge with due diligence and continuity), and provided Tenant is leasing the minimum square footage specified in the preceding sentence, Landlord agrees that Tenant may appeal or challenge such assessment in Landlord's place and stead and that Landlord will join in and cooperate with Tenant in prosecuting such appeal or challenge; provided, however, that such appeal or challenge shall be undertaken at Tenant's sole cost and at no expense to Landlord (except that, if Tenant's appeal or challenge is successful, then Tenant may recover its costs out of the refund or reduction of Real Estate Taxes achieved by Tenant prior to allocating such reduction to the tenants of the Building). -10- (c) It is the intention of the parties that as the Complex is subdivided and additional buildings are constructed therein, each of the lots in the Complex shall bear their pro rata portion of the costs (collectively, "SUPPLEMENTAL LAND COSTS") of all common roadwork and other common infrastructure costs that are associated with the initial and any subsequent development of the Complex (collectively, "COMMON SITE WORK"). For purposes hereof, Supplemental Land Costs associated with a subsequent phase of development of the Complex (i) shall include all costs and expenses (including, without limitation, interest and interest carry) of the types that are incurred (provided the cost incurred is subsequently paid) or paid by Landlord or the owners of the other lots in the Complex in connection with the further development of the lots in the Complex and (ii) shall be equitably apportioned among all of the buildings in the Complex. Common Site Work shall include, without limitation, the costs of extending the primary road network and pedestrian walkways serving the Complex to serve subsequent phases; the costs of extending utilities to the perimeter of a subsequent phase; the costs of expanding storm water facilities to serve subsequent phases; the costs of developing, installing lighting in, and landscaping entrances to the Complex and other common areas of the Complex and any and all other site development mandated by applicable Legal Requirements, as defined herein; and the costs of installing directional signage and entrance signage in common areas situated on subsequent phases 4.3 Tenant shall pay to Landlord, as additional rent for the Premises, the Expenses incurred by Landlord in the operation of the Building and the Land during any calendar year falling entirely or partly within the Lease Term, but the Expenses for any calendar year during the Lease Term shall be apportioned so that Tenant shall pay only that portion of such Expenses for such year as fall within the Lease Term. This provision shall survive the expiration or earlier termination of this Lease. Tenant shall also pay the Expenses incurred by Landlord during any period of partial occupancy prior to the Lease Commencement Date pursuant to Section 2.2 hereof. 4.4 If, during any period in which Orbital is not the sole lessee of the Building, the occupancy rate for the Building during any calendar year is less than ninety-five percent (95%), or if any office tenant is separately paying for electricity or janitorial services furnished to its premises, then Expenses for such calendar year shall be deemed to include all additional expenses with respect to those Expenses that vary in accordance with the occupancy of the Building, as reasonably estimated by Landlord, which would have been incurred during such calendar year if the occupancy rate for the Building had been ninety-five percent (95%) and if Landlord paid for electricity and janitorial services furnished to such premises. This provision shall not operate in a manner that would permit Landlord to recover from Tenant additional rent on account of Operating Expenses for any calendar year which, when added to the total additional rent payable by all tenants of the Building on account of Operating Expenses for such year will exceed the actual Operating Expenses incurred by Landlord for such year. 4.5 Commencing on the Lease Commencement Date and on the first day of each month thereafter, Tenant shall make estimated monthly payments, based on the Operating Plan, to Landlord on account of the Expenses that are reasonably expected to be incurred during each calendar year falling entirely or partly within the Lease Term. The amount of such monthly payments shall be determined as follows: Commencing with the Lease Commencement Date (or -11- such earlier date as of which Expenses may be payable by Tenant pursuant to Section 4.3) and at the beginning of each calendar year thereafter, Landlord shall submit to Tenant a statement setting forth Landlord's reasonable estimate of the Expenses that are expected to be incurred during such calendar year (and, if Orbital is not the sole lessee of the Building, Tenant's proportionate share thereof). Provided that Tenant receives such statement at least forty-five (45) days in advance, Tenant shall pay to Landlord on the first day of each month following receipt of such statement during such calendar year an amount equal to (A) the excess of (i) the anticipated Expenses (or Tenant's proportionate share thereof, during any period in which the Building is multi-tenanted) for the full calendar year (or the portion of such calendar year that falls within the Lease Term) over (ii) the monthly payments made by Tenant (on the basis of the estimate in effect during the preceding calendar year) prior to the commencement of payments made on the basis of Landlord's estimate for the current calendar year, multiplied by (B) a fraction, the numerator of which is one (1) and the denominator of which is the number of months during such calendar year which fall within the Lease Term and follow the date of the foregoing statement. Within approximately ninety (90) days after the expiration of each calendar year, Landlord shall submit to Tenant a statement certified by Landlord (the "RECONCILIATION STATEMENT"), showing (i) the Expenses actually incurred during the preceding calendar year (and, during any period in which the Building is multi-tenanted, Tenant's proportionate share thereof), and (ii) the aggregate amount of the estimated payments made by Tenant on account thereof. If the aggregate amount of such estimated payments exceeds Tenant's actual liability for such Expenses, then Landlord shall credit the net overpayment against the next monthly installment(s) of Annual Base Rent and additional rent coming due under this Lease (or if the Lease Term has ended, shall pay such net overpayment to Tenant within thirty (30) days after providing such Reconciliation Statement to Tenant). If Tenant's actual liability for such Expenses exceeds the estimated payments made by Tenant on account thereof, then Tenant shall pay to Landlord the total amount of such deficiency within thirty (30) days after its receipt of the Reconciliation Statement from Landlord. In the event Landlord has failed to deliver a Reconciliation Statement to Tenant within approximately ninety (90) days after the expiration of a calendar year, Tenant may deliver to Landlord a written demand that the Reconciliation Statement be delivered within sixty (60) days following the date of delivery of Tenant's demand notice, and if Landlord fails to deliver the Reconciliation Statement to Tenant within sixty (60) days after the date on which Landlord receives Tenant's demand notice, then Landlord shall forfeit the right to bill Tenant for any amount on account of Expenses incurred during such calendar year in excess of the estimated payments made by Tenant during such calendar year (but Tenant shall not forfeit the right to be reimbursed for any overpayment if its estimated payments exceeded the actual Expenses, and Landlord shall not be excused from its obligation to deliver the Reconciliation Statement). The provisions of this paragraph shall survive the expiration or earlier termination of this Lease. 4.6 Tenant shall have the right, during business hours and upon reasonable prior notice, from time to time to inspect and make copies of Landlord's books and records relating to Expenses, and/or to have such books and records audited at Tenant's expense by an independent certified public accountant or other qualified consultant designated by Tenant, not more than ten percent (10%) of the fees of whom shall be determined on a contingent basis, except that any audit that discloses that annual Expenses have been overstated by more than three percent (3%) shall be at Landlord's expense. Any discrepancy shall be corrected by a payment of any shortfall -12- to Landlord by Tenant, or a refund of any overpayment to Tenant by Landlord, within thirty (30) days after the applicable audit. In the event Tenant does not contest a statement of Expenses within three (3) years after the date it receives a Reconciliation Statement (and provided Landlord has cooperated with Tenant undertaking an audit of Landlord's books and records, if so requested by Tenant), such Reconciliation Statement shall become binding and conclusive upon each party. Tenant shall use reasonable efforts to (and shall use reasonable efforts to cause its agents to ) keep the results of such audit confidential. Landlord shall retain the books and records for the Building for the period subject to Tenant's audit rights. 4.7 So long as Tenant is the sole lessee of the Building, Tenant may request that electric utility bills be sent directly from the electricity provider to Tenant, in which event Tenant shall be obligated to pay all charges for electricity directly to such electricity provider as and when due. If Tenant ceases to be the sole lessee of the Building, Tenant may request that electricity furnished to the Premises be separately metered, if such service is available from the applicable utility provider, in which event Landlord shall, subject to any conditions or limitations imposed by the electricity provider, install a submeter or checkmeter at Tenant's expense. Following any such separate metering, Tenant shall timely pay directly to the appropriate utility all charges for electricity furnished to the Premises (and the charges for such separately metered electricity shall not be included in Operating Expenses). Notwithstanding anything contained herein to the contrary, if Tenant fails to pay any electric bill that is provided directly to Tenant by the electric utility as and when due, such failure shall constitute a default hereunder. If any such default is not cured within ten (10) business days following written notice from Landlord, then Landlord shall have the right, but shall not be obligated, to pay the delinquent amounts, and Tenant shall reimburse Landlord therefor within five (5) business days after receiving notice of such payment by Landlord; provided that Landlord may act without notice to Tenant if delay would cause an interruption of utility services, an emergency or similar situation. Notwithstanding anything to the contrary herein, in the event electric service to the Premises is measured by separate meter or check meter, Tenant shall not be relieved of its obligation to pay its share of Expenses attributable to the provision of electrical service to the common areas of the Building. Landlord shall have the right to verify Tenant's electrical consumption in the Premises through the energy management system in the Building. 4.8 Except as otherwise provided in Sections 4.2(a)(6), Section 6.2 and this Section 4.8, Landlord shall bear the cost of, and shall not pass through to Tenant as an Expense hereunder, any necessary or appropriate capital expenditures constituting additions or changes to, or replacements of, the base building systems and other base building components of the Building ("BASE BUILDING CAPITAL EXPENDITURES"). The preceding sentence notwithstanding, Landlord shall not be obligated to make any such capital repair or replacement to specifications that exceed building standard specifications unless Tenant agrees to pay in full, at the time the Base Building Capital Expenditure is incurred, the excess cost of such Tenant-upgraded capital repair or replacement over the cost of making such capital replacement or repair to building standard specifications; provided, however, in the event (i) the cost of the Base Building Capital Expenditure in question is less than Five Hundred Thousand Dollars ($500,000.00), which cap shall be increased annually by the increase in the Consumer Price Index, as defined in the Development Agreement, and (ii) Orbital's net worth (which shall be determined on a pro forma basis using generally accepted accounting principles consistently applied and using the most -13- recent financial statements) is not less than it is on the Effective Date, then Tenant may elect to amortize the cost of such Base Building Capital Expenditure, at an interest rate acceptable to Landlord but not exceeding commercially reasonable interests rates at the time of the expenditure, as additional rent to be paid by Tenant over the remainder of the Lease Term, assuming that Tenant does not and has not elected to renew this Lease. In addition, any necessary or appropriate capital expenditures constituting additions or changes to, or replacements of, any of Tenant's tenant improvements shall be payable in full by Tenant at the time the capital expenditure is incurred. For purposes hereof, "building standard" specifications shall mean specifications customary in Class A suburban office buildings in the Market Area. ARTICLE V SECURITY DEPOSIT 5.1 (a) Tenant shall be obligated to post, as the "SECURITY DEPOSIT" hereunder, a sum equal to Two Hundred Fifty Thousand Dollars ($250,000.00). Upon the Lease Commencement Date, provided no default on the part of Tenant under this Lease shall then be in existence and no Event of Default, as defined in Section 18.1 hereof, has occurred hereunder, the security deposit shall be reduced to Two Hundred Thousand Dollars ($200,000.00). All cash which Tenant delivers to Landlord as a security deposit, including the proceeds if Landlord draws of the Letter of Credit, as defined below, will be deposited in a separate, interest-bearing account maintained by Landlord with a depository selected by Tenant and approved by Landlord, in its reasonable discretion, with interest accruing to the benefit of Tenant. Interest on the security deposit (if it is in the form of cash) shall be disbursed to Tenant no less often than on a quarterly basis. Following an Event of Default, interest earned on the security deposit shall be added to and become a part of the security deposit and shall not be disbursed to Tenant, except upon the return of the security deposit in accordance with the terms hereof. Landlord hereby approves NationsBank, N.A. as an acceptable depository for the security deposit. (b) The security deposit shall be security for the performance by Tenant of all of Tenant's obligations, covenants, conditions and agreements under this Lease. Within thirty (30) days after the expiration of the Lease Term, and provided Tenant has vacated the Premises and is not in default hereunder, Landlord shall return the security deposit to Tenant, less such portion thereof as Landlord shall have applied to satisfy any default by Tenant hereunder. Following an Event of Default by Tenant hereunder, Landlord shall have the right, but shall not be obligated, to use, apply or retain all or any portion of the security deposit for (i) the payment of any Annual Base Rent or additional rent or any other sum as to which Tenant is in default, (ii) the payment of any amount which Landlord may spend or become obligated to spend to repair physical damage to the Premises or the Building pursuant to Section 8.3 hereof, or (iii) the payment of any amount Landlord may spend or become obligated to spend, or for the compensation of Landlord for any losses incurred, by reason of Tenant's default hereunder, including, but not limited to, any damage or deficiency arising in connection with the reletting of the Premises. If any portion of the security deposit is so used or applied (including a draw under any letter of credit that may serve as the security deposit hereunder), within three (3) business days after written notice to Tenant of such use or application, Tenant shall deposit with Landlord cash in an amount sufficient to restore the security deposit to the full amount required to be maintained hereunder (or, if the security deposit is in the form of a letter of credit, replace or -14- restore the letter of credit to the full amount required to be maintained hereunder), and Tenant's failure to do so shall constitute a default under this Lease. (c) Tenant shall have the right to deliver to Landlord an unconditional, irrevocable letter of credit in substitution for the cash security deposit, subject to the following terms and conditions. Such letter of credit shall be (a) substantially in the form attached hereto as Exhibit D or such other form and substance satisfactory to Landlord in its sole discretion; (b) at all times in the amount of the security deposit, and shall permit multiple draws; (c) issued by a commercial bank reasonably acceptable to Landlord from time to time and located in the Washington, D.C. metropolitan area; (d) made payable to, and expressly transferable and assignable at no charge by, the owner from time to time of the Building (which transfer/assignment shall be conditioned only upon the execution of a written document in connection therewith); (e) payable at sight upon presentment to a local branch of the issuer located in the Washington, D.C. metropolitan area of a simple sight draft or certificate stating that an Event of Default has occurred under this Lease and that Landlord is entitled to draw upon the letter of credit in the amount set forth in the sight draft or certificate; (f) of a term not less than one year; and (g) at least thirty (30) days prior to the then-current expiration date of such letter of credit, either (1) renewed (or automatically and unconditionally extended) from time to time through the ninetieth (90th) day after the expiration of the Lease Term, or (2) replaced with cash in the amount of the Security Deposit. Notwithstanding anything in this Lease to the contrary, any cure or grace periods set forth in this Lease shall not apply to Tenant's obligations under subsection (g) above, and, specifically, if Tenant fails to timely comply with the requirements of subsection (g) above, then Landlord shall have the right to immediately draw upon the letter of credit without notice to Tenant and apply the proceeds to the security deposit. Each letter of credit shall be issued by a commercial bank that has a credit rating with respect to certificates of deposit, short term deposits or commercial paper of at least P-2 (or equivalent) by Moody's Investor Service, Inc., or at least A-2 (or equivalent) by Standard & Poor's Corporation, and shall be otherwise acceptable to Landlord in its reasonable discretion. If the issuer's credit rating is reduced below P-2 (or equivalent) by Moody's Investors Service, Inc. or below A-2 (or equivalent) by Standard & Poor's Corporation, or if the financial condition of such issuer changes in any other materially adverse way, then Landlord shall have the right the require that Tenant obtain a substitute letter of credit from a different issuer that complies in all respects with the requirements of this Section, and Tenant's failure to obtain such substitute letter of credit within ten (10) business days following Landlord's written demand therefor (with no other notice or cure or grace period being applicable thereto, notwithstanding anything in this Lease to the contrary) shall entitle Landlord to immediately draw upon the then existing letter of credit in whole or in part, without notice to Tenant. In the event the issuer of any letter of credit held by Landlord is placed into receivership or conservatorship by the Federal Deposit Insurance Corporation, or any successor or similar entity, then, effective as of the date such receivership or conservatorship occurs, said letter of credit shall be deemed not to meet the requirements of this Section, and, within ten (10) business days thereafter, Tenant shall replace such letter of credit with a substitute security deposit meeting the requirements of this Section (and Tenant's failure to do so shall, notwithstanding anything in this Lease to the contrary, constitute an Event of Default for which there shall be no notice or grace or cure periods being applicable thereto other than the aforesaid ten (10) business day period). Landlord shall return the superseded letter of credit to Tenant promptly upon receipt of its replacement. Any failure or refusal of the issuer to -15- honor the letter of credit shall be at Tenant's sole risk and shall not relieve Tenant of its obligations hereunder with respect to the security deposit. (d) Tenant shall have the right, from time to time, to substitute a letter of credit meeting the requirements of Subparagraph (c) for the cash security deposit, and vice versa, on one or more occasions, provided that substitutions may not occur more frequently than one (1) time in any twelve (12) month period. (e) Provided that, as of the applicable Reduction Date, as defined below, (i) no default on the part of Tenant under this Lease shall then be in existence and no Event of Default, as defined in Section 18.1, has occurred hereunder, (ii) no uncorrected physical damages to the Premises shall have occurred, ordinary wear and tear excepted and (iii) no other event shall have occurred during the Lease Term which would entitle Landlord to use or to retain all or a portion of the security deposit in accordance with the provisions of this Article V, Tenant shall have the right on the first day of the second (2nd) Lease Year and on the first day of each of the following four (4) Lease Years thereafter (each a "REDUCTION DATE") to reduce the security deposit by the amount of Forty Thousand Dollars ($40,000.00). Notwithstanding anything herein to the contrary, if an Event of Default has occurred, then there shall occur no further reduction in the security deposit. If any portion of the security deposit is then in the form of a letter of credit, such reduction shall occur by means of delivery by Tenant to Landlord of a substitute Letter of Credit in such amount and in strict conformity with the terms of this Article V, in which event, the original Letter of Credit and any substituted Letter of Credit, as applicable, shall be returned to Tenant. 5.2 In the event of the sale or transfer of Landlord's interest in the Building, Landlord shall have the right to transfer the security deposit to the purchaser or assignee, provided such purchaser or assignee assumes Landlord's obligations hereunder, as evidenced by the agreement of such purchaser or assignee, a copy of which Landlord shall furnish to Tenant in accordance with Section 14.3 hereof. If Landlord transfers the security deposit to a purchaser or assignee, Tenant shall look only to such purchaser or assignee for the return of the security deposit, and Landlord shall thereupon be released from all liability to Tenant for the return of the security deposit. If the security deposit is in the form of a letter of credit, then Tenant shall, within ten (10) days after Landlord's request therefor, cause the Letter of Credit to be amended or reissued by the issuer to indicate the new beneficiary. 5.3 Tenant hereby acknowledges that Tenant will not look to the holder of any mortgage (as defined in Section 20.1) encumbering the Building for return of the security deposit if such holder, or its successors or assigns, shall succeed to the ownership of the Building, whether by foreclosure or deed in lieu thereof, except if and to the extent the security deposit is actually transferred to such holder; provided, however, that Landlord agrees to transfer any security deposit from Tenant to such holder of any mortgage encumbering the Building. -16- ARTICLE VI USE OF PREMISES 6.1 Tenant shall use and occupy the Premises solely for general office purposes, research and development and related and ancillary uses and any other uses that are permitted under the Approved Site Plan, applicable zoning laws and other Legal Requirements (as hereinafter defined) and are compatible with a Class A suburban office complex in the Market Area, as defined in Section 25.4 below, and for no other use or purpose. The parties hereby agree that the following uses are compatible with a Class A suburban office complex in the Market Area: laboratories, light assembly areas, health club/fitness center, outdoor fitness trail, day care center, sundries/lobby shop, laundry/dry cleaning drop-off service, and food service operations. Notwithstanding anything herein to the contrary, in no event shall such "compatible uses" in the aggregate exceed more than forty percent (40%) of the rentable area of the Building. Tenant shall not use or occupy the Premises for any unlawful purpose or in any manner that will constitute waste, nuisance or unreasonable annoyance. Tenant's use of the Premises shall also comply with all present and future laws, ordinances (including zoning ordinances and land use requirements), regulations, and orders of Loudoun County, the Commonwealth of Virginia and any other public or quasi-public authority having jurisdiction over the Premises, concerning the use, occupancy and condition of the Premises and all machinery, equipment and furnishings therein (together referred to herein as "LEGAL REQUIREMENTS"). 6.2 Pursuant to the provisions of the Development Agreement, Landlord shall obtain the initial non-residential use permit and any other similar governmental approvals which may be required for Tenant's occupancy of the Premises. It is expressly understood that if any present or future Legal Requirements require any other permit(s) for the Premises due to Tenant's particular use thereof, or Tenant's improvements or future alterations thereto, that Tenant will obtain such permit(s) at Tenant's own expense. Further, Tenant will comply with all Legal Requirements which impose on Landlord or Tenant a duty relating to or arising as a result of Tenant's use or occupancy of the Premises. In particular, without limiting the generality of the foregoing, any and all alterations or additions to the Premises that are required to be made after the Lease Commencement Date, as a result of Legal Requirements (now existing or hereafter enacted) shall be made by Tenant at Tenant's sole cost and expense and in accordance with the requirements of Article IX hereof. Notwithstanding anything contained herein to the contrary, Landlord shall be required to comply with any present or future Legal Requirements with respect to (i) elements and components of the "base building" structure and systems and (ii) the common areas of the Building which are within Landlord's control, unless, in either case, such Legal Requirements are imposed because of Tenant's particular use or configuration of the Premises (as opposed to office use generally) or any improvements constructed in the Premises by Tenant or caused by Tenant or any of its employees, agents, contractors or subtenants in which case Tenant shall bear the entire cost of performing such addition, replacement or alteration. Tenant shall promptly pay all fines, penalties and damages that may arise out of or be imposed on Landlord or Tenant because of Tenant's failure to comply with the provisions of this Section. 6.3 Tenant shall pay any business, rent or other taxes that are now or hereafter levied upon Tenant's use or occupancy of the Premises, the conduct of Tenant's business at the Premises, or Tenant's equipment, fixtures or personal property. In the event that any such taxes -17- are enacted, changed, or altered so that any of such taxes are levied against Landlord, or the mode of collection of such taxes is changed so that Landlord is responsible for collection or payment of such taxes, Tenant shall pay any and all such taxes to Landlord within thirty (30) days following written demand from Landlord. 6.4 Tenant shall not cause or permit any Hazardous Materials to be generated, used, released, stored or disposed of in or about the Building or the Complex, provided that Tenant may use and store reasonable quantities of standard office supplies and cleaning materials as may be reasonably necessary for Tenant to conduct normal general office use operations in the Premises and in compliance with all Environmental Laws and other applicable Legal Requirements. At the expiration or earlier termination of this Lease, Tenant shall surrender the Premises to Landlord free of Hazardous Materials (except any that may be Landlord's responsibility pursuant to Section 6.5 hereof and any that are otherwise not Tenant's responsibility pursuant to the terms of this Article VI) and, subject to the foregoing parenthetical, in compliance with all Environmental Laws. "HAZARDOUS MATERIALS" means (a) asbestos and any asbestos containing material and any substance that is then defined or listed in, or otherwise classified pursuant to, any Environmental Law or any other applicable Law as a "hazardous substance," "hazardous material," "hazardous waste," "toxic substance," "toxic pollutant" or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, or Toxicity Characteristic Leaching Procedure (TCLP) toxicity, (b) any petroleum and drilling fluids, produced waters, and other wastes associated with the exploration, development or production of crude oil, natural gas, or geothermal resources, and (c) any petroleum product, polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive material (including any source, special nuclear, or byproduct material), chlorofluorocarbon, lead or lead-based product, and any other substance whose presence would be hazardous to health or the environment. "ENVIRONMENTAL LAW" means any present and future Law and any amendments (whether common law, statute, rule, order, regulation or otherwise), permits and other requirements or guidelines of governmental authorities applicable to the Building or the Land and relating to the environment and environmental conditions or to any Hazardous Material (including, without limitation, CERCLA, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act, 33 U.S.C. Section 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq., the Emergency Planning and Community Right-To-Know Act, 42 U.S.C. Section 1101 et seq., the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq., and any so-called "Super Fund" or "Super Lien" law, any Law requiring the filing of reports and notices relating to hazardous substances, environmental laws administered by the Environmental Protection Agency, and any similar state and local Laws, all amendments thereto and all regulations, orders, decisions, and decrees now or hereafter promulgated thereunder concerning the environment, industrial hygiene or public health or safety). At all times, and notwithstanding any termination of this Lease, Tenant shall indemnify and hold Landlord, its employees and agents harmless from and against any damage, injury, loss, liability, charge, demand or claim based on or arising out of the presence or removal of, or failure to remove, Hazardous Materials generated, used, released, stored or disposed of by Tenant or its employees, agents, contractors, licensees or invitees (collectively, "INVITEES") in or about the Building or the -18- Complex, whether before or after the Lease Commencement Date. In addition, Tenant shall give Landlord immediate verbal and follow-up written notice of any actual or threatened Environmental Default, which Environmental Default Tenant shall cure in accordance with all Environmental Laws and to the reasonable satisfaction of Landlord and, except in the case of an emergency (in which event Tenant may act without Landlord's consent), only after Tenant has obtained Landlord's prior written consent, which shall not be unreasonably withheld. An "ENVIRONMENTAL DEFAULT" means any of the following by Tenant or any Invitee with respect to the Building, the Land or the Complex: a violation of an Environmental Law; a release, spill or discharge of a Hazardous Material on or from the Premises, the Land or the Building; an environmental condition requiring responsive action; or an emergency environmental condition. Upon any Environmental Default, in addition to all other rights available to Landlord under this Lease, at law or in equity, Landlord shall have the right but not the obligation to immediately enter the Premises, to supervise and approve any actions taken by Tenant to address the Environmental Default, and, if Tenant fails to immediately address same to Landlord's reasonable satisfaction, to perform, at Tenant's sole cost and expense, any lawful action necessary to address same. If any lender or governmental agency shall require testing to ascertain whether an Environmental Default is pending or threatened, then Tenant shall pay the reasonable costs therefor as additional rent. Promptly upon request, Tenant shall execute from time to time affidavits, representations and similar documents concerning Tenant's best knowledge and belief regarding the presence of Hazardous Materials at or in the Building, the Land or the Premises. 6.5 Landlord shall not cause or permit any Hazardous Materials to be generated, used, released, stored or disposed of on the Land, in the Building or any portion of the Complex that it owns, in violation of applicable Environmental Laws. Except as otherwise provided below, if Landlord first becomes aware that any such Hazardous Materials have been generated, used, released, stored or disposed of on the Land, in the Building or any portion of the Complex that it owns in violation of applicable Environmental Laws after construction of the Building is substantially complete, Landlord shall take all reasonable steps necessary to promptly remove such Hazardous Materials and/or remediate any contamination resulting therefrom to the extent necessary to bring the Land into compliance with all applicable Environmental Laws; provided that, Landlord shall have no such obligations with respect to any Hazardous Materials present as a result, directly or indirectly, of an Environmental Default by Tenant, which Hazardous Materials, the removal and the remediation thereof, shall be the responsibility of Tenant pursuant to Section 6.4 above. If the parties become aware, prior to substantial completion of the Building, or during any subsequent period of construction on behalf of Tenant pursuant to the Development Agreement, that any Hazardous Materials have been generated, used, released, stored or disposed of on the Land in violation of applicable Environmental Laws, the remediation thereof shall be conducted pursuant to the Development Agreement. ARTICLE VII ASSIGNMENT AND SUBLETTING 7.1 Except with respect to Tenant's Personal Property as contemplated by Section 18.10 below and except as provided in Section 7.4 below, Tenant shall not have the right to -19- assign, transfer, mortgage or otherwise encumber this Lease or its interest herein without first complying with the provisions of subsections (a) and (b) of this Section 7.1. (a) No assignment, transfer, mortgage or other encumbrance of this Lease shall be effected unless Tenant obtains the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed by Landlord; provided, however, that, (i) if an Event of Default then exists under this Lease Landlord, in its sole judgment, may withhold its consent to any proposed assignment, transfer, mortgage or other encumbrance of this Lease, and (ii) Landlord may withhold its consent if it reasonably determines that the character of the proposed assignee or the nature of the activities to be conducted by such proposed assignee would materially affect the other tenants of the Building, if any, or the Complex or would physically damage the Building or impair the reputation of the Building as a Class A suburban office building in the Market Area, or the financial history or credit rating of the proposed assignee presents a material risk to Landlord of non-compliance with this Lease. No assignment or transfer of this Lease or the right of occupancy hereunder may be effectuated by operation of law or otherwise without the prior written consent of Landlord, as aforesaid. Any attempted assignment or transfer by Tenant of this Lease or its interest herein without Landlord's consent (if Landlord's consent thereto is required) shall, if such attempted assignment or transfer is not nullified or voided by Tenant within ten (10) business days following written notice from Landlord to Tenant that the assignment or transfer was improperly attempted without Landlord's consent, at the option of Landlord, terminate this Lease; however, in the event of such termination, Tenant shall remain liable for all rent and other sums due under this Lease and all damages suffered by Landlord on account of such breach by Tenant. (b) Tenant agrees to give Landlord at least ten (10) business days' advance written notice of Tenant's intention to assign or transfer this Lease, along with sufficient information about the proposed assignee or transferee to enable Landlord to make the determination called for by subsection (a) above. (c) Notwithstanding anything contained herein to the contrary, (i) Tenant shall not have the right to assign or transfer this Lease prior to the Lease Commencement Date hereunder, except to an Affiliate of Tenant (as hereinafter defined) or otherwise pursuant to Section 7.5 hereof; and (ii) Tenant may not partially assign this Lease. 7.2 Tenant shall not have the right to sublease (which term, as used herein, shall include any type of subrental arrangement and any type of license to occupy) all or any part of the Premises without first complying with the provisions of subsections (a) and (b) of this Section 7.2. (a) Tenant shall have the right to sublease any portion or portions of the Premises; provided that, if a proposed sublease, in the aggregate with all other subleases then in existence, will cause more than fifty percent (50%) of the rentable area of the Premises to be subject to any sublease, then Tenant must obtain the prior written consent of Landlord to such proposed sublease, which consent shall not be unreasonably withheld, conditioned or delayed by Landlord; provided, however, that Landlord may withhold its consent to any proposed sublease if (i) an Event of Default then exists under this Lease or (ii) Landlord reasonably determines that -20- the character of the proposed subtenant or the nature of the activities to be conducted by such proposed subtenant would materially affect the other tenants of the Building or the Complex, or would physically damage the Building or impair the reputation of the Building as a Class A suburban office building in the Market Area, or that the financial history or credit rating of the proposed subtenant presents a material risk to Landlord of non-compliance with this Lease. Notwithstanding anything contained herein to the contrary, in the event a proposed sublease will not cause more than fifty percent (50%) of the rentable area of the Premises to be subject to any sublease or assignment, then Tenant may enter into such sublease without Landlord's consent, but upon at least ten (10) business days' prior written notice to Landlord and provided the sublease document otherwise satisfies the terms of Section 7.3 below. (b) Tenant agrees to give Landlord at least fifteen (15) business days advance written notice of Tenant's intention to sublease a portion of the Premises, along with a copy of the proposed sublease and sufficient information about the proposed subtenant to enable Landlord to make the determination called for by subsection (a) above (if such sublease is subject to Landlord's consent). In the event Landlord fails to approve or disapprove any proposed sublease or subtenant within the fifteen (15) business days after Landlord's receipt of Tenant's notice of its intention to sublet together with the information about the proposed subtenant require pursuant to this Section 7.2(b), then Landlord shall be deemed to have approved such sublease and subtenant, unless Landlord has, in good faith, during such fifteen (15) period requested additional information about the subtenant or requested changes to the proposed form of sublease to be entered into between Tenant and its proposed subtenant. 7.3 The consent by Landlord to any assignment or subletting shall not be construed as a waiver or release of Tenant from any and all liability for the performance of all covenants and obligations to be performed by Tenant under this Lease, nor shall the collection or acceptance of rent from any assignee, transferee or subtenant constitute a waiver or release of Tenant from any of its liabilities or obligations under this Lease. Landlord's consent to any assignment or subletting shall not be construed as relieving Tenant from the obligation of complying with the provisions of Sections 7.1 or 7.2 hereof, as applicable, with respect to any subsequent assignment or subletting. For any period during which Tenant is in default hereunder with respect to the payment of Annual Base Rent or additional rent and such default has continued beyond any applicable grace or cure period, Tenant hereby assigns to Landlord the rent due from any subtenant of Tenant and hereby authorizes each subtenant to pay said rent directly to Landlord. Whether or not Landlord's prior written consent to a subletting is required pursuant to Section 7.2 above, Tenant further agrees to submit any and all instruments of assignment and sublease to Landlord prior to the execution thereof to enable Landlord to determine whether such instrument complies with the terms hereof. All such instruments shall provide that (i) such sublease or assignment is subject and subordinate to this Lease in all respects, and to any amendments, modifications, renewals, extensions or expansions hereof, (ii) in the case of a sublease, Tenant shall remain primarily liable as Tenant hereunder, (iii) such assignee or sublessee shall conduct a business in the Premises which is a permitted use pursuant to Article VI of this Lease, (iv) in the case of an assignment, such assignee is bound by the terms and conditions of this Lease and assumes all of the obligations and liabilities of Tenant hereunder, (v) in the case of a sublease, (A) Landlord is not, and will not become, a party to such sublease, (B) Landlord's consent to such sublease does not create a contractual relationship between Landlord and such sublessee, -21- nor does it create any liability of Landlord to such sublessee, and (C) such sublessee shall not succeed to, or otherwise have the right to exercise or enforce, any of Tenant's rights hereunder directly against Landlord, (vi) Landlord's consent to such assignment or sublease does not affect the obligations of Landlord or Tenant under this Lease, and (vii) Landlord's consent to such assignment or sublease shall not be construed to mean that Landlord has approved any plans or specifications for renovations to the Premises intended by such assignee or sublessee and that any such work to the Premises must be conducted in accordance with the terms of this Lease. Any such instrument of assignment or sublease not approved by Landlord in each instance where Landlord's approval is required, or, whether or not Landlord's approval is required, which does not include all of the provisions described in clauses (i) through (vii) above, as required (unless waived by Landlord in its sole discretion), shall be null and void and of no force or effect. Any such instrument of assignment or sublease submitted to Landlord for approval and not approved or disapproved by Landlord within ten (10) business days after submission shall be deemed approved by Landlord for all purposes under this Lease. If Landlord disapproves any sublease or assignment submitted to Landlord for approval, Landlord's notice of disapproval shall identify Landlord's reasons therefor. 7.4 (a) Notwithstanding the above restrictions on subletting and assignment in this Article VII, and provided that no Event of Default then exists under this Lease, Tenant shall have the right, upon not less than five (5) business days' prior written notice to Landlord but without Landlord's prior written consent, to assign this Lease or to sublet all or any part of the Premises to an Affiliate of Tenant (as hereinafter defined), provided (i) that no Event of Bankruptcy (as hereinafter defined) shall have occurred with respect to such assignee or sublessee, (ii) that the conditions set forth in Section 7.3(i) - (vii) are fully satisfied and (iii) that the character of such person or entity and the nature of its activities in the Premises and in the Building would not be inappropriate for a Class A suburban office building in the Market Area. (b) For purposes of this Section 7.5, an "AFFILIATE OF TENANT" shall mean any corporation, association, trust, partnership, limited liability company, joint venture or other entity (i) which Controls (as herein defined) Tenant or (ii) which is under the Control of Tenant through stock ownership or otherwise or (iii) which is under common Control with Tenant. The terms "CONTROL" or "CONTROLS" as used in this Section 7.5 shall mean the power to directly or indirectly influence the direction, management or policies of Tenant or such other entity. (c) Notwithstanding the above restrictions on assignment, and provided that no Event of Default then exists under this Lease, Tenant shall have the right, upon not less than thirty (30) days' prior written notice to Landlord, but without Landlord's prior written consent, to assign this Lease pursuant to a merger, consolidation, or other corporate reorganization of Tenant, or the sale or transfer of all or substantially all of the capital stock of Tenant or all or substantially all of the assets of Tenant, provided that (i) Tenant, after such merger, consolidation, reorganization or sale of stock or assets, has a creditworthiness (e.g. assets and capitalization) and net worth (which shall be determined on a pro forma basis using generally accepted accounting principles consistently applied and using the most recent financial statements) equal to or greater than the net worth of Tenant on the Effective Date, (ii) Tenant, after such merger, consolidation, reorganization or sale of stock or assets, agrees in writing to be bound by the terms and conditions of this Lease and to assume all of the obligations and -22- liabilities of Tenant under this Lease, (iii) Tenant, after such merger, consolidation, reorganization or sale of stock or assets, shall conduct a business on the Premises which is a permitted use pursuant to Article VI of this Lease, (iv) the character of Tenant after the merger, consolidation, reorganization or sale of stock or assets, as the case may be, and the nature of Tenant's activities in the Premises would not be inappropriate for a Class A suburban office building in the Market area, (v) the conditions set forth in Section 7.3(i), (ii), (iii), (iv), (vi) and (vii) are fully satisfied, and (vi) the assignment is not a so-called "sham" transaction intended by Tenant to circumvent the provisions of Article VII of this Lease. 7.6 Tenant shall use reasonable efforts to notify Landlord in writing of any intention by Tenant to market the Premises or any portion thereof for assignment or sublease, and shall furnish to Landlord such information as Landlord may reasonably request with respect to the economic terms of the assignment or sublease transaction being sought by Tenant and the actions Tenant is taking to market the Premises. ARTICLE VIII MAINTENANCE AND REPAIRS 8.1 Landlord shall keep, maintain, repair and replace as appropriate, the elements and components which are provided as a part of the Base Building Work, as defined in the Development Agreement, including, without limitation, foundation, roof, exterior walls, structural portions (including columns within the Premises and the vertical sprinkler loop through the Building), and exterior glass and windows of the Building (specifically excluding the interior walls, doors, partitions, locks, and door jambs in the Building), as well as all mechanical, plumbing, heating, air conditioning, sprinkler and electrical systems and utility service lines therein, the plumbing system to and from the Premises and core area restrooms within the Premises, and the driveways, parking areas and grounds on the Land in good condition and repair and, subject to the provisions of Article VI above, in compliance with applicable Legal Requirements and the costs incurred by Landlord in maintaining and repairing such items shall be included in Expenses (unless the cost or expense of any such repair or maintenance is excluded from Expenses under Section 4.2(a) above). 8.2 Subject to the provisions of Section 8.1 above, Tenant will keep and maintain the Premises, including, without limitation, the Leasehold. Improvements, as defined in the Development Agreement, and all fixtures and equipment located in the Building (specifically including the interior walls, doors, partitions, locks, door jambs, windows, telephones, telephone systems, inside voice/data/video cabling and associated equipment, special light fixtures, kitchen fixtures, auxiliary heating, ventilation or air-conditioning equipment, fixtures and other special equipment and glass in the Premises, but excluding those portions of the Premises to be maintained by Landlord pursuant to Section 8.1 above) in clean, safe and sanitary condition, will take good care thereof and will maintain and make all required repairs thereto, and will suffer no waste or injury thereto. If Tenant so requests by written notice to Landlord, Landlord shall make any repairs and perform any maintenance that are otherwise Tenant's obligations under this Section 8.2, and the costs of providing such services shall be included in Operating Expenses and payable by Tenant pursuant to Article IV hereof. In addition, Tenant shall have the right, but not the obligation, to effect minor repairs and routine maintenance to the Premises (and, for so long -23- as Tenant is the sole lessee of the Building, the Land) provided that (i) Landlord shall be given reasonable prior notice thereof (except in the case of emergency); (ii) once commenced, such maintenance and repair work shall be completed promptly and in accordance with standards for a Class A suburban office building; (iii) such repair or maintenance will not jeopardize compliance with the Building's classification as a Class A suburban office building; and (iv) Tenant shall not be entitled to make structural repairs or repairs or maintenance that has a material effect on any of the base building systems, except as permitted pursuant to Section 14.6 hereof. At the expiration or other termination of the Lease Term, Tenant shall surrender the Premises, broom clean, in substantially the same order and condition which they are in on the Lease Commencement Date, as altered by any improvements (as defined in Section 9.2 hereof) made in accordance with Article IX hereof that Tenant is not obligated to remove pursuant to Section 9.4 hereof, ordinary wear and tear, damage by the elements, and casualty damage excepted. 8.3 Subject to the provisions of Section 12.4(b) below, all injury, breakage and damage to the Premises or to any other part of the Building caused by any negligent act or omission or willful misconduct of Tenant, or of any agent, employee, subtenant, contractor, customer or invitee of Tenant, shall be repaired by and at the sole expense of Tenant, except that Landlord shall have the right, at its option, after Tenant's failure to cure (or commence to cure, where applicable) within ten (10) business days after notice to Tenant of such injury, breakage or damage, to make such repairs and to charge Tenant for all costs and expenses incurred in connection therewith as additional rent hereunder. The foregoing notwithstanding, should an emergency or similar situation occur and delay would cause or is likely to cause preventable injury to persons or material injury to property, Landlord may elect to act without notice to Tenant. ARTICLE IX ALTERATIONS 9.1 (a) Tenant is contracting with Landlord, pursuant to the Development Agreement for the construction of the Building, including all Leasehold Improvements. Tenant hereby acknowledges that it has performed its own due diligence with respect to the Land and the development potential thereof, Landlord having made no representations or warranties whatsoever with respect to the physical condition of the Land or its suitability for any particular construction or use. The provisions of Section 9.2 and 9.3 below shall govern only Improvements, as defined below, made following the initial construction of the Building and Leasehold Improvements pursuant to the Development Agreement. (b) Prior to the Lease Commencement Date, an Integrated Punchlist shall be prepared in accordance with the provisions of Section 7 of the Development Agreement. Tenant's taking possession of the Premises shall constitute Tenant's acknowledgement that the Premises are in good condition and that all work and materials are satisfactory, except as to any items set forth in the Integrated Punchlist and except as to latent defects with respect to the Leasehold Improvements discovered by Tenant within one (1) year following the Lease Commencement Date (it being agreed that such one-year time period shall not limit Landlord's ongoing obligation pursuant to Article VIII of this Lease to maintain and repair the Base Building Work). Landlord will cause its contractor to promptly correct any latent defect timely -24- brought to Landlord's attention by Tenant. Except to the extent that Landlord must retain the ability to enforce warranties to obtain the correction of latent defects, Landlord shall assign to Tenant the right to enforce all warranties issued by Landlord's contractors and suppliers with respect to the Leasehold Improvements. 9.2 Except as otherwise permitted pursuant to the Development Agreement and Section 9.3 below, Tenant will not make or permit anyone to make any alterations, additions or improvements (hereinafter referred to collectively as "IMPROVEMENTS"), structural or otherwise, upon the Land or in or to the Premises without the prior written consent of Landlord to the proposed improvement (including the plans and specifications therefor). In the case of any proposed improvement that is of a major structural nature or any proposed improvement materially affecting any of the base building systems, Landlord may grant or withhold its consent in its sole discretion, unless the improvement is customary in Class A suburban office buildings in the Market Area, including single user buildings, or would not materially affect, in Landlord's judgment, the value or marketability of the Premises, in which case Landlord's consent shall not be unreasonably withheld, conditioned or delayed. All Improvements made by Tenant shall not be inconsistent with usual and customary improvements to headquarters offices in Class A suburban office buildings in the Market Area, including single user buildings. In the event Landlord fails to respond to a request for its consent to an improvement within ten (10) business days following submission of such request in writing, then Landlord's consent shall be deemed granted. When granting its consent, Landlord may impose any conditions it reasonably deems appropriate, including, without limitation, the approval by Landlord of the contractor or other persons who will perform the work (which consent shall not be unreasonably withheld, conditioned or delayed), Tenant's obtaining all necessary permits and approvals for such work, and Tenant's obtaining, and providing Landlord with certificates of insurance evidencing, reasonably appropriate levels and types of insurance coverage. In addition, Landlord may condition, at the time it is granted, its approval of any Improvements that are not customarily maintained by landlords in Class A suburban office buildings in the Market Area or would not materially affect, in Landlord's judgment, the value or marketability of the Premises on Tenant's agreeing to maintain such Improvements and/or to remove such Improvements at the expiration or earlier termination of the Lease Term and to restore the Premises to substantially the condition they were in prior to the making of such Improvements. All Improvements permitted by Landlord (or allowed hereunder without Landlord's approval) must conform to all applicable requirements of the insurers of the Building, including, without limitation, Boston Properties' Loss Control Guidelines ("INSURANCE REQUIREMENTS") and to all applicable Legal Requirements. Landlord's review and approval of any such plans and specifications and consent to the performance of work described therein shall not be deemed an agreement by Landlord that such plans, specifications and work conform with all applicable Legal Requirements and Insurance Requirements nor be deemed a waiver of Tenant's obligations under this Lease with respect to Legal Requirements and Insurance Requirements nor impose any liability or obligation upon Landlord with respect to the completeness, design sufficiency or compliance with Legal Requirements or Insurance Requirements of such plans, specifications and work. Upon completion of any Improvements requiring Landlord's approval, Tenant shall provide Landlord with final release of lien forms executed by Tenant's general contractor. If, notwithstanding the foregoing, any mechanic's or materialmen's lien is filed against the Premises, the Building and/or the Land, for work claimed to have been done for, or materials claimed to have been -25- furnished to, the Premises on Tenant's account, such lien shall be discharged by Tenant within twenty (20) days after Tenant has notice thereof, at Tenant's sole cost and expense, by the payment thereof or by the filing of a surety bond that discharges the lien. If Tenant shall fail to discharge any such mechanic's or materialmen's lien within twenty (20) days after receiving written notice thereof from Landlord, Landlord may, at its option, discharge such lien and treat the cost thereof (including reasonable attorneys' fees incurred in connection therewith) as additional rent payable with the next monthly installment of Annual Base Rent falling due. It is further understood and agreed that in the event Landlord shall give its written consent to the making of any Improvements to the Premises, such written consent shall not be deemed to be an agreement or consent by Landlord to subject its interest in the Premises, the Building or the Land to any mechanic's or materialmen's liens which may be filed in connection therewith. Upon completion of any structural Improvements by Tenant, Tenant shall provide Landlord with accurate "as-built" plans showing the new work in a "CADD" format. In addition, if Tenant has made any Improvements (structural or otherwise) in the Premises during the course of any calendar year, then Tenant shall provide Landlord with such "as-built" plans (in CADD format, if available) within thirty (30) days following the end of such calendar year; provided, however, that Tenant shall not be obligated to provided Landlord with as-built plans if such improvements are limited to painting and carpeting all or a portion of the Premises and other work of a cosmetic nature. 9.3 Notwithstanding the provisions of Section 9.2 hereof to the contrary, throughout the Lease Term, Tenant may make alterations or additions to the Premises which (a) cost less than Twenty-Five Thousand Dollars ($25,000.00) individually or Two Hundred Thousand Dollars ($200,000.00) in the aggregate during any twelve (12) consecutive month period, (b) are not structural in nature and which do not relate to or affect the base Building electrical, mechanical, fire or life safety systems, (c) are in conformance with all applicable building, zoning and other codes or regulations affecting or applying to the Building and (d) are shown on working drawings, space plans or plans and specifications copies of which are delivered to Landlord within twenty (20) days of Tenant's completion of such alterations or additions, without obtaining Landlord's prior written approval; provided, however, that upon completion of such work Tenant shall deliver to Landlord copies of lien waivers from the contractors and materialmen providing the supplies, materials and work therefor. In addition to the foregoing, Tenant shall not be required to obtain the consent of Landlord for the making of alterations that are purely decorative or cosmetic in nature, such as painting and carpeting, or alterations consisting of minor re-partitioning and appurtenant changes to distribution systems (i.e., electrical outlets, HVAC vents). In the event Tenant intends to make any alterations to the Premises in accordance with the provisions of this Section 9.3, Tenant, not less than ten (10) days prior to the commencement of such work, shall notify Landlord, in writing, as to (i) the date on which such work is to commence, (ii) the date on which such work is scheduled to be completed, and (iii) the name of the contractor or other person performing such work. In addition, Tenant and Tenant's contractor shall coordinate the performance of such work with the on-site property manager of the Building. 9.4 Tenant shall indemnify and hold Landlord harmless from and against any and all expenses, liens, claims, liabilities and damages based on or arising, directly or indirectly, by reason of the making of any Improvements to the Premises, the furnishing of any services to the -26- Premises or the Building or the repair and maintenance of the Premises or the Building, in each case by Tenant or its employees, agents or contractors; provided that Tenant's obligations to indemnify and hold harmless Landlord pursuant to this Section 9.4 shall not include any costs, damages, claims, liabilities or expenses suffered by or claimed against Landlord directly based on, arising out of or resulting from Landlord's breach of, or default as to, any of its covenants or other obligations under this Lease or Landlord's or its employees negligence or willful misconduct or the gross negligence of Landlord's agents or contractors. If any Improvements are made without the prior written consent of Landlord (if such consent is required hereunder) and they are not removed and the Premises restored within thirty (30) days following Tenant's receipt of written notice from Landlord requiring such removal and restoration, Landlord shall have the right to remove and correct such Improvements and restore the Premises to their condition immediately prior thereto, and Tenant shall be liable for all expenses incurred by Landlord in connection therewith. All Improvements affixed to the Premises or the Building made by either party, including all Improvements made as part of the initial construction of the Building and tenant build-out pursuant to the Development Agreement, shall remain upon and be surrendered with the Premises as a part thereof at the end of the Lease Term, except that (i) Tenant shall have the right to remove, prior to the expiration of the Lease Term, all furniture, furnishings, fixtures, trade fixtures and equipment installed in the Premises solely at the expense of Tenant or otherwise identified by Tenant and agreed by Landlord, and (ii) except with respect to the initial construction of the Building and tenant build-out pursuant to the Development Agreement, Tenant shall be required to remove all Improvements to the Premises which Landlord designates in writing for removal at the time Landlord approves installation of such improvement (provided that Landlord shall have the right to designate for removal any Improvements only if they are of a nature that is materially different from that typically included in an office build-out). All damage and injury to the Premises or the Building caused by such removal shall be repaired by Tenant, at Tenant's sole expense, except any damage or injury to tenant finishes in individual tenant space that would customarily be replaced by Landlord in preparation for the next tenant. If any property of Tenant is not removed by Tenant prior to the expiration or termination of this Lease, the same shall become the property of Landlord and shall be surrendered with the Premises as a part thereof. ARTICLE X SIGNS, EQUIPMENT AND FURNISHINGS 10.1 Throughout the Term of this Lease and subject to compliance with any applicable Legal Requirements and Landlord's reasonable prior approval, Tenant shall have the exclusive right to install and maintain, at Tenant's sole expense, such signage identifying Tenant on the Building facade, within the Building and in the form of exterior monument signs on the Land as Tenant shall desire. The size, position, materials, color, style and manner of installation of such signage shall be determined by Tenant, subject to Landlord's reasonable approval. If Tenant and its Affiliates are leasing less than fifty percent (50%) of the rentable area of the Building, then Tenant may continue to maintain any then-existing signage; however, such right shall thereafter be non-exclusive, and shall be subject to such changes in the size and positioning of such signage as Landlord may reasonably require in order to accommodate dual signage in the event that Landlord grants similar signage rights to any tenant leasing space in the Building that is comparable to or greater than the amount of space then leased by Tenant. If Tenant and its -27- Affiliates are leasing less than twenty-five percent (25%) of the rentable area of the Building, then Landlord may require Tenant to remove, at Tenant's sole cost and expense, any then existing signage and Tenant shall repair any damage to the Building resulting therefrom. All of Tenant's signage shall be removed at the expiration or earlier termination of the Lease Term, and Tenant shall repair any damage to the Building resulting therefrom, at Tenant's cost and expense. If any sign, advertisement or notice is exhibited or installed by Tenant in violation of the terms hereof, Landlord shall have the right to remove the same at Tenant's expense. If Tenant sublets all or any portion of the Premises, Tenant may delegate its signage rights hereunder to its sublessee, without obtaining Landlord's consent thereto, provided the name and logo to be displayed by such sublessee is compatible with a Class A suburban office building and Landlord has approved such sign andlor logo, which approval shall not be unreasonably withheld, conditioned or delayed. 10.2 If Tenant and its Affiliates are leasing more than fifty percent (50%) of the rentable area of the Building Tenant shall have the right, subject to (a) Landlord's reasonable approval and (b) the approval, if required, of requisite government authorities, to designate the name of the Building and any associated private roads or drives, provided such names are appropriate for a Class A suburban office building in the Market area. If Tenant or an Affiliate of Tenant, individually or together, ceases at any time to lease at least fifty-one percent (5 1%) of the rentable area of Premises, Landlord shall have the right to rename the Building and any associated private roads or drives. 10.3 In addition to the other signage rights provided herein, Tenant shall have the right to erect temporary signage during the pre-development and construction periods prior to the Lease Commencement Date, publicizing the names and roles of the parties participating in the development of the Complex; provided that, the design and content thereof shall be subject to the mutual agreement of the parties. The parties agree to act reasonably in attempting to reach such mutual agreement. 10.4 Tenant shall not place or install in any portion of the Premises any safes, fixtures or other equipment which will exceed the load factor for which such portion of the Premises was designed and constructed. Any and all damage or injury to the Premises or the Building caused by moving the property of Tenant into or out of the Premises, or due to the same being in or upon the Premises, other than damage or injury to tenant finishes in individual tenant space that would customarily be replaced by Landlord in preparation for the next tenant shall be repaired at the sole cost of Tenant. Tenant agrees to remove promptly from the parking areas or sidewalks adjacent to the Building any of Tenant's furniture, equipment or other material there delivered or deposited. ARTICLE XI INSPECTION BY LANDLORD 11.1 Subject to Tenant's published security regulations and procedures, Tenant will permit Landlord, or its agents or representatives, to enter the Premises, without charge therefor to Landlord and without diminution of the rent payable by Tenant, (i) to examine, inspect and protect the Premises and the Building, (ii) to make such alterations and/or repairs as in -28- Landlord's reasonable judgment may be required by law or be necessary to maintain the Building in good condition and repair, (iii) to comply with and carry out Landlord's obligations under this Lease, and (iv) to exhibit the same to prospective tenants (provided that Tenant's consent, which shall not be unreasonably withheld, shall be required if the Premises are to be exhibited to a prospective tenant prior to Tenant's exercise of its right to renew this Lease or the expiration of such right as provided in Article XXV below, or if there is no such right in accordance with this Agreement, no earlier than twelve (12) months prior to the expiration of the term of this Lease). In connection with any such entry, Landlord shall reasonably endeavor to minimize the disruption to Tenant's use of the Premises, shall (except in the event of an emergency) give Tenant at least twenty-four (24) hours advance notice of such entry or such greater amount of time as may be reasonable under the circumstances, shall (except in the event of an emergency) conduct such entry only during normal working hours, and, except in the event of an emergency, if requested by Tenant, shall permit a representative of Tenant to escort Landlord (or its agents or representatives) during its entry in the Premises. In connection with any alterations or repairs made pursuant to clause (ii) above, (a) Landlord shall reasonably endeavor to minimize the impact thereof on Tenant, both during and following the period of construction or repair, (b) such alterations and repairs shall not materially reduce the number of square feet of rentable area in the Premises, (c) such alterations and repairs shall be performed in a manner that is reasonably compatible with the then existing architectural and, in Landlord's judgment, aesthetic design of the Premises, and (d) Landlord shall restore any tenant finishes that may be disrupted by such alterations or repairs. Notwithstanding anything to the contrary set forth in this Lease, except in the event of an emergency, Landlord shall not be permitted access to areas previously designated in writing by Tenant as security areas, unless Landlord and its representatives are accompanied by an agent of Tenant designated and made available by Tenant for such purposes. 11.2 Tenant may install additional locks, other devices and systems which restrict access to the Premises and any part thereof. Tenant shall provide Landlord with a means of access to the Premises and any part thereof for emergency purposes, subject to applicable national security clearance requirements and shall provide Landlord with a means of full access to the Premises upon expiration of the Lease Term or earlier termination of this Lease. ARTICLE XII INSURANCE 12.1 Subject to the provisions of Section 6.1 above, Tenant shall not conduct or permit to be conducted any activity, or place any equipment, inventory or other materials, in or about the Premises or the Building that will in any way increase the rate of fire insurance or other insurance on the Building. If any increase in the rate of fire insurance or other insurance is stated by any insurance company or by the applicable Insurance Rating Bureau to be due solely to any activity of Tenant or the placing of any equipment, inventory or other materials by Tenant in or about the Premises or the Building, such statement shall be conclusive evidence that the increase in such rate is due to such activity or equipment and, as a result thereof, Tenant shall be liable for the amount of such increase. Tenant shall reimburse Landlord for such amount upon written demand from Landlord and such sum shall be considered additional rent payable hereunder. -29- 12.2 Throughout the Lease Term, Landlord shall insure the Building against loss due to fire and other casualties included in standard, all-risk, extended coverage insurance policies, in an amount equal to at least ninety-five percent (95%) of the full replacement cost thereof. Throughout the Lease Term, Landlord shall obtain and maintain commercial general liability insurance in a company or companies licensed to do business in the Commonwealth of Virginia. Such insurance shall be in minimum amounts of Five Million Dollars ($5,000,000) per occurrence plus a general aggregate of Five Million Dollars ($5,000,000) for injury to persons and damage to property and shall be for a minimum term of one (1) year. Landlord and Tenant may re-evaluate such minimum amount at the expiration of every third (3rd) Lease Year and such minimum amounts may be adjusted as appropriate to be consistent with Class A suburban office buildings in the Market Area, provided, however, in no event shall such minimum amounts be adjusted downward (i) without the approval of the holder of any mortgage, as defined in Section 22.1 below, secured by the Building or (ii) below any corporate minimum requirements of Landlord. Throughout the Lease Term, Landlord shall obtain and maintain a policy of insurance protecting Landlord from loss of rents and other charges during the period while the Premises are untenantable due to fire or other insured casualty. The insurance required to be maintained by Landlord shall be subject to the foregoing minimum requirements and shall otherwise be in amounts and coverages that are commercially reasonable. So long as Tenant or an Affiliate of Tenant is leasing the entire Building, Landlord's commercial general liability insurance policy shall name Tenant as an additional insured. Receipts or certificates evidencing payment of the premiums for such insurance shall be delivered by Landlord to Tenant if requested by Tenant. Landlord's casualty insurance policy shall contain an endorsement prohibiting cancellation or reduction of coverage without first giving Tenant at least thirty (30) days' prior written notice of such proposed action. 12.3 Throughout the Lease Term, Tenant shall insure the contents of the Premises, including all furnishings, trade fixtures, and equipment used or installed in the Premises by Tenant, and any other personal property of Tenant therein, against loss due to fire and other casualties included in standard extended coverage insurance policies in minimum amounts not less than ninety percent (90%) of the full replacement cost of Tenant's furnishings, trade fixtures, equipment and other personal property. Throughout the Lease Term, Tenant shall obtain and maintain commercial general liability insurance in a company or companies licensed to do business in the Commonwealth of Virginia and reasonably approved by Landlord. Such insurance shall be in minimum amounts of Five Million Dollars (S5.000,000) per occurrence plus a general aggregate of Five Million Dollars ($5,000,000) for injury to persons and damage to property and shall be for a minimum term of one (1) year. Landlord and Tenant may re-evaluate such minimum amount at the expiration of every third (3rd) Lease Year and such minimum amounts may be adjusted as appropriate to be consistent with Class A suburban office buildings in the Market Area, provided, however, in no event shall such minimum amounts be adjusted downward (i) without the approval of the holder of any mortgage, as defined in Section 22.1 below, secured by the Building or (ii) below any corporate minimum requirements of Landlord. Such limits may be covered by a combination of a general liability policy and an umbrella liability policy. In addition, Tenant's commercial general liability insurance policy shall name Landlord and the managing agent of the Building, as additional insureds. If requested by the holder of any mortgage or deed of trust against the Building, the commercial general liability policy referred to above shall also name such holder as an additional insured thereunder. -30- Receipts or certificates evidencing payment of the premiums for such insurance shall be delivered by Tenant if requested by Landlord. Each such policy shall contain an endorsement prohibiting cancellation or reduction of coverage without first giving Landlord and the holder of any mortgage or deed of trust on the Building at least thirty (30) days' prior written notice of such proposed action. 12.4 (a) Tenant hereby waives its right of recovery against Landlord and releases Landlord from any losses, claims, casualties or other damages for which Landlord may otherwise be liable to the extent either (i) such loss, claim, casualty or other damage would have been covered under insurance coverage Tenant is required to maintain pursuant to this Article XII (without regard to any deductible) or (ii) Tenant receives insurance proceeds on account of any such losses, claims, casualties or other damages. Each policy of property insurance obtained by Tenant pursuant to the provisions of this Article XII shall include a waiver of the insurer's right of subrogation against Landlord, and shall contain an endorsement to the effect that any loss payable under such policy shall be payable notwithstanding any act or negligence of Landlord, or any agent, contractor, employee or invitee of Landlord, which might, absent such agreement, result in the forfeiture of payment for such loss. (b) Landlord hereby waives its right of recovery against Tenant and releases Tenant from any losses, claims, casualties or other damages for which Tenant may otherwise be liable to the extent either (i) such loss, claim, casualty or other damage would have been covered under insurance coverage Landlord is required to maintain pursuant to this Article XII (without regard to any deductible) or (ii) Landlord receives insurance proceeds on account of any such losses, claims, casualties or other damages. Each policy of property insurance obtained by Landlord with respect to the Building shall include a waiver of the insurer's right of subrogation against Tenant, and shall contain an endorsement to the effect that any loss payable under such policy shall be payable notwithstanding any act or negligence of Tenant, or any agent, contractor employee or invitee of Tenant, which might, absent such agreement, result in the forfeiture of payment for such loss. ARTICLE XIII SERVICES AND UTILITIES 13.1 (a) Landlord will furnish to the Premises during the normal hours of operation of the Building (as set forth hereinbelow) air-conditioning and heating during the seasons when such utilities are required. Landlord will provide the following services consistent with the standards generally applicable to Class A suburban office buildings in the Market Area: char and janitorial service, electricity; elevator service; a perimeter access-control system for the Building; maintenance of the grounds and landscaping surrounding the Building, including prompt waste and snow removal; maintenance of interior common areas, including lighting fixtures and bulb replacements, hot and cold water supply, restroom facilities and furnishing of lavatory supplies; and exterior window-cleaning service. Notwithstanding anything herein to the contrary, Landlord shall have the right to remove elevators from service as may be required for moving freight, or for servicing and maintaining the elevators or the Building. At least one elevator cab shall be available for use by Tenant at all times. The normal hours of operation of the Building will be 7:00 a.m. to 7:00 p.m. on Monday through Friday (except legal holidays) -31- and 8:00 a.m. to 2:00 p.m. on Saturday (except legal holidays) or such alternative hours of operation as Tenant may designate so long as Tenant is the sole lessee of the Building. Landlord shall provide a Building security system in accordance with the Construction Drawings and Specifications, as defined in the Development Agreement. Tenant shall be permitted access to the Premises on a twenty-four hours, seven-days-a-week basis. (b) Tenant, for so long as it is the sole lessee of the Building, upon not less than thirty (30) days prior written notice to Landlord, may elect to perform janitorial or security services (the "Assumed Services"). If Tenant elects to perform either of the Assumed Services, (i) Landlord shall not be obligated to perform such Assumed Service and shall have no liability to Tenant if such services are not performed to Tenant's satisfaction and (ii) all costs incurred in connection with providing the Assumed Service shall be excluded from Operating Expenses. On the date of execution of this Lease, Tenant has elected to perform janitorial and char services in all secured areas of the Building, all research and development areas and all control centers of the Building. Tenant may, at any time upon thirty (30) days written notice to Landlord elect to discontinue the performance of the Assumed Services and Landlord shall be required to resume or commence such Assumed Service in accordance with Section 13.1(a) beginning on the date set forth in Tenant's notice and such costs shall be included in Operating Expenses. In the event Landlord reasonably determines that Tenant's provider of an Assumed Service is not providing such service in accordance with the standards applicable to Class A suburban office buildings in the Market Area, Landlord shall notify Tenant, in writing, of the deficiencies it has identified and Landlord and Tenant shall use commercially reasonable efforts to correct such identified deficiencies in the provision of such Assumed Service. If the provider of such Assumed Service fails to institute such corrective measures promptly after Tenant's receipt of Landlord's notice, Landlord shall have the right, at its option, upon thirty (30) days prior written notice to Tenant, to direct Tenant to terminate the provider of such Assumed Service and Landlord and Tenant shall mutually agree upon a different provider of such Assumed Service. Landlord shall not undertake any action under the preceding sentence unless such violation or failure shall continue uncured for a period of thirty (30) days after Landlord has given notice to Tenant of such deficiency or failure; provided that if such deficiency or failure is not susceptible of being cured within such thirty (30) day period, Landlord shall not undertake any action if the provider of the Assumed Service commences curative action within such thirty (30) day period and proceeds diligently thereafter to cure such deficiency or failure until completion. 13.2 It is understood and agreed that Landlord shall not have any liability to Tenant whatsoever as a result of Landlord's inability (despite the exercise of its commercially reasonable efforts) to furnish any of the utilities or services required to be furnished by Landlord under the terms of this Lease, whether resulting from breakdown, removal from service for maintenance or repairs, strikes, scarcity of labor or materials, acts of God, governmental requirements or from any other cause whatsoever. It is further agreed that, except as provided in this Section 13.2 and Section 14.6 below, any such inability to furnish the utilities or services required hereunder shall not be considered an eviction, actual or constructive, of Tenant from the Premises, and shall not entitle Tenant to terminate this Lease or to an abatement of any rent payable hereunder. Notwithstanding the foregoing or anything else in this Lease, but subject to the provisions of Section 14.6 below, in the event that Tenant is prevented from using, and does not use, the Premises or any portion thereof for five (5) consecutive business days or for ten (10) -32- business days in any twelve (12) month period (the "ELIGIBILITY PERIOD") as a result of any interruption of utilities or services or access (including elevator access) or any repair, maintenance or alteration performed by Landlord after the Lease Commencement Date (other than repairs undertaken pursuant to Article XVI hereof) which renders the Premises inaccessible or untenantable (the foregoing circumstances being referred to herein as "SUSPENSION EVENTS"), then all Annual Base Rent and additional rent payable hereunder shall be reduced after expiration of the Eligibility Period for such time that Tenant continues to be so prevented from using, and does not use, the Premises or a portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises; provided that, any interruption of utilities or services resulting from Tenant's failure to timely pay for any electricity that is billed directly to Tenant by the electric utility pursuant to Section 4.7 hereof shall not be deemed a Suspension Event and shall not entitle Tenant to any rent abatement hereunder. Landlord will repair and restore any such interrupted services or utilities as soon as reasonably practicable following the interruption thereof. 13.3 (a) Landlord shall enter into a management agreement in form an substance approved by Tenant (the "MANAGEMENT AGREEMENT") with an entity designated by Landlord ("MANAGER"), subject to Tenant's approval, which shall not be unreasonably withheld, conditioned or delayed; provided, however that Tenant's approval of the terms and conditions of the Management Agreement and the Manager shall not be required if the Manager is Landlord or an Affiliate of Landlord and the terms of such agreement are substantially in the form attached hereto as Exhibit F. If the Management Agreement is with a third party, the Management Agreement shall contain a provision permitting Landlord to terminate the Management Agreement without liability on the part of Landlord or Tenant upon thirty (30) days prior notice to Manager and Tenant. Any Management Agreement shall state that it is subject and subordinate to this Lease. Landlord agrees not to cancel, amend or extend the Management Agreement or appoint a new third-party Manager or enter into a new Management Agreement with a third party without Tenant's approval, which shall not be unreasonably withheld, conditioned or delayed. For purposes of this Section 13.3, an "AFFILIATE OF LANDLORD" shall mean any corporation, association, trust, partnership, limited liability company, joint venture or other entity (i) which Controls (as herein defined) Landlord or (ii) which is under the Control of Landlord through stock ownership or otherwise or (iii) which is under common Control with Landlord. The terms "CONTROL" or "CONTROLS" as used in this Section 13.3 shall mean the power to directly or indirectly influence the direction, management or policies of Landlord or such other entity. (b) Prior to the expiration of the fifth (5th) Lease Year, if Landlord or an Affiliate of Landlord is the Manager and Tenant reasonably determines that the Premises are not being managed in accordance with the standards set forth in the Management Agreement, Tenant shall notify Landlord, in writing, of the deficiencies it has identified and Landlord shall use commercially reasonable efforts to correct such identified deficiencies in the management of the Building. If Landlord fails to institute such measures promptly after notice from Tenant, Tenant shall have the right, at its option, upon thirty (30) days prior written notice to Landlord, to terminate the Management Agreement and to direct Landlord to engage a third-party Manager. Tenant shall not undertake any action under the preceding sentence unless such violation or -33- failure shall continue uncured for a period of thirty (30) days after Tenant has given notice to Landlord of such deficiency or failure; provided that if such deficiency or failure is not susceptible of being cured within such thirty (30) day period, Tenant shall not undertake any action if Landlord commences curative action within such thirty (30) day period and proceeds diligently thereafter to cure such deficiency or failure until completion. (c) Commencing in the sixth (6th) Lease Year, provided that (i) there is no Event of Default, and (ii) Tenant and/or its Affiliates are the sole lessees of the Premises, Tenant shall have the right, upon ninety (90) days prior written notice to Landlord to direct Landlord to enter into a Management Agreement with an independent third party manager reasonably acceptable to Landlord. Landlord's approval of such third party manager shall not be unreasonably withheld, conditioned or delayed. (d) In the event Landlord reasonably determines that the third party Manager is not managing the Premises in accordance with the standards set forth in the Management Agreement, Landlord shall notify Tenant, in writing, of the deficiencies it has identified and Landlord and Tenant shall use commercially reasonable efforts to cause the Manager to correct such identified deficiencies in the management of the Building. If the third party Manager fails to institute such corrective measures promptly after Tenant's receipt of Landlord's notice, Landlord shall have the right, at its option, upon thirty (30) days prior written notice to Tenant, to terminate the Management Agreement and Landlord and Tenant shall mutually agree upon a third-party Manager to manage the Building. Landlord shall not undertake any action under the preceding sentence unless such violation or failure shall continue uncured for a period of thirty (30) days after Landlord has given notice to Tenant of such deficiency or failure; provided that if such deficiency or failure is not susceptible of being cured within such thirty (30) day period, Landlord shall not undertake any action if the third-party Manager commences curative action within such thirty (30) day period and proceeds diligently thereafter to cure such deficiency or failure until completion. 13.4 In the event Tenant determines that the services being furnished by any contractor (including, commencing in the sixth (6th) Lease Year, Landlord or an Affiliate of Landlord as Manager) employed by Landlord are unsatisfactory, in Tenant's reasonable judgment, Tenant shall deliver written notice to Landlord specifying in detail the manner in which the services are deemed deficient. If the deficiencies are not, in Tenant's reasonable judgment, substantially corrected during the next succeeding thirty (30) days, then Tenant may deliver a further notice to Landlord advising Landlord of such fact, and, provided such contract is terminated in accordance with its terms and, therefor, Landlord will not incur any liability to the contractor as a result thereof, Landlord shall terminate the contract of such deficient contractor and select a qualified replacement contractor. Landlord shall not be deemed to incur any such liability if Tenant agrees to assume responsibility for any such liability. Landlord shall include a thirty-day termination for convenience clause in any service contracts in which such a clause is customary; any service contract not including such clause shall require Tenant's approval, which approval shall not be unreasonably conditioned, withheld or delayed.. -34- ARTICLE XIV LIABILITY OF LANDLORD 14.1 Except as expressly set forth in this Lease and without limiting or reducing Tenant's rights under the Development Agreement, Landlord shall not be liable to Tenant, its employees, agents, business invitees, licensees, customers, clients, family members or guests for any damage, injury, loss, compensation or claim, including, but not limited to, claims for the interruption of or loss to Tenant's business, based on, arising out of or resulting from any cause whatsoever (except as hereinbelow set forth), including but not limited to the following: (i) repairs to any portion of the Premises or the Building; (ii) interruption in the use of the Premises; (iii) any accident or damage resulting from the use or operation (by Landlord, Tenant or any other person or persons) of elevators, or of the heating, cooling, electrical or plumbing equipment or apparatus; (iv) the termination of this Lease by reason of the destruction of the Premises or the Building; (v) any fire, robbery, theft, mysterious disappearance and/or any other casualty; (vi) the actions of other tenants in the Building, if any, or of any other person or persons; and (vii) any leakage in any part or portion of the Premises or the Building, or from water, rain or snow that may leak into, or flow from, any part of the Premises or the Building, or from drains, pipes or plumbing fixtures in the Building; provided, however, that Landlord shall not be released pursuant to this Section 14.1 from any liability (a) resulting directly from Landlord's breach of, or default, beyond any applicable notice and cure period, as to, any of its covenants or other obligations under this Lease, or (b) subject to Section 12.4(a) above, property damage, personal injury or death caused directly by Landlord's or its employees' negligence or willful misconduct or the gross negligence or willful misconduct of Landlord's contractors or agents. In no event (notwithstanding anything in the immediately-preceding sentence to the contrary) shall Landlord have any liability to Tenant for any claims based on the interruption of or loss to Tenant's business or consequential damages or indirect losses whatsoever. 14.2 Tenant hereby agrees to indemnify, defend on request, and hold Landlord harmless from and against all costs, damages, claims, liabilities and expenses (including reasonable attorneys' fees and any costs of litigation) suffered by or claimed against Landlord, directly or indirectly, and not covered by the insurance required to be maintained by Landlord hereunder, based on, arising out of or resulting from (i) Tenant's use and occupancy of the Premises or the business conducted by Tenant therein, (ii) any accident, injury or damage whatsoever caused to any person, or to the property of any person, occurring on or about the Premises during the Lease Term, (iii) the operation of a food service, health club, daycare center or other "compatible use" (as defined in Section 6.1 hereof) at the Premises, including any accident, injury or damage whatsoever caused to any person or property arising therefrom, (iv) any act or omission to act by Tenant or its employees, contractors, agents, licensees, or invitees, or (v) any breach or default by Tenant in the performance or observance of its covenants or obligations under this Lease; provided that Tenant's obligations to indemnify and hold harmless Landlord pursuant to this Section 14.2 shall not include any costs, damages, claims, liabilities or expenses suffered by or claimed against Landlord directly based on, arising out of or resulting from Landlord's breach of, or default as to, any of its covenants or other obligations under this Lease or the negligence or willful misconduct of Landlord or its employees or the gross negligence or willful misconduct of Landlord's contractors or agents. -35- 14.3 In the event that at any time Landlord shall sell or transfer the Building, provided the purchaser or transferee assumes the obligations of Landlord hereunder, the Landlord named herein shall not be liable to Tenant for any obligations or liabilities based on or arising out of events or conditions occurring on or after the date of such sale or transfer. If requested by Tenant, Landlord shall furnish to Tenant a copy of the agreement pursuant to which any such purchaser or transferee shall have assumed the obligations of Landlord hereunder. Furthermore, upon such assumption, Tenant agrees to attorn to any such purchaser or transferee upon all the terms and conditions of this Lease. Notwithstanding any of the foregoing to the contrary, Landlord agrees that (i) Landlord will not sell or transfer the Building prior to the Lease Commencement Date; (ii) Landlord will not sell or transfer the Building to any person or entity if an Event of Bankruptcy (as hereinafter defined) shall have occurred and be continuing with respect to such transferee at the time Landlord contracts to sell or transfer the Building to such transferee; (iii) Landlord's right to sell the Building shall be subject to Tenant's right of first offer provided in Article XXVIII below; (iv) any sale of the Building shall be subject to Tenant's right of purchase provided in XXVII below and (v) so long as Tenant and/or its Affiliates are the sole lessees of the Building, if Landlord transfers or sells the Building, then Tenant shall have the right, at its option, to assume all of Landlord's operation, maintenance and repair obligations hereunder in lieu of the performance thereof by such successor landlord (in which event no management fee shall be payable to such successor landlord); provided that if Tenant elects to assume such obligations, then Tenant shall perform such obligations to the same extent and in the same manner and to the same standards required of Landlord hereunder; provided further that, prior to the expiration of the fifth (5th) Lease Year, Tenant shall not have the right to self-manage the Building as aforesaid during the initial twelve (12) month period following any such transfer or, if earlier, until the expiration of the fifth (5th) Lease Year, unless the transferee is an institutional investor or other person or entity that is not itself, and is not affiliated with another entity that is, in the business of managing commercial real estate. 14.4 In the event that at any time during the Lease Term Tenant shall have a claim against Landlord, except as otherwise provided in Section 14.6 hereof, Tenant shall not have the right to deduct the amount allegedly owed to Tenant from any rent or other sums payable to Landlord hereunder, it being understood that Tenant's sole remedy for recovering upon such claim shall be to institute an independent action against Landlord. 14.5 Tenant agrees that in the event Tenant is awarded a money judgment against Landlord, Tenant's sole recourse for satisfaction of such judgment shall be limited to execution against Landlord's equity interest in the Building and the Land at the time of such execution, which, if the Building has been sold prior to such execution, shall include the net sale proceeds, after payment of all prior liens, from the sale of the Building. In no event shall Landlord or any partner or member of Landlord or any other person be held to have any personal liability for satisfaction of any claims or judgments that Tenant may have against Landlord. 14.6 In the event Landlord shall be in default with respect to any service or action that Landlord is obligated to furnish or perform under this Lease, then Tenant shall have the right to obtain such service or perform such act on Landlord's account subject to the terms and conditions set forth below. Notwithstanding anything contained herein to the contrary, Tenant shall have the rights set forth in this Section 14.6 with respect to services and actions that -36- materially affect the structure of the Building, materially affect any multi-tenant common area or materially affect any base-building system only if Tenant gives Landlord and Landlord's lender(s) (whose identity and notice address shall have been provided to Tenant) written notice of Landlord's alleged default and Landlord does not in good faith dispute such alleged default in writing within ten (10) business days following the delivery of Tenant's notice. Prior to Tenant undertaking any action to cure or remedy any Landlord default with respect to any service or action that Landlord is obligated to furnish or perform under this Lease, Tenant shall first give written notice of such default to Landlord and Landlord's lender(s) (whose identity and notice address shall have been provided to Tenant) and allow Landlord and such lender(s) ten (10) business days following receipt by Landlord and such lender(s) of such written notice to cure or remedy the condition specified in Tenant's notice; provided, however, that if such condition cannot be cured within the ten (10) business day period despite Landlord's exercise of its commercially reasonable efforts, such period shall be extended for a reasonable additional time, so long as Landlord or such lender(s) commence to cure such condition within the ten (10) business day period and proceed diligently thereafter to effect such cure. Notwithstanding any of the foregoing to the contrary, in the event of a material failure of, or deficiency in, any of the Essential Building Services (as hereinafter defined) which renders all or a substantial portion of the Premises unsafe or unsuitable for the conduct of Tenant's business therein, the period in which Landlord or such lender(s) must cure such condition prior to Tenant's having the right to undertake any such action, shall be forty-eight (48) hours following receipt by Landlord and such lender(s) of such written notice provided notice is received between the hours of 8:00 a.m. and 5:00 p.m. Monday through Friday, or between the hours of 8:00 a.m. and 2:00 p.m. on Saturday, excluding legal holidays; provided that, if the condition cannot be cured within such 48-hour period, then, provided Landlord or such lender(s) commence to cure such condition within such 48-hour period and proceed diligently thereafter to effect such cure, then such 48-hour period shall be extended for such reasonable period as is necessary to effect such cure using diligent efforts. For purposes hereof, the term "ESSENTIAL BUILDING SERVICES" shall mean (i) plumbing systems; (ii) electrical service; (iii) HVAC service; (iv) life-safety systems; (v) elevator service; and (vi) building access systems. If Landlord or such lender(s) fail to cure or remedy any such condition within the applicable time period, as set forth above, then Tenant may cure or remedy such condition and deliver an invoice to Landlord for such costs and expenses, and Landlord shall pay to Tenant the amount of such invoice within thirty (30) days after delivery by Tenant. The amount of such expenses, when paid by Landlord, shall be included within Expenses, to the extent such costs and expenses are not excluded from the definition of Expenses. In the event Landlord fails to pay to Tenant when due any sum which Tenant is entitled to recover from Landlord pursuant to this Section 14.6, then Tenant shall have the right to a credit against Annual Base Rent in the amount of any such unpaid sum, together with interest thereon at the Default Rate (as defined in Section 18.7 below) from the date due until the date paid, if Tenant has obtained a final, nonappealable court judgment that such sum was due and payable to Tenant under the terms of this Section 14.6 but was not paid by Landlord. In the event Tenant seeks to cure or remedy any condition which gives rise to Tenant's remedies set forth in this Section 14.6, Tenant shall (i) proceed in accordance with the applicable provisions of this Lease and all applicable Legal Requirements; (ii) use only such con-tractors, suppliers, etc. as are duly licensed in the Commonwealth of Virginia and insured to effect such repairs and who perform such repairs on first-class buildings in the normal course of their business; (iii) promptly effect such repairs in a good workmanlike quality and in a first- -37- class manner; and (iv) use new or other first-quality materials. Landlord agrees to cooperate with Tenant in the performance of repairs by Tenant's contractors, including granting access to portions of the Building outside the Premises and making available for inspection and copying any plans that might be required by such contractors. Nothing in this Section 14.6 is intended to obviate the provisions of Section 13.2 above. 14.7 Landlord hereby agrees to indemnify, defend on request, and hold Tenant harmless from and against all costs, damages, claims, liabilities and expenses (including reasonable attorneys' fees and court costs) suffered by or claimed against Tenant, directly or indirectly, and not to be covered by the insurance required to be maintained by Tenant hereunder, based on, arising out of or resulting from any breach or default by Landlord in the performance or observance of its covenants or obligations under this Lease, including, but not limited to, Landlord's obligations pursuant to Section 6.5 hereof; provided that Landlord's obligations to indemnify and hold harmless Tenant pursuant to this Section 14.7 shall not include any costs, damages, claims, liabilities, or expenses suffered by or claimed against Tenant directly based on, arising out of or resulting from any negligence or willful misconduct of Tenant or its agents or employees. Notwithstanding anything to the contrary in this Section 14.7 or elsewhere in this Lease, this Section 14.7 shall not apply to the holder of any mortgage or deed of trust secured by the Complex or the Building unless such holder acts as landlord under this Lease or otherwise owns or holds title to the Building by foreclosure or deed-in-lieu of foreclosure. ARTICLE XV RULES AND REGULATIONS 15.1 Tenant agrees to comply with and observe the rules and regulations pertaining to the use and occupancy of the Premises or the Building set forth in Exhibit E hereto, together with all reasonable amendments thereto as may be promulgated hereafter by Landlord (collectively, the "RULES AND REGULATIONS"); provided that (i) any such amendment shall not increase Tenant's monetary obligations hereunder or cause Tenant to incur significant additional costs or adversely affect the rights expressly granted to Tenant hereunder or Tenant's use and enjoyment of the Premises, (ii) Tenant shall be given written notice of such amendment at least thirty (30) days before it takes effect, (iii) if there is any inconsistency between this Lease and the Rules and Regulations, this Lease shall govern; and (iv) while Tenant is the sole tenant of the Building, Tenant shall not be subject to any of the Rules and Regulations or any amendments thereto, except those that are necessary to keep the Building in compliance with the standards applicable to a Class A suburban office building in the Market Area. Without limiting the generality of clause (iii) above, it is understood and agreed that if the Rules and Regulations with respect to a particular matter call for stricter Landlord approval rights than those contained herein, or the Rules and Regulations are otherwise more restrictive than any provision herein governing the same matter, then this Lease shall govern and control. Tenant's failure to keep and observe said Rules and Regulations after applicable notice and opportunity to cure shall constitute an Event of Default under this Lease. Landlord shall use reasonable efforts to enforce the Rules and Regulations, including any exceptions thereto, uniformly and shall not discriminate against Tenant in the enforcement of the Rules and Regulations; provided that it is understood that Landlord may grant exceptions to the Rules and Regulations in circumstances in which it reasonably determines that such exceptions are warranted. -38- 15.2 This Lease is made subject to the provisions of the Declaration of Covenants recorded in Deed Book _________ at Page _______, among the land records of Loudoun County, Virginia, and that certain Parking Easement and Option Agreement recorded in Deed Book _________ at Page _______, among the land records of Loudoun County, Virginia and that certain Reciprocal Easement Agreement recorded in Deed Book __________ at Page _______, among the land records of Loudoun County, Virginia a copy of each of which is attached hereto as Exhibit C. Landlord and Tenant agree to observe and to comply with all provisions of said documents which may be applicable to it. The Reciprocal Easement Agreement governs certain easements, rights-of-way and obligations of the owners of the land comprising the Complex deemed necessary or appropriate for utility, construction, pedestrian pathway, shared parking, stormwater management and similar purposes. ARTICLE XVI DAMAGE OR DESTRUCTION 16.1 If, during the Lease Term, the Premises or the Building are totally or partially damaged or destroyed from any cause, thereby rendering the Premises totally or partially inaccessible or unusable by Tenant for its business, Landlord shall diligently (taking into account the time necessary to effectuate a reasonably satisfactory settlement with any insurance company involved) restore, replace and repair the Premises and the Building to substantially the same condition they were in prior to such damage; provided, however, if in the reasonable judgment of an independent architect selected by Landlord the repairs, replacement and restoration cannot be completed within two hundred seventy (270) days after the occurrence of such damage, including the time needed for removal of debris, preparation of plans and issuance of all required governmental permits, then Landlord shall have the right, at its sole option, to terminate this Lease by giving written notice of termination to Tenant within sixty (60) days after the occurrence of such damage. If this Lease is terminated pursuant to the preceding sentence, all rent payable hereunder shall be equitably apportioned and paid to the date of the occurrence of such damage or destruction, and neither Landlord nor Tenant shall have any further rights or remedies as against each other pursuant to this Lease accruing after the date of termination. The judgment by Landlord's independent architect as to whether it will take more than or less than 270 days to complete the repairs, replacement and restoration shall be subject to review and challenge by an independent architect selected by Tenant, as follows. If Tenant wishes to challenge such determination, an independent architect selected by Tenant shall have a period of ten (10) business days following Tenant's receipt of written notice from Landlord of its determination in which to set forth its determination as to whether it will take more than or less than 270 days to complete the repairs, replacement and restoration (without regard to any delay occasioned by such challenge). If Landlord's and Tenant's architects do not agree, then such architects shall jointly appoint an independent architect who shall make a determination as to whether it will take more than or less than 270 days to complete the repairs, replacement and restoration (without regard to any delay occasioned by Tenant's challenge), and the determination of such third architect shall be binding on both Landlord and Tenant. Each party shall be responsible for its own architect's fees, and shall share jointly in the fees of the third architect. -39- 16.2 If the repairs and restoration cannot be completed within two hundred and seventy (270) days after the date of such damage or destruction (as determined pursuant to Section 16.1 above), but Landlord does not elect to terminate this Lease pursuant to Section 16.1, then Landlord shall promptly notify Tenant of such determination. For a period continuing through the tenth (10th) day after receipt of such notice, Tenant shall have the right to terminate this Lease by providing written notice thereof to Landlord, in which event the Lease Term shall end on the date of the giving of such notice as if such date were the date originally provided herein as the end of the Lease Term. If Tenant does not elect to terminate this Lease within such period, and provided Landlord does not elect to terminate this Lease, then Landlord shall proceed diligently to repair and restore the Premises and the Building. 16.3 Notwithstanding anything to the contrary contained herein, in the event the Premises are damaged during the last two (2) years within the Lease Term, and if the period of time reasonably projected by Landlord for restoration of the damage (taking into account the time necessary to effectuate a satisfactory settlement with any insurance company involved) exceeds one-fourth (1/4) of the time remaining in the Lease Term as of the date of the damage, then Landlord and Tenant shall each have the right to terminate this Lease by written notice delivered to the other party within fifteen (15) days after Landlord notifies Tenant in writing of the projected restoration period; provided, however, that if (i) Landlord exercises its right of termination under this Section 16.3, and (ii) at such time, Tenant has a right to renew the Lease Term pursuant to Article XXV hereof, and (iii) Tenant notifies Landlord in writing, within fifteen (15) days following the delivery of Landlord's termination notice, that Tenant is exercising its right to renew the Lease Term, and (iv) pursuant to Article XXV, Landlord and Tenant either reach agreement concerning the Market Rent applicable to the Renewal Term or cause such determination to be made by the means described in Section 25.3(b), then Landlord's termination notice shall be deemed nullified and this Lease shall continue in full force and effect through the remainder of the Lease Term (as thus renewed). 16.4 If this Lease is not terminated in accordance with the provisions of this Article XVI, until the repair and restoration of the Premises is completed, Tenant shall be required to pay Annual Base Rent and additional rent only for that part of the Premises that Landlord and Tenant mutually agree, in their reasonable judgment, that Tenant is able to use (as such use is contemplated by this Lease) while repairs are being made, based on the ratio that the amount of usable rentable area bears to the total rentable area in the Premises. In addition to any abatement granted pursuant to the previous sentence, Tenant's abatement period shall continue until Tenant has been given reasonably sufficient time, and sufficient access to the Premises, to (i) rebuild any portion of the Premises it is required to rebuild, (ii) install its property, furniture, fixtures, cabling and equipment, and (iii) move in over a period of seven (7) consecutive days. The foregoing additional abatement period shall extend for a period not to exceed sixty (60) days following the date Landlord's repair and restoration is substantially complete. In addition, the Lease Term shall be extended for the period of time during which all or any portion of the rent is abated pursuant to this Section 16.4. Subject to the terms of Section 16.5 below, Landlord shall bear the costs and expenses of repairing and restoring the Premises. 16.5 If Landlord repairs and restores the Premises as provided in this Article XVI, Landlord shall not be required to repair or restore any decorations, alterations or Improvements -40- to the Premises previously made by or at the expense of Tenant or any trade fixtures, furnishings, equipment or personal property belonging to Tenant. It shall be Tenant's sole responsibility to repair and restore all such items at Tenant's discretion. ARTICLE XVII CONDEMNATION 17.1 If (i) more than twenty percent (20%) of the rentable area of the portion of the Premises comprised of space leased by Tenant in the Building (the "BUILDING PREMISES"), or (ii) the use or occupancy of more than twenty percent (20%) of the rentable area of the Building Premises, shall be taken or condemned by any governmental or other authority having the power of eminent domain for any public or quasi-public use or purpose (including a sale thereof under threat of such a taking) (each such event being referred to herein as a "TAKING"), then this Lease shall terminate on the date title thereto (or the right to use or occupy, as appropriate) vests in such governmental or quasi-governmental authority, and all Annual Base Rent and additional rent payable hereunder shall be equitably apportioned as of such date. This Lease shall similarly terminate if there is a Taking of more than twenty percent (20%) of the minimum necessary parking for the Building according to the Approved Site Plan that cannot be replaced by substitute parking spaces on other portions of the Land. If less than twenty percent (20%) of the rentable area of the Building Premises or such minimum necessary parking area or the use or occupancy thereof is condemned, then this Lease shall continue in full force and effect as to the part of the Building Premises and the Land not condemned, except that (i) as of the date title (or the right to use or occupy, as appropriate) vests in such authority, Annual Base Rent and Expenses with respect to the part of the Building Premises and the Land condemned shall be equitably reduced for the balance of the Lease Term, and (ii) Landlord shall, at its cost, restore the Building Premises to create, to the extent reasonably possible, a single unit of space, including (but not limited to) building or moving demising walls, suite entries, heating and air conditioning equipment, and utility lines. 17.2 All awards, damages and other compensation paid by the condemning authority on account of such Taking shall belong to Landlord, and Tenant hereby assigns to Landlord all rights to such awards, damages and compensation. Tenant agrees not to make any claim against Landlord or the condemning authority for any portion of such award or compensation attributable to damages to the Premises, the value of the unexpired term of this Lease, the loss of profits or goodwill, leasehold improvements or severance damages. Nothing contained herein, however, shall prevent Tenant from pursuing a separate claim against the condemning authority for the value of furnishings, equipment and trade fixtures installed in the Premises at Tenant's expense and for relocation expenses, provided that such claim does not in any way diminish the award or compensation payable to or recoverable by Landlord in connection with such taking or condemnation. ARTICLE XVIII DEFAULT 18.1 The occurrence of any of the following shall constitute an Event of Default by Tenant under this Lease: -41- (a) If Tenant shall fail to pay any installment of Annual Base Rent or additional rent or any other payment required by this Lease when due and such failure shall continue uncured for a period of ten (10) days after Landlord notifies Tenant of such failure in writing; provided, however, that after Landlord has given Tenant two (2) such written notices in any twelve (12)-month period, Tenant shall be in default if any such payment accruing during such twelve (12)-month period (and after the second of such notices) is not made within ten (10) days after such payment is due (without the necessity of any notice being sent by Landlord). (b) If Tenant shall violate or fail to perform any other term, condition, covenant or agreement to be performed or observed by Tenant under this Lease and such violation or failure shall continue uncured for a period of thirty (30) days after Landlord notifies Tenant in writing of such failure. If such violation or failure is not capable of being cured within such thirty (30)-day period, Tenant shall not be deemed to be in default hereunder if Tenant commences curative action within such thirty (30)-day period and proceeds diligently and in good faith thereafter to cure such violation or failure until completion. (c) An Event of Bankruptcy as defined in Article XIX hereof. 18.2 If there shall occur an Event of Default under this Lease, including without limitation an Event of Default prior to the Lease Commencement Date, Landlord shall have the right, at its sole option, to terminate this Lease. In addition, with or without terminating this Lease, Landlord may re-enter, terminate Tenant's right of possession, and take possession of the Premises. The provisions of this Article XVIII shall operate as a notice to quit, and Tenant waives any other notice to quit or notice of Landlord's intention to re-enter the Premises or terminate this Lease. If necessary, Landlord may proceed to recover possession of the Premises under and by virtue of the laws of the Commonwealth of Virginia, or by such other proceedings, including re-entry and possession, as may be applicable. If Landlord terminates this Lease and/or terminates Tenant's right of possession, then everything contained in this Lease on the part of Landlord to be done and performed shall cease without prejudice, however, to the right of Landlord to recover from Tenant all rent and other sums due under this Lease. Whether or not this Lease and/or Tenant's right of possession is terminated by reason of Tenant's default, Landlord shall have the right, after any Event of Default occurs but only during the continuation thereof, to grant or withhold any consent or approval pursuant to this Lease in its sole and absolute discretion. Landlord agrees to use reasonable efforts to relet the Premises for such rent and upon such terms as are not unreasonable under the circumstances, and if the full rental provided herein plus the reasonable costs, expenses and damages hereafter described shall not be realized by Landlord, Tenant shall be liable for all damages sustained by Landlord, including, without limitation, deficiency in Annual Base Rent and additional rent, reasonable attorneys' fees, brokerage fees, and the expenses of placing the Premises in the condition that would have been required if the date of termination had been the date of expiration of the Lease Term. Tenant expressly acknowledges that Landlord's agreement to use reasonable efforts to relet the Premises shall in no event limit, restrict or prejudice in any way Landlord's and Landlord's affiliates' and agents' rights to lease other space in the Building, if any, or the Complex prior to reletting the Premises. Subject to Landlord's obligations pursuant to the preceding two sentences, Landlord shall in no way be responsible or liable for any failure to relet the Premises -42- or any part thereof, or any failure to collect any rent due or accrued upon such reletting, to the end and intent that Tenant may be liable for the Annual Base Rent, additional rent, and any and all other items of cost and expense which Tenant shall have been obligated to pay throughout the remainder of the Lease Term. Any damages or loss of rent sustained by Landlord may be recovered by Landlord, at Landlord's option, at the time of the reletting, or in separate actions, from time to time, as said damage shall have been made more easily ascertainable by successive relettings, or, at Landlord's option, may be deferred until the expiration of the Lease Term, in which event Tenant hereby agrees that the cause of action shall not be deemed to have accrued until the date of expiration of the Lease Term. The provisions contained in this Section 18.2 shall not prevent the enforcement of any claim Landlord may have against Tenant for anticipatory breach of this Lease. 18.3 As an alternative to recovering damages on account of rental deficiencies on a periodic basis as set forth in Section 18.2 above, Landlord may elect to hold Tenant liable from and after the date of termination of this Lease, for the Annual Base Rent, additional rent and all other items of cost and expenses that will accrue under the Lease until the expiration of the Lease Term. In the event Landlord elects to hold Tenant liable for the Annual Base Rent, additional rent and all other items of cost and expenses including, without limitation, brokers' and attorneys' fees (the "DEFAULT AMOUNT") at the time of reletting of the Premises or if Landlord is unable to relet the Premises at the time this Lease is terminated pursuant to this Article XVIII, then Tenant shall pay to Landlord (i) the Default Amount minus (ii) any Annual Base Rent, additional rent and other sums which Tenant proves by a preponderance of the evidence would be received by Landlord upon commercially reasonable efforts to relet the Premises through the expiration of the scheduled Lease Term. The Default Amount shall be discounted at a rate equal to the then current "Prime Rate" as published in the Money Rates section of The Wall Street Journal and such amount shall be payable to Landlord in a lump sum on demand, it being understood that upon payment of such liquidated and agreed upon final damages, Tenant shall be released from further liability under this Lease with respect to the period after the date of such payment and, that if Tenant fails to pay such amount to Landlord within five (5) days thereafter, Landlord may bring suit to collect any such damages at any time after an Event of Default shall have occurred. In the event Landlord relets the Premises together with other premises or for a term extending beyond the scheduled expiration of the Lease Term, it is understood that Tenant will not be entitled to apply any Annual Base Rent, additional rent or other sums generated or projected to be generated by either such other premises or in the period extending beyond the scheduled Lease Term (collectively, the "EXTRA RENT") against Landlord's damages. Similarly in proving the amount that would be received by Landlord upon a reletting of the Premises set forth in clause (ii) above, Tenant shall not take into account the Extra Rent. Nothing herein shall be construed to affect or to prejudice Landlord's right to prove and claim in full unpaid rent accrued prior to termination of this Lease and Tenant's vacating the Premises. If Landlord is entitled or Tenant is required pursuant to any provision hereof to take any action upon the termination of the Lease Term, then Landlord shall be entitled and Tenant shall be required to take such action also upon the termination of Tenant's right of possession. 18.4 All rights and remedies of Landlord set forth herein are in addition to all other rights and remedies available to Landlord pursuant to the Development -43- Agreement, at law or in equity. All rights and remedies available to Landlord hereunder, pursuant to the Development Agreement, or at law or in equity are expressly declared to be cumulative. The exercise by Landlord of any such right or remedy shall not prevent the concurrent or subsequent exercise of any other right or remedy; provided that Landlord may not recover more than once for the same damages. No delay in the enforcement or exercise of any such right or remedy shall constitute a waiver of any default by Tenant hereunder or of any of Landlord's rights or remedies in connection therewith. Landlord shall not be deemed to have waived any default by Tenant hereunder unless such waiver is set forth in a written instrument signed by Landlord. If Landlord waives in writing any default by Tenant, such waiver shall not be construed as a waiver of any covenant, condition or agreement set forth in this Lease except as to specific circumstances described in such written waiver. 18.5 If Landlord shall institute proceedings against Tenant and a compromise or settlement thereof shall be made, the same shall not constitute a waiver of default or of any other covenant, condition or agreement set forth herein, nor of any of Landlord's rights hereunder, except to the extent agreed by Landlord in writing in connection with such compromise or settlement. Neither the payment by Tenant of a lesser amount than the installments of base rent, additional rent or of any sums due hereunder nor any endorsement or statement on any check or letter accompanying a check for payment of rent or other sums payable hereunder shall be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or other sums or to pursue any other remedy available to Landlord. Notwithstanding any request or designation by Tenant, Landlord may apply any payment received from Tenant to any payment then due. No re-entry by Landlord, and no acceptance by Landlord of keys from Tenant, shall be considered an acceptance of a surrender of this Lease. 18.6 If Tenant defaults in the making of any payment or in the doing of any act herein required to be made or done by Tenant, then Landlord may (after giving Tenant the appropriate notice and opportunity to cure specified in Section 18.1 hereof), but shall not be required to, make such payment or do such act. If Landlord elects to make such payment or do such act, all reasonable costs and expenses incurred by Landlord, plus interest thereon at the rate per annum which is two percent (2%) higher than the prime rate then being quoted in The Wall Street Journal, from the date paid by Landlord to the date of payment thereof by Tenant, shall constitute additional rent hereunder and shall be immediately paid by Tenant to Landlord; provided, however, that nothing contained herein shall be construed as permitting Landlord to charge or receive interest in excess of the maximum rate then allowed by law. The taking of such action by Landlord shall not be considered a cure of such default by Tenant prevent Landlord from pursuing any remedy it is otherwise entitled to in connection with such default. 18.7 If Tenant fails to make any payment of Annual Base Rent or of additional rent on or before the date such payment is due and payable, Tenant shall pay to Landlord a late charge of five percent (5%) of the amount of such payment. In addition, such payment shall bear interest at the rate per annum which is two percent (2%) higher than the prime rate then being quoted in The Wall Street Journal (the "DEFAULT RATE"), from the date such payment became due to the date of payment thereof by Tenant; provided, however, that nothing contained herein shall be construed as permitting Landlord to charge or receive interest in excess of the maximum rate then allowed by law. Notwithstanding any of the foregoing to the contrary, Landlord hereby -44- waives the imposition of such late charge and the interest payable on late payments with respect to the first two (2) such late payments to occur in any twelve (12) month period, provided Tenant in fact cures the default within ten (10) days following Tenant's receipt of notice of such default. Such late charge and interest shall constitute additional rent due and payable hereunder with the next installment of Annual Base Rent due hereunder. 18.8 Notwithstanding anything in this Lease to the contrary, in the event (i) an Event of Default shall occur under this Lease and (ii) Tenant shall thereafter tender performance of the obligation that gave rise to such Event of Default and (iii) Landlord, in its discretion, shall agree to accept such performance as curing the Event of Default, then, for all purposes of this Lease, no Event of Default shall thereafter be deemed to exist. Notwithstanding any of the foregoing to the contrary, Landlord shall be obligated to accept Tenant's cure of the first (1st) Event of Default to occur and be cured within any twelve (12) month period provided such cure, when tendered, includes payment of all interest, late charges, and other costs of enforcement incurred by Landlord on account of such default (including, but not limited to, reasonable attorneys' fees). 18.9 (a) Landlord shall be in default under this Lease if (i) any of Landlord's representations, warranties or covenant contained in this Lease proves to be untrue in any material respect, or (ii) Landlord fails to perform any covenant or agreement to be performed by Landlord hereunder and with respect to clauses (i) and (ii) Landlord either: (A) fails promptly after written notice from Tenant to commence to cure such failure or fails to complete such cure diligently and within thirty (30) days after Tenant's notice or (B) if such failure is of a type that cannot with the exercise of reasonable diligence be cured within such thirty (30) day period, either fails promptly to commence its cure during such period or fails thereafter to use its best efforts to complete its cure in as short a time as possible. (b) Except as otherwise expressly limited in this Lease, in the event a material default by Landlord (as defined below) occurs, upon written notice of such material default to Landlord, Tenant shall have the right to terminate this Lease effective on the date specified in such notice, which date shall not be not less than three (3) months and not more than one (1) year after the date of such notice, provided that Landlord's default has not been cured by such date. As used herein, the term "material" means a breach or failure by Landlord, to cure or if not possible of cure to commerce curing and; thereafter, to diligently pursue the cure of such default within thirty (30) days after Landlord's receipt of Tenant's notice specifying in reasonable detail such failure and such failure, affects in a material, adverse way the ability of Tenant to use and occupy the Premises for any of the purposes permitted hereunder or to exercise its rights hereunder. 18.10 For so long as Orbital Sciences Corporation or any Affiliate of Orbital Sciences is the tenant under this Lease, Landlord hereby releases and waives any and all liens or security interests (including any statutory liens) Landlord may have upon any of Tenant's Personal Property, as herein defined. Landlord agrees that to the extent such liens or security interests may not be waived by Landlord, any such liens or security interests shall at all times be subject and subordinate to any security interests and liens granted by Tenant which may now or hereafter affect Tenant's Personal Property, and to all renewals, modifications, consolidations, replacements and extensions thereof. This clause shall be self-operative and nor further -45- instrument of release, waiver or subordination shall be required to affirm to any secured party the effect of this clause. Notwithstanding the foregoing, in confirmation of such release, waiver and subordination, Landlord shall at Tenant's written request, execute and deliver to Tenant within twenty (20) days of Landlord's receipt of Tenant's request, any reasonable requisite or appropriate certificate, waiver, release or subordination agreement or other document that may be reasonably requested by Tenant or other third party requiring such certificate waiver, release or subordination agreement or document. "Tenant's Personal Property" shall mean the leasehold improvements, good, wares, merchandise, inventory, furniture, trade fixtures, machinery, equipment, telephones, telephone systems, inside wire, business records, accounts receivable and other personal property of Tenant in or about the Premises or that may be placed or kept therein during the Lease Term and also upon all proceeds of any insurance which may accrue to Tenant by reason of damage to or destruction of any such property, chattels or merchandise. ARTICLE XIX BANKRUPTCY 19.1 The following shall be an Event of Bankruptcy under this Lease: (a) Tenant's becoming insolvent, as that term is defined in Title 11 of the United States Code (the "BANKRUPTCY CODE"), or under the insolvency laws of any State, District, Commonwealth or territory of the United States that are applicable to Tenant (the "INSOLVENCY LAWS"); (b) The filing of a voluntary petition under the provisions of the Bankruptcy Code or Insolvency Laws; (c) The filing of an involuntary petition against Tenant as the subject debtor under the Bankruptcy Code or Insolvency Laws, which either (i) is not dismissed within ninety (90) days of filing or (ii) results in the issuance of an order or relief against the debtor; or (d) Tenant's making or consenting to an assignment for the benefit of creditors or a common law composition of creditors. 19.2 (a) Upon occurrence of an Event of Bankruptcy, Landlord shall have all rights and remedies available to Landlord pursuant to Article XVIII, provided that while a case in which Tenant is the subject debtor under the Bankruptcy Code is pending and only for so long as Tenant or its Trustee in Bankruptcy (hereinafter referred to as "TRUSTEE") is in compliance with the provisions of Section 19.2(b), (c) and (d) below, Landlord shall not exercise its rights and remedies pursuant to Article XVIII. (b) In the event Tenant becomes the subject debtor in a case pending under the Bankruptcy Code, Landlord's right to terminate this Lease pursuant to Section 19.2(a) shall be subject to the rights of Trustee to assume or assign this Lease. Trustee shall not have the right to assume or assign this Lease unless Trustee promptly (i) cures all defaults under this Lease, (ii) compensates Landlord for monetary damages incurred as a result of such defaults, and (iii) -46- provides adequate assurance of future performance on the part of Tenant as debtor in possession or on the part of the assignee tenant (c) Landlord and Tenant hereby agree in advance that adequate assurance of future performance, as used in Section 19.2(b) above, shall mean that all of the following minimum criteria must be met: (i) Tenant's gross receipts in the ordinary course of business during the thirty (30) day period immediately preceding the initiation of the case under the Bankruptcy Code must be at least two (2) times greater than the next monthly installment of annual base rent and additional rent due under this Lease; (ii) both the monthly average and median of Tenant's gross receipts in the ordinary course of business during the six month period immediately preceding the initiation of the case under the Bankruptcy Code must be at least two (2) times greater than the next monthly installment of annual base rent and additional rent due under this Lease; (iii) Trustee must deliver to the Trustee adequate security in commercially reasonable amounts said amount to be held by Trustee in escrow, without interest, until either Trustee or Tenant defaults in its payment of rent or other obligations under this Lease (whereupon Landlord shall have the right to draw on such escrowed funds) or until the expiration of this Lease (whereupon the funds shall be returned to Trustee or Tenant); (iv) Tenant must pay its estimated pro rata share of the cost of all services provided by Landlord (whether or not previously included as a part of the annual base rent) in accordance with the provisions of Article IV hereof; (v) Trustee must agree that no prohibited use shall be permitted; and (vi) Tenant or Trustee must agree to redeposit with the Trustee at any time Landlord is authorized to and does draw on the escrow account referred to in (iii) hereof the amount necessary to restore such escrow account to the original level. (d) In the event Tenant is unable to (i) cure its defaults within any applicable notice and cure period, (ii) pay the rent due under this Lease and all other payments required of Tenant under this Lease on time (or within five (5) days of the due date), or (iii) meet the criteria and obligations imposed by Section 19.2(c) above, Tenant agrees in advance that it has not met its burden to provide adequate assurance of future performance and this Lease may be terminated by Landlord in accordance with Section 19.2(a) above. ARTICLE XX SUBORDINATION: MORTGAGES 20.1 This Lease is subject and subordinate to the lien of any and all mortgages (which term "MORTGAGES" shall include both construction and permanent financing and shall include deeds of trust and similar security instruments) which may now or hereafter encumber the Premises, and to all and any renewals, extensions, modifications, recastings or refinancings thereof; provided, however, that the effectiveness of such subordination is subject to the condition that Landlord obtain from any holder of any such mortgage or deed of trust on the Premises a non-disturbance agreement, to the end and intent that as long as Tenant pays all rent when due and punctually observes all other covenants and obligations on its part to be observed under this Lease (subject to applicable notice and cure provisions), the terms and conditions of this Lease shall continue in full force and effect and Tenant's rights under this Lease and its possession, use and occupancy of the Premises shall not be disturbed during the Lease Term by the holder of such mortgage or deed of trust or by any purchaser upon foreclosure of such -47- mortgage or deed of trust. At any time after the execution of this Lease, the holder of any mortgage to which this Lease is subordinate shall have the right to declare this Lease to be superior to the lien of such mortgage, and Tenant agrees to execute all documents required by such holder in confirmation thereof. 20.2 In confirmation of the foregoing subordination and non-disturbance provisions and subject to the provisions of Section 20.1 above, Tenant shall, within fifteen (15) days of its receipt of a request therefor, promptly execute and deliver any reasonable and appropriate certificate or other document evidencing such subordination. Tenant agrees that neither the institution of any suit, action or other proceeding by the holder of any mortgage on the Premises to realize upon such mortgage holder's interest in the Premises, nor any sale of the Premises pursuant to the provisions of the mortgage in favor of such mortgage holder, shall, by operation of law or otherwise, result in the cancellation or termination of this Lease or of the obligations of Tenant hereunder, and that Tenant shall attorn to the purchaser at such foreclosure sale and shall recognize such purchaser as the landlord under this Lease. Tenant further agrees that for the purposes of this Section 20.2, the term "PURCHASER" or "PURCHASER AT A FORECLOSURE SALE" shall mean, without limitation, a purchaser at a foreclosure sale affecting the Premises or the holder of any mortgage on the Premises. Tenant agrees that upon such attornment, such purchaser shall not (a) be bound by any rent credits or payments of Annual Base Rent for more than one (1) month in advance, (b) be bound by the amendment of any material term of this Lease (e.g. an amendment which decreases the Annual Base Rent to be paid by Tenant under this Lease) made without the consent of any lender providing financing for the Premises of which Tenant has notice prior to entering into the amendment, (c) be liable for damages for any act or omission of any prior landlord; or (d) be subject to any offsets or defenses which Tenant might have against any prior landlord; provided, however, that after succeeding to Landlord's interest under this Lease, such purchaser shall perform in accordance with the terms of this Lease all obligations of Landlord arising after the date such purchaser acquires title to the Premises. Upon request by such purchaser, Tenant shall execute and deliver an instrument or instruments confirming its attornment. 20.3 (a) After Tenant receives notice in writing from any person, firm or other entity that it holds a mortgage or deed of trust on the Premises or the Land requesting that copies of notices from Tenant to Landlord be sent to it, no notice from Tenant to Landlord alleging any default by Landlord shall be effective unless and until a copy of the same is given to such holder or Trustee at the last address of such holder or Trustee; that shall have been furnished to Tenant. The curing of any of Landlord's defaults by such holder or Trustee shall be treated as performance by Landlord. (b) In addition to the time afforded Landlord for the curing of any default, except with respect to the time periods set forth in Sections 13.2 and 14.6, any such holder or Trustee shall have an additional fifteen (15) business days after the expiration of the period allowed to Landlord for the cure of any such default within which to commence a cure and such additional time as may be reasonable necessary to effect the cure using diligent efforts. 20.4 In the event that any lender providing construction or permanent financing or any refinancing for the Premises or the Land requires, as a condition of such financing, that -48- modifications to this Lease be obtained, and provided that such modifications (i) are reasonably acceptable to Tenant, (ii) do not adversely affect in a material manner Tenant's rights or obligations hereunder, including its use of the Premises as herein permitted, (iii) do not increase the rent or other sums to be paid by Tenant hereunder, (iv) do not adversely affect in a material manner Tenant's use of the Premises as herein permitted and (v) do not reduce or limit in a material manner Landlord's obligations under this Lease, Landlord may submit to Tenant a written amendment to this Lease incorporating such required changes, and Tenant hereby covenants and agrees to execute, acknowledge and deliver such amendment to Landlord within fifteen (15) days of Tenant's receipt thereof with such modifications as may reasonably agreed upon by Landlord, Tenant and the lender requiring such modifications. ARTICLE XXI HOLDING OVER 21.1 In the event that Tenant shall not immediately surrender the Premises on the date of the expiration of the Lease Term, Tenant shall become a tenant by the month. During such holdover period, Tenant shall pay a rent equal to one hundred fifty percent (150%) of the Annual Base Rent in effect during the last month of the Lease Term. Said monthly tenancy shall commence on the first day following the expiration of the Lease Term. As a monthly tenant, (i) Tenant shall be subject to all the terms, conditions, covenants and agreements of this Lease; (ii) Tenant shall give to Landlord at least thirty (30) days' written notice of any intention to vacate the Premises; and (iii) Tenant shall be entitled to thirty (30) days' written notice to quit the Premises, unless Tenant is in default hereunder, in which event Tenant shall not be entitled to any notice to quit, the usual thirty (30) days' notice to quit being hereby expressly waived. Notwithstanding the foregoing provisions of this Section 21.1, in the event that Tenant shall hold over after the expiration of the Lease Term, and if Landlord shall desire to regain possession of the Premises promptly at the expiration of the Lease Term, then at any time prior to Landlord's acceptance of rent from Tenant as a monthly tenant hereunder, Landlord, at its option, may forthwith re-enter and take possession of the Premises by any legal process in force in the Commonwealth of Virginia. ARTICLE XXII COVENANTS OF LANDLORD 22.1 Landlord represents and covenants that it has the right to make this Lease for the term aforesaid, and Landlord covenants that Tenant shall, during the term hereby created, freely, peaceably and quietly occupy and enjoy the full possession of the Premises without disturbance, molestation or hindrance by any person or entity whatever claiming an interest in the Premises prior or superior to Tenant's. Nothing in this Section 22.1, however, shall prevent Landlord from exercising any remedy available to it on account of an Event of Default by Tenant under this Lease. Landlord and Tenant each acknowledge and agree that Tenant's leasehold estate in and to the Premises vests on the date this Lease is fully executed by Landlord and Tenant, notwithstanding that the Lease Term will not commence until a future date. 22.2 Landlord hereby reserves to itself and its successors and assigns the following rights (all of which are hereby consented to by Tenant): (i) if imposed by Legal Requirements in Landlord's reasonable judgment after consultation with Tenant, if Tenant and/or its Affiliates are -49- the lessees of more than fifty-one percent (51%) of the Premises, to change the street address and/or the arrangement and/or location of entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets, or other public parts of the Building; and (ii) subject to compliance with Landlord's obligations pursuant to Sections 8.1 and 11.1, if imposed by Legal Requirements or if necessary for the proper functioning of the Premises after consultation with Tenant, if Tenant and/or its Affiliates are the lessees of more than fifty-one percent (51%) of the Premises, to erect, use and maintain pipes and conduits in and through the Premises; and (iii) to establish and maintain field offices in the Building for site engineers, property management and maintenance personnel comprising, in the aggregate, approximately 600 rentable square feet; and in number and locations that are typical for Class A suburban office buildings in the Market Area provided that, subject to the foregoing standards, Tenant shall have approval rights over the particular size and locations of such facilities, which approval shall not be unreasonably withheld, conditioned or delayed. Provided Landlord acts reasonably and diligently and in a manner not likely to materially, adversely affect Tenant's continuing and reasonably uninterrupted business functions, Landlord may exercise any or all of the foregoing rights without being deemed to be guilty of an eviction, actual or constructive, or a disturbance or interruption of the business of Tenant or of Tenant's use or occupancy of the Premises and without diminishing the rent payable hereunder. ARTICLE XXIII PARKING 23.1 Parking shall be available in the surface parking areas appurtenant to the Building. Landlord and Tenant shall agree upon reasonable access controls and operating policies that will govern the parking areas, all of which shall be consistent with the standards of Class A suburban office buildings and shall comply with all Legal Requirements (including, but not limited to, those set forth in the Americans with Disabilities Act and similar such laws in effect from time to time). Vehicles may be parked at any time free of charge (during the initial Lease Term), seven (7) days per week, twenty-four (24) hours per day. Landlord and Tenant agree that it is the parties' intention that parking shall be made available to Tenant in a ratio of approximately four (4) vehicles for every 1,000 gross square foot of Building area. Notwithstanding anything in this Section 23.1 to the contrary, in no event shall Landlord be obligated to provide Tenant more parking spaces than shown on the Revised Site Plan 8A for the Building. 23.2 Subject to the provisions of Sections 14.1 and 14.7 hereof, it is understood and agreed that Landlord does not assume any responsibility for, and shall not be held liable for, any damage or loss to any automobiles parked in the parking area or to any personal property located therein, or for any injury sustained by any person in or about the parking areas. ARTICLE XXIV REPRESENTATIONS AND WARRANTIES 24.1 Landlord hereby warrants and represents to Tenant as follows: (a) Landlord is a limited partnership, validly existing and in good standing under the laws of the State of Delaware. -50- (b) Landlord has the full capacity, right, power and authority to execute and deliver this Lease. The individuals signing this Lease and all other documents executed or to be executed pursuant hereto on behalf of Landlord are and shall be duly authorized to sign the same on Landlord's behalf and to bind Landlord thereto. (c) Landlord has not (i) made a general assignment for the benefit of creditors, (ii) filed any involuntary petition in bankruptcy or suffered the filing of any involuntary petition by Landlord's creditors, (iii) suffered the appointment of a receiver to take possession of all or substantially all of Landlord's assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Landlord's assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally. (d) Neither the execution of this Lease nor the consummation of the transaction contemplated hereby will (i) conflict with, or result in a breach of, the terms, conditions or provisions of, or constitute a default under, any agreement or instrument to which Landlord is a party or (ii) violate any restriction or court order to which Landlord is subject. 24.2 Tenant hereby warrants and represents to Landlord as follows: (a) Tenant is a corporation, validly existing and in good standing under the laws of Delaware and is authorized to do business as a foreign corporation in the Commonwealth of Virginia. (b) Tenant has the full capacity, right, power and authority to execute and deliver this Lease. The individuals signing this Lease and all other documents executed or to be executed pursuant hereto on behalf of Tenant are and shall be duly authorized to sign the same on Tenant's behalf and to bind Tenant thereto. (c) Tenant has not (i) made a general assignment for the benefit of creditors, (ii) filed any involuntary petition in bankruptcy or suffered the filing of any involuntary petition by Tenant's creditors, (iii) suffered the appointment of a receiver to take possession of all or substantially all of Tenant's assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Tenant's assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally. (d) Neither the execution of this Lease nor the consummation of the transaction contemplated hereby will (i) conflict with, or result in a breach of, the terms, conditions or provisions of, or constitute a default under, any agreement or instrument to which Tenant is a party or (ii) violate any restriction or court order to which Tenant is subject. 24.3 Neither Landlord nor Tenant will intentionally cause or permit any action to be taken which would cause any of their respective foregoing representations or warranties to be untrue as of the Lease Commencement Date. -51- ARTICLE XXV RENEWAL 25.1 Landlord hereby grants to Tenant three (3) successive five (5)-year renewal options, each exercisable at Tenant's option and subject to the conditions described below (each such five-year term, if exercised, being referred to herein as a "RENEWAL TERM"). If exercised, and if the conditions applicable thereto have been satisfied, the first Renewal Term shall commence immediately following the end of the Lease Term provided in this Lease (as it may be extended pursuant to Section 2.3 hereof), the second Renewal Term shall commence immediately following the end of the first Renewal Term, and the third Renewal Term shall commence immediately following the end of the second Renewal Term. The right of renewal herein granted to Tenant with respect to each Renewal Term shall be subject to, and shall be exercised in accordance with, the following terms and conditions: (a) Tenant shall exercise its right of renewal with respect to each Renewal Term by giving Landlord written notice thereof not earlier than twenty-four (24) months and not later than twelve (12) months prior to the expiration date of the then-current Lease Term. Tenant's exercise of its right of renewal shall be irrevocable (except as provided in Section 25.3(a) below) and shall be binding upon both Landlord and Tenant. (b) In the event a renewal option notice is not given timely, Tenant's right of renewal with respect to such Renewal Term shall lapse and be of no further force or effect. (c) If a monetary or material non-monetary Event of Default has occurred hereunder and has continued for ten (10) business days and is continuing uncured on the date a renewal option notice is sent or on the date such Renewal Term is to commence, then, at Landlord's option, to be exercised within fifteen (15) business days after the expiration of the applicable cure period for such default, such Renewal Term shall not commence and the Lease Term shall expire on the date the Lease Term would have expired without such renewal. (d) In the event this Lease is not renewed for any Renewal Term, Tenant's right to renew this Lease for any subsequent Renewal Terms shall also lapse. 25.2 During any Renewal Term, all the terms, conditions, covenants and agreements set forth in this Lease shall continue to apply and be binding upon Landlord and Tenant, except that: (1) the Annual Base Rent shall be calculated at the beginning of each Renewal Term as provided in this Article XXV so that the Annual Base Rent payable during each Lease Year of such Renewal Term shall be equal to ninety-five percent (95%) of Market Rent for such Renewal Term, including a market-based formula for adjusting Market Rent for each Lease Year of each Renewal Term; (2) Tenant shall pay for parking if such is the market standard at the time it exercises its renewal option or if Tenant does not wish to pay for parking the Annual Base Rent shall be adjusted to take into account that Tenant is not paying for parking when it is market standard at the time the Annual Base Rent is calculated for Tenant to do so; and (3) in no event shall Tenant have the right to renew the Lease Term beyond the expiration of the third Renewal Term provided for in Section 25.1. -52- 25.3 "MARKET RENT" shall be the fair market amount of "net" Annual Base Rent (including escalations if escalations are customary for comparable facilities in the Market Area, as defined below) determined as follows: (a) Following the giving of the renewal option notice, Landlord and Tenant shall commence negotiations concerning the amount of Annual Base Rent that shall constitute Market Rent. The parties shall have sixty (60) days (the "NEGOTIATION PERIOD") after the date Tenant delivers its renewal option notice in which to agree on such Market Rent. If, during such negotiation period, the parties are unable to agree on such Market Rent, then Tenant shall have the right, at its sole election, to rescind its exercise of the renewal option by notice of rescission delivered to Landlord no later than thirty (30) days after the expiration of the Negotiation Period (the "RESCISSION PERIOD"). The Market Rent shall be stated and comprised of a component of Annual Base Rent for the first Lease Year of the Renewal Term and, if customary, a component of annual escalations to be stated in terms of percentage increases to Annual Base Rent for the second, third, fourth and fifth Lease Years of the Renewal Term. (b) (i) In the event Landlord and Tenant do not reach agreement concerning the Market Rent, and Tenant does not timely exercise the right of rescission described in subsection (a) above, then the Market Rent and a formula for escalations shall be determined by three (3) real estate brokers. Landlord and Tenant shall each, within fifteen (15) days from the expiration of the Rescission Period described in subsection (a) above, designate an independent, licensed real estate broker or a licensed real estate professional associated with a licensed real estate broker who shall have more than ten (10) years' experience as a real estate broker specializing in commercial office leasing, and who shall have expertise with the commercial real estate market in which the Building is located; and the third broker shall be appointed by the first two brokers. For purposes of this Lease, a broker shall not be deemed "independent" if such broker shall have been engaged to work on behalf of the party that is appointing such broker at the time of, or at any time during the three (3) year period preceding, such broker's appointment; provided, however, that the third (3rd) broker selected by the first two brokers shall not be deemed independent if such broker or any entity with which such broker is affiliated shall have been engaged to work on behalf of either Landlord or Tenant during the two (2) year period immediately preceding such broker's appointment. The costs and expenses of each broker appointed separately by Landlord and Tenant will be borne by the party who appointed the broker. The costs and expenses of the third broker will be shared equally by Landlord and Tenant. The brokers appointed by Landlord and Tenant shall select a third broker within fifteen (15) days of the date of appointment of the latter of the first two brokers. (ii) The brokers shall each establish what they believe to be the Market Rent, including, if customary, the escalation formula and shall notify Landlord and Tenant thereof by written notice within thirty (30) days of the date of the appointment of the third broker, which notice shall be accompanied by their reports. The Market Rent shall be stated and comprised of a component of Annual Base Rent for the first Lease Year of the Renewal Term and, if customary, a component of annual escalations to be stated in terms of percentage increases to Annual Base Rent for the second, third, fourth and fifth Lease Years of the Renewal Term. If any broker fails to -53- render its determination within such thirty (30) day period, it shall be disregarded. If the aggregate dollar value (ignoring any present value calculations) of the determinations for the five year Renewal Term of any two or three of the brokers shall be identical in amount, said amount shall be deemed to be the Market Rent for the Premises. If both the highest and the lowest determination differ by less than five percent (5%) from the middle determination, then the Market Rent shall be deemed to be the average of the three determinations. If the lowest determination and/or the highest determination differs by more than five percent (5%) from the middle determination, such determination or determinations shall be disregarded and the Market Rent shall be deemed to be the average of the remaining determinations. (iii) The Market Rent (including escalations, if any) for the Premises to begin as of the first day of the applicable Renewal Term determined in accordance with the provisions of this Section shall be binding and conclusive on Tenant and Landlord. Notwithstanding the foregoing, if either party shall fail to appoint the broker to be appointed by such party within fifteen (15) days following the Rescission Period, the Market Rent of the Premises as determined by the broker so appointed shall be binding and conclusive on Landlord and Tenant. 25.4 As used herein, "Market Rent" shall be equal to "triple net" base footage rent which would be available to new tenants (taking into account all rent escalation factors) in buildings (to the extent such tenants are single-users or have the space in a building comparable to the space leased by Tenant in the Building) of similar age, finish, quality, design, location, condition and value as the Building (excluding Improvements installed in the Building at Tenant's sole expense) and located in office parks of quality comparable to and in the Route 28 North (Virginia) area between the Dulles Toll Road and Route 7 (the "MARKET AREA"). The Market Rent shall reflect the absence of landlord concessions such as rental abatement, build-out allowances, free parking, costs such as brokerage commissions and a base year established as the calendar year in which the first day of the Renewal Terms occurs. Such allowable concessions and costs shall be factored into Market Rent by amortizing such concessions and costs over the applicable Renewal Term through a reduction of the base footage rent otherwise payable in the absence of such concessions and costs including a reasonable amount of "downtime" not to exceed nine (9) months. For purposes hereof, leases of seventy thousand (70,000) square feet of rentable area or greater shall be deemed to be leases of similar size. ARTICLE XXVI COMMUNICATIONS EQUIPMENT 26.1 Tenant may install, free of charge (with the right to collect and retain any income that may be derived therefrom), at its sole cost, risk and expense, satellite dishes, antennas and communications equipment (the "COMMUNICATIONS EQUIPMENT") on the roof of the Building and/or on portions of the Land (for so long as such portions of the Land remain subject to this Lease), in an amount and of a type determined by Tenant, subject to Tenant's compliance with -54- the Approved Site Plan and all other Legal Requirements and subject further to Landlord's prior written approval of location, placement, plans and specifications for the Communications Equipment and the type and placement of all cabling and wiring ancillary thereto, all of which Landlord approvals shall not be unreasonably withheld, conditioned or delayed. Landlord makes no representation concerning the suitability of the rooftop or the Land as a location for the Communications Equipment, and Landlord's approval of Tenant's plans and specifications shall in no event be construed as constituting such a representation. Tenant shall be responsible for obtaining and maintaining all approvals, permits and licenses required by any federal, state or local government for installation and operation of the Communications Equipment and for paying all fees attendant thereto and for complying with all other Legal Requirements relating to the Communications Equipment. If the Communications Equipment is installed, Tenant shall have sole responsibility for the maintenance, repair and replacement thereof and of all cabling and wiring ancillary thereto. Tenant shall coordinate with Landlord's property manager concerning any penetration of the roof or the exterior facade of the Building, and shall in no event take any action that will void any then-existing roof warranty. All repairs to the Building made necessary by reason of the furnishing, installation, maintenance, operation or removal of the Communications Equipment or any replacements thereof shall be at Tenant's sole cost. Upon expiration or termination of this Lease, Tenant agrees that it will remove, forthwith, the Communications Equipment (but not the wiring or accessories) and shall repair any damage to the Building caused by the installation or removal of the Communications Equipment and related equipment. In the event Tenant fails to remove the Communications Equipment, Landlord may remove and dispose of such Communications Equipment and charge Tenant the entire reasonable cost thereof. Tenant's Communications Equipment shall not interfere with the structure of the Building, any of the building systems, or, at any time that Tenant is not the sole lessee of the Building, the equipment (including airwaves reception and other equipment) of any other tenant in the Building who shall have similar rights to maintain Communications Equipment and shall have exercised those rights prior to the exercise thereof by Tenant hereunder. Any such similar rights granted to any other tenant shall similarly restrict such other tenant's Communications Equipment from interfering with Tenant's Communications Equipment. Landlord shall enforce all such restrictions. If Tenant ceases at any time to be the sole tenant of the Building, Tenant's rights pursuant to this Section 26.1 shall be non-exclusive. Landlord shall have no liability on account of any damage to or interference with the operation of the Communications Equipment by any third party. Notwithstanding the foregoing, Landlord agrees that it will manage the available space on the rooftop so as to accommodate Tenant's needs with respect to the Communications Equipment to the greatest extent reasonably possible, including requesting that other tenants or rooftop users relocate their equipment if such relocation is necessary to enable Tenant to operate its Communications Equipment. Landlord shall have the right to require Tenant to relocate the Communications Equipment at Landlord's cost to another suitable location on the rooftop reasonably acceptable to Tenant, provided such relocation can be done at a time and in a manner that only minimally and temporarily interferes with Tenant's use of the Communications Equipment. -55- ARTICLE XXVII TENANT'S PURCHASE OPTION 27.1 Tenant shall have the one (1) time option (the "PURCHASE OPTION") to purchase the Premises upon six (6) months prior written notice during the period commencing on the first day of the twelfth (12th) Lease Year and continuing through the expiration of the ninth (9th) full calendar month of the thirteenth (13th) Lease Year (the "PURCHASE OPTION WINDOW"). Tenant shall notify Landlord (the "PURCHASE OPTION NOTICE") in writing, of its exercise of the Purchase Option not earlier than the commencement of the seventh (7th) full calendar month of the eleventh (11th) Lease Year and not later than the expiration of the third (3rd) full calendar month of the thirteenth (13th) Lease Year. The purchase price for the Premises shall be determined in accordance with the provisions of Section 27.2 below. 27.2 The purchase price for the Premises shall be their Fair Market Value which shall be determined as follows: (a) During the sixty (60) day period following Landlord's receipt of the Purchase Option Notice (the "PURCHASE PRICE NEGOTIATION PERIOD"), Landlord and Tenant shall meet and shall seek to establish the Fair Market Value of the Premises. For the purposes of this Article XXVII, the term "FAIR MARKET Value" shall mean the all-cash price which a ready. willing and able buyer would agree to pay for the Premises, after arm's length negotiations, giving due consideration to all appropriate factors, including, the age, quality, finish, design, current function, location and condition of the Premises and recognizing the effect of this Lease remaining in place as of the Closing Date at the then current Base Rent plus scheduled escalations and rights of renewal. If Landlord and Tenant are unable to agree upon the Fair Market Value of the Premises during the Purchase Price Negotiation Period, Tenant may elect to revoke its Purchase Option Notice by written notice to Landlord within the thirty (30) day period following the expiration of the Purchase Price Negotiation Period (the "PURCHASE OFFER REVOCATION PERIOD"). If Tenant does not revoke its option in accordance with the preceding sentence, it shall, no later than five (5) business days thereafter, post a deposit (the "PURCHASE DEPOSIT") in an amount equal to seven and one-half percent (7.5%) of the then current Annual Base Rent, which deposit shall be held in escrow by a mutually acceptable title insurance company (the "ESCROW AGENT"). Not more than five business days after the Fair Market Value of the Premises is determined, Tenant shall increase the Purchase Deposit in to an amount which will cause the Purchase Deposit to be seven and one-half percent (7.5%) of the Fair Market Value of the Premises. (b) If Tenant does not give written notice of revocation to Landlord within the Purchase Offer Revocation Period, the Fair Market Value of the Premises shall be determined by three (3) MAI appraisers, each of whom shall be licensed in the Commonwealth of Virginia as a real estate appraiser and shall have at least ten (10) years of commercial office sales, acquisition and leasing experience in the Market Area. The three appraisers shall be appointed in the same manner as the three brokers are appointed pursuant to Section 25.3 hereof. In determining the Fair Market Value of the Premises, the appraisers (i) shall be directed to assume a single building user in the Market Area with a five (5) year lease term including full concessions and (ii) shall be directed to determine (x) the market "triple net" rent for the Premises, assuming no defaults -56- under the terms and provisions of this Lease (the "PURCHASE OPTION MARKET RENT") and (y) a market "cap" rate using the same assumptions specified in (i) hereof (the "MARKET CAP RATE"). The Fair Market Value shall then be calculated by dividing the Market Rent by the Market Cap Rate. The Fair Market Value determined pursuant to the preceding sentence shall be further adjusted by taking into account the net present value (using a discount rate of eight percent (8%)) of the difference between Market Rent and the total rent to be paid by Tenant for the balance of the Lease Term (including, without limitation, any Supplemental Land Costs and increases in Annual Base Rent attributable to amortizing Base Building Capital Expenditures). The appraisers shall each establish what they believe to be the Fair Market Value of the Premises and shall notify Landlord and Tenant thereof by written notice within thirty (30) days of the date of appointment of the third appraiser, which notices shall be accompanied by copies of their reports. If any appraiser fails to render its determination within such thirty (30) day period, it shall be disregarded. If the determinations of any two or three of the appraisers shall be identical in amount, said amount shall be deemed to be the Fair Market Value for the Premises. If both the highest and the lowest determination differ by less than two percent (2%) from the middle determination, then the Fair Market Value shall be deemed to be the average of the three determinations. If the lowest determination and/or the highest determination differs by more than two percent (2%) from the middle determination, such determination or determinations shall be disregarded and the Fair Market Value shall be deemed to be the average of the remaining determinations. (c) Notwithstanding anything to the contrary in this Article XXVII, Landlord and Tenant agree that the minimum purchase price for the Premises shall be eighty percent (80%) of the Project Costs escalated by increases in the Revised Consumer Price Index for Urban Wage Earners and Clerical Workers, 1996 Base Year, All Items, Washington, DC-MD-VA Metropolitan Area (CPI-W), as published by the Bureau of Labor Statistics of the United States Department of Labor (herein referred to as the "Index"), which is published for the period that includes the month immediately preceding the first day of the first Lease Year and the month immediately preceding the month that the Purchase Option Notice is dated (herein referred to as the "ADJUSTMENT INDEX"). If the Index is changed so that a base year other than 1996 is used, the Index used herein shall be converted in accordance with the conversion factor published by the Bureau of Labor Statistics of the United States Department of Labor. If the Index is discontinued or otherwise revised during the Lease Term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. (d) The Fair Market Value for the Premises determined in accordance with the provisions of this Section 27.2 shall be binding and conclusive upon Landlord and Tenant. (e) In the event (i) Tenant does not deliver its Purchase Option Notice to Landlord six (6) months prior to the expiration of the Purchase Option Window (the "PURCHASE OPTION EXPIRATION DATE") or (ii) Tenant elects to revoke its exercise of the Purchase Option as provided above, Tenant's Purchase Option described herein shall lapse and be void and of no further force or effect. -57- 27.3 (a) The closing (the "CLOSING") of the purchase of the Premises shall occur on a date (the "CLOSING DATE") which is no more than six (6) months after the date of Tenant's Purchase Option Notice, but in any event shall occur no later than the expiration of the Purchase Option Window. At Closing, Tenant shall pay the full purchase price by federal wire transfer or other mutually agreeable means. Closing shall be conducted through an escrow with a title company selected by Tenant and reasonably acceptable to Landlord. (b) Landlord shall execute a special warranty deed in customary form conveying to Tenant fee simple title to the Land, in the form attached to the Purchase and Sale Agreement between Landlord and Tenant dated of even date herewith, free and clear of all mortgages, deeds of trust and other encumbrances and subject only to permitted encumbrances and any such other liens, encumbrances, covenants, restrictions, matter or thing of record which (i) were placed on record by or because of Tenant or any Affiliate thereof, (ii) which Tenant or any Affiliate has joined or consented or (iii) which Tenant expressly agrees to assume. Except as provided in the preceding sentence, the Premises shall be conveyed "as is" with no representations or warranties, express or implied. (c) Landlord shall execute a certificate that it is not a foreign person, partnership or other entity and any other affidavits or instruments reasonably requested by the title company handling the closing that are then customary in commercial transactions of a similar nature. (d) The Closing shall take place at a mutually agreed upon time and location in the Washington, D.C. metropolitan area. (e) Landlord and Tenant will each pay their own attorneys' fees in connection with the Closing. Landlord and Tenant shall each pay one-half of all applicable escrow fees charged by the Escrow Agent. All Virginia state, county and all other taxes imposed upon the grantor shall be paid by Landlord. All Virginia state, county and all other taxes and recordation taxes shall be paid by Tenant. Title examination, title insurance premiums, survey charges, notary fees, costs and expenses related purchase money financing and all other charges incident to settlement (other than charges related to the release of any existing liens on the Premises) shall be paid by Tenant. All other charges shall be borne by Landlord or Tenant as is usual and customary to be borne by seller and purchaser, respectively, in customary transactions not involving a landlord/tenant relationship. (f) All rent payments payable or receivable, taxes, assessments, utility charges and other similar items usually adjusted and prorated at closing shall be prorated as of the date of Closing. (g) This Lease shall continue in full force and effect through the Closing Date. 27.4 If either party shall fail to close on the Purchase Option hereunder under circumstances when such party is required to close, then the other party may pursue all remedies available to it at law or in equity, including specific performance. At its election, Landlord may -58- retain the Purchase Deposit as liquidated damages and this Lease shall, at Landlord's sole discretion, continue in full force and effect as if Tenant had never exercised its Purchase Option. 27.5 Nothing set forth in this Article XXVII shall restrict or prevent Landlord from (a) making an assignment of its interest in this Lease for security, (b) admitting lenders or others as limited partners in the partnership which constitutes Landlord or (c) granting to lenders or others equity interests in the Premises or the partnership which constitutes Landlord; provided, however, that any such conveyance shall not affect Tenant's Purchase Option and any such assignee or transferee shall comply with the provisions of this Article XXVII. 27.6 The rights of purchase set forth herein may be exercised by Orbital Sciences Corporation and not by any assignee of Orbital Sciences Corporation other than an Affiliate of Tenant or an assignee permitted pursuant to Section 7.4 above and only if Tenant and/or its Affiliates are occupying not less than fifty percent (50%) of the Premises demised under this Lease. Such rights shall not be assignable by Orbital Sciences Corporation to any third party nor, except as expressly provided herein, to any assignee, subtenant or successor-in-interest to Tenant, other than an Affiliate of Tenant. 27.7 If there is a monetary or material non-monetary Event of Default under this Lease on the date the Purchase Option Notice is delivered to Landlord or at any time thereafter prior to Closing, then, at Landlord's Option, to be exercised within fifteen (15) business days after the expiration of the applicable cure period for such default, Tenant's right to purchase the Premises provided herein shall lapse and be of no further force or effect. ARTICLE XXVIII RIGHT OF FIRST OFFER 28.1 In the event Landlord, during the Lease Term, wishes to sell or assign its fee interest in the Premises Landlord shall first give Tenant the opportunity to purchase such fee interest subject to the following terms and conditions: (a) If Landlord decides to sell the Premises, Landlord shall deliver written notice to Tenant of Landlord's intent to sell the Premises, which notice shall include the cash purchase price and other terms upon which Landlord is willing to sell the Premises (the "NOTICE OF INTENT TO SELL"). If Tenant wishes to purchase the Premises upon the terms and conditions set forth in the Notice to Sell, Tenant shall give Landlord written notice ("OFFER EXERCISE NOTICE") of its election to exercise its right to purchase the Premises within thirty (30) days following Tenant's receipt of the Notice of Intent to Sell. Failure of Tenant to respond within such thirty (30) day period shall be deemed an election not to exercise Tenant's right to purchase granted herein; provided that Tenant agrees to confirm such deemed waiver by executing a recordable written waiver and providing such further assurances thereof as Landlord may reasonably request. (b) If Tenant exercises its right to purchase the Premises pursuant to this Section 28.1, the purchase price shall be the price specified in the Notice of Intent to Sell and closing shall occur within the time frames set forth in the Notice of Intent to Sell (but if Tenant -59- elects to exercise its rights hereunder such closing shall occur within sixty (60) days from the date of Tenant's Offer Exercise Notice) and otherwise pursuant to the terms of Section 27.3 hereof. (c) If a Notice of Intent to Sell is given and Tenant elects (or is deemed to have elected) not to purchase the Premises, then Landlord shall be free to sell the Premises to any other person or entity on terms not materially more favorable to the prospective purchaser than the terms upon which Tenant shall have had the right to purchase the Premises. For purposes hereof, any purchase that is at a purchase price (taking into account the closing costs described in Section 27.3(e) above) that is not less than ninety-five percent (95%) of the purchase price that would have been payable by Tenant shall be deemed not to be materially more favorable to the prospective purchaser. In the event of a proposed sale on terms that are materially more favorable to the prospective purchaser, Landlord shall be required to give Tenant another notice of Intent to Sell, specifying the proposed terms of sale and to afford Tenant the opportunity, once again, to elect to purchase the Premises on the terms so specified, in accordance with the provisions hereof. (d) In no event shall Tenant have the right to purchase and, except as expressly permitted herein, Landlord shall not sell less than the entire Premises. (e) Notwithstanding anything contained herein to the contrary, Tenant shall not be afforded the rights specified in this Section 28.1 and shall not be entitled to purchase the Premises in the case of (i) a sale or other transfer to an Affiliate of Landlord or (ii) any transfer or conveyance of title to the Premises or any interest therein or in Landlord as part of a group of assets marketed for sale, exchange or other disposition in a single or related series of transactions by Landlord or any Affiliate of Landlord. Furthermore, Tenant shall have no rights pursuant to this Article XXVIII with respect to any conveyance or contribution of the Building or any interest therein or in Landlord to a real estate investment trust, umbrella partnership real estate investment trust or other entity as part of a transaction in which shares of a real estate investment trust are being sold to the public. 28.2 (a) Provided Tenant has been afforded the rights granted to Tenant in this Article XXVIII, Tenant's right to purchase the Premises pursuant to Section 28.1 shall forever terminate automatically upon the consummation of a sale of the Premises to an unaffiliated third party purchaser. Tenant agrees to confirm the termination of its rights hereunder by executing a recordable, written termination and providing such further assurances thereof as Landlord may reasonably request. (b) Any election by Tenant not to exercise its rights pursuant to Section 28.1 above shall not extinguish or otherwise impair any of Tenant's right to purchase the Premises pursuant to Article XXVII above. 28.3 Nothing set forth in this Article XXVIII shall restrict or prevent Landlord from (a) making an assignment of its interest in this Lease for security, (b) admitting lenders or others as limited partners in the partnership which constitutes Landlord or (c) granting to lenders or others equity interests in the Premises or the partnership which constitutes Landlord; provided, -60- however, that any such conveyance shall not affect Tenant's Right of First Refusal and any such assignee or transferee shall comply with the provisions of this Article XXVIII. 28.4 The rights of purchase set forth herein may be exercised by Orbital Sciences Corporation and not by any assignee of Orbital Sciences Corporation other than an Affiliate of Tenant or an assignee permitted pursuant to Section 7.4 above only during the Lease Term and only if Tenant and/or its Affiliates are occupying not less than fifty percent (50%) of the Premises demised under this Lease. Such rights shall not be assignable by Orbital Sciences Corporation to any third party nor, except as expressly provided in the preceding sentence, to any assignee, subtenant or successor-in-interest to Tenant, other than an Affiliate of Tenant. 28.5 Notwithstanding anything to the contrary set forth herein, Tenant's rights to purchase under this Article XXVIII shall not be applicable to a transaction involving the transfer of the Premises to a mortgagee-in-possession or a receiver of the Building, the Land or the Premises or a purchaser of the Building, the Land or the Premises at any foreclosure sale thereof, or a grantee of the Land, the Building or the Premises under a deed-in-lieu of foreclosure nor shall the provisions of this Article XXVIII be binding upon any such mortgagee-in-possession or receiver or purchaser at foreclosure or grantee under a deed-in-lieu of foreclosure, after a default by Landlord under any financing documents encumbering the Building, the Land or the Premises, as applicable, at any time during the Lease Term. Further, if the Land, the Building or the Premises is sold as a result of any mortgage financing secured thereby (e.g. a convertible mortgage or convertible securities) then Tenant's rights under this Article XXVIII shall terminate and be of no force or effect. Tenant shall have no right to approve nor have any control over the type or extent of financing obtained by Landlord with respect to the Land, the Building or the Premises, except as may be expressly provided in Article XX of this Lease. 28.6 In the event that at any time Landlord sells or transfers any of its interest in the Premises or this Lease to an unaffiliated third party and has otherwise complied with the provisions of this Article XXVIII, then provided the purchaser or transferee assumes the obligations of Landlord hereunder, Landlord named herein shall not be liable to Tenant for any obligations or liabilities based on or arising out of events or conditions occurring on or after the date of such sale or transfer. 28.7 If there is an Event of Default under this Lease on the date the Offer Exercise Notice is delivered to Landlord or at any time thereafter prior to Closing, then, at Landlord's Option, Tenant's right to purchase the Premises provided herein shall lapse and be of no further force or effect. ARTICLE XXIX GENERAL PROVISIONS 29.1 Tenant acknowledges that neither Landlord nor any broker, agent or employee of Landlord has made any representations or promises with respect to the Premises or the Building except as herein expressly set forth, and no rights, privileges, easements or licenses are being acquired by Tenant except as herein expressly set forth. The preceding sentence to the contrary notwithstanding, Landlord and Tenant acknowledge the execution and delivery of (a) the -61- Development Agreement and (b) a purchase and sale agreement with respect to the Land (the "PURCHASE CONTRACT") concurrently with the execution and delivery of this Lease. Landlord and Tenant agree that the Development Agreement and the Purchase Contract create certain rights, obligations, liabilities and responsibilities on both Landlord and Tenant as specifically provided therein. Landlord and Tenant agree that each of them has made certain representations and warranties to the other in the Development Agreement and the Purchase Contract as more specifically provided therein. 29.2 Nothing contained in this Lease shall be construed as creating a partnership or joint venture of or between Landlord and Tenant, or to create any other relationship between the parties hereto other than that of landlord and tenant. 29.3 Landlord and Tenant recognize CB Richard Ellis, Inc. ("CB") as the broker procuring this Lease and Landlord shall pay said broker a commission pursuant to a separate agreement between CB and Landlord, a copy of which agreement is attached hereto as Exhibit C and made a part hereof (the "BROKERAGE Agreement"). Tenant hereby acknowledges and agrees to the terms and provisions of the Brokerage Agreement. Tenant hereby agrees that any and all commissions paid to CB by Landlord in accordance with the terms and provisions of the Brokerage Agreement shall be included in Project Costs as determined in accordance with the provisions of the Development Agreement. Landlord and Tenant each represents and warrants to the other that, except as provided in the first sentence of this Section 29.3, neither of them has employed or dealt with any broker, agent or finder in carrying on the negotiations relating to this Lease. Each party shall indemnify and hold the other harmless from and against any claim or claims for brokerage or other commissions asserted by any broker, agent or finder engaged by the indemnifying party or with whom the indemnifying party has dealt in connection with this Lease, other than CB. 29.4 Tenant agrees, at any time and from time to time (but no more than twice in any twelve (12) month period), upon not less than fifteen (15) days' prior written notice by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or if there have been any modifications, that the Lease is in full force and effect as modified and stating the modifications); (ii) stating (x) the amounts of Base Rent and Additional Rent currently due and payable by Tenant, (y) that Tenant has not paid rent more than thirty (30) days in advance of its due date and (z) the dates to which the rent and any other charges hereunder have been paid by Tenant; (iii) stating whether or not, to the best knowledge of Tenant, Landlord is in default in the performance of any covenant, agreement or condition contained in this Lease, and if so, specifying the nature of such default; (iv) stating the address to which notices to Tenant are to be sent; (v) certifying that Tenant is (or is not) in possession of the Premises and conducting its business therein; (vi) stating that the Lease Term has commenced and the full rental is now accruing; (vii) stating that any improvements required by the Lease or the Development Agreement to be made by Landlord have been made to the satisfaction of Tenant; (viii) stating whether there are then existing any set-offs, charges, liens, claims or defenses against the enforcement of any right )and if so, specifying the same in detail); and (ix) stating such other information as Landlord or any mortgagee or prospective mortgagee of the Building may reasonably request. Any such statement delivered by Tenant may be relied upon by any landlord of the Building or the Land, -62- any prospective purchaser of the Building or such land, any mortgagee or prospective mortgagee of the Building or such land or of Landlord's interest therein, or any prospective assignee of any such mortgagee. Landlord agrees, at any time and from time to time (but no more than twice in any twelve (12) month period), upon not less than fifteen (15) days' prior written notice by Tenant, to execute, acknowledge and deliver to Tenant a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or if there have been any modifications, that the Lease is in full force and effect as modified and stating the modifications); (ii) stating the dates to which the rent and any other charges hereunder have been paid by Tenant; (iii) stating whether or not, to the best knowledge of Landlord, Tenant is in default in the performance of any covenant, agreement or condition contained in this Lease, and if so, specifying the nature of such default; (iv) stating the address to which notices to Landlord are to be sent; and (v) stating such other information as Tenant may reasonably request. 29.5 Landlord and Tenant each hereby waives trial by jury in any action, proceeding or counterclaim brought by either of them against the other in connection with any matter arising out of or in any way connected with this Lease, the relationship of landlord and tenant hereunder, Tenant's use or occupancy of the Premises, and/or any claim of injury or damage. 29.6 All notices or other communications required hereunder shall be in writing and shall be delivered in person (with receipt therefor), or sent by certified mail, return receipt requested, postage prepaid, or by facsimile transmission, to the following addresses or facsimile numbers: (i) if to Landlord, at: do Boston Properties, Inc. 500 E Street, S.W. Washington, D.C. 20024 Attn: Senior Vice President/Property Management facsimile no. 202-488-8644 (verify no. 202-646-7600); with a copy to: c/o Boston Properties, Inc. 500 E Street, S.W. Washington, D.C. 20024 Attn: Associate General Counsel facsimile no. 202-554-4167 (verify no. 202-646-7600); and a copy to: Boston Properties, Inc. 8 Arlington Street Boston, Massachusetts 02116 Attn: General Counsel facsimile no. 617-536-4233 (verify no. 617-859-2600); -63- (ii) if to Tenant, at: the Premises Attn: Director, Corporate Finance and Real Estate (facsimile no. to be designated by Tenant by notice given to Landlord in accordance herewith); except that, prior to the Lease Commencement Date, notices to such Director of Operations shall be given at: 21700 Atlantic Boulevard Dulles, VA 20166 facsimile no.: 703 406-3506 (verify no.: 703 406-5051); with a copy to: the Premises Attn: General Counsel facsimile no.: 703-406-5572 (verify no. 703-406-5505); except that, prior to the Lease Commencement Date, notices to such General Counsel shall be given at: 21700 Atlantic Boulevard Dulles, VA 20166 facsimile no.: 703 _____________ (verify no.: 703 __________________________); and a copy to: Carol Weld King, Esq. Hogan & Hartson LLP 555 13th Street, N.W., Washington, D.C. 20004 facsimile no.: 202-637-5910 (verify no. 202-637-5900). Notwithstanding anything contained herein to the contrary, all notices given by Tenant pursuant to Section 14.6 hereof shall be given at the addresses and in the manner specified above but, in addition, in order to constitute effective notice to Landlord, shall be given to the on-site building engineer or to such other person at such other address as Landlord may specify by written notice to Tenant. Either party may change its address for the giving of notices by notice given in accordance with this Section. Notices given by any means other than by facsimile shall be deemed given or received on the date actually received or, if refused, on the date delivery was attempted and refused. Notices given by facsimile shall be deemed given or received when confirmation of complete receipt is obtained by the transmitting party during normal business hours or, if not confirmed during normal business hours, on the next business day. -64- 29.7 If any provision of this Lease or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and enforced to the fullest extent permitted by law. 29.8 Feminine or neuter pronouns shall be substituted for those of the masculine form, and the plural shall be substituted for the singular number, in any place or places herein in which the context may require such substitution. 29.9 The provisions of this Lease shall be binding upon, and shall inure to the benefit of, the parties hereto and each of their respective representatives, successors and assigns, subject to the provisions hereof restricting assignment by Landlord or Tenant or subletting by Tenant. The term "Tenant" as used in this Lease shall include Orbital's permitted assigns in accordance with the provisions of Article VII of this Lease. 29.10 This Lease, together with the Development Agreement and the other contemporaneous agreements entered into pursuant thereto, contains and embodies the entire agreement of the parties hereto and supersedes all other prior agreements, negotiations and discussions between the parties hereto, all of which are merged herein. Any representation, inducement or agreement that is not contained in this Lease shall not be of any force or effect. This Lease may not be modified or changed in whole or in part in any manner other than by an instrument in writing duly signed by both parties hereto. 29.11 This Lease shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia, without regard to the principles of conflicts of law. 29.12 Article and section numbers and headings are used herein for the convenience of reference and shall not be considered when construing or interpreting this Lease. In this Lease, unless otherwise specified, (a) the singular includes the plural and the plural the singular; (b) words and terms which include a number of constituent parts, things or elements, including the terms Premises, Land, Building, Parking Structure and Personal Property, unless otherwise specified, shall be construed as referring separately to each constituent part, thing, or element thereof as well as to all of such constituent parts, things or elements as a whole; (c) reference to statutes are to be construed as including all rules and regulations adopted pursuant to the statute referred to; (d) references to agreements and other contractual instruments shall be deemed to include all subsequent amendments thereto or changes therein entered into in accordance with their respective terms; (e) references to persons include their permitted successors and assigns; (f) the words "hereto" or "herein" or "hereof" or "hereunder" or words of similar import refer to this Lease in its entirety; and (g) the words "including" or "include" or words of similar import, unless otherwise specified shall be deemed to be followed by the words "without limitation". 29.13 The submission of an unsigned copy of this document to Tenant for Tenant's consideration does not constitute an offer to lease the Premises or an option to or for the Premises. This document shall become effective and binding only upon the execution and delivery of this Lease by both Landlord and Tenant. -65- 29.14 Time is of the essence of each provision of this Lease. 29.15 This Lease shall not be recorded, except that upon the request of either party, the parties agree to execute, in recordable form, a short-form memorandum of this Lease, provided that such memorandum shall not contain any of the specific rental terms set forth herein and shall otherwise be mutually acceptable to Landlord and Tenant. Such memorandum may be recorded in the land records of Loudoun County, Virginia, and the party desiring such recordation shall pay all recordation costs. 29.16 Except as otherwise specifically provided herein, any additional rent owed by Tenant to Landlord, and any cost, expense, damage or liability shall be paid by Tenant to Landlord no later than fifty (50) days after the date Landlord notifies Tenant in writing of the amount of such additional rent or such cost, expense, damage or liability; provided that regularly scheduled monthly payments of additional rent pursuant to Article IV hereof shall be due and payable on the first day of each month, subject to the terms and conditions of Article IV. If any payment hereunder is due after the end of the Lease Term, such additional rent or such cost, expense, damage or liability shall be paid by Tenant to Landlord not later than fifty (50) days after Landlord notifies Tenant of the amount of such additional rent or such cost, expense, damage or liability. 29.17 All claims by Landlord with respect to Tenant's duties and obligations hereunder, including but not limited to Tenant's duties and obligations to pay Annual Base Rent, additional rent and the costs, expenses, damages and liabilities incurred by Landlord for which Tenant is liable, shall survive the termination of this Lease for any reason whatsoever. All claims by Tenant with respect to Landlord's duties and obligations hereunder shall survive the termination of this Lease for any reason whatsoever. 29.18 Except as expressly provided in the Development Agreement with respect to the initial construction of the Building and the Leasehold Improvements, in the event either Tenant or Landlord is in any way delayed, interrupted or prevented from performing any of its respective obligations under this Lease (other than Tenant's obligation to pay any rent due hereunder), and such delay, interruption or prevention is due to fire, act of God, governmental or quasi-governmental act (including, without limitation, any delay in the issuance of required permits or in the scheduling or performance of required inspections), national emergency, strike, labor dispute, unusual delays in transportation, inability to procure materials or utilities (where such inability was not reasonably capable of being anticipated), or any other cause beyond Tenant's or Landlord's reasonable control (whether similar or dissimilar) (all of which are collectively referred to herein as "FORCE MAJEURE"), then Tenant or Landlord (as applicable) shall be excused from performing the affected obligations for the period of such delay, interruption or prevention. Notwithstanding the foregoing, each party shall use reasonable efforts to mitigate the delay in such party's performance due to Force Majeure. 29.19 Any amounts required to be paid by Tenant under this Lease shall be considered additional rent. All payments of additional rent shall be paid to Landlord without diminution, -66- set-off or deduction (except as otherwise provided in Section 14.6 hereof) in the same manner as Annual Base Rent pursuant to Section 3.3 hereof or as may otherwise be provided in this Lease. 29.20 If Landlord or Tenant is required or elects to take legal action against the other party to enforce the provisions of this Lease and a judgment is rendered in such action by a court of competent jurisdiction, then the prevailing party in such action shall be entitled to collect from the other party its costs and expenses incurred in connection with such legal action (including, but not limited to, reasonable attorneys' fees and court costs). 29.21 Notwithstanding anything to the contrary in this Lease, for so long as Orbital Sciences Corporation or any Affiliate of Orbital Sciences Corporation is the tenant under this Lease, Landlord agrees that any liability of Tenant arising out of or in connection with this Lease or the relationship of Landlord and Tenant and the ability of Landlord to recover damages or other relief under this Lease shall be limited solely to the assets of Tenant. For so long as Orbital Sciences Corporation or any Affiliate of Orbital Sciences Corporation is the tenant under this Lease, in no instance whatsoever shall any present, past or future employee, officer, director or shareholder of Orbital Sciences Corporation or any Affiliate of Orbital Sciences Corporation have any personal liability to Landlord for the satisfaction of any obligations or liabilities of Tenant under this Lease. 29.22 This Lease includes and incorporates Exhibits A, A-1, A-2, B, C, D, E and F attached hereto. The parties hereto acknowledge and agree that this Lease and the Development Agreement shall be interpreted, to the maximum extent possible, so that they are consistent with each other and with the view that they are intended to effectuate common and unified purposes. In the event that there is any conflict or inconsistency between the terms or conditions in any of these documents, or if the application of the terms or conditions in these documents to any circumstances may result in inconsistent treatment, the parties agree that the terms and conditions of this Lease shall take precedence over the Development Agreement. ARTICLE XXX DIRECTORY OF DEFINED TERMS The following terms used herein are defined where indicated below:
Term Definition - ---- ---------- Affiliate of Tenant................................................................ Section 7.5 Affiliate of Landlord.............................................................. Section 13.3(a) Annual Base Rent................................................................... Section 3.1 Bankruptcy Code.................................................................... Section 19.1(a) Base Building Capital Expenditures................................................. Section 4.8 Base Building Work................................................................. Section 8.1 Brokerage Agreement................................................................ Section 29.3 Building........................................................................... Recital B Building Premises.................................................................. Section 17.1
-67- Closing............................................................................ Section 27.3 Closing Date....................................................................... Section 27.3 Communications Equipment........................................................... Section 26.1 Complex............................................................................ Recital A Default Amount..................................................................... Section 18.3 Default Rate....................................................................... Section 18.7 Development Agreement.............................................................. Recital B Divisible Portion of the Building Premises......................................... Section 26.1 Effective Date..................................................................... Introduction Eligibility Period................................................................. Section 13.2 Environmental Default.............................................................. Section 6.4 Environmental Law.................................................................. Section 6.4 Escrow Agent....................................................................... Section 27.2(a) Essential Building Services........................................................ Section 14.6 Expenses........................................................................... Section 4.2 Fair Market Value.................................................................. Section 27.2 Formula Rent....................................................................... Section 3.1(c) Hazardous Materials................................................................ Section 6.4 Improvements....................................................................... Section 9.2 Insolvency Laws.................................................................... Section 19.1 Insurance Requirements............................................................. Section 9.2 Invitees........................................................................... Section 6.4 Landlord Affiliate................................................................. Section 13.3 Lease Commencement Date............................................................ Section 2.2 Lease Term......................................................................... Section 2.1 Lease Year......................................................................... Section 2.2 Leasehold Improvements............................................................. Section 8.2 Legal Requirements................................................................. Section 6.1 Management Agreement............................................................... Section 13.3(a) Manager............................................................................ Section 13.3(a) Market Area........................................................................ Section 25.4 Market Cap Rate.................................................................... Section 27.2(b) Market Rent........................................................................ Section 26.3 Minimum Net Worth Amount........................................................... Section 5.1 mortgages.......................................................................... Section 20.1 Notice of Intent to Sell........................................................... Section 28.1(a) Offer Exercise Notice.............................................................. Section 28.1(a) Operating Expenses................................................................. Section 4.2 Operating Plan..................................................................... Section 4.1 Parking Structure.................................................................. Section 23.3 Premises........................................................................... Section 1.1 Project Architect.................................................................. Section 1.3 Project Costs...................................................................... Section 3.1 Purchase Deposit................................................................... Section 27.2 Purchase Offer Revocation Period................................................... Section 27.2 Purchase Option.................................................................... Section 27.1
-68- Purchase Option Market Rent........................................................ Section 27.2(b) Purchase Option Notice............................................................. Section 27.1 Purchase Option Window............................................................. Section 27.1 Purchase Price Negotiation Period.................................................. Section 27.2 purchaser/purchaser at a foreclosure sale.......................................... Section 20.2 Real Estate Taxes.................................................................. Section 4.2 Reconciliation Statement........................................................... Section 4.5 Renewal Term....................................................................... Section 26.1 Rent Recalculation Date............................................................ Section 3.1 Right of First Offer............................................................... Section 28.2 Rules and Regulations.............................................................. Section 15.1 security deposit................................................................... Section 5.1 Supplemental Land Costs............................................................ Section 4.2(c) Suspension Events.................................................................. Section 13.2 Taking............................................................................. Section 17.1 Tenant Installations............................................................... Section 2.2(b) Trustee............................................................................ Section 19.2
-69- IN WITNESS WHEREOF, Landlord and Tenant have executed this Deed of Lease under seal on or as of the day and year first above written. WITNESS LANDLORD: By: BOSTON PROPERTIES LIMITED PARTNERSHIP, a Delaware limited partnership By: Boston Properties, Inc./Its General Partner [SIG] By: /s/ E. MITCHELL NORVILLE - -------------------- -------------------------------------- Name: E. Mitchell Norville [Corporate Seal] Title: Senior Vice President WITNESS: - ------------------------- [Corporate Seal] WITNESS: TENANT: ORBITAL SCIENCES CORPORATION, a Delaware corporation /s/ Kathleen Guerere By: /s/ Michael P. Keegan - ----------------------- -------------------------------------------- Name: Michael P. Keegan [Corporate Seal] ------------------------------------------ Title: Vice Pres. & Corp. Controller ----------------------------------------- -70- EX-10.5 5 w58627ex10-5.txt LEASE AGREEMENT EXHIBIT 10.5 LEASE AGREEMENT BY AND BETWEEN BOSTON PROPERTIES LIMITED PARTNERSHIP AND ORBITAL SCIENCES CORPORATION TABLE OF CONTENTS
- ------------------------------------------------------------------------------------ Page - ------------------------------------------------------------------------------------ ARTICLE I 1 THE PREMISES - ------------------------------------------------------------------------------------ ARTICLE II TERM 2 - ------------------------------------------------------------------------------------ ARTICLE III BASE RENT 4 - ------------------------------------------------------------------------------------ ARTICLE IV ADDITIONAL RENT 5 - ------------------------------------------------------------------------------------ ARTICLE V SECURITY DEPOSIT 14 - ------------------------------------------------------------------------------------ ARTICLE VI USE OF PREMISES 16 - ------------------------------------------------------------------------------------ ARTICLE VII ASSIGNMENT AND SUBLETTING 19 - ------------------------------------------------------------------------------------ ARTICLE VIII MAINTENANCE AND REPAIRS 23 - ------------------------------------------------------------------------------------ ARTICLE IX ALTERATIONS 24 - ------------------------------------------------------------------------------------ ARTICLE X SIGNS, EQUIPMENT AND FURNISHINGS 27 - ------------------------------------------------------------------------------------ ARTICLE XI INSPECTION BY LANDLORD 28 - ------------------------------------------------------------------------------------ ARTICLE XII INSURANCE 29 - ------------------------------------------------------------------------------------ ARTICLE XIII SERVICES AND UTILITIES 31 - ------------------------------------------------------------------------------------ ARTICLE XIV LIABILITY OF LANDLORD 34 - ------------------------------------------------------------------------------------ ARTICLE XV RULES AND REGULATIONS 38 - ------------------------------------------------------------------------------------ ARTICLE XVI DAMAGE OR DESTRUCTION 39 - ------------------------------------------------------------------------------------ ARTICLE XVII CONDEMNATION 40 - ------------------------------------------------------------------------------------ ARTICLE XVIII DEFAULT 41 - ------------------------------------------------------------------------------------ ARTICLE XIX BANKRUPTCY 46 - ------------------------------------------------------------------------------------ ARTICLE XX SUBORDINATION; MORTGAGES 47 - ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ ARTICLE XXI 48 HOLDING OVER - ------------------------------------------------------------------------------------ ARTICLE XXII COVENANTS OF LANDLORD 49 - ------------------------------------------------------------------------------------ ARTICLE XXIII PARKING 50 - ------------------------------------------------------------------------------------ ARTICLE XXIV REPRESENTATIONS AND WARRANTIES 50 - ------------------------------------------------------------------------------------ ARTICLE XXV RENEWAL 51 - ------------------------------------------------------------------------------------ ARTICLE XXVI COMMUNICATIONS EQUIPMENT 54 - ------------------------------------------------------------------------------------ ARTICLE XXVII TENANT'S PURCHASE OPTION 55 - ------------------------------------------------------------------------------------ ARTICLE XXVIII RIGHT OF FIRST OFFER 59 - ------------------------------------------------------------------------------------ ARTICLE XXIX GENERAL PROVISIONS 61 - ------------------------------------------------------------------------------------ ARTICLE XXX DIRECTORY OF DEFINED TERMS 67 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------
EXHIBIT A-Survey Depicting the Land EXHIBIT A-1 - Diagram of the Premises [to be added when available pursuant to $1.1] EXHIBIT A-2 - Survey of the Complex EXHIBIT B-Form of Estoppel Certificate EXHIBIT C-Brokerage Agreement EXHIBIT D-Form of Letter of Credit EXHIBIT E-Rules and Regulations EXHIBIT F - Form of Management Agreement DEED OF LEASE AGREEMENT THIS DEED OF LEASE AGREEMENT (this "LEASE") is made as of the 5th day of April, 1999 (the "Effective Date"), by and between BOSTON PROPERTIES LIMITED PARTNERSHIP, a Delaware limited partnership (hereinafter referred to as "LANDLORD"), and ORBITAL SCIENCES CORPORATION, a Delaware corporation (hereinafter referred to as "TENANT" or "ORBITAL"). RECITALS: A. Landlord is the fee simple owner of that certain real property containing approximately 5.35 acres of land currently known as Lot 8A, The Corporate Center at Steeplechase, Section I ("STEEPLECHASE"), Loudoun County, Virginia (the "LAND"), which Land is more particularly depicted on or described on Exhibit A-1 attached hereto (and which is subject to adjustment in the subdivision process described in Section 1.4 below) which Land is part of the office complex development located on land depicted on Exhibit A-2 attached hereto and known as the Orbital Campus (the "COMPLEX"). B. Concurrently with the execution of this Lease, Landlord and Tenant have entered into that certain Build to Suit Agreement and Agreement to Lease dated of even date herewith (the "DEVELOPMENT AGREEMENT") with respect to, among other things, the financing, design and construction by Landlord of one (1) building on the Land containing approximately 92,604 gross square feet of space (the "BUILDING"), including all necessary or appropriate loading, landscaping, site work, parking area and other infrastructure. The Development Agreement contains terms, conditions and agreements governing the development of the Land, the construction of the Building and additional buildings on other parcels of land in the Complex, and Landlord's and Tenant's respective options with regard to same. C. Landlord and Tenant wish to set forth herein the terms and conditions upon which Landlord (i) shall lease the Land and the Building to Tenant and (ii) shall grant to Tenant an option to purchase the Land and the Building. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: ARTICLE I THE PREMISES 1.1 Landlord hereby leases and demises to Tenant and Tenant hereby leases and accepts from Landlord, for the term and upon the terms and conditions hereinafter set forth, the Land and the Building (collectively, the "PREMISES"). Upon the design of the Building and completion of construction documents, a diagram of each floor of the Building, which together with the Land, comprise the Premises, shall be added to this Lease as Exhibit A-1. 1.2 The Lease of the Premises includes the right to use the adjacent parking areas which shall be generally described on the Revised Site Plan Building 1, as defined in the Development Agreement, and the right to use any common areas and facilities (including the 1 Building's loading docks, doors, platforms, staging areas and service elevators) and all other facilities and areas that are located in and adjacent to the Building, unless specifically excluded in this Lease. The lease of the Premises also is subject to all covenants, conditions and restrictions of record as of the date hereof or recorded hereafter with the agreement of Tenant. 1.3 The area of the Building is expected to be approximately 92,604 square feet of Gross Floor Area and approximately 87,416 square feet of "net rentable" area. The parameters for the size and design of the Building, and other terms and conditions upon which the Land will be developed and the Building will be constructed are set forth in the Development Agreement. The number of rentable square feet in the Building shall be determined by Ai, the Project Architect, as defined in the Development Agreement, upon design and construction of the Building, and shall be confirmed in the declaration described in Section 2.3 below. For the purposes hereof, rentable area shall be calculated in accordance with the 1996 Building Owners and Managers Associated Standard Method of Measurement, as in effect as of the date of this Lease. The Project Architect shall provided Landlord and Tenant with its calculations for the measurement of the Building. 1.4 Landlord and Tenant agree that the legal description of the Land shall be adjusted as a result of the legal resubdivision of the Land as described in Section 3(d) of the Development Agreement. When such adjustment occurs, Landlord and Tenant agree to execute an amendment to this Lease, or such other documentation, reflecting such adjustment. ARTICLE II TERM 2.1 The term of this Lease (hereinafter referred to as the "LEASE TERM") shall commence on the Lease Commencement Date, as determined pursuant to Section 2.2 below, and continue for a period of approximately fifteen (15) years thereafter, unless such Lease Term shall be extended, renewed or terminated earlier in accordance with the provisions hereof. Notwithstanding the foregoing, (i) if the Lease Commencement Date shall occur on a day other than the first day of a month, the Lease Term shall commence on such date and continue for the balance of such month and for a period of approximately fifteen (15) years thereafter, as applicable, and (ii) the Lease Term shall be extended for such number of months as is necessary to allow for the expiration of this Lease concurrently with the expiration of the building to be constructed by Landlord, in accordance with the provisions of the Development Agreement, on the Building 3 Land, as defined in the Development Agreement, which building is hereinafter referred to as "BUILDING 3". The term "Lease Term" shall include any and all renewals and extensions of the term of this Lease. 2.2 (a) The "LEASE COMMENCEMENT DATE" shall be the earlier of (i) the date on which the Building is, or is deemed to be, substantially complete as determined pursuant to Section 7 of the Development Agreement and (ii) the date on which Tenant commences the conduct of its business upon any portion of the Premises comprising, in the aggregate, seventy-five percent (75%) or more of the rentable area of the Building. (b) Tenant and its contractors shall be allowed access to the Building approximately forty-five (45) days prior to Landlord's estimated date of substantial completion 2 of the Premises for the purpose of installing Tenant's communication equipment and associated wiring and such persons shall have access to the Premises approximately fifteen (15) days prior to Landlord's estimated date of substantial completion of the Premises for the purpose of installing Tenant's other special equipment, fixtures and furniture (all such installations pursuant to this Section 2.2(b) being referred to herein as "TENANT INSTALLATIONS") and, the provisions of Section 2.2(a) or 2.2(c) to the contrary notwithstanding, such Tenant Installations and related activity shall not be considered the commencement of business operations in the Premises by Tenant. Landlord shall use reasonable efforts to provide Tenant with approximately sixty (60) days prior written notice of Landlord's estimated date of substantial completion of the Premises and shall promptly respond to any written request of Tenant inquiring as to Landlord's estimated date of substantial completion. Any and all Tenant Installations and other related activity by Tenant or its contractors prior to the Lease Commencement Date (i) shall be subject to Landlord's and its contractor's reasonable scheduling and sequencing requirements and (ii) shall be coordinated with Landlord and its general contractor to insure that Tenant's work in and to the Premises does not hinder, delay, inhibit or otherwise interfere with the work being performed by Landlord and its contractors, the parties hereby acknowledging and agreeing that the schedule for the performance of the construction and the development of the Building does not provide additional time for the performance by Tenant of the Tenant Installations. Notwithstanding anything herein to the contrary neither Tenant nor its agents or contractors shall have access to the Premises during the times specified by Landlord or its general contractor as times that may cause unreasonable delay or interference with the activities of or on behalf of Landlord in the Premises or the Building. All terms and conditions of this Lease including, without limitation, the insurance, release and waiver of liability provisions of Articles XIII and XV hereof shall apply to and be effective during such period of occupancy by Tenant, except for Tenant's obligation to pay Annual Base Rent and additional rent attributable to Expenses. (c) If one or more full floors within the Premises is substantially complete prior to the Lease Commencement Date, and if Tenant desires to occupy all or a portion of such full floor(s) for the conduct of its business prior to the Lease Commencement Date, then, unless and until such early occupancy includes 75% or more of the rentable area of the Building, such early occupancy shall not cause the Lease Commencement Date to occur, but all the terms of this Lease (including, without limitation, the requirement that Tenant pay Annual Base Rent and additional rent (each, as hereinafter defined) with respect to such full or partial floors) shall apply with respect to each space thus occupied by Tenant from the date that Tenant takes occupancy thereof for the conduct of its business therein. In the case of any such partial occupancy prior to the Lease Commencement Date, Annual Base Rent shall be determined based on the ratio of the rentable area so occupied to the total rentable area of the Building. 2.3 Promptly after the Lease Commencement Date is ascertained, Landlord and Tenant shall execute a written declaration setting forth the Lease Commencement Date, the date upon which the Lease Term will expire, the exact number of square feet of rentable area in the Premises, and the Annual Base Rent. The form of such declaration is attached hereto as Exhibit B and made a part hereof. 2.4 For purposes of this Lease, the term "LEASE YEAR" shall mean either (a) each period of twelve (12) consecutive calendar months commencing on the first day of the month 3 immediately following the month in which the Lease Commencement Date occurs, and on each anniversary of such date, except that the first Lease Year shall also include the period from the Lease Commencement Date to the first day of the following month; or (b) if the Lease Commencement Date shall occur on the first day of a calendar month, each period of twelve (12) consecutive calendar months commencing on the Lease Commencement Date and on each anniversary of such date; whichever is applicable; provided, however, that in addition to the twelve (12) month period described above, the first (1st) Lease Year shall include the period from the Lease Commencement Date to the lease commencement date for Building 3. ARTICLE III BASE RENT 3.1 (a) During the first Lease Year, Tenant shall pay to Landlord as Annual Base Rent, net of all Expenses (which term is defined in Section 4.2 below), for the Premises, without set off, deduction or demand, an amount equal to the Formula Rent (as hereinafter defined), which amount shall be increased on an annual basis as provided in Section 3.2 below. (b) The "FORMULA RENT" shall be an amount equal to the product of (i) the Project Costs, as defined in the Development Agreement, multiplied by (ii) Nine and Six Tenths Percent (9.6%). (c) The Annual Base Rent payable hereunder during each Lease Year shall be divided into equal monthly installments and such monthly installments shall be due and payable in advance on the first day of each month during such Lease Year. If the Lease Commencement Date (determined pursuant to Section 2.2 hereof) occurs prior to a date when final Project Costs are ascertained, then Annual Base Rent shall initially be determined and payable based on projections of such costs as of the Lease Commencement Date, as reasonably determined by Landlord and Tenant, and shall thereafter be recalculated when such costs are ascertained. Upon such recalculation, Landlord shall deliver to Tenant a written notice specifying (i) the calculation of Annual Base Rent based upon actual Project Costs, (ii) the Annual Base Rent that is payable to Landlord hereunder for the period commencing on the Lease Commencement Date and continuing through the date of such notice based on actual Project Costs, and (iii) the Annual Base Rent that was in fact paid to Landlord for the same time period. If the amount of Annual Base Rent paid by Tenant for such time period exceeds the amount of Annual Base Rent payable for such time period based on actual Project Costs, Landlord shall credit the net overpayment against the next monthly installment(s) of Annual Base Rent and additional rent due hereunder. Conversely, if Tenant's actual liability for Annual Base Rent for such time period exceeds the sums theretofore paid by Tenant on account thereof, Tenant shall pay the amount of the deficiency within thirty (30) days following Tenant's receipt of Landlord's notice. In either event, there shall be added to the excess that is to be credited or the deficiency that is to be paid (whichever is applicable) a sum equal to interest on each monthly component of the amount to be credited or paid from the date each monthly component would have been payable if actual Project Costs had been known on the Lease Commencement Date to the date of the credit or payment pursuant to the reconciliation statement calculated at the Interest Rate (as hereinafter defined). Effective as of the date of such notice (the "RENT RECALCULATION DATE"), Tenant shall begin paying Annual Base Rent at the recalculated rate. Any dispute between Landlord and 4 Tenant as to the amount of the Project Costs (whether projected or final) shall be determined in accordance with the provisions of the Development Agreement. (d) For purposes of calculating the Formula Rent payable hereunder, the term "PROJECT COSTS" shall be determined in accordance with the provisions of Section 10(a) of the Development Agreement. 3.2 Commencing on (i) the first day of the second (2nd), third (3rd) fourth (4th) and fifth (5th) Lease Years, the Annual Base Rent payable for such Lease Year shall be increased over the escalated Annual Base Rent in effect during the preceding Lease Year by two percent (2%), (ii) the first day of the sixth (6th), seventh (7th), eighth (8th), ninth (9th) and tenth (10th) Lease Years the Annual Base Rent payable for such Lease Year shall be increased over the escalated Annual Base Rent in effect during the preceding Lease Year by two and one-half percent (2.5%) and (iii) the first day of the eleventh (11th), twelfth (12th), thirteenth (13th), fourteenth (14th) and fifteenth (15th) Lease Years the Annual Base Rent payable for such Lease Year shall be increased over the escalated Annual Base Rent in effect during the preceding Lease Year by three percent (3%). 3.3 All rent shall be paid to Landlord, without set-off, deduction or demand, in legal tender of the United States (i) at the address to which notices to Landlord are to be given or to such other address as Landlord may designate from time to time by written notice to Tenant, or (ii) by wire transfer in accordance with wiring instructions to be provided to Tenant by Landlord at least thirty (30) days prior to the Lease Commencement Date (or such alternative wiring instructions as Landlord may designate from time to time by written notice to Tenant). Any failure by Landlord to timely notify Tenant of such wiring instructions shall not excuse the payment of rent by Tenant; however, Tenant shall not be obligated to make any rent payment hereunder sooner than five (5) business days following Tenant's receipt of Landlord's wiring instructions. If Landlord shall at any time accept rent after it shall come due and payable, such acceptance shall not excuse a delay upon subsequent occasions, or constitute or be construed as a waiver of any of Landlord's rights hereunder. ARTICLE IV ADDITIONAL RENT 4.1 Tenant shall bear the costs and expenses incurred each year in the operation of the Building and the Land. For so long as Tenant is the sole lessee of the Building, Tenant shall have the right to provide input into the determination of such annual costs and expenses, as follows. Not more than thirty (30) days prior to the Lease Commencement Date, Landlord shall prepare and submit to Tenant a proposed budget for the operation and maintenance of the Building and the Land, the parties acknowledging and agreeing that such budget shall represent Landlord's reasonable expectation of such costs and expenses as the Building will not have been substantially completed at the time of the preparation of such budget. On or before November 15 of each calendar year during the Lease Term, Landlord shall prepare and submit to Tenant (i) a proposed budget or other form of summary identifying with reasonable detail the anticipated categories of expenditures to be made, proposed major vendors to provide services and proposed scope of services (including, but not limited to, security services) to be provided by Landlord for the ensuing calendar year in the operation and 5 maintenance of the Building and the Land and (ii) after the first year of operation of the Building, the operating history of the Building for the previous year (the "OPERATING PLAN"). It is the intention of Landlord and Tenant that Operating Expenses, as defined below, and the individual components thereof shall not materially exceed prevailing market costs and rates for like items and services, however, the parties acknowledge and agree that there may be occasions from time to time where it is in the best interests of the Building for a particular item to be performed or purchased at a cost or expense which exceeds prevailing market rates. If Tenant has reasonable additions, deletions or modifications to any elements of Landlord's proposed Operating Plan, Tenant shall notify Landlord of same within thirty (30) days following receipt of the proposed Operating Plan and Landlord shall incorporate Tenant's reasonable additions, deletions and modifications into Landlord's proposed Operating Plan and shall operate the Building substantially in accordance therewith; provided that, in no event shall Landlord be obligated to operate the Building or the Land in a manner that is inconsistent with the standards of a Class A suburban office building in the Market Area. The Operating Plan (as it may be revised with Tenant's input as aforesaid) shall serve as a general guide to the scope of services to be provided and expenditures to be made in the operation and maintenance of the Building and Land and Landlord shall not deviate therefrom in any material manner without first obtaining Tenant's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, and shall be deemed given if not withheld in writing within seven (7) business days following Landlord's notice thereof to Tenant; provided that, in case of emergency or in any case in which Landlord reasonably believes delay might cause injury to persons, material injury to property or a violation of any Legal Requirement, Landlord may act 'without Tenant's prior written consent. Any failure of Landlord to timely provide an annual Operating Plan to Tenant as provided herein shall not relieve Tenant of its obligation to pay additional rent pursuant to this Article IV. 4.2 The costs and expenses (the "EXPENSES") for which Tenant shall be responsible are defined as follows: (a) "OPERATING EXPENSES" shall mean and include those direct reasonable and customary expenses actually incurred and paid in operating and maintaining the Building and the Land in a manner consistent with the operating and maintenance standards observed at similar Class A suburban office buildings located in the Market Area, including, but not limited to, the following: (1) electricity, gas, water, sewer and other utility charges of every type and nature; (2) premiums and other charges for insurance (including, but not limited to, property insurance, rent loss insurance and liability insurance) incurred in accordance with Section 12.2 hereof; (3) all management fees incurred in the management of the Building (subject to the limitation set forth below); (4) all costs incurred in connection with service and maintenance contracts; (5) maintenance and repair expenses and supplies; (6) amortization (calculated on a straight-line basis over the useful life of the improvement, with interest at Landlord's applicable cost of funds or, if the improvement is not financed, at the prime rate reported in The Wall Street Journal) for capital expenditures made by Landlord, but only to the extent that they (i) are made after the first two (2) years of the Lease Term and are intended to decrease Operating Expenses or improve safety, or (ii) are made after the expiration of the tenth (10th) Lease Year of the Lease Term as a result of Legal Requirements enacted after the date of this Lease, provided, however, that Landlord shall be entitle to recoup the cost of capital improvements which result in energy 6 savings to the Building within the savings period attributable to such improvement and provided Further that commencing in the sixth (6th) Lease Year, Landlord may pass through directly to Tenant the entire actual cost incurred by Landlord in connection with the maintenance, repair and replacement of major components of any Building systems which prematurely fail due to Tenant's mandated hours of operation of such system(s) in excess of sixty-eight (68) hours per week; (7) salaries, wages, benefits and other expenses of Building personnel, together with the costs of maintaining engineering, maintenance and/or management offices in the Building (which costs shall not include imputed rent for the space in the Building occupied for such purposes); provided, however, that if during the Lease Term such personnel or entities are working on projects other than the Building, then their wages, salaries, fees and related expenses shall be appropriately allocated among all of such projects and only that portion of such expenses reasonably allocable to the Building shall be included in Operating Expenses; (8) legal fees (except as excluded below), administrative expenses, and accounting, architectural and other professional fees and expenses, except those that are normally absorbed by the property manager and not charged separately to Landlord in addition to management fees; (9) costs of any service not provided to the Building on the Lease Commencement Date but thereafter provided by Landlord pursuant to the then current Operating Plan established pursuant to Section 4.1 above, provided pursuant to the request of Tenant, otherwise provided pursuant to Section 4.1 above, or, during any time that Orbital is not the sole lessee of the Building, provided in the prudent management of the Building; (10) charges for concierge, security, janitorial, char and cleaning services and supplies furnished to the Building (except that costs of furnishing char and janitorial service to any space in the Building shall be excluded with respect to such space for so long as Tenant is furnishing its own char and janitorial service to such space in accordance with the provisions of this Lease); (11) costs associated with the provision or operation of any common facilities, including (without limitation) parking areas, landscaped areas, access roads, and the Building's loading dock; (12) fees and assessments payable pursuant to any declaration of covenants recorded against the Land or any property owners' association affecting the Land, which covenants if recorded against the Land after the effective date of this Lease and if Orbital is the lessee of fifty-one percent (51%) of the Building at such time, shall be subject to Orbital's approval; (13) Supplemental Land Costs, as defined in Section 4.2(c) below; and (14) any other reasonable expense incurred by Landlord in maintaining, repairing or operating the Building or the Complex. Any provision herein to the contrary notwithstanding, Operating Expenses shall not include the following: (i) the cost of any work performed (such as preparing a tenant's space for occupancy, including painting and decorating) or services provided (such as separately metered electricity) for any tenant (including Tenant) at such tenant's cost, or provided by Landlord without charge (such as free rent or improvement allowances); (ii) salaries, benefits and other compensation of Landlord's officers, partners, its headquarters staff and personnel located outside of the Complex, except to the extent includible pursuant to clause (7) above; (iii) the cost of any work performed or service provided for any tenant of the Building (other than Tenant, if any) to a materially greater extent or in a 7 materially more favorable manner than that furnished generally to the other tenants and occupants; (iv) the cost of any items for which Landlord is reimbursed by insurance proceeds (or would have been so reimbursed if Landlord had maintained the insurance required pursuant to Section 12.2 hereof), condemnation awards, or otherwise, or the cost of any item or service for which Landlord is actually reimbursed or is entitled to be reimbursed by another tenant of the Building, provided, however, that Landlord may include any insurance deductible in Operating Expenses; (v) depreciation of the Building and the cost of any additions, changes, or replacements to the Building, or amortization thereof, which under generally accepted accounting principles are properly classified as capital expenditures, except to the extent includable pursuant to clause (6) above and subject to Tenant's obligations with respect to capital expenditures pursuant to Section 4.2(a)(6) above and Sections 4.8 and 6.2 below; (vi) the cost of any repair made in response to any fire or casualty damage (except for the amount of any commercially reasonable "deductible" under Landlord's property insurance) or any condemnation; (vii) interest and principal payments on any debt, depreciation, and rental under any ground lease or other underlying lease; (viii) any real estate brokerage commissions or other costs incurred in procuring tenants, or any fee in lieu of commission; (ix) property management fees in excess of two and one-half percent (2.5%) of the Annual Base Rent payable hereunder from time to time; (x) any costs representing an amount paid to an entity related to or affiliated with Landlord to the extent in excess of the amount which would have been paid in the absence of such a relationship; (xi) any expenses for repairs or maintenance which are covered by warranties, guaranties or service contracts (excluding any mandatory deductibles); (xii) legal expenses arising out of the construction, sale, financing or refinancing of the Land or the Building, or the enforcement or defense of the provisions of any tenant's lease or organizational matters of Landlord or of any other proceeding by or against Landlord with respect to matters not specifically intended to be included as Operating Expenses; (xiii) insurance premiums to the extent of any refunds thereof; 8 (xiv) incremental costs necessitated by or resulting from the negligence or willful misconduct of Landlord, its managing agent, or its employees or from the gross negligence or willful misconduct of Landlord's independent contractors or other agents; (xv) costs arising out of a sale, financing or refinancing of the Land or the Building or any interests therein; (xvi) costs and taxes associated with the operation of the business entity of Landlord, including partnership audit, business entity accounting, and business entity legal matters; (xvii) costs, legal expenses, interest, fines and penalties associated with Landlord's making any late payments; (xviii) any costs or expenses incurred in connection with the remediation or removal of Hazardous Materials; (xix) acquisition or leasing costs of sculpture, paintings or other objects of art; (xx) except as provided in Section 4.2(a)(6) above, costs for repairing, replacing or otherwise correcting defects (but not the costs of repair or normal wear and tear) in the initial construction of the Premises; (xxi) costs of initial construction of the Premises, including all Project Costs; (xxii) rent for any on-site offices of Landlord or its managing agent; provided, however that Tenant shall make available to Landlord, without cost to Landlord, a minimum of 600 rentable square feet of space in the Building for a management office and/or building engineer's shop, which space shall be included in the rentable area of the Building when determining the Base Rent to be paid by Tenant under Article III hereof; and (xxiii) charitable or political contributions. In the event a single expenditure pays for the provision of a good or service to both the Building and any other building in the Complex or owned by Landlord, then Expenses shall include only the portion of such payment that is equitably allocable to the Building, as reasonably determined by Landlord and disclosed in writing to Tenant. Similarly, if any expenditure (whether in the nature of Operating Expenses or Real Estate Taxes (as defined below) benefits or otherwise relates to the Land and/or Building hereunder, as well as other land and/or buildings (including any land that may have been excluded from the Land hereunder pursuant to Section 1.4 hereof). then Expenses shall include only the portion of such expenditure that is equitably allocable to the Land and/or Building hereunder (as they may be constituted from time to time), as reasonably determined by Landlord and disclosed in writing to Tenant. 9 (b) "REAL ESTATE TAXES" shall mean and include (i) all real property taxes, including general and special assessments, if any, which are imposed upon Landlord in connection with the Building and/or the Land or assessed against the Building and/or the Land; (ii) any other present or future taxes or governmental charges which are imposed upon Landlord in connection with the Building and/or the Land, or assessed against the Building and/or the Land, including, but not limited to, any tax levied on or measured by the rents payable by tenants in the Building which are in the nature of, or in substitution for, real property taxes; and (iii) all taxes which are imposed upon Landlord, and which are assessed against the value of any improvements to the Premises made by Tenant or any machinery, equipment, fixtures or other personal property of Tenant used therein. In no event shall "Real Estate Taxes" include (A) income or net profit taxes imposed upon Landlord, except to the extent such taxes are in substitution for real property taxes, (B) the amount of any special taxes or special assessments actually paid by Landlord in any calendar year in excess of the minimum installment of special taxes or special assessments required to be paid by Landlord during such calendar year (it being agreed that Landlord shall elect the longest period of time allowed by the authority imposing the tax or assessment in which to pay installments of special taxes or special assessments that are to be prorated over several years), (C) franchise, stock and inheritance or estate taxes and sales, use or excise taxes imposed on rent, except to the extent such taxes are imposes in lieu of real estate taxes, (D) any transfer taxes, recording fees, tap fees, excises, levies, license fees, permit fees, impact fees, inspection fees or other authorization fees and any other similar charges which are included in the term "Project Costs". Tenant may request that all real estate taxing authorities, when issuing notices of assessment and real estate tax bills with respect to the Building or the Land, issue such notices and bills to both Landlord and Tenant simultaneously, and Landlord shall cooperate with such request. If any such taxing authority will not agree to same, then Tenant shall so notify Landlord and Landlord shall thereafter use reasonable efforts to furnish to Tenant a copy of each such notice of assessment or real estate tax bill that Landlord receives from such taxing authority with respect to the Building and/or the Land within thirty (30) days following Landlord's receipt thereof and shall be obligated to furnish to Tenant a copy thereof (if available) within ten (10) days following Landlord's receipt of Tenant's written request therefor. Landlord shall make a determination whether or not to challenge or appeal such assessment based on Landlord's reasonable judgment of which course is in the best interest of the Building. So long as Orbital is leasing not less than fifty-one percent (51%) of the rentable area of the Building, Landlord shall inform Tenant of such determination, and shall make available appropriate personnel to discuss with Tenant the reasons underlying such determination. In the event Landlord determines not to challenge or appeal such assessment (or, having undertaken to appeal or challenge such an assessment, does not pursue the appeal or challenge with due diligence and continuity), and provided Tenant is leasing the minimum square footage specified in the preceding sentence, Landlord agrees that Tenant may appeal or challenge such assessment in Landlord's place and stead and that Landlord will join in and cooperate with Tenant in prosecuting such appeal or challenge; provided, however, that such appeal or challenge shall be undertaken at Tenant's sole cost and at no expense to Landlord (except that, if Tenant's appeal or challenge is successful, then Tenant may recover its costs out of the refund or reduction of Real Estate Taxes achieved by Tenant prior to allocating such reduction to the tenants of the Building). 10 (c) It is the intention of the parties that as the Complex is subdivided and additional buildings are constructed therein, each of the lots in the Complex shall bear their pro rata portion of the costs (collectively, "SUPPLEMENTAL LAND COSTS") of all common roadwork and other common infrastructure costs that are associated with the initial and any subsequent development of the Complex (collectively, "COMMON SITE WORK"). For purposes hereof, Supplemental Land Costs associated with a subsequent phase of development of the Complex (i) shall include all costs and expenses (including, without limitation, interest and interest carry) of the types that are incurred (provided the cost incurred is subsequently paid) or paid by Landlord or the owners of the other lots in the Complex in connection with the further development of the lots in the Complex and (ii) shall be equitably apportioned among all of the buildings in the Complex. Common Site Work shall include, without limitation, the costs of extending the primary road network and pedestrian walkways serving the Complex to serve subsequent phases, the costs of extending utilities to the perimeter of a subsequent phase; the costs of expanding storm water facilities to serve subsequent phases; the costs of developing, installing lighting in, and landscaping entrances to the Complex and other common areas of the Complex and any and all other site development mandated by applicable Legal Requirements, as defined herein; and the costs of installing directional signage and entrance signage in common areas situated on subsequent phases 4.3 Tenant shall pay to Landlord, as additional rent for the Premises, the Expenses incurred by Landlord in the operation of the Building and the Land during any calendar year falling entirely or partly within the Lease Term, but the Expenses for any calendar year during the Lease Term shall be apportioned so that Tenant shall pay only that portion of such Expenses for such year as fall within the Lease Term. This provision shall survive the expiration or earlier termination of this Lease. Tenant shall also pay the Expenses incurred by Landlord during any period of partial occupancy prior to the Lease Commencement Date pursuant to Section 2.2 hereof. 4.4 If, during any period in which Orbital is not the sole lessee of the Building, the occupancy rate for the Building during any calendar year is less than ninety-five percent (95%), or if any office tenant is separately paying for electricity or janitorial services furnished to its premises, then Expenses for such calendar year shall be deemed to include all additional expenses with respect to those Expenses that vary in accordance with the occupancy of the Building, as reasonably estimated by Landlord, which would have been incurred during such calendar year if the occupancy rate for the Building had been ninety-five percent (95%) and if Landlord paid for electricity and janitorial services furnished to such premises. This provision shall not operate in a manner that would permit Landlord to recover from Tenant additional rent on account of Operating Expenses for any calendar year which, when added to the total additional rent payable by all tenants of the Building on account of Operating Expenses for such year will exceed the actual Operating Expenses incurred by Landlord for such year. 4.5 Commencing on the Lease Commencement Date and on the first day of each month thereafter, Tenant shall make estimated monthly payments, based on the Operating Plan, to Landlord on account of the Expenses that are reasonably expected to be incurred during each calendar year falling entirely or partly within the Lease Term. The amount of such monthly payment shall be determined as follows: Commencing with the Lease Commencement Date (or 11 such earlier date as of which Expenses may be payable by Tenant pursuant to Section 4.3) and at the beginning of each calendar year thereafter, Landlord shall submit to Tenant a statement setting forth Landlord's reasonable estimate of the Expenses that are expected to be incurred during such calendar year (and, if Orbital is not the sole lessee of the Building, Tenant' proportionate share thereof). Provided that Tenant receives such statement at least forty-five (45) days in advance, Tenant shall pay to Landlord on the first day of each month following receipt of such statement during such calendar year an amount equal to (A) the excess of (i) the anticipated Expenses (or Tenant's proportionate share thereof, during any period in which the Building is multi-tenanted) for the full calendar year (or the portion of such calendar year that falls within the Lease Term) over (ii) the monthly payments made by Tenant (on the basis of the estimate in effect during the preceding calendar year) prior to the commencement of payments made on the basis of Landlord's estimate for the current calendar year, multiplied by (B) a fraction, the numerator of which is one (1) and the denominator of which is the number of months during such calendar year which fall within the Lease Term and follow the date of the foregoing statement. Within approximately ninety (90) days after the expiration of each calendar year, Landlord shall submit to Tenant a statement certified by Landlord (the "RECONCILIATION STATEMENT"), showing (i) the Expenses actually incurred during the preceding calendar year (and, during any period in which the Building is multi-tenanted, Tenant's proportionate share thereof), and (ii) the aggregate amount of the estimated payments made by Tenant on account thereof. If the aggregate amount of such estimated payments exceeds Tenant's actual liability for such Expenses, then Landlord shall credit the net overpayment against the next monthly installment(s) of Annual Base Rent and additional rent coming due under this Lease (or if the Lease Term has ended, shall pay such net overpayment to Tenant within thirty (30) days after providing such Reconciliation Statement to Tenant). If Tenant's actual liability for such Expenses exceeds the estimated payments made by Tenant on account thereof, then Tenant shall pay to Landlord the total amount of such deficiency within thirty (30) days after its receipt of the Reconciliation Statement from Landlord. In the event Landlord has failed to deliver a Reconciliation Statement to Tenant within approximately ninety (90) days after the expiration of a calendar year, Tenant may deliver to Landlord a written demand that the Reconciliation Statement be delivered within sixty (60) days following the date of delivery of Tenant's demand notice, and if Landlord fails to deliver the Reconciliation Statement to Tenant within sixty (60) days after the date on which Landlord receives Tenant's demand notice, then Landlord shall forfeit the right to bill Tenant for any amount on account of Expenses incurred during such calendar year in excess of the estimated payments made by Tenant during such calendar year (but Tenant shall not forfeit the right to be reimbursed for any overpayment if its estimated payments exceeded the actual Expenses, and Landlord shall not be excused from its obligation to deliver the Reconciliation Statement). The provisions of this paragraph shall survive the expiration or earlier termination of this Lease. 4.6 Tenant shall have the right, during business hours and upon reasonable prior notice, from time to time to inspect and make copies of Landlord's books and records relating to Expenses, and/or to have such books and records audited at Tenant's expense by an independent certified public accountant or other qualified consultant designated by Tenant, not more than ten percent (10%) of the fees of whom shall be determined on a contingent basis, except that any audit that discloses that annual Expenses have been overstated by more than three percent (3%) shall be at Landlord's expense. Any discrepancy shall be corrected by a 12 payment of any shortfall to Landlord by Tenant, or a refund of any overpayment to Tenant by Landlord, within thirty (30) days after the applicable audit. In the event Tenant does not contest a statement of Expenses within three (3) years after the date it receives a Reconciliation Statement (and provided Landlord has cooperated with Tenant undertaking an audit of Landlord's books and records, if so requested by Tenant), such Reconciliation Statement shall become binding and conclusive upon each party. Tenant shall use reasonable efforts to (and hall us reasonable efforts to cause its agents to ) keep the results of such audit confidential. Landlord shall retain the books and records for the Building for the period subject to Tenant's audit rights. 4.7 So long as Tenant is the sole lessee of the Building, Tenant may request that electric utility bills be sent directly from the electricity provider to Tenant, in which event Tenant shall be obligated to pay all charges for electricity directly to such electricity provider as and when due. If Tenant ceases to be the sole lessee of the Building, Tenant may request that electricity furnished to the Premises be separately metered, if such service is available from the applicable utility provider, in which event Landlord shall, subject to any conditions or limitations imposed by the electricity provider, install a submeter or checkmeter at Tenant's expense. Following any such separate metering, Tenant shall timely pay directly to the appropriate utility all charges for electricity furnished to the Premises (and the charges for such separately metered electricity shall not be included in Operating Expenses). Notwithstanding anything contained herein to the contrary, if Tenant fails to pay any electric bill that is provided directly to Tenant by the electric utility as and when due, such failure shall constitute a default hereunder. If any such default is not cured within ten (10) business days following written notice from Landlord, then Landlord shall have the right, but shall not be obligated, to pay the delinquent amounts, and Tenant shall reimburse Landlord therefor within five (5) business days after receiving notice of such payment by Landlord; provided that Landlord may act without notice to Tenant if delay would cause an interruption of utility services, an emergency or similar situation. Notwithstanding anything to the contrary herein, in the event electric service to the Premises is measured by separate meter or check meter, Tenant shall not be relieved of its obligation to pay its share of Expenses attributable to the provision of electrical service to the common areas of the Building. Landlord shall have the right to verify Tenant's electrical consumption in the Premises through the energy management system in the Building. 4.8 Except as otherwise provided in Sections 4.2(a)(6), Section 6.2 and this Section 4.8, Landlord shall bear the cost of, and shall not pass through to Tenant as an Expense hereunder, any necessary or appropriate capital expenditures constituting additions or changes to, or replacements of, the base building systems and other base building components of the Building ("BASE BUILDING CAPITAL EXPENDITURES"). The preceding sentence notwithstanding, Landlord shall not be obligated to make any such capital repair or replacement to specifications that exceed building standard specifications unless Tenant agrees to pay in full, at the time the Base Building Capital Expenditure is incurred, the excess cost of such Tenant-upgraded capital repair or replacement over the cost of making such capital replacement or repair to building standard specifications; provided, however, in the event (i) the cost of the Base Building Capital Expenditure in question is less than Five Hundred Thousand Dollars ($500,000.00), which cap shall be increased annually by the increase in the Consumer Price Index, as defined in the Development Agreement, and (ii) Orbital's net worth (which shall be determined on a pro forma basis using generally accepted accounting principles consistently applied and using the most 13 recent financial statements) is not less than it is on the Effective Date, then Tenant may elect to amortize the cost of such Base Building Capital Expenditure, at an interest rate acceptable to Landlord but not exceeding commercially reasonable interests rates at the time of the expenditure, as additional rent to be paid by Tenant over the remainder of the Lease Term, assuming that Tenant does not and has not elected to renew this Lease. In addition, any necessary or appropriate capital expenditures constituting additions or changes to, or replacements of, any of Tenant's tenant improvements shall be payable in full by Tenant at the time the capital expenditure is incurred. For purposes hereof, "building standard" specifications shall mean specifications customary in Class A suburban office buildings in the Market Area. ARTICLE V SECURITY DEPOSIT 5.1 (a) Tenant shall be obligated to post, as the "SECURITY DEPOSIT" hereunder, a sum equal to Two Hundred Fifty Thousand Dollars ($250,000.00). Upon the Lease Commencement Date, provided no default on the part of Tenant under this Lease shall then be in existence and no Event of Default, as defined in Section 18.1 hereof, has occurred hereunder, the security deposit shall be reduced to Two Hundred Thousand Dollars ($200,000.00). All cash which Tenant delivers to Landlord as a security deposit, including the proceeds if Landlord draws of the Letter of Credit, as defined below, will be deposited in a separate, interest-bearing account maintained by Landlord with a depository selected by Tenant and approved by Landlord, in its reasonable discretion, with interest accruing to the benefit of Tenant. Interest on the security deposit (if it is in the form of cash) shall be disbursed to Tenant no less often than on a quarterly basis. Following an Event of Default, interest earned on the security deposit shall be added to and become a part of the security deposit and shall not be disbursed to Tenant, except upon the return of the security deposit in accordance with the terms hereof. Landlord hereby approves NationsBank, N.A. as an acceptable depository for the security deposit. (b) The security deposit shall be security for the performance by Tenant of all of Tenant's obligations, covenants, conditions and agreements under this Lease. Within thirty (30) days after the expiration of the Lease Term, and provided Tenant has vacated the Premises and is not in default hereunder, Landlord shall return the security deposit to Tenant, less such portion thereof as Landlord shall have applied to satisfy any default by Tenant hereunder. Following an Event of Default by Tenant hereunder, Landlord shall have the right, but shall not be obligated, to use, apply or retain all or any portion of the security deposit for (i) the payment of any Annual Base Rent or additional rent or any other sum as to which Tenant is in default, (ii) the payment of any amount which Landlord may spend or become obligated to spend to repair physical damage to the Premises or the Building pursuant to Section 8.3 hereof, or (iii) the payment of any amount Landlord may spend or become obligated to spend, or for the compensation of Landlord for any losses incurred, by reason of Tenant's default hereunder, including, but not limited to, any damage or deficiency arising in connection with the reletting of the Premises. If any portion of the security deposit is so used or applied (including a draw under any letter of credit that may serve as the security deposit hereunder), within three (3) business days after written notice to Tenant of such use or application, Tenant shall deposit with Landlord cash in an amount sufficient to restore the security deposit to the full amount required to be maintained hereunder (or, if the security deposit is in the form of a letter of credit, replace or 14 restore the letter of credit to the full amount required to be maintained hereunder), and Tenant's failure to do so shall constitute a default under this Lease. (c) Tenant shall have the right to deliver to Landlord an unconditional, irrevocable letter of credit in substitution for the cash security deposit, subject to the following terms and conditions. Such letter of credit shall be (a) substantially in the form attached hereto as Exhibit D or such other form and substance satisfactory to Landlord in its sole discretion; (b) at all times in the amount of the security deposit, and shall permit multiple draws; (c) issued by a commercial bank reasonably acceptable to Landlord from time to time and located in the Washington, D.C. metropolitan area; (d) made payable to, and expressly transferable and assignable at no charge by, the owner from time to time of the Building (which transfer/assignment shall be conditioned only upon the execution of a written document in connection therewith); (e) payable at sight upon presentment to a local branch of the issuer located in the Washington, D.C. metropolitan area of a simple sight draft or certificate stating that an Event of Default has occurred under this Lease and that Landlord is entitled to draw upon the letter of credit in the amount set forth in the sight draft or certificate; (f) of a term not less than one year; and (g) at least thirty (30) days prior to the then-current expiration date of such letter of credit, either (1) renewed (or automatically and unconditionally extended) from time to time through the ninetieth (90th) day after the expiration of the Lease Term, or (2) replaced with cash in the amount of the Security Deposit. Notwithstanding anything in this Lease to the contrary, any cure or grace periods set forth in this Lease shall not apply to Tenant's obligations under subsection (g) above, and, specifically, if Tenant fails to timely comply with the requirements of subsection (g) above, then Landlord shall have the right to immediately draw upon the letter of credit without notice to Tenant and apply the proceeds to the security deposit. Each letter of credit shall be issued by a commercial bank that has a credit rating with respect to certificates of deposit, short term deposits or commercial paper of at least P-2 (or equivalent) by Moody's Investor Service, Inc., or at least A-2 (or equivalent) by Standard & Poor's Corporation, and shall be otherwise acceptable to Landlord in its reasonable discretion. If the issuer's credit rating is reduced below P-2 (or equivalent) by Moody's Investors Service, Inc. or below A-2 (or equivalent) by Standard & Poor's Corporation, or if the financial condition of such issuer changes in any other materially adverse way, then Landlord shall have the right the require that Tenant obtain a substitute letter of credit from a different issuer that complies in all respects with the requirements of this Section, and Tenant's failure to obtain such substitute letter of credit within ten (10) business days following Landlord's written demand therefor (with no other notice or cure or grace period being applicable thereto, notwithstanding anything in this Lease to the contrary) shall entitle Landlord to immediately draw upon the then existing letter of credit in whole or in part, without notice to Tenant. In the event the issuer of any letter of credit held by Landlord is placed into receivership or conservatorship by the Federal Deposit Insurance Corporation, or any successor or similar entity, then, effective as of the date such receivership or conservatorship occurs, said letter of credit shall be deemed not to meet the requirements of this Section, and, within ten (10) business days thereafter, Tenant shall replace such letter of credit with a substitute security deposit meeting the requirements of this Section (and Tenant's failure to do so shall, notwithstanding anything in this Lease to the contrary, constitute an Event of Default for which there shall be no notice or grace or cure periods being applicable thereto other than the aforesaid ten (10) business day period). Landlord shall return the superseded letter of credit to Tenant promptly upon receipt of its replacement. Any failure or refusal of the issuer to 15 honor the letter of credit shall be at Tenant's sole risk and shall not relieve Tenant of its obligations hereunder with respect to the security deposit. (d) Tenant shall have the right, from time to time, to substitute a letter of credit meeting the requirements of Subparagraph (c) for the cash security deposit, and vice versa, on one or more occasions, provided that substitutions may not occur more frequently than one (1) time in any twelve (12) month period. (e) Provided that, as of the applicable Reduction Date,, as defined below, (i) no default on the part of Tenant under this Lease shall then be in existence and no Event of Default, as defined in Section 18.1, has occurred hereunder, (ii) no uncorrected physical damages to the Premises shall have occurred, ordinary wear and tear excepted arid (iii) no other event shall have occurred during the Lease Term which would entitle Landlord to use or to retain all or a portion of the security deposit in accordance with the provisions of this Article V, Tenant shall have the right on the first day of the second (2nd) Lease Year and on the first day of each of the following four (4) Lease Years thereafter (each a "REDUCTION DATE") to reduce the security deposit by the amount of Forty Thousand Dollars ($40,000.00). Notwithstanding anything herein to the contrary, if an Event of Default has occurred, then there shall occur no further reduction in the security deposit. If any portion of the security deposit is then in the form of a letter of credit, such reduction shall occur by means of delivery by Tenant to Landlord of a substitute Letter of Credit in such amount and in strict conformity with the terms of this Article V, in which event, the original Letter of Credit and any substituted Letter of Credit, as applicable, shall be returned to Tenant. 5.2 In the event of the sale or transfer of Landlord's interest in the Building, Landlord shall have the right to transfer the security deposit to the purchaser or assignee, provided such purchaser or assignee assumes Landlord's obligations hereunder, as evidenced by the agreement of such purchaser or assignee, a copy of which Landlord shall furnish to Tenant in accordance with Section 14.3 hereof. If Landlord transfers the security deposit to a purchaser or assignee. Tenant shall look only to such purchaser or assignee for the return of the security deposit, and Landlord shall thereupon be released from all liability to Tenant for the return of the security deposit. If the security deposit is in the form of a letter of credit, then Tenant shall, within ten (10) days after Landlord's request therefor, cause the Letter of Credit to be amended or reissued by the issuer to indicate the new beneficiary. 5.3 Tenant hereby acknowledges that Tenant will not look to the holder of any mortgage (as defined in Section 20.1) encumbering the Building for return of the security deposit if such holder, or its successors or assigns, shall succeed to the ownership of the Building, whether by foreclosure or deed in lieu thereof, except if and to the extent the security deposit is actually transferred to such holder; provided, however, that Landlord agrees to transfer any security d posit from Tenant to such holder of any mortgage encumbering the Building. ARTICLE VI USE OF PREMISES 6.1 Tenant shall use and occupy the Premises solely for general office purposes, research and development and related and ancillary uses and any other uses that are 16 permitted under the Approved Site Plan, applicable zoning laws and other Legal Requirements (as hereinafter defined) and are compatible with a Class A suburban office complex in the Market Area, as defined in Section 25.4 below, and for no other use or purpose. The parties hereby agree that the following uses are compatible with a Class A suburban office complex in the Market Area: laboratories, light assembly areas, health club/fitness center, outdoor fitness trail, day care center, sundries/lobby shop, laundry/dry cleaning drop--off service, and food service operations. Notwithstanding anything herein to the contrary, in no event shall such compatible uses" in the aggregate exceed more than forty percent (40%) of the rentable area of the Building. Tenant shall not use or occupy the Premises for any unlawful purpose or in any manner that will constitute waste, nuisance or unreasonable annoyance. Tenant's use of the Premise shall also comply with all present and future laws, ordinances (including zoning ordinances and land use requirements), regulations, and orders of Loudoun County, the Commonwealth of Virginia and any other public or quasi-public authority having jurisdiction over the Premises, concerning the use, occupancy and condition of the Premises and all machinery, equipment and furnishings therein (together referred to herein as "LEGAL REQUIREMENTS"). 6.2 Pursuant to the provisions of the Development Agreement, Landlord shall obtain the initial non-residential use permit and any other similar governmental approvals which may be required for Tenant's occupancy of the Premises. It is expressly understood that if any present or future Legal Requirements require any other permit(s) for the Premises due to Tenant's particular use thereof, or Tenant's improvements or future alterations thereto, that Tenant will obtain such permit(s) at Tenant's own expense. Further, Tenant will comply with all Legal Requirements which impose on Landlord or Tenant a duty relating to or arising as a result of Tenant's use or occupancy of the Premises. In particular, without limiting the generality of the foregoing, any and all alterations or additions to the Premises that are required to be made after the Lease Commencement Date, as a result of Legal Requirements (now existing or hereafter enacted) shall be made by Tenant at Tenant's sole cost and expense and in accordance with the requirements of Article IX hereof. Notwithstanding anything contained herein to the contrary, Landlord shall be required to comply with any present or future Legal Requirements with respect to (i) elements and components of the "base building" structure and systems and (ii) the common areas of the Building which are within Landlord's control, unless, in either case, such Legal Requirements are imposed because of Tenant's particular use or configuration of the Premises (as opposed to office use generally) or any improvements constructed in the Premises by Tenant or caused by Tenant or any of its employees, agents, contractors or subtenants in which case Tenant shall bear the entire cost of performing such addition, replacement or alteration. Tenant shall promptly pay all fines, penalties and damages that may arise out of or be imposed on Landlord or Tenant because of Tenant's failure to comply with the provisions of this Section. 6.3 Tenant shall pay any business, rent or other taxes that are now or hereafter levied upon Tenant's use or occupancy of the Premises, the conduct of Tenant's business at the Premises, or Tenant's equipment, fixtures or personal property. In the event that any such taxes are enacted, changed, or altered so that any of such taxes are levied against Landlord, or the mode of collection of such taxes is changed so that Landlord is responsible for collection or payment of such taxes, Tenant shall pay any and all such taxes to Landlord within thirty (30) days following written demand from Landlord. 17 6.4 Tenant shall not cause or permit any Hazardous Materials to be generated, used, released, stored or disposed of in or about the Building or the Complex, provided that Tenant may use and store reasonable quantities of standard office supplies and cleaning materials as may be reasonably necessary for Tenant to conduct normal general office use operations in the Premises and in compliance with all Environmental Laws and other applicable Legal Requirements. At the expiration or earlier termination of this Lease, Tenant shall surrender the Premises to Landlord free of Hazardous Materials (except any that may be Landlord's responsibility pursuant to Section 6.5 hereof and any that are otherwise not Tenant's responsibility pursuant to the terms of this Article VI) and, subject to the foregoing parenthetical, in compliance with all Environmental Laws. "HAZARDOUS MATERIALS" means (a) asbestos and any asbestos containing material and any substance that is then defined or listed in, or otherwise classified pursuant to, any Environmental Law or any other applicable Law as a "hazardous substance," "hazardous material," "hazardous waste." "toxic substance," "toxic pollutant" or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, or Toxicity Characteristic Leaching Procedure (TCLP) toxicity, (b) any petroleum and drilling fluids, produced waters, and other wastes associated with the exploration, development or production of crude oil, natural gas, or geothermal resources, and (c) any petroleum product, polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive material (including any source, special nuclear, or byproduct material), chlorofluorocarbon, lead or lead-based product, and any other substance whose presence would be hazardous to health or the environment. "ENVIRONMENTAL LAW" means any present and future Law and any amendments (whether common law, statute, rule, order, regulation or otherwise), permits and other requirements or guidelines of governmental authorities applicable to the Building or the Land and relating to the environment and environmental conditions or to any Hazardous Material (including, without limitation, CERCLA, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.., the Clean Air Act, 33 U.S.C. Section 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq., the Emergency Planning and Community Right-To-Know Act, 42 U.S.C. Section 1101 et seq., the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq., and any so-called "Super Fund" or "Super Lien" law, any Law requiring the filing of reports and notices relating to hazardous substances, environmental laws administered by the Environmental Protection Agency, and any similar state and local Laws, all amendments thereto and all regulations, orders, decisions, and decrees now or hereafter promulgated thereunder concerning the environment, industrial hygiene or public health or safety). At all times, and notwithstanding any termination of this Lease, Tenant shall indemnify and hold Landlord, its employees and agents harmless from and against any damage, injury, loss, liability, charge, demand or claim based on or arising out of the presence or removal of, or failure to remove, Hazardous Materials generated, used, released, stored or disposed of by Tenant or its employees, agents, contractors, licensees or invitees (collectively, "INVITEES") in or about the Building or the Complex, whether before or after the Lease Commencement Date. In addition, Tenant shall give Landlord immediate verbal and follow-up written notice of any actual or threatened Environmental Default, which Environmental Default Tenant shall cure in accordance with all Environmental Laws and to the reasonable satisfaction of Landlord and, except in the case of an 18 emergency (in which event Tenant may act without Landlord's consent), only after Tenant has obtained Landlord's prior written consent, which shall not be unreasonably withheld. An "ENVIRONMENTAL DEFAULT" means any of the following by Tenant or any Invitee with respect to the Building, the Land or the Complex: a violation of an Environmental Law; a release, spill or discharge of a Hazardous Material on or from the Premises, the Land or the Building; an environmental condition requiring responsive action; or an emergency environmental condition. Upon any Environmental Default, in addition to all other rights available to Landlord under this Lease, at law or in equity, Landlord shall have the right but not the obligation to immediately enter the Premises, to supervise and approve any actions taken by Tenant to address the Environmental Default, and, if Tenant fails to immediately address same to Landlord's reasonable satisfaction, to perform, at Tenant's sole cost and expense, any lawful action necessary to address same. If any lender or governmental agency shall require testing to ascertain whether an Environmental Default is pending or threatened, then Tenant shall pay the reasonable costs therefor as additional rent. Promptly upon request, Tenant shall execute from time to time affidavits, representations and similar documents concerning Tenant's best knowledge and belief regarding the presence of Hazardous Materials at or in the Building, the Land or the Premises. 6.5 Landlord shall not cause or permit any Hazardous Materials to be generated, used, released, stored or disposed of on the Land, in the Building or any portion of the Complex that it owns, in violation of applicable Environmental Laws. Except as otherwise provided below, if Landlord first becomes aware that any such Hazardous Materials have been generated, used, released, stored or disposed of on the Land, in the Building or any portion of the Complex that it owns in violation of applicable Environmental Laws after construction of the Building is substantially complete, Landlord shall take all reasonable steps necessary to promptly remove such Hazardous Materials and/or remediate any contamination resulting therefrom to the extent necessary to bring the Land into compliance with all applicable Environmental Laws; provided that, Landlord shall have no such obligations with respect to any Hazardous Materials present as a result, directly or indirectly, of an Environmental Default by Tenant, which Hazardous Materials, the removal and the remediation thereof, shall be the responsibility of Tenant pursuant to Section 6.4 above. If the parties become aware, prior to substantial completion of the Building, or during any subsequent period of construction on behalf of Tenant pursuant to the Development Agreement, that any Hazardous Materials have been generated, used, released, stored or disposed of on the Land in violation of applicable Environmental Laws, the remediation thereof shall be conducted pursuant to the Development Agreement. ARTICLE VII ASSIGNMENT AND SUBLETTING 7.1 Except with respect to Tenant's Personal Property as contemplated by Section 18.10 below and except as provided in Section 7.4 below, Tenant shall not have the right to assign, transfer, mortgage or otherwise encumber this Lease or its interest herein without first complying with the provisions of subsections (a) and (b) of this Section 7.1. (a) No assignment, transfer, mortgage or other encumbrance of this Lease shall be effected unless Tenant obtains the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed by Landlord; provided, however, that, (i) if 19 an Event of Default then exists under this Lease Landlord, in its sole judgment, may 'withhold its consent to any proposed assignment, transfer, mortgage or other encumbrance of this Lease, and (ii) Landlord may withhold its consent if it reasonably determines that the character of the proposed assignee or the nature of the activities to be conducted by such proposed assignee would materially affect the other tenants of the Building, if any, or the Complex or would physically damage the Building or impair the reputation of the Building as a Class A suburban office building in the Market Area, or the financial history or credit rating of the proposed assignee presents a material risk to Landlord of non-compliance with this Lease. No assignment or transfer of this Lease or the right of occupancy hereunder may be effectuated by operation of law or otherwise without the prior written consent of Landlord, as aforesaid. Any attempted assignment or transfer by Tenant of this Lease or its interest herein without Landlord's consent (if Landlord's consent thereto is required) shall, if such attempted assignment or transfer is not nullified or voided by Tenant within ten (10) business days following written notice from Landlord to Tenant that the assignment or transfer was improperly attempted without Landlord's consent, at the option of Landlord, terminate this Lease; however, in the event of such termination, Tenant shall remain liable for all rent and other sums due under this Lease and all damages suffered by Landlord on account of such breach by Tenant. (b) Tenant agrees to give Landlord at least ten (10) business days' advance written notice of Tenant's intention to assign or transfer this Lease, along with sufficient information about the proposed assignee or transferee to enable Landlord to make the determination called for by subsection (a) above. (c) Notwithstanding anything contained herein to the contrary, (i) Tenant shall not have the right to assign or transfer this Lease prior to the Lease Commencement Date hereunder, except to an Affiliate of Tenant (as hereinafter defined) or otherwise pursuant to Section 7.5 hereof; and (ii) Tenant may not partially assign this Lease. 7.2 Tenant shall not have the right to sublease (which term, as used herein, shall include any type of subrental arrangement and any type of license to occupy) all or any part of the Premises without first complying with the provisions of subsections (a) and (b) of this Section 7.2. (a) Tenant shall have the right to sublease any portion or portions of the Premises; provided that, if a proposed sublease, in the aggregate with all other subleases then in existence, will cause more than fifty percent (50%) of the rentable area of the Premises to be subject to any sublease, then Tenant must obtain the prior written consent of Landlord to such proposed sublease, which consent shall not be unreasonably withheld, conditioned or delayed by Landlord; provided, however, that Landlord may withhold its consent to any proposed sublease if (i) an Event of Default then exists under this Lease or (ii) Landlord reasonably determines that the character of the proposed subtenant or the nature of the activities to be conducted by such proposed subtenant would materially affect the other tenants of the Building or the Complex, or would physically damage the Building or impair the reputation of the Building as a Class A suburban office building in the Market Area, or that the financial history or credit rating of the proposed subtenant presents a material risk to Landlord of non-compliance with this Lease. Notwithstanding anything contained herein to the contrary, in the event a proposed sublease will 20 not cause more than fifty percent (50%) of the rentable area of the Premises to be subject to any sublease or assignment, then Tenant may enter into such sublease without Landlord's consent, but upon at least ten (10) business days' prior written notice to Landlord and provided the sublease document otherwise satisfies the terms of Section 7.3 below. (b) Tenant agrees to give Landlord at least fifteen (15) business days advance written notice of Tenant's intention to sublease a portion of the Premises, along with a copy of the proposed sublease and sufficient information about the proposed subtenant to enable Landlord to make the determination called for by subsection (a) above (if such sublease is subject to Landlord's consent). In the event Landlord fails to approve or disapprove any proposed sublease or subtenant within the fifteen (15) business days after Landlord's receipt of Tenant's notice of its intention to sublet together with the information about the proposed subtenant require pursuant to this Section 7.2(b), then Landlord shall be deemed to have approved such sublease and subtenant, unless Landlord has, in good faith, during such fifteen (15) period requested additional information about the subtenant or requested changes to the proposed form of sublease to be entered into between Tenant and its proposed subtenant. 7.3 The consent by Landlord to any assignment or subletting shall not be construed as a waiver or release of Tenant from any and all liability for the performance of all covenants and obligations to be performed by Tenant under this Lease, nor shall the collection or acceptance of rent from any assignee, transferee or subtenant constitute a waiver or release of Tenant from any of its liabilities or obligations under this Lease. Landlord's consent to any assignment or subletting shall not be construed as relieving Tenant from the obligation of complying with the provisions of Sections 7.1 or 7.2 hereof, as applicable, with respect to any subsequent assignment or subletting. For any period during which Tenant is in default hereunder with respect to the payment of Annual Base Rent or additional rent and such default has continued beyond any applicable grace or cure period, Tenant hereby assigns to Landlord the rent due from any subtenant of Tenant and hereby authorizes each subtenant to pay said rent directly to Landlord. Whether or not Landlord's prior written consent to a subletting is required pursuant to Section 7.2 above, Tenant further agrees to submit any and all instruments of assignment and sublease to Landlord prior to the execution thereof to enable Landlord to determine whether such instrument complies with the terms hereof. All such instruments shall provide that (i) such sublease or assignment is subject and subordinate to this Lease in all respects, and to any amendments, modifications, renewals, extensions or expansions hereof, (ii) in the case of a sublease, Tenant shall remain primarily liable as Tenant hereunder, (iii) such assignee or sublessee shall conduct a business in the Premises which is a permitted use pursuant to Article VI of this Lease, (iv) in the case of an assignment, such assignee is bound by the terms and conditions of this Lease and assumes all of the obligations and liabilities of Tenant hereunder, (v) in the case of a sublease, (A) Landlord is not, and will not become, a party to such sublease, (B) Landlord's consent to such sublease does not create a contractual relationship between Landlord and such sublessee, nor does it create any liability of Landlord to such sublessee, and (C) such sublessee shall not succeed to, or otherwise have the right to exercise or enforce, any of Tenant's rights hereunder directly against Landlord, (vi) Landlord's consent to such assignment or sublease does not affect the obligations of Landlord or Tenant under this Lease, and (vii) Landlord's consent to such assignment or sublease shall not be construed to mean that Landlord has approved any plans or specifications for renovations to the Premises 21 intended by such assignee or sublessee and that any such work to the Premises must be conducted in accordance with the terms of this Lease. Any such instrument of assignment or sublease not approved by Landlord in each instance where Landlord's approval is required, or, whether or not Landlord's approval is required, which does not include all of the provisions described in clauses (i) through (vii) above, as required (unless waived by Landlord in its sole discretion), shall be null and void and of no force or effect. Any such instrument of assignment or sublease submitted to Landlord for approval and not approved or disapproved by Landlord within ten (10) business days after submission shall be deemed approved by Landlord for all purposes under this Lease. If Landlord disapproves any sublease or assignment submitted to Landlord for approval, Landlord's notice of disapproval shall identify Landlord's reasons therefor. 7.4 (a) Notwithstanding the above restrictions on subletting and assignment in this Article VII, and provided that no Event of Default then exists under this Lease, Tenant shall have the right, upon not less than five (5) business days' prior written notice to Landlord but without Landlord's prior written consent, to assign this Lease or to sublet all or any part of the Premises to an Affiliate of Tenant (as hereinafter defined), provided (i) that no Event of Bankruptcy (as hereinafter defined) shall have occurred with respect to such assignee or sublessee, (ii) that the conditions set forth in Section 7.3(i) - (vii) are fully satisfied and (iii) that the character of such person or entity and the nature of its activities in the Premises and in the Building would not be inappropriate for a Class A suburban office building in the Market Area. (b) For purposes of this Section 7.5, an "AFFILIATE OF TENANT" shall mean any corporation, association, trust, partnership, limited liability company, joint venture or other entity (i) which Controls (as herein defined) Tenant or (ii) which is under the Control of Tenant through stock ownership or otherwise or (iii) which is under common Control with Tenant. The terms "CONTROL" or "CONTROLS" as used in this Section 7.5 shall mean the power to directly or indirectly influence the direction, management or policies of Tenant or such other entity. (c) Notwithstanding the above restrictions on assignment, and provided that no Event of Default then exists under this Lease, Tenant shall have the right, upon not less than thirty (30) days' prior written notice to Landlord, but without Landlord's prior written consent, to assign this Lease pursuant to a merger, consolidation, or other corporate reorganization of Tenant, or the sale or transfer of all or substantially all of the capital stock of Tenant or all or substantially all of the assets of Tenant, provided that (i) Tenant, after such merger, consolidation, reorganization or sale of stock or assets, has a creditworthiness (e.g. assets and capitalization) and net worth (which shall be determined on a pro forma basis using generally accepted accounting principles consistently applied and using the most recent financial statements) equal to or greater than the net worth of Tenant on the Effective Date, (ii) Tenant, after such merger, consolidation, reorganization or sale of stock or assets, agrees in writing to be bound by the terms and conditions of this Lease and to assume all of the obligations and liabilities of Tenant under this Lease, (iii) Tenant, after such merger, consolidation, reorganization or sale of stock or assets, shall conduct a business on the Premises which is a permitted use pursuant to Article VI of this Lease, (iv) the character of Tenant after the merger, consolidation, reorganization or sale of stock or assets, as the case may be, and the nature of Tenant's activities in the Premises would not be inappropriate for a Class A suburban office 22 building in the Market area, (v) the conditions set forth in Section 7.3(i), (ii), (iii), (iv), (vi) and (vii) are fully satisfied, and (vi) the assignment is not a so-called "sham" transaction intended by Tenant to circumvent the provisions of Article VII of this Lease. 7.6 Tenant shall use reasonable efforts to notify Landlord in writing of any intention by Tenant to market the Premises or any portion thereof for assignment or sublease, and shall furnish to Landlord such information as Landlord may reasonably request with respect to the economic terms of the assignment or sublease transaction being sought by Tenant and the actions Tenant is taking to market the Premises. ARTICLE VIII MAINTENANCE AND REPAIRS 8.1 Landlord shall keep, maintain, repair and replace as appropriate, the elements and components which are provided as a part of the Base Building Work, as defined in the Development Agreement, including, without limitation, foundation, roof, exterior walls, structural portions (including columns within the Premises and the vertical sprinkler loop through the Building), and exterior glass and windows of the Building (specifically excluding the interior walls, doors, partitions, locks, and door jambs in the Building), as well as all mechanical, plumbing, heating, air conditioning, sprinkler and electrical systems and utility service lines therein, the plumbing system to and from the Premises and core area restrooms within the Premises, and the driveways, parking areas and grounds on the Land in good condition and repair and, subject to the provisions of Article VI above, in compliance with applicable Legal Requirements and the costs incurred by Landlord in maintaining and repairing such items shall be included in Expenses (unless the cost or expense of any such repair or maintenance is excluded from Expenses under Section 4.2(a) above). 8.2 Subject to the provisions of Section 8.1 above, Tenant will keep and maintain the Premises, including without limitation, the Leasehold Improvements, as defined in the Development Agreement, and all fixtures and equipment located in the Building (specifically including the interior walls, doors, partitions, locks, door jambs, windows, telephones, telephone systems, inside voice/data/video cabling and associated equipment, special light fixtures, kitchen fixtures, auxiliary heating, ventilation or air-conditioning equipment, fixtures and other special equipment and glass in the Premises, but excluding those portions of the Premises to be maintained by Landlord pursuant to Section 8.1 above) in clean, safe and sanitary condition, will take good care thereof and will maintain and make all required repairs thereto, and will suffer no waste or injury thereto. If Tenant so requests by written notice to Landlord, Landlord shall make any repairs and perform any maintenance that are otherwise Tenant's obligations under this Section 8.2, and the costs of providing such services shall be included in Operating Expenses and payable by Tenant pursuant to Article IV hereof. In addition, Tenant shall have the right, but not the obligation, to effect minor repairs and routine maintenance to the Premises (and, for so long as Tenant is the sole lessee of the Building, the Land) provided that (i) Landlord shall be given reasonable prior notice thereof (except in the case of emergency); (ii) once commenced, such maintenance and repair work shall be completed promptly and in accordance with standards for a Class A suburban office building; (iii) such repair or maintenance will not jeopardize compliance with the Building's classification as a Class A suburban office building; and (iv) Tenant shall not be entitled to make structural repairs or repairs or maintenance that has a material effect on any 23 of the base building systems, except as permitted pursuant to Section 14.6 hereof. At the expiration or other termination of the Lease Term, Tenant shall surrender the Premises, broom clean, in substantially the same order and condition which they are in on the Lease Commencement Date, as altered by any improvements (as defined in Section 9.2 hereof) made in accordance with Article IX hereof that Tenant is not obligated to remove pursuant to Section 9.4 hereof, ordinary wear and tear, damage by the elements, and casualty damage excepted. 8.3 Subject to the provisions of Section 12.4(b) below, all injury, breakage and damage to the Premises or to any other part of the Building caused by any negligent act or omission or willful misconduct of Tenant, or of any agent, employee, subtenant, contractor, customer or invitee of Tenant, shall be repaired by and at the sole expense of Tenant, except that Landlord shall have the right, at its option, after Tenant's failure to cure (or commence to cure, where applicable) within ten (10) business days after notice to Tenant of such injury, breakage or damage, to make such repairs and to charge Tenant for all costs and expenses incurred in connection therewith as additional rent hereunder. The foregoing notwithstanding, should an emergency or similar situation occur and delay would cause or is likely to cause preventable injury to persons or material injury to property, Landlord may elect to act without notice to Tenant. ARTICLE IX ALTERATIONS 9.1 (a) Tenant is contracting with Landlord, pursuant to the Development Agreement for the construction of the Building, including all Leasehold Improvements. Tenant hereby acknowledges that it has performed its own due diligence with respect to the Land and the development potential thereof, Landlord having made no representations or warranties whatsoever with respect to the physical condition of the Land or its suitability for any particular construction or use. The provisions of Section 9.2 and 9.3 below shall govern only improvements, as defined below, made following the initial construction of the Building and Leasehold Improvements pursuant to the Development Agreement. (b) Prior to the Lease Commencement Date, an Integrated Punchlist shall be prepared in accordance with the provisions of Section 7 of the Development Agreement. Tenant's taking possession of the Premises shall constitute Tenant's acknowledgement that the Premises are in good condition and that all work and materials are satisfactory, except as to any items set forth in the Integrated Punchlist and except as to latent defects with respect to the Leasehold Improvements discovered by Tenant within one (1) year following the Lease Commencement Date (it being agreed that such one-year time period shall not limit Landlord's ongoing obligation pursuant to Article VIII of this Lease to maintain and repair the Base Building Work). Landlord will cause its contractor to promptly correct any latent defect timely brought to Landlord's attention by Tenant. Except to the extent that Landlord must retain the ability to enforce warranties to obtain the correction of latent defects, Landlord shall assign to Tenant the right to enforce all warranties issued by Landlord's contractors and suppliers with respect to the Leasehold Improvements. 9.2 Except as otherwise permitted pursuant to the Development Agreement and Section 9.3 below, Tenant will not make or permit anyone to make any alterations, additions 24 or improvements (hereinafter referred to collectively as "IMPROVEMENTS"), structural or otherwise, upon the Land or in or to the Premises without the prior written consent of Landlord to the proposed improvement (including the plans and specifications there for). In the case of any proposed improvement that is of a major structural nature or any proposed improvement materially affecting any of the base building systems, Landlord may grant or withhold its consent in its sole discretion, unless the improvement is customary in Class A suburban office buildings in the Market Area, including single user buildings, or would not materially affect, in Landlord's judgment, the value or marketability of the Premises, in which case Landlord's consent shall not be unreasonably withheld, conditioned or delayed. All Improvements made by Tenant shall not be inconsistent with usual and customary improvements to headquarters offices in Class A suburban office buildings in the Market Area, including single user buildings. In the event Landlord fails to respond to a request for its consent to an improvement within ten (10) business days following submission of such request in writing, then Landlord's consent shall be deemed granted. When granting its consent, Landlord may impose any conditions it reasonably deems appropriate, including, without limitation, the approval by Landlord of the contractor or other persons who will perform the work (which consent shall not be unreasonably withheld, conditioned or delayed), Tenant's obtaining all necessary permits and approvals for such work, and Tenant's obtaining, and providing Landlord with certificates of insurance evidencing, reasonably appropriate levels and types of insurance coverage. In addition, Landlord may condition, at the time it is granted, its approval of any Improvements that are not customarily maintained by landlords in Class A suburban office buildings in the Market Area or would not materially affect, in Landlord's judgment, the value or marketability of the Premises on Tenant's agreeing to maintain such Improvements and/or to remove such Improvements at the expiration or earlier termination of the Lease Term and to restore the Premises to substantially the condition they were in prior to the making of such Improvements. All Improvements permitted by Landlord (or allowed hereunder without Landlord's approval) must conform to all applicable requirements of the insurers of the Building, including, without limitation, Boston Properties' Loss Control Guidelines ("INSURANCE Requirements") and to all applicable Legal Requirements. Landlord's review and approval of any such plans and specifications and consent to the performance of work described therein shall not be deemed an agreement by Landlord that such plans, specifications and work conform with all applicable Legal Requirements and Insurance Requirements nor be deemed a waiver of Tenant's obligations under this Lease with respect to Legal Requirements and Insurance Requirements nor impose any liability or obligation upon Landlord with respect to the completeness, design sufficiency or compliance with Legal Requirements or Insurance Requirements of such plans, specifications and work. Upon completion of any Improvements requiring Landlord's approval, Tenant shall provide Landlord with final release of lien forms executed by Tenant's general contractor. If, notwithstanding the foregoing, any mechanic's or materialmen's lien is filed against the Premises, the Building and/or the Land, for work claimed to have been done for, or materials claimed to have been furnished to, the Premises on Tenant's account, such lien shall be discharged by Tenant within twenty (20) days after Tenant has notice thereof, at Tenant's sole cost and expense, by the payment thereof or by the filing of a surety bond that discharges the lien. If Tenant shall fail to discharge any such mechanic's or materialmen's lien within twenty (20) days after receiving written notice thereof from Landlord, Landlord may, at its option, discharge such lien and treat the cost thereof (including reasonable attorneys' fees incurred in connection therewith) as additional rent payable with the next monthly installment of Annual Base Rent falling due. It is 25 further understood and agreed that in the event Landlord shall give its written consent to the making of any Improvements to the Premises, such written consent shall riot be deemed to be an agreement or consent by Landlord to subject its interest in the Premises, the Building or the Land to any mechanic's or materialmen's liens which may be filed in connection therewith. Upon completion of any structural Improvements by Tenant, Tenant shall provide Landlord with accurate "as-built" plans showing the new work in a "CADD" format. In addition, if Tenant has made any Improvements (structural or otherwise) in the Premises during the course of any calendar year, then Tenant shall provide Landlord with such "as-built" plans (in CADD format, if available) within thirty (30) days following the end of such calendar year; provided, however that Tenant shall not be obligated to provided Landlord with as-built plans if such improvements are limited to painting and carpeting all or a portion of the Premises and other work of a cosmetic nature. 9.3 Notwithstanding the provisions of Section 9.2 hereof to the contrary, throughout the Lease Term, Tenant may make alterations or additions to the Premises which (a) cost less than Twenty-Five Thousand Dollars ($25,000.00) individually or Two Hundred Thousand Dollars ($200,000.00) in the aggregate during any twelve (1 2) consecutive month period, (b) are not structural in nature and which do not relate to or affect the base Building electrical, mechanical, fire or life safety systems, (c) are in conformance with all applicable building, zoning and other codes or regulations affecting or applying to the Building and (d) are shown on working drawings, space plans or plans and specifications copies of which are delivered to Landlord within twenty (20) days of Tenant's completion of such alterations or additions, without obtaining Landlord's prior written approval; provided, however, that upon completion of such work Tenant shall deliver to Landlord copies of lien waivers from the contractors and materialmen providing the supplies, materials and work therefor. In addition to the foregoing, Tenant shall not be required to obtain the consent of Landlord for the making of alterations that are purely decorative or cosmetic in nature, such as painting and carpeting, or alterations consisting of minor re-partitioning and appurtenant changes to distribution systems (i.e., electrical outlets, HVAC vents). In the event Tenant intends to make any alterations to the Premises in accordance with the provisions of this Section 9.3, Tenant, not less than ten (10) days prior to the commencement of such work, shall notify Landlord, in writing, as to (i) the date on which such work is to commence, (ii) the date on which such work is scheduled to be completed, and (iii) the name of the contractor or other person performing such work. In addition, Tenant and Tenant's contractor shall coordinate the performance of such work with the on-site property manager of the Building. 9.4 Tenant shall indemnify and hold Landlord harmless from and against any and all expenses, liens, claims, liabilities and damages based on or arising, directly or indirectly, by reason of the making of any Improvements to the Premises, the furnishing of any services to the Premises or the Building or the repair and maintenance of the Premises or the Building, in each case by Tenant or its employees, agents or contractors; provided that Tenant's obligations to indemnify and hold harmless Landlord pursuant to this Section 9.4 shall not include any costs, damages, claims, liabilities or expenses suffered by or claimed against Landlord directly based on, arising out of or resulting from Landlord's breach of, or default as to, any of its covenants or other obligations under this Lease or Landlord's or its employees negligence or willful misconduct or the gross negligence of Landlord's agents or contractors. If any Improvements 26 are made without the prior written consent of Landlord (if such consent is required hereunder) and they are not removed and the Premises restored within thirty (30) days following Tenant's receipt of written notice from Landlord requiring such removal and restoration, Landlord shall have the right to remove and correct such Improvements and restore the Premises to their condition immediately prior thereto, and Tenant shall be liable for all expenses incurred by Landlord in connection therewith. All Improvements affixed to the Premises or the Building made by either party, including all Improvements made as part of the initial construction of the Building and tenant build-out pursuant to the Development Agreement, shall remain upon and be surrendered with the Premises as a part thereof at the end of the Lease Term, except that (i) Tenant shall have the right to remove, prior to the expiration of the Lease Term, all furniture, furnishings, fixtures, trade fixtures and equipment installed in the Premises solely at the expense of Tenant or otherwise identified by Tenant and agreed by Landlord, and (ii) except with respect to the initial construction of the Building and tenant build-out pursuant to the Development Agreement, Tenant shall be required to remove all Improvements to the Premises which Landlord designates in writing for removal at the time Landlord approves installation of such improvement (provided that Landlord shall have the right to designate for removal any Improvements only if they are of a nature that is materially different from that typically included in an office build-out). All damage and injury to the Premises or the Building caused by such removal shall be repaired by Tenant, at Tenant's sole expense, except any damage or injury to tenant finishes in individual tenant space that would customarily be replaced by Landlord in preparation for the next tenant. If any property of Tenant is not removed by Tenant prior to the expiration or termination of this Lease, the same shall become the property of Landlord and shall be surrendered with the Premises as a part thereof. ARTICLE X SIGNS, EQUIPMENT AND FURNISHINGS 10.1 Throughout the Term of this Lease and subject to compliance with any applicable Legal Requirements and Landlord's reasonable prior approval, Tenant shall have the exclusive right to install and maintain, at Tenant's sole expense, such signage identifying Tenant on the Building facade, within the Building and in the form of exterior monument signs on the Land as Tenant shall desire. The size, position, materials, color, style and manner of installation of such signage shall be determined by Tenant, subject to Landlord's reasonable approval. If Tenant and its Affiliates are leasing less than fifty percent (50%) of the rentable area of the Building, then Tenant may continue to maintain any then-existing signage; however, such right shall thereafter be non-exclusive, and shall be subject to such changes in the size and positioning of such signage as Landlord may reasonably require in order to accommodate dual signage in the event that Landlord grants similar signage rights to any tenant leasing space in the Building that is comparable to or greater than the amount of space then leased by Tenant. If Tenant and its Affiliates are leasing less than twenty-five percent (25%) of the rentable area of the Building, then Landlord may require Tenant to remove, at Tenant's sole cost and expense, any then existing signage and Tenant shall repair any damage to the Building resulting therefrom. All of Tenant's signage shall be removed at the expiration or earlier termination of the Lease Term, and Tenant shall repair any damage to the Building resulting therefrom, at Tenant's cost and expense. If any sign, advertisement or notice is exhibited or installed by Tenant in violation of the terms hereof, Landlord shall have the right to remove the same at Tenant's expense. If Tenant sublets all or any portion of the Premises, Tenant may delegate its signage rights hereunder to its 27 sublessee, without obtaining Landlord's consent thereto, provided the name and logo to be displayed by such sublessee is compatible with a Class A suburban office building and Landlord has approved such sign and/or logo, which approval shall not be unreasonably withheld, conditioned or delayed. 10.2 If Tenant and its Affiliates are leasing more than fifty percent (50%) of the rentable area of the Building Tenant shall have the right, subject to (a) Landlord's reasonable approval and (b) the approval, if required, of requisite government authorities, to designate the name of the Building and any associated private roads or drives, provided such names are appropriate for a Class A suburban office building in the Market area. If Tenant or an Affiliate of Tenant, individually or together, ceases at any time to lease at least fifty-one percent (51%) of the rentable area of Premises, Landlord shall have the right to rename the Building and any associated private roads or drives. 10.3 In addition to the other signage rights provided herein, Tenant shall have the right to erect temporary signage during the pre-development and construction periods prior to the Lease Commencement Date, publicizing the names and roles of the parties participating in the development of the Complex; provided that, the design and content thereof shall be subject to the mutual agreement of the parties. The parties agree to act reasonably in attempting to reach such mutual agreement. 10.4 Tenant shall not place or install in any portion of the Premises any safes, fixtures or other equipment which will exceed the load factor for which such portion of the Premises was designed and constructed. Any and all damage or injury to the Premises or the Building caused by moving the property of Tenant into or out of the Premises, or due to the same being in or upon the Premises, other than damage or injury to tenant finishes in individual tenant space that would customarily be replaced by Landlord in preparation for the next tenant shall be repaired at the sole cost of Tenant. Tenant agrees to remove promptly from the parking areas or sidewalks adjacent to the Building any of Tenant's furniture, equipment or other material there delivered or deposited. ARTICLE XI INSPECTION BY LANDLORD 11.1 Subject to Tenant's published security regulations and procedures, Tenant will permit Landlord, or its agents or representatives, to enter the Premises, without charge therefor to Landlord and without diminution of the rent payable by Tenant, (1) to examine, inspect and protect the Premises and the Building, (ii) to make such alterations and/or repairs as in Landlord's reasonable judgment may be required by law or be necessary to maintain the Building in good condition and repair, (iii) to comply with and carry out Landlord's obligations under this Lease, and (iv) to exhibit the same to prospective tenants (provided that Tenant's consent, which shall not be unreasonably withheld, shall be required if the Premises are to be exhibited to a prospective tenant prior to Tenant's exercise of its right to renew this Lease or the expiration of such right as provided in Article XXV below, or if there is no such right in accordance with this Agreement, no earlier than twelve (12) months prior to the expiration of the term of this Lease). In connection with any such entry, Landlord shall reasonably endeavor to minimize the disruption to Tenant's use of the Premises, shall (except in the event of an 28 emergency) give Tenant at least twenty-four (24) hours advance notice of such entry or such greater amount of time as may be reasonable under the circumstances, shall (except in the event of an emergency) conduct such entry only during normal working hours, and, except in the event of an emergency, if requested by Tenant, shall permit a representative of Tenant to escort Landlord (or its agents or representatives) during its entry in the Premises. In connection with any alterations or repairs made pursuant to clause (ii) above, (a) Landlord shall reasonably endeavor to minimize the impact thereof on Tenant, both during and following the period of construction or repair, (b) such alterations and repairs shall not materially reduce the number of square feet of rentable area in the Premises, (c) such alterations and repairs shall be performed in a manner that is reasonably compatible with the then existing architectural and, in Landlord's judgment, aesthetic design of the Premises, and (d) Landlord shall restore any tenant finishes that may be disrupted by such alterations or repairs. Notwithstanding anything to the contrary set forth in this Lease, except in the event of an emergency, Landlord shall not be permitted access to areas previously designated in writing by Tenant as security areas, unless Landlord and its representatives are accompanied by an agent of Tenant designated and made available by Tenant for such purposes. 11.2 Tenant may install additional locks, other devices and systems which restrict access to the Premises and any part thereof. Tenant shall provide Landlord with a means of access to the Premises and any part thereof for emergency purposes, subject to applicable national security clearance requirements and shall provide Landlord with a means of full access to the Premises upon expiration of the Lease Term or earlier termination of this Lease. ARTICLE XII INSURANCE 12.1 Subject to the provisions of Section 6.1 above, Tenant shall not conduct or permit to be conducted any activity, or place any equipment, inventory or other materials, in or about the Premises or the Building that will in any way increase the rate of fire insurance or other insurance on the Building. If any increase in the rate of fire insurance or other insurance is stated by any insurance company or by the applicable Insurance Rating Bureau to be due solely to an" activity of Tenant or the placing of any equipment, inventory or other materials by Tenant in or about the Premises or the Building, such statement shall be conclusive evidence that the increase in such rate is due to such activity or equipment and, as a result thereof, Tenant shall be liable for the amount of such increase. Tenant shall reimburse Landlord for such amount upon written demand from Landlord and such sum shall be considered additional rent payable hereunder. 12.2 Throughout the Lease Term, Landlord shall insure the Building against loss due to fire and other casualties included in standard, all-risk, extended coverage insurance policies, in an amount equal to at least ninety-five percent (95%) of the full replacement cost thereof. Throughout the Lease Term, Landlord shall obtain and maintain commercial general liability insurance in a company or companies licensed to do business in the Commonwealth of Virginia. Such insurance shall be in minimum amounts of Five Million Dollars ($5,000,000) per occurrence plus a general aggregate of Five Million Dollars ($5,000,000) for injury to persons and damage to property and shall be for a minimum term of one (1) year. Landlord and Tenant may re-evaluate such minimum amount at the expiration of every third (3rd) Lease Year and such minimum amounts may be adjusted as appropriate to be consistent with Class A suburban office 29 buildings in the Market Area, provided, however, in no event shall such minimum amounts be adjusted downward (i) without the approval of the holder of any mortgage, as defined in Section 22.1 below, secured by the Building or (ii) below any corporate minimum requirements of Landlord. Throughout the Lease Term, Landlord shall obtain and maintain a policy of insurance protecting Landlord from loss of rents and other charges during the period while the Premises are untenantable due to fire or other insured casualty. The insurance required to be maintained by Landlord shall be subject to the foregoing minimum requirements arid shall otherwise be in amounts and coverages that are commercially reasonable. So long as Tenant or an Affiliate of Tenant is leasing the entire Building, Landlord's commercial general liability insurance policy shall name Tenant as an additional insured. Receipts or certificates evidencing payment of the premiums for such insurance shall be delivered by Landlord to Tenant if requested by Tenant. Landlord's casualty insurance policy shall contain an endorsement prohibiting cancellation or reduction of coverage without first giving Tenant at least thirty (30) days' prior written notice of such proposed action. 12.3 Throughout the Lease Term, Tenant shall insure the contents of the Premises, including all furnishings, trade fixtures, and equipment used or installed in the Premises by Tenant, and any other personal property of Tenant therein, against loss due to fire and other casualties included in standard extended coverage insurance policies in minimum amounts not less than ninety percent (90%) of the full replacement cost of Tenant's furnishings, trade fixtures, equipment and other personal property. Throughout the Lease Term, Tenant shall obtain and maintain commercial general liability insurance in a company or companies licensed to do business in the Commonwealth of Virginia and reasonably approved by Landlord. Such insurance shall be in minimum amounts of Five Million Dollars ($5,000,000) per occurrence plus a general aggregate of Five Million Dollars ($5,000,000) for injury to persons and damage to property and shall be for a minimum term of one (1) year. Landlord and Tenant may reevaluate such minimum amount at the expiration of every third (3rd) Lease Year and such minimum amounts may be adjusted as appropriate to be consistent with Class A suburban office buildings in the Market Area, provided, however, in no event shall such minimum amounts be adjusted downward (i) without the approval of the holder of any mortgage, as defined in Section 22.1 below, secured by the Building or (ii) below any corporate minimum requirements of Landlord. Such limits may be covered by a combination of a general liability policy and an umbrella liability policy. In addition, Tenant's commercial general Liability insurance policy shall name Landlord and the managing agent of the Building, as additional insureds. If requested by the holder of any mortgage or deed of trust against the Building, the commercial general liability policy referred to above shall also name such holder as an additional insured thereunder. Receipts or certificates evidencing payment of the premiums for such insurance shall be delivered by Tenant if requested by Landlord. Each such policy shall contain an endorsement prohibiting cancellation or reduction of coverage without first giving Landlord and the holder of any mortgage or deed of trust on the Building at least thirty (30) days' prior written notice of such proposed action. 12.4 (a) Tenant hereby waives its right of recovery against Landlord and releases Landlord from any losses, claims, casualties or other damages for which Landlord may otherwise be liable to the extent either (i) such loss, claim, casualty or other damage would have been covered under insurance coverage Tenant is required to maintain, pursuant to this Article 30 XII (without regard to any deductible) or (ii) Tenant receives insurance proceeds on account of any such losses, claims, casualties or other damages. Each policy of property insurance obtained by Tenant pursuant to the provisions of this Article XII shall include a waiver of the insurer's right of subrogation against Landlord, and shall contain an endorsement to the effect that any loss payable under such policy shall be payable notwithstanding any act or negligence of Landlord, or any agent, contractor, employee or invitee of Landlord, which might, absent such agreement, result in the forfeiture of payment for such loss. (b) Landlord hereby waives its right of recovery against Tenant and releases Tenant from any losses, claims, casualties or other damages for which Tenant may otherwise be liable to the extent either (i) such loss, claim, casualty or other damage would have been covered under insurance coverage Landlord is required to maintain pursuant to this Article XII (without regard to any deductible) or (ii) Landlord receives insurance proceeds, on account of any such losses, claims, casualties or other damages. Each policy of property insurance obtained by Landlord with respect to the Building shall include a waiver of the insurer's right of subrogation against Tenant, and shall contain an endorsement to the effect that any' loss payable under such policy shall be payable notwithstanding any act or negligence of Tenant, or any agent, contractor employee or invitee of Tenant, which might, absent such agreement, result in the forfeiture of payment for such loss. ARTICLE XIII SERVICES AND UTILITIES 13.1 (a) Landlord will furnish to the Premises during the normal hours of operation of the Building (as set forth hereinbelow) air-conditioning and heating during the seasons when such utilities are required. Landlord will provide the following services consistent with the standards generally applicable to Class A suburban office buildings in the Market Area: char and janitorial service, electricity; elevator service; a perimeter access-control system for the Building; maintenance of the grounds and landscaping surrounding the Building, including prompt waste and snow removal; maintenance of interior common areas, including Lighting fixtures and bulb replacements, hot and cold water supply, restroom facilities and furnishing of lavatory supplies; and exterior window-cleaning service. Notwithstanding anything herein to the contrary, Landlord shall have the right to remove elevators from service as may be required for moving freight, or for servicing and maintaining the elevators or the Building. At least one elevator cab shall be available for use by Tenant at all times. The normal hours of operation of the Building will be 7:00 a.m. to 7:00 p.m. on Monday through Friday (except legal holidays) and 8:00 a.m. to 2:00 p.m. on Saturday (except legal holidays) or such alternative hours of operation as Tenant may designate so long as Tenant is the sole lessee of the Building. Landlord shall provide a Building security system in accordance with the Construction Drawings and Specifications, as defined in the Development Agreement. Tenant shall be permitted access to the Premises on a twenty-four hours, seven-days-a-week basis. (b) Tenant, for so long as it is the sole lessee of the Building, upon not less than thirty (30) days prior written notice to Landlord, may elect to perform janitorial or security services (the "Assumed Services"). If Tenant elects to perform either of the Assumed Services, (i) Landlord shall not be obligated to perform such Assumed Service and shall have no liability to Tenant if such services are not performed to Tenant's satisfaction and (ii) all costs incurred in 31 connection with providing the Assumed Service shall be excluded from Operating Expenses. On the date of execution of this Lease, Tenant has elected to perform janitorial and char services in all secured areas of the Building, all research and development areas and all control centers of the Building. Tenant may, at any time upon thirty (30) days written notice to Landlord elect to discontinue the performance of the Assumed Services and Landlord shall be required to resume or commence such Assumed Service in accordance with Section 13.1(a) beginning on the date set forth in Tenant's notice and such costs shall be included in Operating Expenses. In the event Landlord reasonably determines that Tenant's provider of an Assumed Service is not providing such service in accordance with the standards applicable to Class A suburban office buildings in the Market Area, Landlord shall notify Tenant, in writing, of the deficiencies it has identified and Landlord and Tenant shall use commercially reasonable efforts to correct such identified deficiencies in the provision of such Assumed Service. If the provider of such Assumed Service fails to institute such corrective measures promptly after Tenant's receipt of Landlord's notice, Landlord shall have the right, at its option, upon thirty (30) days prior written notice to Tenant, to direct Tenant to terminate the provider of such Assumed Service and Landlord and Tenant shall mutually agree upon a different provider of such Assumed Service. Landlord shall not undertake any action under the preceding sentence unless such violation or failure shall continue uncured for a period of thirty (30) days after Landlord has given notice to Tenant of such deficiency or failure; provided that if such deficiency or failure is not susceptible of being cured within such thirty (30) day period, Landlord shall not undertake any action if the provider of the Assumed Service commences curative action within such thirty (30) day period arid proceeds diligently thereafter to cure such deficiency or failure until completion. 13.2 It is understood and agreed that Landlord shall not have any liability to Tenant whatsoever as a result of Landlord's inability (despite the exercise of its commercially reasonable efforts) to furnish any of the utilities or services required to be furnished by Landlord under the terms of this Lease, whether resulting from breakdown, removal from service for maintenance or repairs, strikes, scarcity of labor or materials, acts of God, governmental requirements or from any other cause whatsoever. It is further agreed that, except as provided in this Section 13.2 and Section 14.6 below, any such inability to furnish the utilities or services required hereunder shall not be considered an eviction, actual or constructive, of Tenant from the Premises, and shall not entitle Tenant to terminate this Lease or to an abatement of any rent payable hereunder. Notwithstanding the foregoing or anything else in this Lease, but subject to the provisions of Section 14.6 below, in the event that Tenant is prevented from using, and does not use, the Premises or any portion thereof for five (5) consecutive business days or for ten (10) business days in any twelve (12) month period (the "ELIGIBILITY PERIOD") as a result of any interruption of utilities or services or access (including elevator access) or any repair, maintenance or alteration performed by Landlord after the Lease Commencement Date (other than repairs undertaken pursuant to Article XVI hereof) which renders the Premises inaccessible or untenantable (the foregoing circumstances being referred to herein as "SUSPENSION EVENTS"), then all Annual Base Rent and additional rent payable hereunder shall be reduced after expiration of the Eligibility Period for such time that Tenant continues to be so prevented from using, and does not use, the Premises or a portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises; provided that, any interruption of utilities or services resulting from Tenant's failure to timely pay for any electricity that is billed directly to Tenant by the 32 electric utility pursuant to Section 4.7 hereof shall not be deemed a Suspension Event and shall not entitle Tenant to any rent abatement hereunder. Landlord will repair and restore any such interrupted services or utilities as soon as reasonably practicable following the interruption thereof. 13.3 (a) Landlord shall enter into a management agreement in form an substance approved by Tenant (the "MANAGEMENT AGREEMENT") with an entity designated by Landlord ("MANAGER"), subject to Tenant's approval, which shall not be unreasonably withheld, conditioned or delayed; provided, however that Tenant's approval of the terms and conditions of the Management Agreement and the Manager shall not be required if the Manager is Landlord or an Affiliate of Landlord and the terms of such agreement are substantially in the form attached hereto as Exhibit F. If the Management Agreement is with a third party' the Management Agreement shall contain a provision permitting Landlord to terminate the Management Agreement without liability on the part of Landlord or Tenant upon thirty (30) days prior notice to Manager and Tenant. Any Management Agreement shall state that it is subject and subordinate to this Lease. Landlord agrees not to cancel, amend or extend the Management Agreement or appoint a new third-party Manager or enter into a new Management Agreement with a third party without Tenant's approval, which shall not be unreasonably withheld, conditioned or delayed. For purposes of this Section 13.3, an "AFFILIATE OF LANDLORD" shall mean any corporation, association, trust, partnership, limited liability company, joint venture or other entity (i) which Controls (as herein defined) Landlord or (ii) which is under the Control of Landlord through stock ownership or otherwise or (iii) which is under common Control with Landlord. The terms "CONTROL" or "CONTROLS" as used in this Section 13.3 shall mean the power to directly or indirectly influence the direction, management or policies of Landlord or such other entity. (b) Prior to the expiration of the fifth (5th) Lease Year, if Landlord or an Affiliate of Landlord is the Manager and Tenant reasonably determines that the Premises are not being managed in accordance with the standards set forth in the Management Agreement, Tenant shall notify Landlord, in writing, of the deficiencies it has identified and Landlord shall use commercially reasonable efforts to correct such identified deficiencies in the management of the Building. If Landlord fails to institute such measures promptly after notice from Tenant, Tenant shall have the right, at its option, upon thirty (30) days prior written notice to Landlord, to terminate the Management Agreement and to direct Landlord to engage a third-party Manager. Tenant shall not undertake any action under the preceding sentence unless such violation or failure shall continue uncured for a period of thirty (30) days after Tenant has given notice to Landlord of such deficiency or failure; provided that if such deficiency or failure is not susceptible of being cured within such thirty (30) day period, Tenant shall not undertake any action if Landlord commences curative action within such thirty (30) day period and proceeds diligently thereafter to cure such deficiency or failure until completion. (c) Commencing in the sixth (6th) Lease Year, provided that (i) there is no Event of Default, and (ii) Tenant and/or its Affiliates are the sole lessees of the Premises, Tenant shall have the right, upon ninety (90) days prior written notice to Landlord to direct Landlord to enter into a Management Agreement with an independent third party manager reasonably 33 acceptable to Landlord. Landlord's approval of such third party manager shall not be unreasonably withheld, conditioned or delayed. (d) In the event Landlord reasonably determines that the third party Manager is not managing the Premises in accordance with the standards set forth in the Management Agreement, Landlord shall notify Tenant, in writing, of the deficiencies it has identified and Landlord and Tenant shall use commercially reasonable efforts to cause the Manager to correct such identified deficiencies in the management of the Building. If the third party Manager fails to institute such corrective measures promptly after Tenant's receipt of Landlord's notice, Landlord shall have the right, at its option, upon thirty (30) days prior written notice to Tenant, to terminate the Management Agreement and Landlord and Tenant shall mutually agree upon a third-party Manager to manage the Building. Landlord shall not undertake any action under the preceding sentence unless such violation or failure shall continue uncured for a period of thirty (30) days after Landlord has given notice to Tenant of such deficiency or failure; provided that if such deficiency or failure is not susceptible of being cured within such thirty (30) day period, Landlord shall not undertake any action if the third-party Manager commences curative action within such thirty (30) day period and proceeds diligently thereafter to cure such deficiency or failure until completion. 13.4 In the event Tenant determines that the services being furnished by any contractor (including, commencing in the sixth (6th) Lease Year, Landlord or an Affiliate of Landlord as Manager) employed by Landlord are unsatisfactory, in Tenant's reasonable judgment, Tenant shall deliver written notice to Landlord specifying in detail the manner in which the services are deemed deficient. If the deficiencies are not, in Tenant's reasonable judgment, substantially corrected during the next succeeding thirty (30) days, then Tenant may deliver a further notice to Landlord advising Landlord of such fact, and, provided such contract is terminated in accordance with its terms and, therefor, Landlord will not incur any liability to the contractor as a result thereof, Landlord shall terminate the contract of such deficient contractor and select a qualified replacement contractor. Landlord shall not be deemed to incur any such liability if Tenant agrees to assume responsibility for any such liability. Landlord shall include a thirty-day termination for convenience clause in any service contracts in which such a clause is customary; any service contract not including such clause shall require Tenant's approval, which approval shall not be unreasonably conditioned, withheld or delayed. ARTICLE XIV LIABILITY OF LANDLORD 14.1 Except as expressly set forth in this Lease and without limiting or reducing Tenant's rights under the Development Agreement, Landlord shall not be liable to Tenant, its employees, agents, business invitees, licensees, customers, clients, family members or guests for any damage, injury, loss, compensation or claim, including, but not limited to, claims for the interruption of or loss to Tenant's business, based on, arising out or resulting from any cause whatsoever (except as hereinbelow set forth), including but not limited to the following: (i) repairs to any portion of the Premises or the Building; (ii) interruption in the use of the Premises; (iii) any accident or damage resulting from the use or operation (by Landlord, Tenant or any other person or persons) of elevators, or of the heating, cooling, electrical or plumbing equipment or apparatus; (iv) the termination of this Lease by reason of the destruction of the 34 Premises or the Building; (v) any fire, robbery, theft, mysterious disappearance and/or any other casualty; (vi) the actions of other tenants in the Building, if any, or of any other person or persons; and (vii) any leakage in any part or portion of the Premises or the Building, or from water, rain or snow that may leak into, or flow from, any part of the Premises or the Building, or from drains, pipes or plumbing fixtures in the Building; provided, however, that Landlord shall not be released pursuant to this Section 14.1 from any liability (a) resulting directly from Landlord's breach of, or default, beyond any applicable notice and cure period, as to, any of its covenants or other obligations under this Lease, or (b) subject to Section 12.4(a) above, property damage, personal injury or death caused directly by Landlord's or its employees' negligence or willful misconduct or the gross negligence or willful misconduct of Landlord's contractors or agents. In no event (notwithstanding anything in the immediately-preceding sentence to the contrary) hall Landlord have any liability to Tenant for any claims based on the interruption of or loss to Tenant's business or consequential damages or indirect losses whatsoever. 14.2 Tenant hereby agrees to indemnify, defend on request, and hold Landlord harmless from and against all costs, damages, claims, liabilities and expenses (including reasonable attorneys' fees and any costs of litigation) suffered by or claimed against Landlord, directly or indirectly, and not covered by the insurance required to be maintained by Landlord hereunder, based on, arising out of or resulting from (i) Tenant's use and occupancy of the Premises or the business conducted by Tenant therein, (ii) any accident, injury or damage whatsoever caused to any person, or to the property of any person, occurring on or about the Premises during the Lease Term, (iii) the operation of a food service, health club, daycare center or other "compatible use" (as defined in Section 6.1 hereof) at the Premises, including any accident, injury or damage whatsoever caused to any person or property arising therefrom, (iv) any act or omission to act by Tenant or its employees, contractors, agents, licensees, or invitees, or (v) any breach or default by Tenant in the performance or observance of its covenants or obligations under this Lease; provided that Tenant's obligations to indemnify and hold harmless Landlord pursuant to this Section 14.2 shall not include any costs, damages, claims, liabilities or expenses suffered by or claimed against Landlord directly based on, arising out of or resulting from Landlord's breach of, or default as to, any of its covenants or other obligations under this Lease or the negligence or willful misconduct of Landlord or its employees or the gross negligence or willful misconduct of Landlord's contractors or agents. 14.3 In the event that at any time Landlord shall sell or transfer the Building, provided the purchaser or transferee assumes the obligations of Landlord hereunder, the Landlord named herein shall not be liable to Tenant for any obligations or liabilities based on or arising out of events or conditions occurring on or after the date of such sale or transfer. If requested by Tenant, Landlord shall furnish to Tenant a copy of the agreement pursuant to which any such purchaser or transferee shall have assumed the obligations of Landlord hereunder. Furthermore, upon such assumption, Tenant agrees to attorn to any such purchaser or transferee upon all the terms and conditions of this Lease. Notwithstanding any of the foregoing to the contrary, Landlord agrees that (i) Landlord will not sell or transfer the Building prior to the Lease Commencement Date; (ii) Landlord will not sell or transfer the Building to any person or entity if an Event of Bankruptcy (as hereinafter defined) shall have occurred and be continuing with respect to such transferee at the time Landlord contracts to sell or transfer the Building to such transferee; (iii) Landlord's right to sell the Building shall be subject to Tenant's right of first 35 offer provided in Article XXVIII below; (iv) any sale of the Building shall be subject to Tenant's right of purchase provided in XXVII below and (v) so long as Tenant and/or its Affiliates are the sole lessees of the Building, if Landlord transfers or sells the Building, then Tenant shall have the right, at its option, to assume all of Landlord's operation, maintenance and repair obligations hereunder in lieu of the performance thereof by such successor landlord (in which event no management fee shall be payable to such successor landlord); provided that if Tenant elects to assume such obligations, then Tenant shall perform such obligations to the same extent and in the same manner and to the same standards required of Landlord hereunder; provided further that, prior to the expiration of the fifth (5th) Lease Year, Tenant shall not have the right to self-manage the Building as aforesaid during the initial twelve (12) month period following any such transfer or, if earlier, until the expiration of the fifth (5th) Lease Year, unless the transferee is an institutional investor or other person or entity that is not itself, and is not affiliated with another entity that is, in the business of managing commercial real estate. 14.4 In the event that at any time during the Lease Term Tenant shall have a claim against Landlord, except as otherwise provided in Section 14.6 hereof, Tenant shall not have the right to deduct the amount allegedly owed to Tenant from any rent or other sums payable to Landlord hereunder, it being understood that Tenant's sole remedy for recovering upon such claim shall be to institute an independent action against Landlord. 14.5 Tenant agrees that in the event Tenant is awarded a money judgment against Landlord, Tenant's sole recourse for satisfaction of such judgment shall be limited to execution against Landlord's equity interest in the Building and the Land at the time of such execution, which, if the Building has been sold prior to such execution, shall include the net sale proceeds, after payment of all prior liens, from the sale of the Building. In no event shall Landlord or any partner or member of Landlord or any other person be held to have any personal liability for satisfaction of any claims or judgments that Tenant may have against Landlord. 14.6 In the event Landlord shall be in default with respect to any service or action that Landlord is obligated to furnish or perform under this Lease, then Tenant shall have the right to obtain such service or perform such act on Landlord's account subject to the terms and conditions set forth below. Notwithstanding anything contained herein to the contrary, Tenant shall have the rights set forth in this Section 14.6 with respect to services and actions that materially affect the structure of the Building, materially affect any multi--tenant common area or materially affect any base-building system only if Tenant gives Landlord and Landlord's lender(s) (whose identity and notice address shall have been provided to Tenant) written notice of Landlord's alleged default and Landlord does not in good faith dispute such alleged default in writing within ten (10) business days following the delivery of Tenant's notice. Prior to Tenant undertaking any action to cure or remedy any Landlord default with respect to any service or action that Landlord is obligated to furnish or perform under this Lease, Tenant shall first give written notice of such default to Landlord and Landlord's lender(s) (whose identity and notice address shall have been provided to Tenant) and allow Landlord and such lender(s) ten (10) business days following receipt by Landlord and such lender(s) of such written notice to cure or remedy the condition specified in Tenant's notice; provided, however, that if such condition cannot be cured within the ten (10) business day period despite Landlord's exercise of its commercially reasonable efforts, such period shall be extended for a reasonable additional time, 36 so long as Landlord or such lender(s) commence to cure such condition within the ten (10) business day period and proceed diligently thereafter to effect such cure. Notwithstanding any of the foregoing to the contrary, in the event of a material failure of, or deficiency in, any of the Essential Building Services (as hereinafter defined) which renders all or a substantial portion of the Premises unsafe or unsuitable for the conduct of Tenant's business therein, the period in which Landlord or such lender(s) must cure such condition prior to Tenant's having the right to undertake any such action, shall be forty-eight (48) hours following receipt by Landlord and such lender(s) of such written notice provided notice is received between the hours of 8:00 a.m. and 5:00 p.m. Monday through Friday, or between the hours of 8:00 a.m. and 2:00 p.m. on Saturday, excluding legal holidays; provided that, if the condition cannot be cured within such 48-hour period, then, provided Landlord or such lender(s) commence to cure such condition within such 48-hour period and proceed diligently thereafter to effect such cure, then such 48-hour period shall be extended for such reasonable period as is necessary to effect such cure using diligent efforts. For purposes hereof, the term "ESSENTIAL BUILDING SERVICES" shall mean (i) plumbing systems; (ii) electrical service; (iii) HVAC service; (iv) life-safety systems; (v) elevator service; and (vi) building access systems. If Landlord or such lender(s) fail to cure or remedy any such condition within the applicable time period, as set forth above, then Tenant may cure or remedy such condition and deliver an invoice to Landlord for such costs and expenses, and Landlord shall pay to Tenant the amount of such invoice within thirty (30) days after delivery by Tenant. The amount of such expenses, when paid by Landlord, shall be included within Expenses, to the extent such costs and expenses are not excluded from the definition of Expenses. In the event Landlord fails to pay to Tenant when due any sum which Tenant is entitled to recover from Landlord pursuant to this Section 14.6, then Tenant shall have the right to a credit against Annual Base Rent in the amount of any such unpaid sum, together with interest thereon at the Default Rate (as defined in Section 18.7 below) from the date due until the date paid, if Tenant has obtained a final, nonappealable court judgment that such sum was due and payable to Tenant under the terms of this Section 14.6 but was not paid by Landlord. In the event Tenant seeks to cure or remedy any condition which gives rise to Tenant's remedies set forth in this Section 14.6, Tenant shall (i) proceed in accordance with the applicable provisions of this Lease and all applicable Legal Requirements; (ii) use only such contractors, suppliers, etc. as are duly licensed in the Commonwealth of Virginia and insured to effect such repairs and who perform such repairs on first-class buildings in the normal course of their business; (iii) promptly effect such repairs in a good workmanlike quality and in a first-class manner; and (iv) use new or other first-quality materials. Landlord agrees to cooperate with Tenant in the performance of repairs by Tenant's contractors, including granting access to portions of the Building outside the Premises and making available for inspection and copying any plans that might be required by such contractors. Nothing in this Section 14.6 is intended to obviate the provisions of Section 13.2 above. 14.7 Landlord hereby agrees to indemnify, defend on request, and hold Tenant harmless from and against all costs, damages, claims, liabilities and expenses (including reasonable attorneys' fees and court costs) suffered by or claimed against Tenant, directly or indirectly and not to be covered by the insurance required to be maintained by Tenant hereunder, based on, arising out of or resulting from any breach or default by Landlord in the performance or observance of its covenants or obligations under this Lease, including, but not limited to, Landlord's obligations pursuant to Section 6.5 hereof provided that Landlord's obligations to 37 indemnify and hold harmless Tenant pursuant to this Section 14.7 shall not include any costs, damages, claims, liabilities, or expenses suffered by or claimed against Tenant directly based on, arising out of or resulting from any negligence or willful misconduct of Tenant or its agents or employees. Notwithstanding anything to the contrary in this Section 14.7 or elsewhere in this Lease, this Section 14.7 shall not apply to the holder of any mortgage or deed of trust secured by the Complex or the Building unless such holder acts as landlord under this Lease or otherwise owns or holds title to the Building by foreclosure or deed-in-lieu of foreclosure. ARTICLE XV RULES AND REGULATIONS 15.1 Tenant agrees to comply with and observe the rules and regulations pertaining to the use and occupancy of the Premises or the Building set forth in Exhibit E hereto, together with all reasonable amendments thereto as may be promulgated hereafter by Landlord (collectively, the "RULES AND REGULATIONS"); provided that (i) any such amendment shall not increase Tenant's monetary obligations hereunder or cause Tenant to incur significant additional costs or adversely affect the rights expressly granted to Tenant hereunder or Tenant's use and enjoyment of the Premises; (ii) Tenant shall be given written notice of such amendment at least thirty (30) days before it takes effect; (iii) if there is any inconsistency between this Lease and the Rules and Regulations, this Lease shall govern; and (iv) while Tenant is the sole tenant of the Building, Tenant shall not be subject to any of the Rules and Regulations or any amendments thereto, except those that are necessary to keep the Building in compliance with the standards applicable to a Class A suburban office building in the Market Area. Without limiting the generality of clause (iii) above, it is understood and agreed that if the Rules and Regulations with respect to a particular matter call for stricter Landlord approval rights than those contained herein, or the Rules and Regulations are otherwise more restrictive than any provision herein governing the same matter, then this Lease shall govern and control. Tenant's failure to keep and observe said Rules and Regulations after applicable notice and opportunity to cure shall constitute an Event of Default under this Lease. Landlord shall use reasonable efforts to enforce the Rules and Regulations, including any exceptions thereto, uniformly and shall not discriminate against Tenant in the enforcement of the Rules and Regulations; provided that it is understood that Landlord may grant exceptions to the Rules and Regulations in circumstances in which it reasonably determines that such exceptions are warranted. 15.2 This Lease is made subject to the provisions of the Declaration of Covenants recorded in Deed Book __________ at Page __________, among the land records of Loudoun County, Virginia, and that certain Parking Easement and Option Agreement recorded in Deed Book __________ at Page __________, among the land records of Loudoun County, Virginia and that certain Reciprocal Easement Agreement recorded in Deed Book __________ at Page __________, among the land records of Loudoun County, Virginia a copy of each of which is hereto as Exhibit C. Landlord and Tenant agree to observe and to comply with all provisions of said documents which may be applicable to it. The Reciprocal Easement Agreement governs certain easements, rights-of-way and obligations of the owners of the land comprising the Complex deemed necessary or appropriate for utility, construction, pedestrian pathway, shared parking, stormwater management and similar purposes. 38 ARTICLE XVI DAMAGE OR DESTRUCTION 16.1 If, during the Lease Term, the Premises or the Building are totally or partially damaged or destroyed from any cause, thereby rendering the Premises totally or partially inaccessible or unusable by Tenant for its business, Landlord shall diligently (taking into account the time necessary to effectuate a reasonably satisfactory settlement with any insurance company involved) restore, replace and repair the Premises and the Building to substantially the same condition they were in prior to such damage; provided, however, if in the reasonable judgment of an independent architect selected by Landlord the repairs, replacement and restoration cannot be completed within two hundred seventy (270) days after the occurrence of such damage, including the time needed for removal of debris, preparation of plans and issuance of all required governmental permits, then Landlord shall have the right, at its sole option, to terminate this Lease by giving written notice of termination to Tenant within sixty (60) days after the occurrence of such damage. If this Lease is terminated pursuant to the preceding sentence, all rent payable hereunder shall be equitably apportioned and paid to the date of the occurrence of such damage or destruction, and neither Landlord nor Tenant shall have any further rights or remedies as against each other pursuant to this Lease accruing after the date of termination. The judgment by Landlord's independent architect as to whether it will take more than or less than 270 days to complete the repairs, replacement and restoration shall be subject to review and challenge by an independent architect selected by Tenant, as follows. If Tenant wishes to challenge such determination, an independent architect selected by Tenant shall have a period of ten (10) business days following Tenant's receipt of written notice from Landlord of its determination in which to set forth its determination as to whether it will take more than or less than 270 days to complete the repairs, replacement and restoration (without regard to any delay occasioned by such challenge). If Landlord's and Tenant's architects do not agree, then such architects shall jointly appoint an independent architect who shall make a determination as to whether it will take more than or less than 270 days to complete the repairs, replacement and restoration (without regard to any delay occasioned by Tenant's challenge), and the determination of such third architect shall be binding on both Landlord and Tenant. Each party shall be responsible for its own architect's fees, and shall share jointly in the fees of the third architect. 16.2 If the repairs and restoration cannot be completed 'within two hundred and seventy (270) days after the date of such damage or destruction (as determined pursuant to Section 16.1 above), but Landlord does not elect to terminate this Lease pursuant to Section 16.1, then Landlord shall promptly notify Tenant of such determination. For a period continuing through the tenth (10th) day after receipt of such notice, Tenant shall have the right to terminate this Lease by providing written notice thereof to Landlord, in which event the Lease Term shall end on the date of the giving of such notice as if such date were the date originally provided herein as the end of the Lease Term. If Tenant does not elect to terminate this Lease within such period, and provided Landlord does not elect to terminate this Lease, then Landlord shall proceed diligently to repair and restore the Premises and the Building. 16.3 Notwithstanding anything to the contrary contained herein, in the event the Premises are damaged during the last two (2) years within the Lease Term, and if the period of time reasonably projected by Landlord for restoration of the damage (taking into account the 39 time necessary to effectuate a satisfactory settlement with any insurance company involved) exceeds one-fourth ( 1/4) of the time remaining in the Lease Term as of the date of the damage, then Landlord and Tenant shall each have the right to terminate this Lease by written notice delivered to the other party within fifteen (15) days after Landlord notifies Tenant in writing of the projected restoration period; provided, however, that if (i) Landlord exercises its right of termination under this Section 16.3, and (ii) at such time, Tenant has a right to renew the Lease Term pursuant to Article XXV hereof; and (iii) Tenant notifies Landlord in writing, within fifteen (15) days following the delivery of Landlord's termination notice, that Tenant is exercising its right to renew the Lease Term, and (iv) pursuant to Article XXV, Landlord and Tenant either reach agreement concerning the Market Rent applicable to the Renewal Term or cause such determination to be made by the means described in Section 2 5.3(b), then Landlord's termination notice shall be deemed nullified and this Lease shall continue in full force and effect through the remainder of the Lease Term (as thus renewed). 16.4 If this Lease is not terminated in accordance with the provisions of this Article XVI, until the repair and restoration of the Premises is completed, Tenant shall be required to pay Annual Base Rent and additional rent only for that part of the Premises that Landlord and Tenant mutually agree, in their reasonable judgment, that Tenant is able to use (as such us is contemplated by this Lease) while repairs are being made, based on the ratio that the amount of usable rentable area bears to the total rentable area in the Premises. In addition to any abatement granted pursuant to the previous sentence, Tenant's abatement period shall continue until Tenant it has been given reasonably sufficient time, and sufficient access to the Premises, to (i) rebuild any portion of the Premises it is required to rebuild, (ii) install its property, furniture, fixtures, cabling and equipment, and (iii) move in over a period of seven (7) consecutive days. The foregoing additional abatement period shall extend for a period not to exceed sixty (60) days following the date Landlord's repair and restoration is substantially complete. In addition, the Lease Term shall be extended for the period of time during which all or any portion of the rent is abated pursuant to this Section 16.4. Subject to the terms of Section 16.5 below, Landlord shall bear the costs and expenses of repairing and restoring the Premises. 16.5 If Landlord repairs and restores the Premises as provided in this Article XVI, Landlord shall not be required to repair or restore any decorations, alterations or Improvements to the Premises previously made by or at the expense of Tenant or any trade fixtures, furnishings, equipment or personal property belonging to Tenant. It shall be Tenant's sole responsibility to repair and restore all such items at Tenant's discretion. ARTICLE XVII CONDEMNATION 17.1 If (i) more than twenty percent (20%) of the rentable area of the portion of the Premises comprised of space leased by Tenant in the Building (the "BUILDING PREMISES"), or (ii) the use or occupancy of more than twenty percent (20%) of the rentable area of the Building Premises, shall be taken or condemned by any governmental or other authority having the power of eminent domain for any public or quasi-public use or purpose (including a sale thereof under threat of such a taking) (each such event being referred to herein as a "TAKING"), then this Lease shall terminate on the date title thereto (or the right to use or occupy, as appropriate) vests in such governmental or quasi-governmental authority, and all Annual Base Rent and additional 40 rent payable hereunder shall be equitably apportioned as of such date. This Lease shall similarly terminate if there is a Taking of more than twenty percent (20%) of the minimum necessary parking for the Building according to the Approved Site Plan that cannot be replaced by substitute parking spaces on other portions of the Land. If less than twenty percent (20%) of the rentable area of the Building Premises or such minimum necessary parking area or the use or occupancy thereof is condemned, then this Lease shall continue in full force and effect as to the part of the Building Premises and the Land not condemned, except that (i) as of the date title (or the right o use or occupy, as appropriate) vests in such authority, Annual Base Rent and Expenses with respect to the part of the Building Premises and the Land condemned shall be equitably reduced for the balance of the Lease Term, and (ii) Landlord shall, at its cost, restore the Building Premises to create, to the extent reasonably possible, a single unit of space, including (but not limited to) building or moving demising walls, suite entries, heating and air conditioning equipment, and utility lines. 17.2 All awards, damages and other compensation paid by the condemning authority on account of such Taking shall belong to Landlord, and Tenant hereby assigns to Landlord all rights to such awards, damages and compensation. Tenant agrees not to make any claim against Landlord or the condemning authority for any portion of such award or compensation attributable to damages to the Premises, the value of the unexpired term of this Lease, the loss of profits or goodwill, leasehold improvements or severance damages. Nothing contained herein, however, shall prevent Tenant from pursuing a separate claim against the condemning authority for the value of furnishings, equipment and trade fixtures installed in the Premise: at Tenant's expense and for relocation expenses, provided that such claim does not in any way diminish the award or compensation payable to or recoverable by Landlord in connection with such taking or condemnation. ARTICLE XVIII DEFAULT 18.1 The occurrence of any of the following shall constitute an Event of Default by Tenant under this Lease: (a) If Tenant shall fail to pay any installment of Annual Base Rent or additional rent or any other payment required by this Lease when due and such failure shall continue uncured for a period of ten (10) days after Landlord notifies Tenant of such failure in writing; provided, however, that after Landlord has given Tenant two (2) such written notices in any twelve (12)-month period, Tenant shall be in default if any such payment accruing during such twelve (12)-month period (and after the second of such notices) is not made within ten (10) days after such payment is due (without the necessity of any notice being sent by Landlord). (b) If Tenant shall violate or fail to perform any other term, condition, covenant or agreement to be performed or observed by Tenant under this Lease and such violation or failure shall continue uncured for a period of thirty (30) days after Landlord notifies Tenant in writing of such failure. If such violation or failure is not capable of being cured within such thirty (30)-day period, Tenant shall not be deemed to be in default hereunder if Tenant commences curative action within such thirty (30)-day period and proceeds diligently and in good faith thereafter to cure such violation or failure until completion. 41 (c) An Event of Bankruptcy as defined in Article XIX hereof. 18.2 If there shall occur an Event of Default under this Lease, including without limitation an Event of Default prior to the Lease Commencement Date, Landlord shall have the right, at its sole option, to terminate this Lease. In addition, with or without terminating this Lease, Landlord may re-enter, terminate Tenant's right of possession, and take possession of the Premises. The provisions of this Article XVIII shall operate as a notice to quit, and Tenant waives any other notice to quit or notice of Landlord's intention to re--enter the Premises or terminate this Lease. If necessary, Landlord may proceed to recover possession of the Premises under and by virtue of the laws of the Commonwealth of Virginia, or by such other proceedings, including re-entry and possession, as may be applicable. If Landlord terminates this Lease and/or terminates Tenant's right of possession, then everything contained in this Lease on the part of Landlord to be done and performed shall cease without prejudice, however, to the right of Landlord to recover from Tenant all rent and other sums due under this Lease. Whether or not this Lease and/or Tenant's right of possession is terminated by reason of Tenant's default, Landlord shall have the right, after any Event of Default occurs but only during the continuation thereof, to grant or withhold any consent or approval pursuant to this Lease in its sole and absolute discretion. Landlord agrees to use reasonable efforts to relet the Premises for such rent and upon such terms as are not unreasonable under the circumstances, and if the full rental provided herein plus the reasonable costs, expenses and damages hereafter described shall not be realized by Landlord, Tenant shall be liable for all damages sustained by Landlord, including. without limitation, deficiency in Annual Base Rent and additional rent, reasonable attorneys fees, brokerage fees, and the expenses of placing the Premises in the condition that would have been required if the date of termination had been the date of expiration of the Lease Term. Tenant expressly acknowledges that Landlord's agreement to use reasonable efforts to relet the Premises shall in no event limit, restrict or prejudice in any way Landlord's and Landlord's affiliates' and agents' rights to lease other space in the Building, if any, or the Complex prior to reletting the Premises. Subject to Landlord's obligations pursuant to the preceding two sentences, Landlord shall in no way be responsible or liable for any failure to relet the Premises or any part thereof, or any failure to collect any rent due or accrued upon such reletting, to the end and intent that Tenant may be liable for the Annual Base Rent, additional rent, and any and all other items of cost and expense which Tenant shall have been obligated to pay throughout the remainder of the Lease Term. Any damages or loss of rent sustained by Landlord may be recovered by Landlord, at Landlord's option, at the time of the reletting, or in separate actions, from time to time, as said damage shall have been made more easily ascertainable by successive relettings, or, at Landlord's option, may be deferred until the expiration of the Lease Term, in which event Tenant hereby agrees that the cause of action shall not be deemed to have accrued until the date of expiration of the Lease Term. The provisions contained in this Section 18.2 shall not prevent the enforcement of any claim Landlord may have against Tenant for anticipatory breach of this Lease. 18.3 As an alternative to recovering damages on account of rental deficiencies on a periodic basis as set forth in Section 18.2 above, Landlord may elect to hold Tenant liable from and after the date of termination of this Lease, for the Annual Base Rent, additional rent and all other items of cost and expenses that will accrue under the Lease until the expiration of 42 the Lease Term. In the event Landlord elects to hold Tenant liable for the Annual Base Rent, additional rent and all other items of cost and expenses including, without limitation, brokers' and attorneys' fees (the "DEFAULT AMOUNT") at the time of reletting of the Premises or if Landlord is unable to relet the Premises at the time this Lease is terminated pursuant to this Article XVIII, then Tenant shall pay to Landlord (i) the Default Amount minus (ii) any Annual Base Rent, additional rent and other sums which Tenant proves by a preponderance of the evidence would be received by Landlord upon commercially reasonable efforts to relet the Premises through the expiration of the scheduled Lease Term. The Default Amount shall be discounted at a rate equal to the then current "Prime Rate" as published in the Money Rates section of The Wall Street Journal and such amount shall be payable to Landlord in a lump sum on demand, it being understood that upon payment of such liquidated and agreed upon final damages. Tenant shall be released from further liability under this Lease with respect to the period after the date of such payment and, that if Tenant fails to pay such amount to Landlord within five (5) days thereafter, Landlord may bring suit to collect any such damages at any time after an Event of Default shall have occurred. In the event Landlord relets the Premises together with other premises or for a term extending beyond the scheduled expiration of the Lease Term, it is understood that Tenant will not be entitled to apply any Annual Base Rent, additional rent or other sums generated or projected to be generated by either such other premises or in the period extending beyond the scheduled Lease Term (collectively, the "EXTRA RENT") against Landlord's damages. Similarly in proving the amount that would be received by Landlord upon a reletting of the Premises set forth in clause (ii) above, Tenant shall not take into account the Extra Rent. Nothing h rein shall be construed to affect or to prejudice Landlord's right to prove and claim in full unpaid rent accrued prior to termination of this Lease and Tenant's vacating the Premises. If Landlord is entitled or Tenant is required pursuant to any provision hereof to take any action upon the termination of the Lease Term, then Landlord shall be entitled and Tenant shall be required to take such action also upon the termination of Tenant's right of possession. 18.4 All rights and remedies of Landlord set forth herein are in addition to all other rights and remedies available to Landlord pursuant to the Development Agreement, at law or in equity. All rights and remedies available to Landlord hereunder, pursuant to the Development Agreement, or at law or in equity are expressly declared to be cumulative. The exercise by Landlord of any such right or remedy shall not prevent the concurrent or subsequent exercise of any other right or remedy; provided that Landlord may not recover more than once for the same damages. No delay in the enforcement or exercise of any such right or remedy shall constitute a waiver of any default by Tenant hereunder or of any of Landlord's rights or remedies in connection therewith. Landlord shall not be deemed to have waived any default by Tenant hereunder unless such waiver is set forth in a written instrument signed by Landlord. If Landlord waives in writing any default by Tenant, such waiver shall not be construed as a waiver of any covenant, condition or agreement set forth in this Lease except as to specific circumstances described in such written waiver. 18.5 If Landlord shall institute proceedings against Tenant and a compromise or settlement thereof shall be made, the same shall not constitute a waiver of default or of any other covenant, condition or agreement set forth herein, nor of any of Landlord's rights hereunder, except to the extent agreed by Landlord in writing in connection with such compromise or settlement. Neither the payment by Tenant of a lesser amount than the 43 installments of base rent, additional rent or of any sums due hereunder nor any endorsement or statement on any check or letter accompanying a check for payment of rent or other sums payable hereunder shall be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or other sums or to pursue any other remedy available to Landlord. Notwithstanding any request or designation by Tenant, Landlord may apply any payment received from Tenant to any payment then due. No re-entry by Landlord, and no acceptance by Landlord of keys from Tenant, shall be considered an acceptance of a surrender of this Lease. 18.6 If Tenant defaults in the making of any payment or in the doing of any act herein required to be made or done by Tenant, then Landlord may (after giving Tenant the appropriate notice and opportunity to cure specified in Section 18.1 hereof), but shall not be required to, make such payment or do such act. If Landlord elects to make such payment or do such act, all reasonable costs and expenses incurred by Landlord, plus interest thereon at the rate per annum which is two percent (2%) higher than the prime rate then being quoted in The Wall Street Journal, from the date paid by Landlord to the date of payment thereof by Tenant, shall constitute additional rent hereunder and shall be immediately paid by Tenant to Landlord; provided, however, that nothing contained herein shall be construed as permitting Landlord to charge or receive interest in excess of the maximum rate then allowed by law. The taking of such action by Landlord shall not be considered a cure of such default by Tenant prevent Landlord from pursuing any remedy it is otherwise entitled to in connection with such default. 18.7 If Tenant fails to make any payment of Annual Baser Rent or of additional rent on or before the date such payment is due and payable, Tenant shall pay to Landlord a late charge of five percent (5%) of the amount of such payment. In addition, such payment shall bear interest at the rate per annum which is two percent (2%) higher than the prime rate then being quoted in The Wall Street Journal (the "DEFAULT RATE"), from the date such payment became due to the date of payment thereof by Tenant; provided, however, that nothing contained herein shall be construed as permitting Landlord to charge or receive interest in excess of the maximum rate then allowed by law. Notwithstanding any of the foregoing to the contrary, Landlord hereby waives the imposition of such late charge and the interest payable on late payments with respect to the first two (2) such late payments to occur in any twelve (12) month period, provided Tenant in fact cures the default within ten (10) days following Tenant's receipt of notice of such default. Such late charge and interest shall constitute additional rent due and payable hereunder with the next installment of Annual Base Rent due hereunder. 18.8 Notwithstanding anything in this Lease to the contrary, in the event (i) an Event of Default shall occur under this Lease and (ii) Tenant shall thereafter tender performance of the obligation that gave rise to such Event of Default and (iii) Landlord, in its discretion, shall agree to accept such performance as curing the Event of Default, then, for all purposes of this Lease, no Event of Default shall thereafter be deemed to exist. Notwithstanding any of the foregoing to the contrary, Landlord shall be obligated to accept Tenant's cure of the first (1St) Event of Default to occur and be cured within any twelve (12) month period provided such cure, when tendered, includes payment of all interest, late charges, and other costs of enforcement incurred by Landlord on account of such default (including, but not limited to, reasonable attorneys' fees). 44 18.9 (a) Landlord shall be in default under this Lease if (i) any of Landlord' representations, warranties or covenant contained in this Lease proves to be untrue in any material respect, or (ii) Landlord fails to perform any covenant or agreement to be performed by Landlord hereunder and with respect to clauses (i) and (ii) Landlord either: (A) fails promptly after written notice from Tenant to commence to cure such failure or fails to complete such cure diligently and within thirty (30) days after Tenant's notice or (B) if such failure is of a type that cannot with the exercise of reasonable diligence be cured within such thirty (30) day period, either fails promptly to commence its cure during such period or fails thereafter to use its best efforts to complete its cure in as short a time as possible. (b) Except as otherwise expressly limited in this Lease, in the event a material default by Landlord (as defined below) occurs, upon written notice of such material default to Landlord. Tenant shall have the right to terminate this Lease effective on, the date specified in such notice, which date shall not be not less than three (3) months and not more than one (1) year after the date of such notice, provided that Landlord's default has not been cured by such date. As used herein, the term "material" means a breach or failure by Landlord, to cure or if not possible of cure to commerce curing and; thereafter, to diligently pursue the cure of such default within thirty (30) days after Landlord's receipt of Tenant's notice specifying in reasonable detail such failure and such failure, affects in a material, adverse way the ability of Tenant to use and occupy the Premises for any of the purposes permitted hereunder or to exercise its rights hereunder. 18.10 For so long as Orbital Sciences Corporation or any Affiliate of Orbital Sciences is the tenant under this Lease, Landlord hereby releases and waives any and all liens or Security interest, (including any statutory liens) Landlord may have upon any of Tenant's Personal Property as herein defined. Landlord agrees that to the extent such lien s or security interests may not be waived by Landlord, any such liens or security interests shall at all times be subject and subordinate to any security interests and liens granted by Tenant which may now or hereafter affect Tenant's Personal Property, and to all renewals, modifications, consolidations, replacements and extensions thereof. This clause shall be self-operative and nor further instrument of release, waiver or subordination shall be required to affirm to any secured party the effect of this clause. Notwithstanding the foregoing, in confirmation of such release, waiver and subordination, Landlord shall at Tenant's written request, execute and deliver to Tenant within twenty (20) days of Landlord's receipt of Tenant's request, any reasonable requisite or appropriate certificate, waiver, release or subordination agreement or other document that may be reasonably requested by Tenant or other third party requiring such certificate waiver, release or subordination agreement or document. "Tenant's Personal Property" shall mean the leasehold improvements, good, wares, merchandise, inventory, furniture, trade fixtures, machinery, equipment, telephones, telephone systems, inside wire, business records, accounts receivable and other personal property of Tenant in or about the Premises or that may be placed or kept therein during the Lease Term and also upon all proceeds of any insurance which may accrue to Tenant by reason of damage to or destruction of any such property, chattels or merchandise. 45 ARTICLE XIX BANKRUPTCY 19.1 The following shall be an Event of Bankruptcy under this Lease: (a) Tenant's becoming insolvent, as that term is defined in Title 11 of the United States Code (the "BANKRUPTCY CODE"), or under the insolvency laws of any State, District, Commonwealth or territory of the United States that are applicable to Tenant (the "INSOLVENCY LAWS"); (b) The filing of a voluntary petition under the provisions of the Bankruptcy Code or Insolvency Laws; (c) The filing of an involuntary petition against Tenant as the subject debtor under the Bankruptcy Code or Insolvency Laws, which either (i) is not dismissed within ninety (90) days of filing or (ii) results in the issuance of an order or relief against the debtor; or (d) Tenant's making or consenting to an assignment for the benefit of creditors or a common law composition of creditors. 19.2 (a) Upon occurrence of an Event of Bankruptcy, Landlord shall have all rights and remedies available to Landlord pursuant to Article XVIII, provided that while a case in which Tenant is the subject debtor under the Bankruptcy Code is pending and only for so long as Tenant or its Trustee in Bankruptcy (hereinafter referred to as "TRUSTEE") is in compliance with the provisions of Section 19.2(b), (c) and (d) below, Landlord shall not exercise its rights and remedies pursuant to Article XVIII. (b) In the event Tenant becomes the subject debtor in a case pending under the Bankruptcy Code, Landlord's right to terminate this Lease pursuant to Section 19.2(a) shall be subject to the rights of Trustee to assume or assign this Lease. Trustee shall not have the right to assume or assign this Lease unless Trustee promptly (i) cures all defaults under this Lease, (ii) compensates Landlord for monetary damages incurred as a result of such defaults, and (iii) provides adequate assurance of future performance on the part of Tenant as debtor in possession or on the part of the assignee tenant. (c) Landlord and Tenant hereby agree in advance that adequate assurance of future performance, as used in Section 19.2(b) above, shall mean that all of the following minimum criteria must be met: (i) Tenant's gross receipts in the ordinary course of business during the thirty (30) day period immediately preceding the initiation of the case under the Bankruptcy Code must be at least two (2) times greater than the next monthly installment of annual base rent and additional rent due under this Lease; (ii) both the monthly average and median of Tenant's gross receipts in the ordinary course of business during the six month period immediately preceding the initiation of the case under the Bankruptcy Code must be at least two (2) times greater than the next monthly installment of annual base rent and additional rent due under this Lease; (iii) Trustee must deliver to the Trustee adequate security in commercially reasonable amounts said amount to be held by Trustee in escrow, without interest, until either Trustee or Tenant defaults in its payment of rent or other obligations under this Lease 46 (whereupon Landlord shall have the right to draw on such escrowed funds) or until the expiration of this Lease (whereupon the funds shall be returned to Trustee or Tenant); (iv) Tenant must pay its estimated pro rata share of the cost of all services provided by Landlord (whether or not previously included as a part of the annual base rent) in accordance with the provisions of Article IV hereof; (v) Trustee must agree that no prohibited use shall be permitted; and (vi) Tenant or Trustee must agree to redeposit with the Trustee at any time Landlord is authorized to and does draw on the escrow account referred to in (iii) hereof the amount necessary to restore such escrow account to the original level. (d) In the event Tenant is unable to (i) cure its defaults within any applicable notice and cure period, (ii) pay the rent due under this Lease and all other payments required of Tenant under this Lease on time (or within five (5) days of the due date), or (iii) meet the criteria and obligations imposed by Section 19.2(c) above, Tenant agrees in advance that it has not met its burden to provide adequate assurance of future performance and this Lease may be terminated by Landlord in accordance with Section 19.2(a) above. ARTICLE XX SUBORDINATION; MORTGAGES 20.1 This Lease is subject and subordinate to the lien of any and all mortgages (which term "MORTGAGES" shall include both construction and permanent financing and shall include deeds of trust and similar security instruments) which may now or hereafter encumber the Premises, and to all and any renewals, extensions, modifications, recastings or refinancings thereof; provided, however, that the effectiveness of such subordination is subject to the condition that Landlord obtain from any holder of any such mortgage or deed of trust on the Premises a non-disturbance agreement, to the end and intent that as long as Tenant pays all rent when due and punctually observes all other covenants and obligations on its part to be observed under this Lease (subject to applicable notice and cure provisions), the terms and conditions of this Lease shall continue in full force and effect and Tenant's rights under this Lease and its possession, use and occupancy of the Premises shall not be disturbed during the Lease Term by the holder of such mortgage or deed of trust or by any purchaser upon foreclosure of such mortgage or deed of trust. At any time after the execution of this Lease, the holder of any mortgage to which this Lease is subordinate shall have the right to declare this Lease to be superior to the lien of such mortgage, and Tenant agrees to execute all documents required by such holder in confirmation thereof. 20.2 In confirmation of the foregoing subordination and non-disturbance provisions and subject to the provisions of Section 20.1 above, Tenant shall, within fifteen (15) days of its receipt of a request therefor, promptly execute and deliver any reasonable and appropriate certificate or other document evidencing such subordination. Tenant agrees that neither the institution of any suit, action or other proceeding by the holder of any mortgage on the Premises to realize upon such mortgage holder's interest in the Premises, nor any sale of the Premises pursuant to the provisions of the mortgage in favor of such mortgage holder, shall, by operation of law or otherwise, result in the cancellation or termination of this Lease or of the obligations of Tenant hereunder, and that Tenant shall attorn to the purchaser at such foreclosure sale and shall recognize such purchaser as the landlord under this Lease. Tenant further agrees that for the purposes of this Section 20.2, the term "PURCHASER" or "PURCHASER AT A FORECLOSURE 47 SALE" shall mean, without limitation, a purchaser at a foreclosure sale affecting the Premises or the holder of any mortgage on the Premises. Tenant agrees that upon such attornment, such purchaser shall not (a) be bound by any rent credits or payments of Annual Base Rent for more than one (1) month in advance, (b) be bound by the amendment of any material term of this Lease (e.g. an amendment which decreases the Annual Base Rent to be paid by Tenant under this Lease) made without the consent of any lender providing financing for the Premises of which Tenant has notice prior to entering into the amendment, (c) be liable for damages for any act or omission of any prior landlord; or (d) be subject to any offsets or defenses which Tenant might have against any prior landlord; provided, however, that after succeeding to Landlord's interest under this Lease, such purchaser shall perform in accordance with the terms of this Lease all obligations of Landlord arising after the date such purchaser acquires title to the Premises. Upon request by such purchaser, Tenant shall execute and deliver an instrument or instruments confirming its attornment. 20.3 (a) After Tenant receives notice in writing from any person, firm or other entity that it holds a mortgage or deed of trust on the Premises or the Land requesting that copies of notices from Tenant to Landlord be sent to it, no notice from Tenant to Landlord alleging any default by Landlord shall be effective unless and until a copy of the same is given to such holder or Trustee at the last address of such holder or Trustee; that shall have been furnished to Tenant. The curing of any of Landlord's defaults by such holder or Trustee shall be treated as performance by Landlord. (b) In addition to the time afforded Landlord for the curing of any default, except with respect to the time periods set forth in Sections 13.2 and 14.6, any such holder or Trustee shall ha an additional fifteen (15) business days after the expiration of the period allowed to Landlord for the cure of any such default within which to commence a cure and such additional time as may be reasonable necessary to effect the cure using diligent efforts. 20.4 In the event that any lender providing construction or permanent financing or any refinancing for the Premises or the Land requires, as a condition of such financing, that modifications to this Lease be obtained, and provided that such modifications (i) are reasonably acceptable to Tenant, (ii) do not adversely affect in a material manner Tenant's rights or obligations hereunder, including its use of the Premises as herein permitted, (iii) do not increase the rent or other sums to be paid by Tenant hereunder, (iv) do not adversely affect in a material manner Tenant's use of the Premises as herein permitted and (v) do not reduce or limit in a material manner Landlord's obligations under this Lease, Landlord may submit to Tenant a written amendment to this Lease incorporating such required changes, and Tenant hereby covenants and agrees to execute, acknowledge and deliver such amendment to Landlord within fifteen (15) days of Tenant's receipt thereof with such modifications as may reasonably agreed upon by Landlord, Tenant and the lender requiring such modifications. ARTICLE XXI HOLDING OVER 21.1 In the event that Tenant shall not immediately surrender the Premises on the date of the expiration of the Lease Term, Tenant shall become a tenant by the month. During such holdover period, Tenant shall pay a rent equal to one hundred fifty percent (150%) of the 48 Annual Base Rent in effect during the last month of the Lease Term. Said monthly tenancy shall commence on the first day following the expiration of the Lease Term. As a monthly tenant, (i) Tenant shall be subject to all the terms, conditions, covenants and agreements of this Lease; (ii) Tenant shall give to Landlord at least thirty (30) days' written notice of any intention to vacate the Premises; and (iii) Tenant shall be entitled to thirty (30) days' written notice to quit the Premises, unless Tenant is in default hereunder, in which event Tenant shall not be entitled to any notice to quit, the usual thirty (30) days' notice to quit being hereby expressly waived. Notwithstanding the foregoing provisions of this Section 21.1, in the event that Tenant shall hold over after the expiration of the Lease Term, and if Landlord shall desire to regain possession of the Premises promptly at the expiration of the Lease Term, then at any time prior to Landlord's acceptance of rent from Tenant as a monthly tenant hereunder, Landlord, at its option, may forthwith re-enter and take possession of the Premises by any legal process in force in the Commonwealth of Virginia. ARTICLE XXII COVENANTS OF LANDLORD 22.1 Landlord represents and covenants that it has the right to make this Lease for the term aforesaid, and Landlord covenants that Tenant shall, during the term hereby created, freely, peaceably and quietly occupy and enjoy the full possession of the Premises without disturbance, molestation or hindrance by any person or entity whatever claiming an interest in the Premises prior or superior to Tenant's. Nothing in this Section 22.1, however, shall prevent Landlord from exercising any remedy available to it on account of an Event of Default by Tenant under this Lease. Landlord and Tenant each acknowledge and agree that Tenant's leasehold estate in and to the Premises vests on the date this Lease is fully executed by Landlord and Tenant, notwithstanding that the Lease Term will not commence until a future date. 22.2 Landlord hereby reserves to itself and its successors and assigns the following rights (all of which are hereby consented to by Tenant): (i) if imposed by Legal Requirements in Landlord's reasonable judgment after consultation with Tenant, if Tenant and/or its Affiliates are the lessees of more than fifty-one percent (51%) of the Premises, to change the street address and/or the arrangement and/or location of entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets, or other public parts of the Building; and (ii) subject to compliance with Landlord's obligations pursuant to Sections 8.1 and 11.1, if imposed by Legal Requirements or if necessary for the proper functioning of the Premises after consultation with Tenant, if Tenant and/or its Affiliates are the lessees of more than fifty-one percent (51%) of the Premises, to erect, use and maintain pipes and conduits in and through the Premises; and (iii) to establish and maintain field offices in the Building for site engineers, property management and maintenance personnel comprising, in the aggregate, approximately 600 rentable square feet; and in number and locations that are typical for Class A suburban office buildings in the Market Area provided that, subject to the foregoing standards, Tenant shall have approval rights over the particular size and locations of such facilities, which approval shall not be unreasonably withheld, conditioned or delayed. Provided Landlord acts reasonably and diligently and in a manner not likely to materially, adversely affect Tenant's continuing and reasonably uninterrupted business functions, Landlord may exercise any or all of the foregoing rights without being deemed to be guilty of an eviction, actual or constructive, or a disturbance 49 or interruption of the business of Tenant or of Tenant's use or occupancy of the Premises and without diminishing the rent payable hereunder. ARTICLE XXIII PARKING 23.1 Parking shall be available in the surface parking areas appurtenant to the Building. Landlord and Tenant shall agree upon reasonable access controls and operating policies that will govern the parking areas, all of which shall be consistent with the standards of Class A suburban office buildings and shall comply with all Legal Requirements (including, but not limited to, those set forth in the Americans with Disabilities Act and similar such laws in effect from time to time). Vehicles may be parked at any time free of charge (during the initial Lease Term), seven (7) days per week, twenty-four (24) hours per day. Landlord and Tenant agree that it is the parties' intention that parking shall be made available to Tenant in a ratio of approximately four (4) vehicles for every 1,000 gross square foot of Building area. Notwithstanding anything in this Section 23.1 to the contrary, in no event shall Landlord be obligated to provide Tenant more parking spaces than shown on the Revised Site Plan 8A for the Building. 23.2 Subject to the provisions of Sections 14.1 and 14.7 hereof, it is understood and agreed that Landlord does not assume any responsibility for, and shall not be held liable for, any damage or loss to any automobiles parked in the parking area or to any personal property located therein, or for any injury sustained by any person in or about the parking areas. ARTICLE XXIV REPRESENTATIONS AND WARRANTIES 24.1 Landlord hereby warrants and represents to Tenant as follows: (a) Landlord is a limited partnership, validly existing and in good standing under the laws of the State of Delaware. (b) Landlord has the full capacity, right, power and authority to execute and deliver this Lease. The individuals signing this Lease and all other documents executed or to be executed pursuant hereto on behalf of Landlord are and shall be duly authorized to sign the same on Landlord's behalf and to bind Landlord thereto. (c) Landlord has not (i) made a general assignment for the benefit of creditors, (ii) filed any involuntary petition in bankruptcy or suffered the filing of any involuntary petition by Landlord's creditors, (iii) suffered the appointment of a receiver to take possession of all or substantially all of Landlord's assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Landlord's assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally. 50 (d) Neither the execution of this Lease nor the consummation of the transaction contemplated hereby will (i) conflict with, or result in a breach of, the terms, conditions or provisions of, or constitute a default under, any agreement or instrument to which Landlord is a party or (ii) violate any restriction or court order to which Landlord is subject. 24.2 Tenant hereby warrants and represents to Landlord as follows: (a) Tenant is a corporation, validly existing and in good standing under the laws of Delaware and is authorized to do business as a foreign corporation in the Commonwealth of Virginia. (b) Tenant has the full capacity, right, power and authority to execute and deliver this Lease. The individuals signing this Lease and all other documents executed or to be executed pursuant hereto on behalf of Tenant are and shall be duly authorized to sign the same on Tenant's behalf and to bind Tenant thereto. (c) Tenant has not (i) made a general assignment for the benefit of creditors, (ii) filed any involuntary petition in bankruptcy or suffered the filing of any involuntary petition by Tenant's creditors, (iii) suffered the appointment of a receiver to take possession of all or substantially all of Tenant's assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Tenant's assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally. (d) Neither the execution of this Lease nor the consummation of the transaction contemplated hereby will (i) conflict with, or result in a breach of, the terms, conditions or provisions of, or constitute a default under, any agreement or instrument to which Tenant is a party or (ii) violate any restriction or court order to which Tenant is subject. 24.3 Neither Landlord nor Tenant will intentionally cause or permit any action to be taken which would cause any of their respective foregoing representations or warranties to be untrue as of the Lease Commencement Date. ARTICLE XXV RENEWAL 25.1 Landlord hereby grants to Tenant three (3) successive five (5)-year renewal options, each exercisable at Tenant's option and subject to the conditions described below (each such five-year term, if exercised, being referred to herein as a "RENEWAL TERM"). If exercised, and if the conditions applicable thereto have been satisfied, the first Renewal Term shall commence immediately following the end of the Lease Term provided in this Lease (as it may be extended pursuant to Section 2.3 hereof), the second Renewal Term shall commence immediately following the end of the first Renewal Term, and the third Renewal Term shall commence immediately following the end of the second Renewal Term. The right of renewal herein granted to Tenant with respect to each Renewal Term shall be subject to, and shall be exercised in accordance with, the following terms and conditions: 51 (a) Tenant shall exercise its right of renewal with respect to each Renewal Term by giving Landlord written notice thereof not earlier than twenty-four (24) months and not later than twelve (12) months prior to the expiration date of the then-current Lease Term. Tenant's exercise of its right of renewal shall be irrevocable (except as provided in Section 25.3(a) below) and shall be binding upon both Landlord and Tenant. (b) In the event a renewal option notice is not given timely, Tenant's right of renewal with respect to such Renewal Term shall lapse and be of no further force or effect. (c) If a monetary or material non-monetary Event of Default has occurred hereunder and has continued for ten (10) business days and is continuing uncured on the date a renewal option notice is sent or on the date such Renewal Term is to commence, then, at Landlord's option, to be exercised within fifteen (15) business days after the expiration of the applicable cure period for such default, such Renewal Term shall not commence and the Lease Term shall expire on the date the Lease Term would have expired without such renewal. (d) In the event this Lease is not renewed for any Renewal Term, Tenant's right to renew this Lease for any subsequent Renewal Terms shall also lapse. 25.2 During any Renewal Term, all the terms, conditions, covenants and agreements set forth in this Lease shall continue to apply and be binding upon Landlord and Tenant, except that: (1) the Annual Base Rent shall be calculated at the beginning of each Renewal Term as provided in this Article XXV so that the Annual Base Rent payable during each Lease Year of such Renewal Term shall be equal to ninety-five percent (95%) of Market Rent for such Renewal Term, including a market-based formula for adjusting Market Rent for each Lease Year of each Renewal Term; (2) Tenant shall pay for parking if such is the market standard at the time it exercises its renewal option or if Tenant does not wish to pay for parking the Annual Base Rent shall be adjusted to take into account that Tenant is not paying for parking when ii is market standard at the time the Annual Base Rent is calculated for Tenant to do so, and (3) in no event shall Tenant have the right to renew the Lease Term beyond the expiration of the third Renewal Term provided for in Section 25.1. 25.3 "MARKET RENT" shall be the fair market amount of "net" Annual Base Rent (including escalations if escalations are customary for comparable facilities in the Market Area, as defined below) determined as follows: (a) Following the giving of the renewal option notice, Landlord and Tenant shall commence negotiations concerning the amount of Annual Base Rent that shall constitute Market Rent. The parties shall have sixty (60) days (the "Negotiation Period") after the date Tenant delivers its renewal option notice in which to agree on such Market Rent. If, during such negotiation period, the parties are unable to agree on such Market Rent, then Tenant shall have the right, at its sole election, to rescind its exercise of the renewal option by notice of rescission delivered to Landlord no later than thirty (30) days after the expiration of the Negotiation Period (the "Rescission Period"). The Market Rent shall be stated and comprised of a component of Annual Base Rent for the first Lease Year of the Renewal Term and, if customary, a component 52 of annual escalations to be stated in terms of percentage increases to Annual Base Rent for the second, third, fourth and fifth Lease Years of the Renewal Term. (b) (i) In the event Landlord and Tenant do not reach agreement concerning the Market Rent, and Tenant does not timely exercise the right of rescission described in subsection (a) above, then the Market Rent and a formula for escalations shall be determined by three (3) real estate brokers. Landlord and Tenant shall each, within fifteen (15) days from the expiration of the Rescission Period described in subsection (a) above, designate an independent, licensed real estate broker or a licensed real estate professional associated with a licensed real estate broker who shall have more than ten (10) years' experience as a real estate broker specializing in commercial office leasing, and who shall have expertise with the commercial real estate market in which the Building is located; and the third broker shall be appointed by the first two brokers. For purposes of this Lease, a broker shall not be deemed "independent" if such broker shall have been engaged to work on behalf of the party that is appointing such broker at the time of, or at any time during the three (3) year period preceding, such broker's appointment; provided, however, that the third (3rd) broker selected by the first two brokers shall not be deemed independent if such broker or any entity with which such broker is affiliated shall have been engaged to work on behalf of either Landlord or Tenant during the two (2) year period immediately preceding such broker's appointment. The costs and expenses of each broker appointed separately by Landlord and Tenant will be borne by the party who appointed the broker. The costs and expenses of the third broker will be shared equally by Landlord and Tenant. The brokers appointed by Landlord and Tenant shall select a third broker within fifteen (15) days of the date of appointment of the latter of the first two brokers. (ii) The brokers shall each establish what they believe to be the Market Rent, including, if customary, the escalation formula and shall notify Landlord and Tenant thereof by written notice within thirty (30) days of the date of the appointment of the third broker, which notice shall be accompanied by their reports. The Market Rent shall be stated and comprised of a component of Annual Base Rent for the first Lease Year of the Renewal Term and, if customary, a component of annual escalations to be stated in terms of percentage increases to Annual Base Rent for the second, third, fourth and fifth Lease Years of the Renewal Term. If any broker fails to render its determination within such thirty (30) day period, it shall be disregarded. If the aggregate dollar value (ignoring any present value calculations) of the determinations for the five year Renewal Term of any two or three of the brokers shall be identical in amount, said amount shall be deemed to be the Market Rent for the Premises. If both the highest and the lowest determination differ by less than five percent (5%) from the middle determination, then the Market Rent shall be deemed to be the average of the three determinations. If the lowest determination and/or the highest determination differs by more than five percent (5%) from the middle determination, such determination or determinations shall be disregarded and the Market Rent shall be deemed to be the average of the remaining determinations. (iii) The Market Rent (including escalations, if any) for the Premises to begin as of the first day of the applicable Renewal Term determined in accordance with the provisions of this Section shall be binding and conclusive on Tenant and Landlord. Notwithstanding the foregoing, if either party shall fail to appoint the broker to be appointed by 53 such party within fifteen (15) days following the Rescission Period, the Market Rent of the Premises as determined by the broker so appointed shall be binding and conclusive on Landlord and Tenant. 25.4 As used herein, "Market Rent" shall be equal to "triple net" base footage rent which would be available to new tenants (taking into account all rent escalation factors) in buildings (to the extent such tenants are single-users or have the space in a building comparable to the space leased by Tenant in the Building) of similar age, finish, quality, design, location, condition and value as the Building (excluding Improvements installed in the Building at Tenant's sole expense) and located in office parks of quality comparable to and in the Route 28 North (Virginia) area between the Dulles Toll Road and Route 7 (the "MARKET AREA"). The Market Rent shall reflect the absence of landlord concessions such as rental abatement, build-out allowances, free parking, costs such as brokerage commissions and a base year established as the calendar year in which the first day of the Renewal Terms occurs. Such allowable concessions and costs shall be factored into Market Rent by amortizing such concessions and costs over the applicable Renewal Term through a reduction of the base footage rent otherwise payable in the absence of such concessions and costs including a reasonable amount of "downtime" not to exceed nine (9) months. For purposes hereof, leases of seventy thousand (70,000) square feet of rentable area or greater shall be deemed to be leases of similar size. ARTICLE XXVI COMMUNICATIONS EQUIPMENT 26.1 Tenant may install, free of charge (with the right to collect and retain any income that may he derived therefrom), at its sole cost, risk and expense, satellite dishes, antennas and communications equipment (the "COMMUNICATIONS EQUIPMENT") on the roof of the Building and/or on portions of the Land (for so long as such portions of the Land remain subject to this Lease), in an amount and of a type determined by Tenant, subject to Tenant's compliance with the Approved Site Plan and all other Legal Requirements and subject further to Landlord's prior written approval of location, placement, plans and specifications for the Communications Equipment and the type and placement of all cabling and wiring ancillary thereto, all of which Landlord approvals shall not be unreasonably withheld, conditioned or delayed. Landlord makes no representation concerning the suitability of the rooftop or the Land as a location for the Communications Equipment, and Landlord's approval of Tenant's plans and specifications shall in no event be construed as constituting such a representation. Tenant shall be responsible for obtaining and maintaining all approvals, permits and licenses required by any federal, state or local government for installation and operation of the Communications Equipment and for paying all fees attendant thereto and for complying with all other Legal Requirements relating to the Communications Equipment. If the Communications Equipment is installed, Tenant shall have sole responsibility for the maintenance, repair and replacement thereof and of all cabling and wiring ancillary thereto. Tenant shall coordinate with Landlord's property manager concerning any penetration of the roof or the exterior facade of the Building, and shall in no event take any action that will void any then-existing roof warranty. All repairs to the Building made necessary by reason of the furnishing, installation, maintenance, operation or removal of the Communications Equipment or any replacements thereof shall be at Tenant's sole cost. Upon expiration or termination of this Lease, Tenant agrees that it will remove, forthwith, the Communications Equipment (but not the wiring or accessories) and shall repair any damage to 54 the Building caused by the installation or removal of the Communications Equipment and related equipment. In the event Tenant fails to remove the Communications Equipment, Landlord may remove and dispose of such Communications Equipment and charge Tenant the entire reasonable cost thereof. Tenant's Communications Equipment shall not interfere with the structure of the Building, any of the building systems, or, at any time that Tenant is not the sole lessee of the Building, the equipment (including airwaves reception and other equipment) of any other tenant in the Building who shall have similar rights to maintain Communications Equipment and shall have exercised those rights prior to the exercise thereof by Tenant hereunder. Any such similar rights granted to any other tenant shall similarly restrict such other tenant's Communications Equipment from interfering with Tenant's Communications Equipment. Landlord shall enforce all such restrictions. If Tenant ceases at any time to be the sole tenant of the Building, Tenant's rights pursuant to this Section 26.1 shall be non-exclusive. Landlord shall have no liability on account of any damage to or interference with the operation of the Communications Equipment by any third party. Notwithstanding the foregoing, Landlord agrees that it will manage the available space on the rooftop so as to accommodate Tenant's needs with respect to the Communications Equipment to the greatest extent reasonably possible, including requesting that other tenants or rooftop users relocate their equipment if such relocation is necessary to enable Tenant to operate its Communications Equipment. Landlord shall have the right to requite Tenant to relocate the Communications Equipment at Landlord's cost to another suitable location on the rooftop reasonably acceptable to Tenant, provided such relocation can be done at a time and in a manner that only minimally and temporarily interferes with Tenant's use of the Communications Equipment. ARTICLE XXVII TENANT'S PURCHASE OPTION 27.1 Tenant shall have the one (1) time option (the "PURCHASE OPTION") to purchase the Premises upon six (6) months prior written notice during the period commencing on the first day of the twelfth (12th) Lease Year and continuing through the expiration of the ninth (9th) full calendar month of the thirteenth (13th) Lease Year (the "PURCHASE OPTION WINDOW"). Tenant shall notify Landlord (the "PURCHASE OPTION NOTICE") in writing, of its exercise of the Purchase Option not earlier than the commencement of the seventh (7th) full calendar month of the eleventh (11th) Lease Year and not later than the expiration of the third (3rd) full calendar month of the thirteenth (13th) Lease Year. The purchase price for the Premises shall be determined in accordance with the provisions of Section 27.2 below. 27.2 The purchase price for the Premises shall be their Fair Market Value which shall be determined as follows: (a) During the sixty (60) day period following Landlord's receipt of the Purchase Option Notice (the "PURCHASE PRICE NEGOTIATION PERIOD"). Landlord and Tenant shall meet and shall seek to establish the Fair Market Value of the Premises. For the purposes of this Article XXVII, the term "FAIR MARKET VALUE" shall mean the all-cash price which a ready, willing and able buyer would agree to pay for the Premises, after arm's length negotiations, giving due consideration to all appropriate factors, including, the age, quality, finish, design, current function, location and condition of the Premises and recognizing the effect of this Lease remaining in place as of the Closing Date at the then current Base Rent plus scheduled 55 escalations and rights of renewal. If Landlord and Tenant are unable to agree upon the Fair Market Value of the Premises during the Purchase Price Negotiation Period, Tenant may elect to revoke its Purchase Option Notice by written notice to Landlord within the thirty (30) day period following the expiration of the Purchase Price Negotiation Period (the "PURCHASE OFFER REVOCATION PERIOD"). If Tenant does not revoke its option in accordance with the preceding sentence, it shall, no later than five (5) business days thereafter, post a deposit (the "PURCHASE DEPOSIT") in an amount equal to seven and one-half percent (7.5%) of the then current Annual Base Rent, which deposit shall be held in escrow by a mutually acceptable title insurance company (the "ESCROW AGENT"). Not more than five business days after the Fair Market Value of the Premises is determined, Tenant shall increase the Purchase Deposit in to an amount which will cause the Purchase Deposit to be seven and one-half percent (7.5%) of the Fair Market Value of the Premises. (b) If Tenant does not give written notice of revocation to Landlord within the Purchase Offer Revocation Period, the Fair Market Value of the Premises shall be determined by three (3) MAI appraisers, each of whom shall be licensed in the Commonwealth of Virginia as a real estate appraiser and shall have at least ten (10) years of commercial office sales, acquisition and leasing experience in the Market Area. The three appraisers shall be appointed in the same manner as the three brokers are appointed pursuant to Section 25.3 hereof. In determining the Fair Market Value of the Premises, the appraisers (i) shall be directed to assume a single building user in the Market Area with a five (5) year lease term including full concessions and (ii) shall be directed to determine (x) the market "triple net" rent for the Premises, assuming no defaults under the terms and provisions of this Lease (the "PURCHASE OPTION MARKET RENT") and (y) a market "cap" rate using the same assumptions specified in (i) hereof (the "MARKET CAP RATE"). The Fair Market Value shall then be calculated by dividing the Market Rent by the Market Cap Rate. The Fair Market Value determined pursuant to the preceding sentence shall be further adjusted by taking into account the net present value (using a discount rate of eight percent (8%)) of the difference between Market Rent and the total rent to be paid y Tenant for the balance of the Lease Term (including, without limitation, any Supplemental Land Costs and increases in Annual Base Rent attributable to amortizing Basic Building Capital Expenditures). The appraisers shall each establish what they believe to be the Fair Market Value of the Premises and shall notify Landlord and Tenant thereof by written notice within thirty (30) days of the date of appointment of the third appraiser, which notices shall be accompanied by copies of their reports. If any appraiser fails to render its determination within such thirty (30) day period, it shall be disregarded. If the determinations of any two or three of the appraisers shall be identical in amount, said amount shall be deemed to be the Fair Market Value for the Premises. If both the highest and the lowest determination differ by less than two percent (2%) from the middle determination, then the Fair Market Value shall be deemed to be the average of the three determinations. If the lowest determination and/or the highest determination differs by more than two percent (2%) from the middle determination, such determination or determinations shall be disregarded and the Fair Market Value shall be deemed to be the average of the remaining determinations. (c) Notwithstanding anything to the contrary in this Article XXVII, Landlord and Tenant agree that the minimum purchase price for the Premises shall be eighty percent (80%) of the Project Costs escalated by increases in the Revised Consumer Price Index for 56 Urban Wage Earners and Clerical Workers, 1996 Base Year, All Items, Washington, DC-MD-VA Metropolitan Area (CPI-W), as published by the Bureau of Labor Statistics of the United States Department of Labor (herein referred to as the "Index"), which is published for the period that includes the month immediately preceding the first day of the first Lease Year and the month immediately preceding the month that the Purchase Option Notice is dated (herein referred to as the "Adjustment Index"). If the Index is changed so that a base year other than 1996 is used, the Index used herein shall be converted in accordance with the conversion factor published by the Bureau of Labor Statistics of the United States Department of Labor. If the Index is discontinued or otherwise revised during the Lease Term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. (d) The Fair Market Value for the Premises determined in accordance with the provisions of this Section 27.2 shall be binding and conclusive upon Landlord and Tenant. (e) In the event (i) Tenant does not deliver its Purchase Option Notice to Landlord six (6) months prior to the expiration of the Purchase Option 'Window (the "Purchase Option Expiration Date") or (ii) Tenant elects to revoke its exercise of the Purchase Option as provided above, Tenant's Purchase Option described herein shall lapse and be void and of no further force or effect. 27.3 (a) The closing (the "CLOSING") of the purchase of the Premises shall occur on a date (the "CLOSING DATE") which is no more than six (6) months after the date of Tenant's Purchase Option Notice, but in any event shall occur no later than the expiration of the Purchase Option Window. At Closing, Tenant shall pay the full purchase price by federal wire transfer or other mutually agreeable means. Closing shall be conducted through an escrow with a title company 'elected by Tenant and reasonably acceptable to Landlord. (b) Landlord shall execute a special warranty deed in customary form conveying to Tenant fee simple title to the Land, in the form attached to the Purchase and Sale Agreement between Landlord and Tenant dated of even date herewith, free and clear of all mortgage deeds of trust and other encumbrances and subject only to permitted encumbrance and any such other liens, encumbrances, covenants, restrictions, matter or thing of record which (i) were placed on record by or because of Tenant or any Affiliate thereof, (ii) which Tenant or any Affiliate has joined or consented or (iii) which Tenant expressly agrees to assume. Except as provided in the preceding sentence, the Premises shall be conveyed "as is" with no representations or warranties, express or implied. (c) Landlord shall execute a certificate that it is not a foreign person, partnership or other entity and any other affidavits or instruments reasonably requested by the title company handling the closing that are then customary in commercial transactions of a similar nature. (d) The Closing shall take place at a mutually agreed upon time and location in the Washington, D.C. metropolitan area. 57 (e) Landlord and Tenant will each pay their own attorneys' fees in connection with the Closing. Landlord and Tenant shall each pay one-half of all applicable escrow fees charged by the Escrow Agent. All Virginia state, county and all other taxes imposed upon the grantor shall be paid by Landlord. All Virginia state, county and all other taxes and recordation taxes shall be paid by Tenant. Title examination, title insurance premiums, survey charges, notary fees, costs and expenses related purchase money financing and all other charges incident to settlement (other than charges related to the release of any existing liens on the Premises) shall be paid by Tenant. All other charges shall be borne by Landlord or Tenant as is usual and customary to be borne by seller and purchaser, respectively, in customary transactions not involving a landlord/tenant relationship. (f) All rent payments payable or receivable, taxes, assessments, utility charges and other similar items usually adjusted and prorated at closing shall be prorated as of the date of Closing. (g) This Lease shall continue in full force and effect through the Closing Date. 27.4 If either party shall fail to close on the Purchase Option hereunder under circumstances when such party is required to close, then the other party may pursue all remedies available to it at law or in equity, including specific performance. At its election, Landlord may retain the Purchase Deposit as liquidated damages and this Lease shall, at Landlord's sole discretion, continue in full force and effect as if Tenant had never exercised its Purchase Option. 27.5 Nothing set forth in this Article XXVII shall restrict or prevent Landlord from (a) making an assignment of its interest in this Lease for security, (b) admitting lenders or others as limited partners in the partnership which constitutes Landlord or (c) granting to lenders or others equity interests in the Premises or the partnership which constitutes Landlord; provided, however, that any such conveyance shall not affect Tenant's Purchase Option and any such assignee or transferee shall comply with the provisions of this Article XXVII. 27.6 The rights of purchase set forth herein may be exercised by Orbital Sciences Corporation and not by any assignee of Orbital Sciences Corporation other than an Affiliate of Tenant or an assignee permitted pursuant to Section 7.4 above and only if Tenant and/or its Affiliates are occupying not less than fifty percent (50%) of the Premises demised under this Lease. Such rights shall not be assignable by Orbital Sciences Corporation to any third party nor, except as expressly provided herein, to any assignee, subtenant or successor-in-interest to Tenant other than an Affiliate of Tenant. 27.7 If there is a monetary or material non-monetary Event of Default under this Lease on the date the Purchase Option Notice is delivered to Landlord or at any time thereafter prior to Closing, then, at Landlord's Option, to be exercised within fifteen (15) business days after the expiration of the applicable cure period for such default, Tenant's right to purchase the Premises provided herein shall lapse and be of no further force or effect. 58 ARTICLE XXVIII RIGHT OF FIRST OFFER 28.1 In the event Landlord, during the Lease Term, wishes to sell or assign its fee interest in the Premises Landlord shall first give Tenant the opportunity to purchase such fee interest subject to the following terms and conditions: (a) If Landlord decides to sell the Premises, Landlord shall deliver written notice to Tenant of Landlord's intent to sell the Premises, which notice shall include the cash purchase price and other terms upon which Landlord is willing to sell the Premises (the "NOTICE OF INTENT TO SELL"). If Tenant wishes to purchase the Premises upon the terms and conditions set forth in the Notice to Sell, Tenant shall give Landlord written notice ("OFFER EXERCISE NOTICE") of its election to exercise its right to purchase the Premises within thirty (30) days following Tenant's receipt of the Notice of Intent to Sell. Failure of Tenant to respond within such thirty (30) day period shall be deemed an election not to exercise Tenant's right to purchase granted herein; provided that Tenant agrees to confirm such deemed waiver by executing a recordable written waiver and providing such further assurances thereof as Landlord may reasonably request. (b) If Tenant exercises its right to purchase the Premises pursuant to this Section 28.1, the purchase price shall be the price specified in the Notice of Intent to Sell and closing shall occur within the time frames set forth in the Notice of Intent to Sell (but if Tenant elects to exercise its rights hereunder such closing shall occur within sixty (60) days from the date of Tenant's Offer Exercise Notice) and otherwise pursuant to the terms of Section 27.3 hereof. (c) If a Notice of Intent to Sell is given and Tenant elects (or is deemed to have elected) not to purchase the Premises, then Landlord shall be free to sell the Premises to any other person or entity on terms not materially more favorable to the prospective purchaser than the terms upon which Tenant shall have had the right to purchase the Premises. For purposes hereof, any purchase that is at a purchase price (taking into account the closing costs described in Section 273(e) above) that is not less than ninety-five percent (95%) of the purchase price that would have been payable by Tenant shall be deemed not to be materially more favorable to the prospective purchaser. In the event of a proposed sale on terms that are materially more favorable to the prospective purchaser, Landlord shall be required to give Tenant another notice of Intent to Sell, specifying the proposed terms of sale and to afford Tenant the opportunity, once again, to elect to purchase the Premises on the terms so specified, in accordance with the provisions hereof. (d) In no event shall Tenant have the right to purchase and, except expressly permitted herein, Landlord shall not sell less than the entire Premises. (e) Notwithstanding anything contained herein to the contrary, Tenant shall not be afforded the rights specified in this Section 28.1 and shall not be entitled to purchase the Premises in the case of (i) a sale or other transfer to an Affiliate of Landlord or (ii) any transfer or conveyance of title to the Premises or any interest therein or in Landlord as part of a group of assets marketed for sale, exchange or other disposition in a single or related series of transactions 59 by Landlord or any Affiliate of Landlord. Furthermore, Tenant shall have no rights pursuant to this Article XXVIII with respect to any conveyance or contribution of the Building or any interest therein or in Landlord to a real estate investment trust, umbrella partnership real estate investment trust or other entity as part of a transaction in which shares of a real estate investment trust are being sold to the public. 28.2 (a) Provided Tenant has been afforded the rights granted to Tenant in this Article XXVIII, Tenant's right to purchase the Premises pursuant to Section 28.1 shall forever terminate automatically upon the consummation of a sale of the Premises to an unaffiliated third party purchaser. Tenant agrees to confirm the termination of its rights hereunder by executing a recordable, written termination and providing such further assurances thereof as Landlord may reasonably request. (b) Any election by Tenant not to exercise its rights pursuant to Section 28.1 above shall not extinguish or otherwise impair any of Tenant's right to purchase the Premises pursuant to Article XXVII above. 28.3 Nothing set forth in this Article XXVIII shall restrict or prevent Landlord from (a) making an assignment of its interest in this Lease for security, (b) admitting lenders or others as limited partners in the partnership which constitutes Landlord or (c) granting to lenders or others equity interests in the Premises or the partnership which constitutes Landlord; provided, however, that any such conveyance shall not affect Tenant's Right of First Refusal and any such assignee or transferee shall comply with the provisions of this Article XXVIII. 28.4 The rights of purchase set forth herein may be exercised by Orbital Sciences Corporation and not by any assignee of Orbital Sciences Corporation other than an Affiliate of Tenant or an assignee permitted pursuant to Section 7.4 above only during the Lease Term and only if Tenant and/or its Affiliates are occupying not less than fifty percent (50%) of the Premises demised under this Lease. Such rights shall not be assignable by Orbital Sciences Corporation to any third party nor, except as expressly provided in the preceding sentence, to any assignee, subtenant or successor-in-interest to Tenant, other than an Affiliate of Tenant. 28.5 Notwithstanding anything to the contrary set forth herein, Tenant's rights to purchase under this Article XXVIII shall not be applicable to a transaction involving the transfer of the Premises to a mortgagee-in-possession or a receiver of the Building, the Land or the Premise or a purchaser of the Building, the Land or the Premises at any foreclosure sale thereof, or a grantee of the Land, the Building or the Premises under a deed-in--lieu of foreclosure nor shall the provisions of this Article XXVIII be binding upon any such mortgagee-in-possession or receiver or purchaser at foreclosure or grantee under a deed-in-lieu of foreclosure, after a default by Landlord under any financing documents encumbering the Building, the Land or the Premise, as applicable, at any time during the Lease Term. Further, if the Land, the Building or the Premises is sold as a result of any mortgage financing secured thereby (e.g. a convertible mortgage or convertible securities) then Tenant's rights under this Article XXVIII shall terminate and be of no force or effect. Tenant shall have no right to approve nor have any control over the type or extent of financing obtained by Landlord with respect to the Land, the Building or the Premises, except as may be expressly provided in Article XX of this Lease. 60 28.6 In the event that at any time Landlord sells or transfers any of its interest in the Premises or this Lease to an unaffiliated third party and has otherwise complied with the provisions of this Article XXVIII, then provided the purchaser or transferee assumes the obligations of Landlord hereunder, Landlord named herein shall not be liable to Tenant for any obligations or liabilities based on or arising out of events or conditions occurring on or after the date of such sale or transfer. 28.7 If there is an Event of Default under this Lease on the date the Offer Exercise Notice is delivered to Landlord or at any time thereafter prior to Closing, then, at Landlord's Option, Tenant's right to purchase the Premises provided herein shall lapse and be of no further force or effect. ARTICLE XXIX GENERAL PROVISIONS 29.1 Tenant acknowledges that neither Landlord nor any broker, agent or employee of Landlord has made any representations or promises with respect to the Premises or the Building except as herein expressly set forth, and no rights, privileges, easements or licenses are being acquired by Tenant except as herein expressly set forth. The preceding sentence to the contrary notwithstanding, Landlord and Tenant acknowledge the execution and delivery of (a) the Development Agreement and (b) a purchase and sale agreement with respect to the Land (the "Purchase Contract") concurrently with the execution and delivery of this Lease. Landlord and Tenant agree that the Development Agreement and the Purchase Contract create certain rights, obligations, liabilities and responsibilities on both Landlord and Tenant as specifically provided therein. Landlord and Tenant agree that each of them has made certain representations and warranties to the other in the Development Agreement and the Purchase Contract as more specifically provided therein. 29.2 Nothing contained in this Lease shall be construed as creating a partnership or joint venture of or between Landlord and Tenant, or to create any other relationship between the parties hereto other than that of landlord and tenant. 29.3 Landlord and Tenant recognize CB Richard Ellis, Inc.. ("CB") as the broker procuring this Lease and Landlord shall pay said broker a commission pursuant to a separate agreement between CB and Landlord, a copy of which agreement is attached hereto as Exhibit C and made a part hereof (the "BROKERAGE AGREEMENT"). Tenant hereby acknowledges and agrees to the terms and provisions of the Brokerage Agreement. Tenant hereby agrees that any and all commissions paid to CB by Landlord in accordance with the terms and provisions of the Brokerage Agreement shall be included in Project Costs as determined in accordance with the provisions of the Development Agreement. Landlord and Tenant each represents and warrants to the other that, except as provided in the first sentence of this Section 29.3, neither of them has employed or dealt with any broker, agent or finder in carrying on the negotiations relating to this Lease. Each party shall indemnify and hold the other harmless from and against any claim or claims for brokerage or other commissions asserted by any broker, agent or finder engaged by the indemnifying party or with whom the indemnifying party has dealt in connection with this Lease, other than CB. 61 29.4 Tenant agrees, at any time and from time to time (but no more than twice in any twelve (12) month period), upon not less than fifteen (15) days' prior written notice by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or if there have been any modifications, that the Lease is in full force and effect as modified and stating the modifications); (ii) stating (x) the amounts of Base Rent and Additional Rent currently due and payable by Tenant, (y) that Tenant has not paid rent more than thirty (30) days in advance of its due date and (z) the dates to which the rent and any other charges hereunder have been paid by Tenant; (iii) stating whether or not, to the best knowledge of Tenant. Landlord is in default in the performance of any covenant, agreement or condition contained in this Lease, and if so, specifying the nature of such default; (iv) stating the address to which notices to Tenant are to be sent; (v) certifying that Tenant is (or is not) in possession of the Premises and conducting its business therein; (vi) stating that the Lease Term has commenced and the full rental is now accruing; (vii) stating that any improvements required by the Lease or the Development Agreement to be made by Landlord have been made to the satisfaction of Tenant; (viii) stating whether there are then existing any set-offs, charges, liens, claims or defenses against the enforcement of any right )and if so, specifying the same in detail); and (ix) stating such other information as Landlord or any mortgagee or prospective mortgagee of the Building may reasonably request. Any such statement delivered by Tenant may be relied upon by any landlord of the Building or the Land, any prospective purchaser of the Building or such land, any mortgagee or prospective mortgagee of the Building or such land or of Landlord's interest therein, or any prospective assignee of any such mortgagee. Landlord agrees, at any time and from time to time (but no more than twice in any twelve (12) month period), upon not less than fifteen (15) days' prior written notice by Tenant, to execute, acknowledge and deliver to Tenant a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or if there have been any modifications, that the Lease is in full force and effect as modified and stating the modifications); (ii) stating the dates to which the rent and any other charges hereunder have been paid by Tenant; (iii) stating whether or not, to the best knowledge of Landlord, Tenant is in default in the performance of any covenant, agreement or condition contained in this Lease, and if so, specifying the nature of such default; (iv) stating the address to which notices to Landlord are to be sent; and (v) stating such other information as Tenant may reasonably request. 29.5 Landlord and Tenant each hereby waives trial by jury in any action, proceeding or counterclaim brought by either of them against the other in connection with any matter arising out of or in any way connected with this Lease, the relationship of landlord and tenant hereunder, Tenant's use or occupancy of the Premises, and/or any claim of injury or damage. 29.6 All notices or other communications required hereunder shall be in writing and shall be delivered in person (with receipt therefor), or sent by certified mail, return receipt requested, postage prepaid, or by facsimile transmission, to the following addresses or facsimile numbers: 62 (i) if to Landlord, at: c/o Boston Properties, Inc. 500 F Street, S.W. Washington, D.C. 20024 Attn: Senior Vice President/Property Management facsimile no. 202-488-8644 (verify no. 202-646-7600); with a copy to: c/o Boston Properties, Inc. 500 E Street, S.W. Washington, D.C. 20024 Attn: Associate General Counsel facsimile no. 202-554-4167 (verify no. 202-646-7600); and a copy to: Boston Properties, Inc. 8 Arlington Street Boston, Massachusetts 02116 Attn: General Counsel facsimile no. 617-536-4233 (verify no. 617-859-2600); (ii) if to Tenant, at: the Premises Attn: Director, Corporate Finance and Real Estate (facsimile no. to be designated by Tenant by notice given to Landlord in accordance herewith); except that, prior to the Lease Commencement Date, notices to such Director of Operations shall be given at: 21700 Atlantic Boulevard Dulles, VA 20166 facsimile no.: 703 406-3506 (verify no.: 703 406-5051); with a copy to: the Premises Attn: General Counsel facsimile no.: 703-406-5572 (verify no. 703-406-5505); except that, prior to the Lease Commencement Date, notices to such General Counsel shall be given at: 63 21700 Atlantic Boulevard Duties, VA 20166 facsimile no.: 703 ____________ (verify no.: 703 ____________ ); and a copy to: Carol Weld King, Esq. Hogan & Hartson LLP 555 13th Street, N.W., Washington, D.C. 20004 facsimile no.: 202-637-5910 (verify no. 202-637-5900). Notwithstanding anything contained herein to the contrary, all notices given by Tenant pursuant to Section 14.6 hereof shall be given at the addresses and in the manner specified above but, in addition, in order to constitute effective notice to Landlord, shall be given to the on-site building engineer or to such other person at such other address as Landlord may specify by written notice to Tenant. Either party may change its address for the giving of notices by notice given in accordance with this Section. Notices given by any means other than by facsimile shall be deemed given or received on the date actually received or, if refused, on the date delivery was attempted and refused. Notices given by facsimile shall be deemed given or received when confirmation of complete receipt is obtained by the transmitting party during normal business hours or, if not confirmed during normal business hours, on the next business day. 29.7 If any provision of this Lease or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and enforced to the fullest extent permitted by law. 29.8 Feminine or neuter pronouns shall be substituted for those of the masculine form, and the plural shall be substituted for the singular number, in any place or places herein in which the context may require such substitution. 29.9 The provisions of this Lease shall be binding upon, and shall inure to the benefit of, the parties hereto and each of their respective representatives, successors and assigns, subject to the provisions hereof restricting assignment by Landlord or Tenant or subletting by Tenant. The term "Tenant" as used in this Lease shall include Orbital's permitted assigns in accordance with the provisions of Article VII of this Lease. 29.10 This Lease, together with the Development Agreement and the other contemporaneous agreements entered into pursuant thereto, contains arid embodies the entire agreement of the parties hereto and supersedes all other prior agreements, negotiations and discussions between the parties hereto, all of which are merged herein. Any representation, inducement or agreement that is not contained in this Lease shall not be of any force or effect. This Lease may not be modified or changed in whole or in part in any manner other than by an instrument in writing duly signed by both parties hereto. 64 29.11 This Lease shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia, without regard to the principles of conflicts of law. 29.12 Article and section numbers and headings are used herein for the convenience of reference and shall not be considered when construing or interpreting this Lease. In this Lease, unless otherwise specified, (a) the singular includes the plural and the plural the singular; (b) words and terms which include a number of constituent parts, things or elements, including the terms Premises, Land, Building, Parking Structure and Personal Property, unless otherwise specified, shall be construed as referring separately to each constituent part, thing, or element thereof as well as to all of such constituent parts, things or elements as a whole; (c) reference to statutes are to be construed as including all rules and regulations adopted pursuant to the statute referred to; (d) references to agreements and other contractual instruments shall be deemed to include all subsequent amendments thereto or changes therein entered into in accordance with their respective terms; (e) references to persons include their permitted successors and assigns; (f) the words "hereto" or "herein" or "hereof' or "hereunder" or words of similar import refer to this Lease in its entirety; and (g) the words "including" or "include" or words of similar import, unless otherwise specified shall be deemed to be followed by the words "without limitation". 29.13 The submission of an unsigned copy of this document to Tenant for Tenant's consideration does not constitute an offer to lease the Premises or an option to or for the Premises. This document shall become effective and binding only upon the execution and delivery of this Lease by both Landlord and Tenant. 29.14 Time is of the essence of each provision of this Lease. 29.15 This Lease shall not be recorded, except that upon the request of either party, the parties agree to execute, in recordable form, a short-form memorandum of this Lease, provided that such memorandum shall not contain any of the specific rental terms set forth herein and shall otherwise be mutually acceptable to Landlord and Tenant. Such memorandum may be recorded in the land records of Loudoun County, Virginia, and the party desiring such recordation shall pay all recordation costs. 29.16 Except as otherwise specifically provided herein, any additional rent owed by Tenant to Landlord, and any cost, expense, damage or liability shall be paid by Tenant to Landlord no later than fifty (50) days after the date Landlord notifies Tenant in writing of the amount of such additional rent or such cost, expense, damage or liability; provided that regularly scheduled monthly payments of additional rent pursuant to Article IV hereof shall be due and payable on the first day of each month, subject to the terms and conditions of Article IV. If any payment hereunder is due after the end of the Lease Term, such additional rent or such cost, expense, damage or liability shall be paid by Tenant to Landlord not later than fifty (50) days after Landlord notifies Tenant of the amount of such additional rent or such cost, expense, damage or liability. 29.17 All claims by Landlord with respect to Tenant's duties and obligations hereunder, including but not limited to Tenant's duties and obligations to pay Annual Base Rent, additional 65 rent and the costs, expenses, damages and liabilities incurred by Landlord for which Tenant is liable, shall survive the termination of this Lease for any reason whatsoever, All claims by Tenant with respect to Landlord's duties and obligations hereunder shall survive the termination of this Lease for any reason whatsoever. 29.18 Except as expressly provided in the Development Agreement with respect to the initial construction of the Building and the Leasehold Improvements, in the event either Tenant or Landlord is in any way delayed, interrupted or prevented from performing any of its respective obligations under this Lease (other than Tenant's obligation to pay any rent due hereunder), and such delay, interruption or prevention is due to fire, act of God, governmental or quasi-governmental act (including, without limitation, any delay in the issuance of required permits or in the scheduling or performance of required inspections), national emergency, strike, labor dispute, unusual delays in transportation, inability to procure materials or utilities (where such inability was not reasonably capable of being anticipated), or any other cause beyond Tenant's or Landlord's reasonable control (whether similar or dissimilar) (all of which are collectively referred to herein as "FORCE MAJEURE"), then Tenant or Landlord (as applicable) shall be excused from performing the affected obligations for the period of such delay, interruption or prevention. Notwithstanding the foregoing, each party shall use reasonable efforts to mitigate the delay in such party's performance due to Force Majeure. 29.19 Any amounts required to be paid by Tenant under this Lease shall be considered additional rent. All payments of additional rent shall be paid to Landlord without diminution, set-off or deduction (except as otherwise provided in Section 14.6 hereof) in the same manner as Annual Base Rent pursuant to Section 3.3 hereof or as may otherwise be provided in this Lease. 29.20 If Landlord or Tenant is required or elects to take legal action against the other party to enforce the provisions of this Lease and a judgment is rendered in such action by a court of competent jurisdiction, then the prevailing party in such action shall be entitled to collect from the other party its costs and expenses incurred in connection with such legal action (including, but not limited to, reasonable attorneys' fees and court costs). 29.21 Notwithstanding anything to the contrary in this Lease, for so long as Orbital Sciences Corporation or any Affiliate of Orbital Sciences Corporation is the tenant under this Lease, Landlord agrees that any liability of Tenant arising out of or in connection with this Lease or the relationship of Landlord and Tenant and the ability of Landlord to recover damages or other relief under this Lease shall be limited solely to the assets of Tenant. For so long as Orbital Sciences Corporation or any Affiliate of Orbital Sciences Corporation is the tenant under this Lease, in no instance whatsoever shall any present, past or future employee, officer, director or shareholder of Orbital Sciences Corporation or any Affiliate of Orbital Sciences Corporation have any personal liability to Landlord for the satisfaction of any obligations or liabilities of Tenant under this Lease. 29.22 This Lease includes and incorporates Exhibits A, A-I, A-2, B, C, D, E and F attached hereto. 66 The parties hereto acknowledge and agree that this Lease and the Development Agreement shall be interpreted, to the maximum extent possible, so that they are consistent with each other and with the view that they are intended to effectuate common and unified purposes. In the event that there is any conflict or inconsistency between the terms or conditions in any of these documents, or if the application of the terms or conditions in these documents to any circumstances may result in inconsistent treatment, the parties agree that the terms and conditions of this Lease shall take precedence over the Development Agreement. ARTICLE XXX DIRECTORY OF DEFINED TERMS The following terms used herein are defined where indicated below: Term Definition Affiliate of Tenant.....................................Section 7.5 Affiliate of Landlord...................................Section 13.3(a) Annual Base Rent........................................Section 3.1 Bankruptcy Code.........................................Section 19.1(a) Base Building Capital Expenditures......................Section 4.8 Base Building Work......................................Section 8.1 Brokerage Agreement.....................................Section 29.3 Building................................................Recital B Building 3..............................................Section 2.1 Building Premises.......................................Section 1 7.1 Closing.................................................Section 27.3 Closing Date............................................Section 27.3 Communications Equipment................................Section 26.1 Complex.................................................Recital A Default Amount..........................................Section 18.3 Default Rate............................................Section 1 8.7 Development Agreement...................................Recital B Divisible Portion of the Building Premises..............Section 26.1 Effective Date..........................................Introduction Eligibility Period......................................Section 1 3.2 Environmental Default...................................Section 6.4 Environmental Law.......................................Section 6.4 Escrow Agent............................................Section 27.2(a) Initial Building Services...............................Section 1 4.6 Expenses................................................Section 4.2 Fair Market Value.......................................Section 27.2 Formula Rent............................................Section 3.1(c) Hazardous Materials.....................................Section 6.4 Improvements............................................Section 9.2 Insolvency Laws.........................................Section 19.1 Insurance Requirements..................................Section 9.2 Invitees................................................Section 6.4 Landlord Affiliate......................................Section 13.3 67 Lease Commencement Date.................................Section 2.2 Lease Term..............................................Section 2.1 Lease Year..............................................Section 2.2 Leasehold Improvements..................................Section 8.2 Legal Requirements......................................Section 6.1 Management Agreement....................................Section 1 3.3(a) Manager.................................................Section 13.3(a) Market Area.............................................Section 25.4 Market Cap Rate.........................................Section 27.2(b) Market Rent.............................................Section 26.3 Minimum Net Worth Amount................................Section 5.1 mortgages...............................................Section 20.1 Notice of Intent to Sell................................Section 28.1(a) Offer Exercise Notice...................................Section 28.1(a) Operating Expenses......................................Section 4.2 Operating Plan..........................................Section 4.1 Parking Structure.......................................Section 23.3 Premises................................................Section 1.1 Project Architect.......................................Section 1.3 Project Costs...........................................Section 3.1 Purchase Deposit........................................Section 27.2 Purchase Offer Revocation Period........................Section 27.2 Purchase Option.........................................Section 27.1 Purchase Option Market Rent.............................Section 27.2(b) Purchase Option Notice..................................Section 27.1 Purchase Option Window..................................Section 27.1 Purchase Price Negotiation Period.......................Section 27.2 purchaser/purchaser at a foreclosure sale...............Section 20.2 Real Estate Taxes.......................................Section 4.2 Reconciliation Statement................................Section 4.5 Renewal Term............................................Section 26.1 Rent Recalculation Date.................................Section 3.1 Right of First Offer....................................Section 28.2 Rules and Regulations...................................Section 15.1 security deposit........................................Section 5.1 Supplemental Land Costs.................................Section 4.2(c) Suspension Events.......................................Section 13.2 Taking..................................................Section 17.1 Tenant Installations....................................Section 2.2(b) Trustee.................................................Section 19.2 68 IN WITNESS WHEREOF, Landlord and Tenant have executed this Deed of Lease under seal on or as of the day and year first above written. WITNESS: LANDLORD: By: BOSTON PROPERTIES LIMITED PARTNERSHIP, a Delaware limited partnership By: Boston Properties, Inc., its General Partner [SIG] By: /s/ RAYMOND A. RITCHEY - ------------------------------ ------------------------ [Corporate Seal] Name: Raymond A. Ritchey Title: Executive Vice President WITNESS: TENANT: ORBITAL SCIENCES CORPORATION, a Delaware corporation /s/ JOHN W. BRANNOCK By: /s/ MICHAEL P. KEEGAN - ------------------------------ ------------------------------- [Corporate Seal] Name: Michael P. Keegan ------------------------------- Title: Vice Pres., Corp. Controller -------------------------------
69 EX-10.6 6 w58627ex10-6.txt LEASE AGREEMENT EXHIBIT 10.6 LEASE AGREEMENT BY AND BETWEEN BOSTON PROPERTIES LIMITED PARTNERSHIP AND ORBITAL SCIENCES CORPORATION TABLE OF CONTENTS
- ------------------------------------------------------------------------------------------------ Page - ------------------------------------------------------------------------------------------------ ARTICLE I 1 THE PREMISES - ------------------------------------------------------------------------------------------------ ARTICLE II TERM 2 - ------------------------------------------------------------------------------------------------ ARTICLE III BASE RENT 4 - ------------------------------------------------------------------------------------------------ ARTICLE IV ADDITIONAL RENT 5 - ------------------------------------------------------------------------------------------------ ARTICLE V SECURITY DEPOSIT 14 - ------------------------------------------------------------------------------------------------ ARTICLE VI USE OF PREMISES 17 - ------------------------------------------------------------------------------------------------ ARTICLE VII ASSIGNMENT AND SUBLETTING 20 - ------------------------------------------------------------------------------------------------ ARTICLE VIII MAINTENANCE AND REPAIRS 23 - ------------------------------------------------------------------------------------------------ ARTICLE IX ALTERATIONS 24 - ------------------------------------------------------------------------------------------------ ARTICLE X SIGNS, EQUIPMENT AND FURNISHINGS 27 - ------------------------------------------------------------------------------------------------ ARTICLE XI INSPECTION BY LANDLORD 29 - ------------------------------------------------------------------------------------------------ ARTICLE XII INSURANCE 29 - ------------------------------------------------------------------------------------------------ ARTICLE XIII SERVICES AND UTILITIES 31 - ------------------------------------------------------------------------------------------------ ARTICLE XIV LIABILITY OF LANDLORD 35 - ------------------------------------------------------------------------------------------------ ARTICLE XV RULES AND REGULATIONS 38 - ------------------------------------------------------------------------------------------------ ARTICLE XVI DAMAGE OR DESTRUCTION 39 - ------------------------------------------------------------------------------------------------ ARTICLE XVII CONDEMNATION 41 - ------------------------------------------------------------------------------------------------ ARTICLE XVIII DEFAULT 41 - ------------------------------------------------------------------------------------------------ ARTICLE XIX BANKRUPTCY 46 - ------------------------------------------------------------------------------------------------ ARTICLE XX SUBORDINATION; MORTGAGES 47 - ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------ ARTICLE XXI 49 HOLDING OVER - ------------------------------------------------------------------------------------------------ ARTICLE XXII 49 COVENANTS OF LANDLORD - ------------------------------------------------------------------------------------------------ ARTICLE XXIII PARKING 50 - ------------------------------------------------------------------------------------------------ ARTICLE XXIV REPRESENTATIONS AND WARRANTIES 50 - ------------------------------------------------------------------------------------------------ ARTICLE XXV RENEWAL 51 - ------------------------------------------------------------------------------------------------ ARTICLE XXVI COMMUNICATIONS EQUIPMENT 54 - ------------------------------------------------------------------------------------------------ ARTICLE XXVII TENANT'S PURCHASE OPTION 55 - ------------------------------------------------------------------------------------------------ ARTICLE XXVIII RIGHT OF FIRST OFFER 58 - ------------------------------------------------------------------------------------------------ ARTICLE XXIX GENERAL PROVISIONS 61 - ------------------------------------------------------------------------------------------------ ARTICLE XXX DIRECTORY OF DEFINED TERMS 66 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
EXHIBIT A - Survey Depicting the Land EXHIBIT A-1 - Diagram of the Premises EXHIBIT A-2 - Survey of the Complex EXHIBIT B - Form of Estoppel Certificate EXHIBIT C - Brokerage Agreement EXHIBIT D - Form of Letter of Credit EXHIBIT E - Rules and Regulations EXHIBIT F - Form of Management Agreement DEED OF LEASE AGREEMENT THIS DEED OF LEASE AGREEMENT (this "LEASE") is made as of the 1st day of December, 1999 (the "Effective Date"), by and between BOSTON PROPERTIES LIMITED PARTNERSHIP, a Delaware limited partnership (hereinafter referred to as "LANDLORD"), and ORBITAL SCIENCES CORPORATION, a Delaware corporation (hereinafter referred to as "TENANT" or "ORBITAL"). RECITALS: A. Landlord is the fee simple owner of that certain real property containing approximately 11.907 acres of land known or to be known as Lot 9B, Lot 10C and Lot 10D of Steeplechase, Section 1 ("Steeplechase"), Loudoun County, Virginia (the "Land"), which Land is more particularly depicted on or described on Exhibit A-1 attached hereto which Land is part of the office complex development known as the Orbital Campus (the "Complex"). B. Concurrently with the execution of this Lease, Landlord and Tenant have entered into that certain Build to Suit Agreement and Agreement to Lease dated of even date herewith (the "PHASE II DEVELOPMENT AGREEMENT") with respect to, among other things, the financing, design and construction by Landlord of one (1) building on the Land containing approximately 165,342 gross square feet of space (the "BUILDING"), including all necessary or appropriate loading, landscaping, site work, parking area and other infrastructure. The Phase II Development Agreement contains terms, conditions and agreements governing the development of the Land, the construction of the Building and additional buildings on other parcels of land in the Complex, and Landlord's and Tenant's respective options with regard to same. C. Landlord and Tenant wish to set forth herein the terms and conditions upon which Landlord (i) shall lease the Land and the Building to Tenant and (ii) shall grant to Tenant an option to purchase the Land and the Building. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: ARTICLE I THE PREMISES 1.1 Landlord hereby leases and demises to Tenant and Tenant hereby leases and accepts from Landlord, for the term and upon the terms and conditions hereinafter set forth, the Land and the Building (collectively, the "PREMISES"). Upon the design of the Building and completion of construction documents, a diagram of each floor of the Building, which together with the Land, comprise the Premises, shall be added to this Lease as Exhibit A-1. 1.2 The Lease of the Premises includes the right to use the adjacent parking areas which shall be generally described on the Site Plan, as defined in the Phase II Development Agreement, and the right to use any common areas and facilities (including the Building's loading docks, doors, platforms, staging areas and service elevators) and all other facilities and areas that are located in and adjacent to the Building, unless specifically excluded in this Lease. 1 The lease of the Premises also is subject to all covenants, conditions and restrictions of record as of the date hereof or recorded hereafter with the agreement of Tenant. 1.3 The area of the Building is expected to be approximately 165,342 square feet of Gross Floor Area and approximately 160,502 square feet of "net rentable" area. The parameters for the size and design of the Building, and other terms and conditions upon which the Land will be developed and the Building will be constructed are set forth in the Phase II Development Agreement. The number of rentable square feet in the Building shall be determined by Ai, the Project Architect, as defined in the Phase II Development Agreement, upon design and construction of the Building, and shall be confirmed in the declaration described in Section 2.3 below. For the purposes hereof, rentable area shall be calculated in accordance with the 1996 Building Owners and Managers Associated Standard Method of Measurement, as in effect as of the date of this Lease. The Project Architect shall provided Landlord and Tenant with its calculations for the measurement of the Building. 1.4 Landlord and Tenant agree that the legal description of the Land may be adjusted as a result of the legal resubdivision of the Land as described in Section 3(d) of the Phase II Development Agreement. In the event such adjustment occurs, Landlord and Tenant agree to execute an amendment to this Lease, or such other documentation, reflecting such adjustment. ARTICLE II TERM 2.1 The term of this Lease (hereinafter referred to as the "LEASE TERM") shall commence on the Lease Commencement Date, as determined pursuant to Section 2.2 below, and continue for a period of fifteen (15) years thereafter, unless such Lease Term shall be extended, renewed or terminated earlier in accordance with the provisions hereof. Notwithstanding the foregoing, if the Lease Commencement Date shall occur on a day other than the first day of a month, the Lease Term shall commence on such date and continue for the balance of such month and for a period of fifteen (15) years thereafter. The term "Lease Term" shall include any and all renewals and extensions of the term of this Lease. 2.2 (a) The "LEASE COMMENCEMENT DATE" shall be the earlier of (i) the date on which the Building is, or is deemed to be, substantially complete as determined pursuant to Section 7 of the Phase II Development Agreement and (ii) the date on which Tenant commences the conduct of its business upon any portion of the Premises comprising, in the aggregate, seventy-five percent (75%) or more of the rentable area of the Building. (b) Tenant and its contractors shall be allowed access to the Building approximately forty-five (45) days prior to Landlord's estimated date of substantial completion of the Premises for the purpose of installing Tenant's communication equipment and associated wiring and such persons shall have access to the Premises approximately fifteen (15) days prior to Landlord's estimated date of substantial completion of the Premises for the purpose of installing Tenant's other special equipment, fixtures and furniture (all such installations pursuant to this Section 2.2(b) being referred to herein as "TENANT INSTALLATIONS") and, the provisions of Section 2.2(a) or 2.2(c) to the contrary notwithstanding, such Tenant Installations and related activity shall not be considered the commencement of business operations in the Premises by 2 Tenant. Landlord shall use reasonable efforts to provide Tenant with approximately sixty (60) days prior written notice of Landlord's estimated date of substantial completion of the Premises and shall promptly respond to any written request of Tenant inquiring as to Landlord's estimated date of substantial completion. Any and all Tenant Installations and other related activity by Tenant or its contractors prior to the Lease Commencement Date (i) shall be subject to Landlord's and its contractor's reasonable scheduling and sequencing requirements and (ii) shall be coordinated with Landlord and its general contractor to insure that Tenant's work in and to the Premises does not hinder, delay, inhibit or otherwise interfere with the work being performed by Landlord and its contractors, the parties hereby acknowledging and agreeing that the schedule for the performance of the construction and the development of the Building does not provide additional time for the performance by Tenant of the Tenant Installations. Notwithstanding anything herein to the contrary neither Tenant nor its agents or contractors shall have access to the Premises during the times specified by Landlord or its general contractor as times that may cause unreasonable delay or interference with the activities of or on behalf of Landlord in the Premises or the Building. All terms and conditions of this Lease including, without limitation, the insurance, release and waiver of liability provisions of Articles XIII and XV hereof shall apply to and be effective during such period of occupancy by Tenant, except for Tenant's obligation to pay Annual Base Rent and additional rent attributable to Expenses. (c) If one or more full floors within the Premises is substantially complete prior to the Lease Commencement Date, and if Tenant desires to occupy all or a portion of such full floor(s) for the conduct of its business prior to the Lease Commencement Date, then, unless and until such early occupancy includes 75% or more of the rentable area of the Building, such early occupancy shall not cause the Lease Commencement Date to occur, but all the terms of this Lease (including, without limitation, the requirement that Tenant pay Annual Base Rent and additional rent (each, as hereinafter defined) with respect to such full or partial floors) shall apply with respect to each space thus occupied by Tenant from the date that Tenant takes occupancy thereof for the conduct of its business therein. In the case of any such partial occupancy prior to the Lease Commencement Date, Annual Base Rent shall be determined based on the ratio of the rentable area so occupied to the total rentable area of the Building. 2.3 Promptly after the Lease Commencement Date is ascertained, Landlord and Tenant shall execute a written declaration setting forth the Lease Commencement Date, the date upon which the Lease Term will expire, the exact number of square feet of rentable area in the Premises, and the Annual Base Rent. The form of such declaration is attached hereto as Exhibit B and made a part hereof. 2.4 For purposes of this Lease, the term "LEASE YEAR" shall mean either (a) each period of twelve (12) consecutive calendar months commencing on the first day of the month immediately following the month in which the Lease Commencement Date occurs, and on each anniversary of such date, except that the first Lease Year shall also include the period from the Lease Commencement Date to the first day of the following month; or (b) if the Lease Commencement Date shall occur on the first day of a calendar month, each period of twelve (12) consecutive calendar months commencing on the Lease Commencement Date and on each anniversary of such date; whichever is applicable. 3 ARTICLE III BASE RENT 3.1 (a) During the first Lease Year, Tenant shall pay to Landlord as Annual Base Rent, net of all Expenses (which term is defined in Section 4.2 below), for the Premises, without set off, deduction or demand, an amount equal to the Formula Rent (as hereinafter defined), which amount shall be increased on an annual basis as provided in Section 3.2 below. (b) The "FORMULA RENT" shall be an amount equal to the product of (i) the Project Costs, as defined in the Phase II Development Agreement, multiplied by (ii) Nine and Six Tenths Percent (9.6%), which amount may be increased in accordance with the provisions of Section 3.2 (a) hereof and which amount, as it may be increased, shall be subject to annual adjustment as provided in Section 3.2 (b) hereof. (c) The Annual Base Rent payable hereunder during each Lease Year shall be divided into equal monthly installments and such monthly installments shall be due and payable in advance on the first day of each month during such Lease Year. If the Lease Commencement Date (determined pursuant to Section 2.2 hereof) occurs prior to a date when final Project Costs are ascertained, then Annual Base Rent shall initially be determined and payable based on projections of such costs as of the Lease Commencement Date, as reasonably determined by Landlord and Tenant, and shall thereafter be recalculated when such costs are ascertained. Upon such recalculation, Landlord shall deliver to Tenant a written notice specifying (i) the calculation of Annual Base Rent based upon actual Project Costs, (ii) the Annual Base Rent that is payable to Landlord hereunder for the period commencing on the Lease Commencement Date and continuing through the date of such notice based on actual Project Costs, and (iii) the Annual Base Rent that was in fact paid to Landlord for the same time period. If the amount of Annual Base Rent paid by Tenant for such time period exceeds the amount of Annual Base Rent payable for such time period based on actual Project Costs, Landlord shall credit the net overpayment against the next monthly installment(s) of Annual Base Rent and additional rent due hereunder. Conversely, if Tenant's actual liability for Annual Base Rent for such time period exceeds the sums theretofore paid by Tenant on account thereof, Tenant shall pay the amount of the deficiency within thirty (30) days following Tenant's receipt of Landlord's notice. In either event, there shall be added to the excess that is to be credited or the deficiency that is to be paid (whichever is applicable) a sum equal to interest on each monthly component of the amount to be credited or paid from the date each monthly component would have been payable if actual Project Costs had been known on the Lease Commencement Date to the date of the credit or payment pursuant to the reconciliation statement calculated at the Interest Rate (as hereinafter defined). Effective as of the date of such notice (the "RENT RECALCULATION DATE"), Tenant shall begin paying Annual Base Rent at the recalculated rate. Any dispute between Landlord and Tenant as to the amount of the Project Costs (whether projected or final) shall be determined in accordance with the provisions of the Phase II Development Agreement. (d) For purposes of calculating the Formula Rent payable hereunder, the term "PROJECT COSTS" shall be determined in accordance with the provisions of Section 10(a) of the Phase II Development Agreement. 4 3.2 (a) In accordance with the provisions of Section 10(b)(ii) of the Phase II Development Agreement, Tenant may elect that Landlord provide Tenant with an additional improvement allowance (the "ADDITIONAL LEASEHOLD IMPROVEMENT ALLOWANCE") to be used by Tenant in connection with designing, constructing and installing the Leasehold Improvements in the Premises in an amount up to but not to exceed the product of Four Dollars and Fifty Cents ($4.50) multiplied by the number of square feet of rentable area in the Building In the event Tenant elects to utilize all or a portion of the Additional Leasehold Improvement Allowance, the amount of annual base rent payable by Tenant in accordance with Section 3.1 hereof shall be increased by an amount sufficient to amortize the entire Additional Leasehold Improvement Allowance (or such lesser portion thereof) which Tenant has elected to use at an interest rate of ten percent (10%) per annum over the initial fifteen (15) year term of this Lease. (b) Commencing on (i) the first day of the second (2nd), third (3rd) fourth (4th) and fifth (5th) Lease Years, the Annual Base Rent payable for such Lease Year shall be increased over the escalated Annual Base Rent in effect during the preceding Lease Year by two percent (2%), (ii) the first day of the sixth (6th), seventh (7th) eighth (8th), ninth (9th) and tenth (10th) Lease Years the Annual Base Rent payable for such Lease Year shall be increased over the escalated Annual Base Rent in effect during the preceding Lease Year by two and one-half percent (2.5%) and (iii) the first day of the eleventh (11th), twelfth (12th), thirteenth (13th), fourteenth (14th) and fifteenth (15th) Lease Years the Annual Base Rent payable for such Lease Year shall be increased over the escalated Annual Base Rent in effect during the preceding Lease Year by three percent (3%). 3.3 All rent shall be paid to Landlord, without set-off, deduction or demand, in legal tender of the United States (i) at the address to which notices to Landlord are to be given or to such other address as Landlord may designate from time to time by written notice to Tenant, or (ii) by wire transfer in accordance with wiring instructions to be provided to Tenant by Landlord at least thirty (30) days prior to the Lease Commencement Date (or such alternative wiring instructions as Landlord may designate from time to time by written notice to Tenant). Any failure by Landlord to timely notify Tenant of such wiring instructions shall not excuse the payment of rent by Tenant; however, Tenant shall not be obligated to make any rent payment hereunder sooner than five (5) business days following Tenant's receipt of Landlord's wiring instructions. If Landlord shall at any time accept rent after it shall come due and payable, such acceptance shall not excuse a delay upon subsequent occasions, or constitute or be construed as a waiver of any of Landlord's rights hereunder. ARTICLE IV ADDITIONAL RENT 4.1 Tenant shall bear the costs and expenses incurred each year in the operation of the Building and the Land. For so long as Tenant is the sole lessee of the Building, Tenant shall have the right to provide input into the determination of such annual costs and expenses, as follows. Not more than thirty (30) days prior to the Lease Commencement Date, Landlord shall prepare and submit to Tenant a proposed budget for the operation and maintenance of the Building and the Land, the parties acknowledging and agreeing that such budget shall represent Landlord's reasonable expectation of such costs and expenses as the Building will not have been substantially completed at the time of the preparation of such budget. On or before 5 November 15 of each calendar year during the Lease Term, Landlord shall prepare and submit to Tenant (i) a proposed budget or other form of summary identifying with reasonable detail the anticipated categories of expenditures to be made, proposed major vendors to provide services and proposed scope of services (including, but not limited to, security services) to be provided by Landlord for the ensuing calendar year in the operation and maintenance of the Building and the Land and (ii) after the first year of operation of the Building, the operating history of the Building for the previous year (the "OPERATING PLAN"). It is the intention of Landlord and Tenant that Operating Expenses, as defined below, and the individual components thereof shall not materially exceed prevailing market costs and rates for like items and services, however, the parties acknowledge and agree that there may be occasions from time to time where it is in the best interests of the Building for a particular item to be performed or purchased at a cost or expense which exceeds prevailing market rates. If Tenant has reasonable additions, deletions or modifications to any elements of Landlord's proposed Operating Plan, Tenant shall notify Landlord of same within thirty (30) days following receipt of the proposed Operating Plan and Landlord shall incorporate Tenant's reasonable additions, deletions and modifications into Landlord's proposed Operating Plan and shall operate the Building substantially in accordance therewith; provided that, in no event shall Landlord be obligated to operate the Building or the Land in a manner that is inconsistent with the standards of a Class A suburban office building in the Market Area. The Operating Plan (as it may be revised with Tenant's input as aforesaid) shall serve as a general guide to the scope of services to be provided and expenditures to be made in the operation and maintenance of the Building and Land and Landlord shall not deviate therefrom in any material manner without first obtaining Tenant's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, and shall be deemed given if not withheld in writing within seven (7) business days following Landlord's notice thereof to Tenant; provided that, in case of emergency or in any case in which Landlord reasonably believes delay might cause injury to persons, material injury to property or a violation of any Legal Requirement, Landlord may act without Tenant's prior written consent. Any failure of Landlord to timely provide an annual Operating Plan to Tenant as provided herein shall not relieve Tenant of its obligation to pay additional rent pursuant to this Article IV. 4.2 The costs and expenses (the "EXPENSES") for which Tenant shall be responsible are defined as follows: (a) "OPERATING EXPENSES" shall mean and include those direct reasonable and customary expenses actually incurred and paid in operating and maintaining the Building and the Land in a manner consistent with the operating and maintenance standards observed at similar Class A suburban office buildings located in the Market Area, including, but not limited to, the following: (1) electricity, gas, water, sewer and other utility charges of every type and nature; (2) premiums and other charges for insurance (including, but not limited to, property insurance, rent loss insurance and liability insurance) incurred in accordance with Section 12.2 hereof; (3) all management fees incurred in the management of the Building (subject to the limitation set forth below); (4) all costs incurred in connection with service and maintenance contracts; (5) maintenance and repair expenses and supplies; (6) amortization (calculated on a straight-line basis over the useful life of the improvement, with interest at Landlord's applicable cost of funds or, if the improvement is not financed, at the prime rate reported in The Wall Street Journal) for capital expenditures made by Landlord, but only to the extent that they (i) are made after the first two (2) years of the Lease Term and are intended to decrease Operating Expenses 6 or improve safety, or (ii) are made after the expiration of the tenth (10th) Lease Year of the Lease Term as a result of Legal Requirements enacted after the date of this Lease, provided, however, that Landlord shall be entitle to recoup the cost of capital improvements which result in energy savings to the Building within the savings period attributable to such improvement and provided further that commencing in the sixth (6th) Lease Year, Landlord may pass through directly to Tenant the entire actual cost incurred by Landlord in connection with the maintenance, repair and replacement of major components of any Building systems which prematurely fail due to Tenant's mandated hours of operation of such system(s) in excess of sixty-eight (68) hours per week; (7) salaries, wages, benefits and other expenses of Building personnel, together with the costs of maintaining engineering, maintenance and/or management offices in the Building (which costs shall not include imputed rent for the space in the Building occupied for such purposes); provided, however, that if during the Lease Term such personnel or entities are working on projects other than the Building, then their wages, salaries, fees and related expenses shall be appropriately allocated among all of such projects and only that portion of such expenses reasonably allocable to the Building shall be included in Operating Expenses; (8) legal fees (except as excluded below), administrative expenses, and accounting, architectural and other professional fees and expenses, except those that are normally absorbed by the property manager and not charged separately to Landlord in addition to management fees; (9) costs of any service not provided to the Building on the Lease Commencement Date but thereafter provided by Landlord pursuant to the then current Operating Plan established pursuant to Section 4.1 above, provided pursuant to the request of Tenant, otherwise provided pursuant to Section 4.1 above, or, during any time that Orbital is not the sole lessee of the Building, provided in the prudent management of the Building; (10) charges for concierge, security, janitorial, char and cleaning services and supplies furnished to the Building (except that costs of furnishing char and janitorial service to any space in the Building shall be excluded with respect to such space for so long as Tenant is furnishing its own char and janitorial service to such space in accordance with the provisions of this Lease); (11) costs associated with the provision or operation of any common facilities, including (without limitation) parking areas, landscaped areas, access roads, and the Building's loading dock; (12) fees and assessments payable pursuant to any declaration of covenants recorded against the Land or any property owners' association affecting the Land, which covenants if recorded against the Land after the effective date of this Lease and if Orbital is the lessee of fifty-one percent (51%) of the Building at such time, shall be subject to Orbital's approval; (13) Supplemental Land Costs, as defined in Section 4.2(c) below; and (14) any other reasonable expense incurred by Landlord in maintaining, repairing or operating the Building or the Complex. Any provision herein to the contrary notwithstanding, Operating Expenses shall not include the following: (i) the cost of any work performed (such as preparing a tenant's space for occupancy, including painting and decorating) or services provided (such as separately metered electricity) for any tenant (including Tenant) at such tenant's cost, or provided by Landlord without charge (such as free rent or improvement allowances); (ii) salaries, benefits and other compensation of Landlord's officers, partners, its headquarters staff and personnel located outside of the Complex, except to the extent includible pursuant to clause (7) above; 7 (iii) the cost of any work performed or service provided for any tenant of the Building (other than Tenant, if any) to a materially greater extent or in a materially more favorable manner than that furnished generally to the other tenants and occupants; (iv) the cost of any items for which Landlord is reimbursed by insurance proceeds (or would have been so reimbursed if Landlord had maintained the insurance required pursuant to Section 12.2 hereof), condemnation awards, or otherwise, or the cost of any item or service for which Landlord is actually reimbursed or is entitled to be reimbursed by another tenant of the Building, provided, however, that Landlord may include any insurance deductible in Operating Expenses; (v) depreciation of the Building and the cost of any additions, changes, or replacements to the Building, or amortization thereof, which under generally accepted accounting principles are properly classified as capital expenditures, except to the extent includable pursuant to clause (6) above and subject to Tenant's obligations with respect to capital expenditures pursuant to Section 4.2(a)(6) above and Sections 4.8 and 6.2 below; (vi) the cost of any repair made in response to any fire or casualty damage (except for the amount of any commercially reasonable "deductible" under Landlord's property insurance) or any condemnation; (vii) interest and principal payments on any debt, depreciation, and rental under any ground lease or other underlying lease; (viii) any real estate brokerage commissions or other costs incurred in procuring tenants, or any fee in lieu of commission; (ix) property management fees in excess of two and one-half percent (2.5%) of the Annual Base Rent payable hereunder from time to time; (x) any costs representing an amount paid to an entity related to or affiliated with Landlord to the extent in excess of the amount which would have been paid in the absence of such a relationship; (xi) any expenses for repairs or maintenance which are covered by warranties, guaranties or service contracts (excluding any mandatory deductibles); (xii) legal expenses arising out of the construction, sale, financing or refinancing of the Land or the Building, or the enforcement or defense of the provisions of any tenant's lease or organizational matters of Landlord or of any other proceeding by or against Landlord with respect to matters not specifically intended to be included as Operating Expenses; (xiii) insurance premiums to the extent of any refunds thereof; 8 (xiv) incremental costs necessitated by or resulting from the negligence or willful misconduct of Landlord, its managing agent, or its employees or from the gross negligence or willful misconduct of Landlord's independent contractors or other agents; (xv) costs arising out of a sale, financing or refinancing of the Land or the Building or any interests therein; (xvi) costs and taxes associated with the operation of the business entity of Landlord, including partnership audit, business entity accounting, and business entity legal matters; (xvii) costs, legal expenses, interest, fines and penalties associated with Landlord's making any late payments; (xviii) any costs or expenses incurred in connection with the remediation or removal of Hazardous Materials; (xix) acquisition or leasing costs of sculpture, paintings or other objects of art; (xx) except as provided in Section 4.2(a)(6) above, costs for repairing, replacing or otherwise correcting defects (but not the costs of repair or normal wear and tear) in the initial construction of the Premises; (xxi) costs of initial construction of the Premises, including all Project Costs; (xxii) rent for any on-site offices of Landlord or its managing agent; provided, however that Tenant shall make available to Landlord, without cost to Landlord, approximately 1,700 rentable square feet of space in the Building for a management office, storage space, janitors' closets and/or building engineer's shop (all in locations to be reasonably agreed upon, including in the below grade garage space), which space shall be included in the rentable area of the Building when determining the Base Rent to be paid by Tenant under Article III hereof; and (xxiii) charitable or political contributions. In the event a single expenditure pays for the provision of a good or service to both the Building and any other building in the Complex or owned by Landlord, then Expenses shall include only the portion of such payment that is equitably allocable to the Building, as reasonably determined by Landlord and disclosed in writing to Tenant. Similarly, if any expenditure (whether in the nature of Operating Expenses or Real Estate Taxes (as defined below) benefits or otherwise relates to the Land and/or Building hereunder, as well as other land and/or buildings (including any land that may have been excluded from the Land hereunder pursuant to Section 1.4 hereof), then Expenses shall include only the portion of such expenditure that is equitably allocable to the 9 Land and/or Building hereunder (as they may be constituted from time to time), as reasonably determined by Landlord and disclosed in writing to Tenant. (b) "REAL ESTATE TAXES" shall mean and include (i) all real property taxes, including general and special assessments, if any, which are imposed upon Landlord in connection with the Building and/or the Land or assessed against the Building and/or the Land; (ii) any other present or future taxes or governmental charges which are imposed upon Landlord in connection with the Building and/or the Land, or assessed against the Building and/or the Land, including, but not limited to, any tax levied on or measured by the rents payable by tenants in the Building which are in the nature of, or in substitution for, real property taxes; and (iii) all taxes which are imposed upon Landlord, and which are assessed against the value of any improvements to the Premises made by Tenant or any machinery, equipment, fixtures or other personal property of Tenant used therein. In no event shall "Real Estate Taxes" include (A) income or net profit taxes imposed upon Landlord, except to the extent such taxes are in substitution for real property taxes, (B) the amount of any special taxes or special assessments actually paid by Landlord in any calendar year in excess of the minimum installment of special taxes or special assessments required to be paid by Landlord during such calendar year (it being agreed that Landlord shall elect the longest period of time allowed by the authority imposing the tax or assessment in which to pay installments of special taxes or special assessments that are to be prorated over several years), (C) franchise, stock and inheritance or estate taxes and sales, use or excise taxes imposed on rent, except to the extent such taxes are imposes in lieu of real estate taxes, (D) any transfer taxes, recording fees, tap fees, excises, levies, license fees, permit fees, impact fees, inspection fees or other authorization fees and any other similar charges which are included in the term "Project Costs". Tenant may request that all real estate taxing authorities, when issuing notices of assessment and real estate tax bills with respect to the Building or the Land, issue such notices and bills to both Landlord and Tenant simultaneously, and Landlord shall cooperate with such request. If any such taxing authority will not agree to same, then Tenant shall so notify Landlord and Landlord shall thereafter use reasonable efforts to furnish to Tenant a copy of each such notice of assessment or real estate tax bill that Landlord receives from such taxing authority with respect to the Building and/or the Land within thirty (30) days following Landlord's receipt thereof and shall be obligated to furnish to Tenant a copy thereof (if available) within ten (10) days following Landlord's receipt of Tenant's written request therefor. Landlord shall make a determination whether or not to challenge or appeal such assessment based on Landlord's reasonable judgment of which course is in the best interest of the Building. So long as Orbital is leasing not less than fifty-one percent (51%) of the rentable area of the Building, Landlord shall inform Tenant of such determination, and shall make available appropriate personnel to discuss with Tenant the reasons underlying such determination. In the event Landlord determines not to challenge or appeal such assessment (or, having undertaken to appeal or challenge such an assessment, does not pursue the appeal or challenge with due diligence and continuity), and provided Tenant is leasing the minimum square footage specified in the preceding sentence, Landlord agrees that Tenant may appeal or challenge such assessment in Landlord's place and stead and that Landlord will join in and cooperate with Tenant in prosecuting such appeal or challenge; provided, however, that such appeal or challenge shall be undertaken at Tenant's sole cost and at no expense to Landlord (except that, if Tenant's appeal or challenge is successful, then Tenant may recover its costs out of the refund or reduction of Real Estate Taxes achieved by Tenant prior to allocating such reduction to the tenants of the Building). 10 (c) It is the intention of the parties that as the Complex is subdivided and additional buildings are constructed therein, each of the lots in the Complex shall bear their pro rata portion of the costs (collectively, "SUPPLEMENTAL LAND COSTS") of all common roadwork and other common infrastructure costs that are associated with the initial and any subsequent development of the Complex (collectively, "COMMON SITE WORK"). For purposes hereof, Supplemental Land Costs associated with a subsequent phase of development of the Complex (i) shall include all costs and expenses (including, without limitation, interest and interest carry) of the types that are incurred (provided the cost incurred is subsequently paid) or paid by Landlord or the owners of the other lots in the Complex in connection with the further development of the lots in the Complex and (ii) shall be equitably apportioned among all of the buildings in the Complex. Common Site Work shall include, without limitation, the costs of extending the primary road network and pedestrian walkways serving the Complex to serve subsequent phases; the costs of extending utilities to the perimeter of a subsequent phase; the costs of expanding storm water facilities to serve subsequent phases; the costs of developing, installing lighting in, and landscaping entrances to the Complex and other common areas of the Complex and any and all other site development mandated by applicable Legal Requirements, as defined herein; and the costs of installing directional signage and entrance signage in common areas situated on subsequent phases 4.3 Tenant shall pay to Landlord, as additional rent for the Premises, the Expenses incurred by Landlord in the operation of the Building and the Land during any calendar year falling entirely or partly within the Lease Term, but the Expenses for any calendar year during the Lease Term shall be apportioned so that Tenant shall pay only that portion of such Expenses for such year as fall within the Lease Term. This provision shall survive the expiration or earlier termination of this Lease. Tenant shall also pay the Expenses incurred by Landlord during any period of partial occupancy prior to the Lease Commencement Date pursuant to Section 2.2 hereof. 4.4 If, during any period in which Orbital is not the sole lessee of the Building, the occupancy rate for the Building during any calendar year is less than ninety-five percent (95%), or if any office tenant is separately paying for electricity or janitorial services furnished to its premises, then Expenses for such calendar year shall be deemed to include all additional expenses with respect to those Expenses that vary in accordance with the occupancy of the Building, as reasonably estimated by Landlord, which would have been incurred during such calendar year if the occupancy rate for the Building had been ninety-five percent (95%) and if Landlord paid for electricity and janitorial services furnished to such premises. This provision shall not operate in a manner that would permit Landlord to recover from Tenant additional rent on account of Operating Expenses for any calendar year which, when added to the total additional rent payable by all tenants of the Building on account of Operating Expenses for such year will exceed the actual Operating Expenses incurred by Landlord for such year. 4.5 Commencing on the Lease Commencement Date and on the first day of each month thereafter, Tenant shall make estimated monthly payments, based on the Operating Plan, to Landlord on account of the Expenses that are reasonably expected to be incurred during each calendar year falling entirely or partly within the Lease Term. The amount of such monthly payments shall be determined as follows: Commencing with the Lease Commencement Date (or such earlier date as of which Expenses may be payable by Tenant pursuant to Section 4.3) and at 11 the beginning of each calendar year thereafter, Landlord shall submit to Tenant a statement setting forth Landlord's reasonable estimate of the Expenses that are expected to be incurred during such calendar year (and, if Orbital is not the sole lessee of the Building, Tenant's proportionate share thereof). Provided that Tenant receives such statement at least forty-five (45) days in advance, Tenant shall pay to Landlord on the first day of each month following receipt of such statement during such calendar year an amount equal to (A) the excess of (i) the anticipated Expenses (or Tenant's proportionate share thereof, during any period in which the Building is multi-tenanted) for the full calendar year (or the portion of such calendar year that falls within the Lease Term) over (ii) the monthly payments made by Tenant (on the basis of the estimate in effect during the preceding calendar year) prior to the commencement of payments made on the basis of Landlord's estimate for the current calendar year, multiplied by (B) a fraction, the numerator of which is one (1) and the denominator of which is the number of months during such calendar year which fall within the Lease Term and follow the date of the foregoing statement. Within approximately ninety (90) days after the expiration of each calendar year, Landlord shall submit to Tenant a statement certified by Landlord (the "RECONCILIATION STATEMENT"), showing (i) the Expenses actually incurred during the preceding calendar year (and, during any period in which the Building is multi-tenanted, Tenant's proportionate share thereof), and (ii) the aggregate amount of the estimated payments made by Tenant on account thereof. If the aggregate amount of such estimated payments exceeds Tenant's actual liability for such Expenses, then Landlord shall credit the net overpayment against the next monthly installment(s) of Annual Base Rent and additional rent coming due under this Lease (or if the Lease Term has ended, shall pay such net overpayment to Tenant within thirty (30) days after providing such Reconciliation Statement to Tenant). If Tenant's actual liability for such Expenses exceeds the estimated payments made by Tenant on account thereof, then Tenant shall pay to Landlord the total amount of such deficiency within thirty (30) days after its receipt of the Reconciliation Statement from Landlord. In the event Landlord has failed to deliver a Reconciliation Statement to Tenant within approximately ninety (90) days after the expiration of a calendar year, Tenant may deliver to Landlord a written demand that the Reconciliation Statement be delivered within sixty (60) days following the date of delivery of Tenant's demand notice, and if Landlord fails to deliver the Reconciliation Statement to Tenant within sixty (60) days after the date on which Landlord receives Tenant's demand notice, then Landlord shall forfeit the right to bill Tenant for any amount on account of Expenses incurred during such calendar year in excess of the estimated payments made by Tenant during such calendar year (but Tenant shall not forfeit the right to be reimbursed for any overpayment if its estimated payments exceeded the actual Expenses, and Landlord shall not be excused from its obligation to deliver the Reconciliation Statement). The provisions of this paragraph shall survive the expiration or earlier termination of this Lease. 4.6 Tenant shall have the right, during business hours and upon reasonable prior notice, from time to time to inspect and make copies of Landlord's books and records relating to Expenses, and/or to have such books and records audited at Tenant's expense by an independent certified public accountant or other qualified consultant designated by Tenant, not more than ten percent (10%) of the fees of whom shall be determined on a contingent basis, except that any audit that discloses that annual Expenses have been overstated by more than three percent (3%) shall be at Landlord's expense. Any discrepancy shall be corrected by a payment of any shortfall to Landlord by Tenant, or a refund of any overpayment to Tenant by Landlord, within thirty (30) days after the applicable audit. In the event Tenant does not contest a statement of Expenses 12 within three (3) years after the date it receives a Reconciliation Statement (and provided Landlord has cooperated with Tenant undertaking an audit of Landlord's books and records, if so requested by Tenant), such Reconciliation Statement shall become binding and conclusive upon each party. Tenant shall use reasonable efforts to (and shall use reasonable efforts to cause its agents to ) keep the results of such audit confidential. Landlord shall retain the books and records for the Building for the period subject to Tenant's audit rights. 4.7 So long as Tenant is the sole lessee of the Building, Tenant may request that electric utility bills be sent directly from the electricity provider to Tenant, in which event Tenant shall be obligated to pay all charges for electricity directly to such electricity provider as and when due. If Tenant ceases to be the sole lessee of the Building, Tenant may request that electricity furnished to the Premises be separately metered, if such service is available from the applicable utility provider, in which event Landlord shall, subject to any conditions or limitations imposed by the electricity provider, install a submeter or checkmeter at Tenant's expense. Following any such separate metering, Tenant shall timely pay directly to the appropriate utility all charges for electricity furnished to the Premises (and the charges for such separately metered electricity shall not be included in Operating Expenses). Notwithstanding anything contained herein to the contrary, if Tenant fails to pay any electric bill that is provided directly to Tenant by the electric utility as and when due, such failure shall constitute a default hereunder. If any such default is not cured within ten (10) business days following written notice from Landlord, then Landlord shall have the right, but shall not be obligated, to pay the delinquent amounts, and Tenant shall reimburse Landlord therefor within five (5) business days after receiving notice of such payment by Landlord; provided that Landlord may act without notice to Tenant if delay would cause an interruption of utility services, an emergency or similar situation. Notwithstanding anything to the contrary herein, in the event electric service to the Premises is measured by separate meter or check meter, Tenant shall not be relieved of its obligation to pay its share of Expenses attributable to the provision of electrical service to the common areas of the Building. Landlord shall have the right to verify Tenant's electrical consumption in the Premises through the energy management system in the Building. 4.8 Except as otherwise provided in Sections 4.2(a)(6), Section 6.2 and this Section 4.8, Landlord shall bear the cost of, and shall not pass through to Tenant as an Expense hereunder, any necessary or appropriate capital expenditures constituting additions or changes to, or replacements of, the base building systems and other base building components of the Building ("BASE BUILDING CAPITAL EXPENDITURES"). The preceding sentence notwithstanding, Landlord shall not be obligated to make any such capital repair or replacement to specifications that exceed building standard specifications unless Tenant agrees to pay in full, at the time the Base Building Capital Expenditure is incurred, the excess cost of such Tenant-upgraded capital repair or replacement over the cost of making such capital replacement or repair to building standard specifications; provided, however, in the event (i) the cost of the Base Building Capital Expenditure in question is less than Five Hundred Thousand Dollars ($500,000.00), which cap shall be increased annually by the increase in the Consumer Price Index, as defined in the Phase II Development Agreement, and (ii) Orbital's net worth (which shall be determined on a pro forma basis using generally accepted accounting principles consistently applied and using the most recent financial statements) is not less than it is on the Effective Date, then Tenant may elect to amortize the cost of such Base Building Capital Expenditure, at an interest rate acceptable to Landlord but not exceeding commercially reasonable interests rates at the time of 13 the expenditure, as additional rent to be paid by Tenant over the remainder of the Lease Term, assuming that Tenant does not and has not elected to renew this Lease. In addition, any necessary or appropriate capital expenditures constituting additions or changes to, or replacements of, any of Tenant's tenant improvements shall be payable in full by Tenant at the time the capital expenditure is incurred. For purposes hereof, "building standard" specifications shall mean specifications customary in Class A suburban office buildings in the Market Area. ARTICLE V SECURITY DEPOSIT 5.1 (a) Tenant shall be obligated to post, as the "SECURITY DEPOSIT" hereunder, a sum equal to Four Hundred Sixty Thousand Dollars ($460,000.00). Upon the Lease Commencement Date, provided no default on the part of Tenant under this Lease shall then be in existence and no Event of Default, as defined in Section 18.1 hereof, has occurred hereunder, the security deposit shall be reduced to Four Hundred Thousand Dollars ($400,000.00). All cash which Tenant delivers to Landlord as a security deposit, including the proceeds if Landlord draws of the Letter of Credit, as defined below, will be deposited in a separate, interest-bearing account maintained by Landlord with a depository selected by Tenant and approved by Landlord, in its reasonable discretion, with interest accruing to the benefit of Tenant. Interest on the security deposit (if it is in the form of cash) shall be disbursed to Tenant no less often than on a quarterly basis. Following an Event of Default, interest earned on the security deposit shall be added to and become a part of the security deposit and shall not be disbursed to Tenant, except upon the return of the security deposit in accordance with the terms hereof. Landlord hereby approves NationsBank, N.A. as an acceptable depository for the security deposit. (b) The security deposit shall be security for the performance by Tenant of all of Tenant's obligations, covenants, conditions and agreements under this Lease. Within thirty (30) days after the expiration of the Lease Term, and provided Tenant has vacated the Premises and is not in default hereunder, Landlord shall return the security deposit to Tenant, less such portion thereof as Landlord shall have applied to satisfy any default by Tenant hereunder. Following an Event of Default by Tenant hereunder, Landlord shall have the right, but shall not be obligated, to use, apply or retain all or any portion of the security deposit for (i) the payment of any Annual Base Rent or additional rent or any other sum as to which Tenant is in default, (ii) the payment of any amount which Landlord may spend or become obligated to spend to repair physical damage to the Premises or the Building pursuant to Section 8.3 hereof, or (iii) the payment of any amount Landlord may spend or become obligated to spend, or for the compensation of Landlord for any losses incurred, by reason of Tenant's default hereunder, including, but not limited to, any damage or deficiency arising in connection with the reletting of the Premises. If any portion of the security deposit is so used or applied (including a draw under any letter of credit that may serve as the security deposit hereunder), within three (3) business days after written notice to Tenant of such use or application, Tenant shall deposit with Landlord cash in an amount sufficient to restore the security deposit to the full amount required to be maintained hereunder (or, if the security deposit is in the form of a letter of credit, replace or restore the letter of credit to the full amount required to be maintained hereunder), and Tenant's failure to do so shall constitute a default under this Lease. 14 (c) Tenant shall have the right to deliver to Landlord an unconditional, irrevocable letter of credit in substitution for the cash security deposit, subject to the following terms and conditions. Such letter of credit shall be (a) substantially in the form attached hereto as Exhibit D or such other form and substance satisfactory to Landlord in its sole discretion; (b) at all times in the amount of the security deposit, and shall permit multiple draws; (c) issued by a commercial bank reasonably acceptable to Landlord from time to time and located in the Washington, D.C. metropolitan area; (d) made payable to, and expressly transferable and assignable at no charge by, the owner from time to time of the Building (which transfer/assignment shall be conditioned only upon the execution of a written document in connection therewith); (e) payable at sight upon presentment to a local branch of the issuer located in the Washington, D.C. metropolitan area of a simple sight draft or certificate stating that an Event of Default has occurred under this Lease and that Landlord is entitled to draw upon the letter of credit in the amount set forth in the sight draft or certificate; (f) of a term not less than one year; and (g) at least thirty (30) days prior to the then-current expiration date of such letter of credit, either (1) renewed (or automatically and unconditionally extended) from time to time through the ninetieth (90th) day after the expiration of the Lease Term, or (2) replaced with cash in the amount of the Security Deposit. Notwithstanding anything in this Lease to the contrary, any cure or grace periods set forth in this Lease shall not apply to Tenant's obligations under subsection (g) above, and, specifically, if Tenant falls to timely comply with the requirements of subsection (g) above, then Landlord shall have the right to immediately draw upon the letter of credit without notice to Tenant and apply the proceeds to the security deposit. Each letter of credit shall be issued by a commercial bank that has a credit rating with respect to certificates of deposit, short term deposits or commercial paper of at least P-2 (or equivalent) by Moody's Investor Service, Inc., or at least A-2 (or equivalent) by Standard & Poor's Corporation, and shall be otherwise acceptable to Landlord in its reasonable discretion. If the issuer's credit rating is reduced below P-2 (or equivalent) by Moody's Investors Service, Inc. or below A-2 (or equivalent) by Standard & Poor's Corporation, or if the financial condition of such issuer changes in any other materially adverse way, then Landlord shall have the right the require that Tenant obtain a substitute letter of credit from a different issuer that complies in all respects with the requirements of this Section, and Tenant's failure to obtain such substitute letter of credit within ten (10) business days following Landlord's written demand therefor (with no other notice or cure or grace period being applicable thereto, notwithstanding anything in this Lease to the contrary) shall entitle Landlord to immediately draw upon the then existing letter of credit in whole or in part, without notice to Tenant. In the event the issuer of any letter of credit held by Landlord is placed into receivership or conservatorship by the Federal Deposit Insurance Corporation, or any successor or similar entity, then, effective as of the date such receivership or conservatorship occurs, said letter of credit shall be deemed not to meet the requirements of this Section, and, within ten (10) business days thereafter, Tenant shall replace such letter of credit with a substitute security deposit meeting the requirements of this Section (and Tenant's failure to do so shall, notwithstanding anything in this Lease to the contrary, constitute an Event of Default for which there shall be no notice or grace or cure periods being applicable thereto other than the aforesaid ten (10) business day period). Landlord shall return the superseded letter of credit to Tenant promptly upon receipt of its replacement. Any failure or refusal of the issuer to honor the letter of credit shall be at Tenant's sole risk and shall not relieve Tenant of its obligations hereunder with respect to the security deposit. 15 (d) Tenant shall have the right, from time to time, to substitute a letter of credit meeting the requirements of Subparagraph (c) for the cash security deposit, and vice versa, on one or more occasions, provided that substitutions may not occur more frequently than one (1) time in any twelve (12) month period. (e) Provided that, as of the applicable Reduction Date, as defined below, (i) no default on the part of Tenant under this Lease shall then be in existence and no Event of Default, as defined in Section 18.1, has occurred hereunder, (ii) no uncorrected physical damages to the Premises shall have occurred, ordinary wear and tear excepted and (iii) no other event shall have occurred during the Lease Term which would entitle Landlord to use or to retain all or a portion of the security deposit in accordance with the provisions of this Article V, Tenant shall have the right on the first day of the second (2nd) Lease Year and on the first day of each of the following four (4) Lease Years thereafter (each a "REDUCTION DATE") to reduce the security deposit by the amount of Eighty Thousand Dollars ($80,000.00). Notwithstanding anything herein to the contrary, if an Event of Default has occurred, then there shall occur no further reduction in the security deposit. If any portion of the security deposit is then in the form of a letter of credit, such reduction shall occur by means of delivery by Tenant to Landlord of a substitute Letter of Credit in such amount and in strict conformity with the terms of this Article V, in which event, the original Letter of Credit and any substituted Letter of Credit, as applicable, shall be returned to Tenant. 5.2 In the event of the sale or transfer of Landlord's interest in the Building, Landlord shall have the right to transfer the security deposit to the purchaser or assignee, provided such purchaser or assignee assumes Landlord's obligations hereunder, as evidenced by the agreement of such purchaser or assignee, a copy of which Landlord shall furnish to Tenant in accordance with Section 14.3 hereof. If Landlord transfers the security deposit to a purchaser or assignee, Tenant shall look only to such purchaser or assignee for the return of the security deposit, and Landlord shall thereupon be released from all liability to Tenant for the return of the security deposit. If the security deposit is in the form of a letter of credit, then Tenant shall, within ten (10) days after Landlord's request therefor, cause the Letter of Credit to be amended or reissued by the issuer to indicate the new beneficiary. 5.3 Tenant hereby acknowledges that Tenant will not look to the holder of any mortgage (as defined in Section 20.1) encumbering the Building for return of the security deposit if such holder, or its successors or assigns, shall succeed to the ownership of the Building, whether by foreclosure or deed in lieu thereof, except if and to the extent the security deposit is actually transferred to such holder; provided, however, that Landlord agrees to transfer any security deposit from Tenant to such holder of any mortgage encumbering the Building. 5.4 (a) In the event Tenant elects to use all or a portion of the Additional Leasehold Improvements Allowance, Tenant shall be required to deposit with Landlord an additional security deposit (the "ADDITIONAL SECURITY DEPOSIT") in an amount equal to fifty percent (50%) of the amount of the Additional Leasehold Improvements Allowance actually used by Tenant. Except as expressly provided herein, the provisions of this Article V shall govern the delivery, maintenance, condition, use, disbursement and form of the Additional Security Deposit. 16 (b) Provided that, as of the applicable Additional Security Deposit Reduction Date, as defined below, (i) no default on the part of Tenant under this Lease shall then be in existence and no Event of Default, as defined in Section 18.1, has occurred hereunder, (ii) no uncorrected physical damages to the Premises shall have occurred, ordinary wear and tear excepted and (iii) no other event shall have occurred during the Lease Term which would entitle Landlord to use or to retain all or a portion of the security deposit in accordance with the provisions of this Article V, Tenant shall have the right on the first day of the second (2nd) Lease Year and on the first day of each of the following nine (9) Lease Years thereafter (each a "ADDITIONAL SECURITY DEPOSIT REDUCTION DATE") to reduce the Additional Security Deposit in equal installments each in the amount of ten percent (10%) of the amount of the Additional Leasehold Improvement Allowance actually utilized by Tenant in accordance with the provisions of the Phase II Development Agreement. Notwithstanding anything herein to the contrary, if an Event of Default has occurred, then there shall occur no further reduction in the Additional Security Deposit. If any portion of the Additional Security Deposit is then in the form of a letter of credit, such reduction shall occur by means of delivery by Tenant to Landlord of a substitute Letter of Credit in such amount and in strict conformity with the terms of this Article V, in which event, the original Letter of Credit and any substituted Letter of Credit, as applicable, shall be returned to Tenant. ARTICLE VI USE OF PREMISES 6.1 Tenant shall use and occupy the Premises solely for general office purposes, research and development and related and ancillary uses and any other uses that are permitted under the approved Site Plan, applicable zoning laws and other Legal Requirements (as hereinafter defined) and are compatible with a Class A suburban office complex in the Market Area, as defined in Section 25.4 below, and for no other use or purpose. The parties hereby agree that the following uses are compatible with a Class A suburban office complex in the Market Area: laboratories, light assembly areas, health club/fitness center, outdoor fitness trail, day care center, sundries/lobby shop, laundry/dry cleaning drop-off service, and food service operations. Notwithstanding anything herein to the contrary, in no event shall such "compatible uses" in the aggregate exceed more than forty percent (40%) of the rentable area of the Building. Tenant shall not use or occupy the Premises for any unlawful purpose or in any manner that will constitute waste, nuisance or unreasonable annoyance. Tenant's use of the Premises shall also comply with all present and future laws, ordinances (including zoning ordinances and land use requirements), regulations, and orders of Loudoun County, the Commonwealth of Virginia and any other public or quasi-public authority having jurisdiction over the Premises, concerning the use, occupancy and condition of the Premises and all machinery, equipment and furnishings therein (together referred to herein as "LEGAL REQUIREMENTS"). 6.2 Pursuant to the provisions of the Phase II Development Agreement, Landlord shall obtain the initial non-residential use permit and any other similar governmental approvals which may be required for Tenant's occupancy of the Premises. It is expressly understood that if any present or future Legal Requirements require any other permit(s) for the Premises due to Tenant's particular use thereof, or Tenant's improvements or future alterations thereto, that Tenant will obtain such permit(s) at Tenant's own expense. Further, Tenant will comply with all Legal Requirements which impose on Landlord or Tenant a duty relating to or arising as a result 17 of Tenant's use or occupancy of the Premises. In particular, without limiting the generality of the foregoing, any and all alterations or additions to the Premises that are required to be made after the Lease Commencement Date, as a result of Legal Requirements (now existing or hereafter enacted) shall be made by Tenant at Tenant's sole cost and expense and in accordance with the requirements of Article IX hereof. Notwithstanding anything contained herein to the contrary, Landlord shall be required to comply with any present or future Legal Requirements with respect to (i) elements and components of the "base building" structure and systems and (ii) the common areas of the Building which are within Landlord's control, unless, in either case, such Legal Requirements are imposed because of Tenant's particular use or configuration of the Premises (as opposed to office use generally) or any improvements constructed in the Premises by Tenant or caused by Tenant or any of its employees, agents, contractors or subtenants in which case Tenant shall bear the entire cost of performing such addition, replacement or alteration. Tenant shall promptly pay all fines, penalties and damages that may arise out of or be imposed on Landlord or Tenant because of Tenant's failure to comply with the provisions of this Section. 6.3 Tenant shall pay any business, rent or other taxes that are now or hereafter levied upon Tenant's use or occupancy of the Premises, the conduct of Tenant's business at the Premises, or Tenant's equipment, fixtures or personal property. In the event that any such taxes are enacted, changed, or altered so that any of such taxes are levied against Landlord, or the mode of collection of such taxes is changed so that Landlord is responsible for collection or payment of such taxes, Tenant shall pay any and all such taxes to Landlord within thirty (30) days following written demand from Landlord. 6.4 Tenant shall not cause or permit any Hazardous Materials to be generated, used, released, stored or disposed of in or about the Building or the Complex, provided that Tenant may use and store reasonable quantities of standard office supplies and cleaning materials as may be reasonably necessary for Tenant to conduct normal general office use operations in the Premises and in compliance with all Environmental Laws and other applicable Legal Requirements. At the expiration or earlier termination of this Lease, Tenant shall surrender the Premises to Landlord free of Hazardous Materials (except any that may be Landlord's responsibility pursuant to Section 6.5 hereof and any that are otherwise not Tenant's responsibility pursuant to the terms of this Article VI) and, subject to the foregoing parenthetical, in compliance with all Environmental Laws. "HAZARDOUS MATERIALS" means (a) asbestos and any asbestos containing material and any substance that is then defined or listed in, or otherwise classified pursuant to, any Environmental Law or any other applicable Law as a "hazardous substance," "hazardous material," "hazardous waste," "toxic substance," "toxic pollutant" or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, or Toxicity Characteristic Leaching Procedure (TCLP) toxicity, (b) any petroleum and drilling fluids, produced waters, and other wastes associated with the exploration, development or production of crude oil, natural gas, or geothermal resources, and (c) any petroleum product, polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive material (including any source, special nuclear, or byproduct material), chlorofluorocarbon, lead or lead-based product, and any other substance whose presence would be hazardous to health or the environment. "ENVIRONMENTAL LAW" means any present and future Law and any amendments (whether common law, statute, rule, order, regulation or otherwise), permits and other requirements or 18 guidelines of governmental authorities applicable to the Building or the Land and relating to the environment and environmental conditions or to any Hazardous Material (including, without limitation, CERCLA, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act, 33 U.S.C. Section 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq., the Emergency Planning and Community Right-To-Know Act, 42 U.S.C. Section 1101 et seq., the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq., and any so-called "Super Fund" or "Super Lien" law, any Law requiring the filing of reports and notices relating to hazardous substances, environmental laws administered by the Environmental Protection Agency, and any similar state and local Laws, all amendments thereto and all regulations, orders, decisions, and decrees now or hereafter promulgated thereunder concerning the environment, industrial hygiene or public health or safety). At all times, and notwithstanding any termination of this Lease, Tenant shall indemnify and hold Landlord, its employees and agents harmless from and against any damage, injury, loss, liability, charge, demand or claim based on or arising out of the presence or removal of, or failure to remove, Hazardous Materials generated, used, released, stored or disposed of by Tenant or its employees, agents, contractors, licensees or invitees (collectively, "INVITEES") in or about the Building or the Complex, whether before or after the Lease Commencement Date. In addition, Tenant shall give Landlord immediate verbal and follow-up written notice of any actual or threatened Environmental Default, which Environmental Default Tenant shall cure in accordance with all Environmental Laws and to the reasonable satisfaction of Landlord and, except in the case of an emergency (in which event Tenant may act without Landlord's consent), only after Tenant has obtained Landlord's prior written consent, which shall not be unreasonably withheld. An "ENVIRONMENTAL DEFAULT" means any of the following by Tenant or any Invitee with respect to the Building, the Land or the Complex: a violation of an Environmental Law; a release, spill or discharge of a Hazardous Material on or from the Premises, the Land or the Building; an environmental condition requiring responsive action; or an emergency environmental condition. Upon any Environmental Default, in addition to all other rights available to Landlord under this Lease, at law or in equity, Landlord shall have the right but not the obligation to immediately enter the Premises, to supervise and approve any actions taken by Tenant to address the Environmental Default, and, if Tenant fails to immediately address same to Landlord's reasonable satisfaction, to perform, at Tenant's sole cost and expense, any lawful action necessary to address same. If any lender or governmental agency shall require testing to ascertain whether an Environmental Default is pending or threatened, then Tenant shall pay the reasonable costs therefor as additional rent. Promptly upon request, Tenant shall execute from time to time affidavits, representations and similar documents concerning Tenant's best knowledge and belief regarding the presence of Hazardous Materials at or in the Building, the Land or the Premises. 6.5 Landlord shall not cause or permit any Hazardous Materials to be generated, used, released, stored or disposed of on the Land, in the Building or any portion of the Complex that, it owns, in violation of applicable Environmental Laws. Except as otherwise provided below, if Landlord first becomes aware that any such Hazardous Materials have been generated, used, released, stored or disposed of on the Land, in the Building or any portion of the Complex that it owns in violation of applicable Environmental Laws after construction of the Building is substantially complete, Landlord shall take all reasonable steps necessary to promptly remove 19 such Hazardous Materials and/or remediate any contamination resulting therefrom to the extent necessary to bring the Land into compliance with all applicable Environmental Laws; provided that, Landlord shall have no such obligations with respect to any Hazardous Materials present as a result, directly or indirectly, of an Environmental Default by Tenant, which Hazardous Materials, the removal and the remediation thereof, shall be the responsibility of Tenant pursuant to Section 6.4 above. If the parties become aware, prior to substantial completion of the Building, or during any subsequent period of construction on behalf of Tenant pursuant to the Phase II Development Agreement, that any Hazardous Materials have been generated, used, released, stored or disposed of on the Land in violation of applicable Environmental Laws, the remediation thereof shall be conducted pursuant to the Phase II Development Agreement. ARTICLE VII ASSIGNMENT AND SUBLETTING 7.1 Except with respect to Tenant's Personal Property as contemplated by Section 18.10 below and except as provided in Section 7.4 below, Tenant shall not have the right to assign, transfer, mortgage or otherwise encumber this Lease or its interest herein without first complying with the provisions of subsections (a) and (b) of this Section 7.1. (a) No assignment, transfer, mortgage or other encumbrance of this Lease shall be effected unless Tenant obtains the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed by Landlord; provided, however, that, (i) if an Event of Default then exists under this Lease Landlord, in its sole judgment, may withhold its consent to any proposed assignment, transfer, mortgage or other encumbrance of this Lease, and (ii) Landlord may withhold its consent if it reasonably determines that the character of the proposed assignee or the nature of the activities to be conducted by such proposed assignee would materially affect the other tenants of the Building, if any, or the Complex or would physically damage the Building or impair the reputation of the Building as a Class A suburban office building in the Market Area, or the financial history or credit rating of the proposed assignee presents a material risk to Landlord of non-compliance with this Lease. No assignment or transfer of this Lease or the right of occupancy hereunder may be effectuated by operation of law or otherwise without the prior written consent of Landlord, as aforesaid. Any attempted assignment or transfer by Tenant of this Lease or its interest herein without Landlord's consent (if Landlord's consent thereto is required) shall, if such attempted assignment or transfer is not nullified or voided by Tenant within ten (10) business days following written notice from Landlord to Tenant that the assignment or transfer was improperly attempted without Landlord's consent, at the option of Landlord, terminate this Lease; however, in the event of such termination, Tenant shall remain liable for all rent and other sums due under this Lease and all damages suffered by Landlord on account of such breach by Tenant. (b) Tenant agrees to give Landlord at least ten (10) business days' advance written notice of Tenant's intention to assign or transfer this Lease, along with sufficient information about the proposed assignee or transferee to enable Landlord to make the determination called for by subsection (a) above. (c) Notwithstanding anything contained herein to the contrary, (i) Tenant shall not have the right to assign or transfer this Lease prior to the Lease Commencement Date 20 hereunder, except to an Affiliate of Tenant (as hereinafter defined) or otherwise pursuant to Section 7.5 hereof; and (ii) Tenant may not partially assign this Lease. 7.2 Tenant shall not have the right to sublease (which term, as used herein, shall include any type of subrental arrangement and any type of license to occupy) all or any part of the Premises without first complying with the provisions of subsections (a) and (b) of this Section 7.2. (a) Tenant shall have the right to sublease any portion or portions of the Premises; provided that, if a proposed sublease, in the aggregate with all other subleases then in existence, will cause more than fifty percent (50%) of the rentable area of the Premises to be subject to any sublease, then Tenant must obtain the prior written consent of Landlord to such proposed sublease, which consent shall not be unreasonably withheld, conditioned or delayed by Landlord; provided, however, that Landlord may withhold its consent to any proposed sublease if (i) an Event of Default then exists under this Lease or (ii) Landlord reasonably determines that the character of the proposed subtenant or the nature of the activities to be conducted by such proposed subtenant would materially affect the other tenants of the Building or the Complex, or would physically damage the Building or impair the reputation of the Building as a Class A suburban office building in the Market Area, or that the financial history or credit rating of the proposed subtenant presents a material risk to Landlord of non-compliance with this Lease. Notwithstanding anything contained herein to the contrary, in the event a proposed sublease will not cause more than fifty percent (50%) of the rentable area of the Premises to be subject to any sublease or assignment, then Tenant may enter into such sublease without Landlord's consent, but upon at least ten (10) business days' prior written notice to Landlord and provided the sublease document otherwise satisfies the terms of Section 7.3 below. (b) Tenant agrees to give Landlord at least fifteen (15) business days advance written notice of Tenant's intention to sublease a portion of the Premises, along with a copy of the proposed sublease and sufficient information about the proposed subtenant to enable Landlord to make the determination called for by subsection (a) above (if such sublease is subject to Landlord's consent). In the event Landlord fails to approve or disapprove any proposed sublease or subtenant within the fifteen (15) business days after Landlord's receipt of Tenant's notice of its intention to sublet together with the information about the proposed subtenant require pursuant to this Section 7.2(b), then Landlord shall be deemed to have approved such sublease and subtenant, unless Landlord has, in good faith, during such fifteen (15) day period requested additional information about the subtenant or requested changes to the proposed form of sublease to be entered into between Tenant and its proposed subtenant. 7.3 The consent by Landlord to any assignment or subletting shall not be construed as a waiver or release of Tenant from any and all liability for the performance of all covenants and obligations to be performed by Tenant under this Lease, nor shall the collection or acceptance of rent from any assignee, transferee or subtenant constitute a waiver or release of Tenant from any of its liabilities or obligations under this Lease. Landlord's consent to any assignment or subletting shall not be construed as relieving Tenant from the obligation of complying with the provisions of Sections 7.1 or 7.2 hereof, as applicable, with respect to any subsequent assignment or subletting. For any period during which Tenant is in default hereunder with respect to the payment of Annual Base Rent or additional rent and such default has continued beyond any 21 applicable grace or cure period, Tenant hereby assigns to Landlord the rent due from any subtenant of Tenant and hereby authorizes each subtenant to pay said rent directly to Landlord. Whether or not Landlord's prior written consent to a subletting is required pursuant to Section 7.2 above, Tenant further agrees to submit any and all instruments of assignment and sublease to Landlord prior to the execution thereof to enable Landlord to determine whether such instrument complies with the terms hereof. All such instruments shall provide that (i) such sublease or assignment is subject and subordinate to this Lease in all respects, and to any amendments, modifications, renewals, extensions or expansions hereof, (ii) in the case of a sublease, Tenant shall remain primarily liable as Tenant hereunder, (iii) such assignee or sublessee shall conduct a business in the Premises which is a permitted use pursuant to Article VI of this Lease, (iv) in the case of an assignment, such assignee is bound by the terms and conditions of this Lease and assumes all of the obligations and liabilities of Tenant hereunder, (v) in the case of a sublease, (A) Landlord is not, and will not become, a party to such sublease, (B) Landlord's consent to such sublease does not create a contractual relationship between Landlord and such sublessee, nor does it create any liability of Landlord to such sublessee, and (C) such sublessee shall not succeed to, or otherwise have the right to exercise or enforce, any of Tenant's rights hereunder directly against Landlord, (vi) Landlord's consent to such assignment or sublease does not affect the obligations of Landlord or Tenant under this Lease, and (vii) Landlord's consent to such assignment or sublease shall not be construed to mean that Landlord has approved any plans or specifications for renovations to the Premises intended by such assignee or sublessee and that any such work to the Premises must be conducted in accordance with the terms of this Lease. Any such instrument of assignment or sublease not approved by Landlord in each instance where Landlord's approval is required, or, whether or not Landlord's approval is required, which does not include all of the provisions described in clauses (i) through (vii) above, as required (unless waived by Landlord in its sole discretion), shall be null and void and of no force or effect. Any such instrument of assignment or sublease submitted to Landlord for approval and not approved or disapproved by Landlord within ten (10) business days after submission shall be deemed approved by Landlord for all purposes under this Lease. If Landlord disapproves any sublease or assignment submitted to Landlord for approval, Landlord's notice of disapproval shall identify Landlord's reasons therefor. 7.4 (a) Notwithstanding the above restrictions on subletting and assignment in this Article VII, and provided that no Event of Default then exists under this Lease, Tenant shall have the right, upon not less than five (5) business days' prior written notice to Landlord but without Landlord's prior written consent, to assign this Lease or to sublet all or any part of the Premises to an Affiliate of Tenant (as hereinafter defined), provided (i) that no Event of Bankruptcy (as hereinafter defined) shall have occurred with respect to such assignee or sublessee, (ii) that the conditions set forth in Section 7.3(i) - (vii) are fully satisfied and (iii) that the character of such person or entity and the nature of its activities in the Premises and in the Building would not be inappropriate for a Class A suburban office building in the Market Area. (b) For purposes of this Section 7.5, an "AFFILIATE OF TENANT" shall mean any corporation, association, trust, partnership, limited liability company, joint venture or other entity (i) which Controls (as herein defined) Tenant or (ii) which is under the Control of Tenant through stock ownership or otherwise or (iii) which is under common Control with Tenant. The terms "CONTROL" or "CONTROLS" as used in this Section 7.5 shall mean the power to directly or indirectly influence the direction, management or policies of Tenant or such other entity. 22 (c) Notwithstanding the above restrictions on assignment, and provided that no Event of Default then exists under this Lease, Tenant shall have the right, upon not less than thirty (30) days' prior written notice to Landlord, but without Landlord's prior written consent, to assign this Lease pursuant to a merger, consolidation, or other corporate reorganization of Tenant, or the sale or transfer of all or substantially all of the capital stock of Tenant or all or substantially all of the assets of Tenant, provided that (i) Tenant, after such merger, consolidation, reorganization or sale of stock or assets, has a creditworthiness (e.g. assets and capitalization) and net worth (which shall be determined on a pro forma basis using generally accepted accounting principles consistently applied and using the most recent financial statements) equal to or greater than the net worth of Tenant on the Effective Date, (ii) Tenant, after such merger, consolidation, reorganization or sale of stock or assets, agrees in writing to be bound by the terms and conditions of this Lease and to assume all of the obligations and liabilities of Tenant under this Lease, (iii) Tenant, after such merger, consolidation, reorganization or sale of stock or assets, shall conduct a business on the Premises which is a permitted use pursuant to Article VI of this Lease, (iv) the character of Tenant after the merger, consolidation, reorganization or sale of stock or assets, as the case may be, and the nature of Tenant's activities in the Premises would not be inappropriate for a Class A suburban office building in the Market area, (v) the conditions set forth in Section 7.3(i), (ii), (iii), (iv), (vi) and (vii) are fully satisfied, and (vi) the assignment is not a so-called "sham" transaction intended by Tenant to circumvent the provisions of Article VII of this Lease. 7.5 Tenant shall use reasonable efforts to notify Landlord in writing of any intention by Tenant to market the Premises or any portion thereof for assignment or sublease, and shall furnish to Landlord such information as Landlord may reasonably request with respect to the economic terms of the assignment or sublease transaction being sought by Tenant and the actions Tenant is taking to market the Premises. ARTICLE VIII MAINTENANCE AND REPAIRS 8.1 Landlord shall keep, maintain, repair and replace as appropriate, the elements and components which are provided as a part of the Base Building Work, as defined in the Phase II Development Agreement, including, but not limited to, the foundation, roof, exterior walls, structural portions (including columns within the Premises and the vertical sprinkler loop through the Building), and exterior glass and windows of the Building (specifically excluding the interior walls, doors, partitions, locks, and door jambs in the Building), as well as all mechanical, plumbing, heating, air conditioning, sprinkler and electrical systems and utility service lines therein, the plumbing system to and from the Premises and core area restrooms within the Premises, and the driveways, parking areas and grounds on the Land in good condition and repair and, subject to the provisions of Article VI above, in compliance with applicable Legal Requirements and the costs incurred by Landlord in maintaining and repairing such items shall be included in Expenses (unless the cost or expense of any such repair or maintenance is excluded from Expenses under Section 4.2(a) above). 8.2 Subject to the provisions of Section 8.1 above, Tenant will keep and maintain the Premises, including but not limited to, the Leasehold Improvements, as defined in the Phase II 23 Development Agreement, and all fixtures and equipment located in the Building (specifically including but not limited to, the interior walls, doors, partitions, locks, door jambs, windows, telephones, telephone systems, inside voice/data/video cabling and associated equipment, special light fixtures, kitchen fixtures, auxiliary heating, ventilation or air-conditioning equipment, fixtures and other special equipment and glass in the Premises, but excluding those portions of the Premises to be maintained by Landlord pursuant to Section 8.1 above) in clean, safe and sanitary condition, will take good care thereof and will maintain and make all required repairs thereto, and will suffer no waste or injury thereto. If Tenant so requests by written notice to Landlord, Landlord shall make any repairs and perform any maintenance that are otherwise Tenant's obligations under this Section 8.2, and the costs of providing such services shall be included in Operating Expenses and payable by Tenant pursuant to Article IV hereof. In addition, Tenant shall have the right, but not the obligation, to effect minor repairs and routine maintenance to the Premises (and, for so long as Tenant is the sole lessee of the Building, the Land) provided that (i) Landlord shall be given reasonable prior notice thereof (except in the case of emergency); (ii) once commenced, such maintenance and repair work shall be completed promptly and in accordance with standards for a Class A suburban office building; (iii) such repair or maintenance will not jeopardize compliance with the Building's classification as a Class A suburban office building; and (iv) Tenant shall not be entitled to make structural repairs or repairs or maintenance that has a material effect on any of the base building systems, except as permitted pursuant to Section 14.6 hereof. At the expiration or other termination of the Lease Term, Tenant shall surrender the Premises, broom clean, in substantially the same order and condition which they are in on the Lease Commencement Date, as altered by any improvements (as defined in Section 9.2 hereof) made in accordance with Article IX hereof that Tenant is not obligated to remove pursuant to Section 9.4 hereof, ordinary wear and tear, damage by the elements, and casualty damage excepted. 8.3 Subject to the provisions of Section 12.4(b) below, all injury, breakage and damage to the Premises or to any other part of the Building caused by any negligent act or omission or willful misconduct of Tenant, or of any agent, employee, subtenant, contractor, customer or invitee of Tenant, shall be repaired by and at the sole expense of Tenant, except that Landlord shall have the right, at its option, after Tenant's failure to cure (or commence to cure, where applicable) within ten (10) business days after notice to Tenant of such injury, breakage or damage, to make such repairs and to charge Tenant for all costs and expenses incurred in connection therewith as additional rent hereunder. The foregoing notwithstanding, should an emergency or similar situation occur and delay would cause or is likely to cause preventable injury to persons or material injury to property, Landlord may elect to act without notice to Tenant. ARTICLE IX ALTERATIONS 9.1 (a) Tenant is contracting with Landlord, pursuant to the Phase II Development Agreement for the construction of the Building, including, but ot limited to, all Leasehold Improvements. Tenant hereby acknowledges that it has performed its own due diligence with respect to the Land and the development potential thereof, Landlord having made no representations or warranties whatsoever with respect to the physical condition of the Land or its suitability for any particular construction or use. The provisions of Section 9.2 and 9.3 below 24 shall govern only Improvements, as defined below, made following the initial construction of the Building and Leasehold Improvements pursuant to the Phase II Development Agreement. (b) Prior to the Lease Commencement Date, an Integrated Punchlist shall be prepared in accordance with the provisions of Section 7 of the Phase II Development Agreement. Tenant's taking possession of the Premises shall constitute Tenant's acknowledgement that the Premises are in good condition and that all work and materials are satisfactory, except as to any items set forth in the Integrated Punchlist and except as to latent defects with respect to the Leasehold Improvements discovered by Tenant within one (1) year following the Lease Commencement Date (it being agreed that such one-year time period shall not limit Landlord's ongoing obligation pursuant to Article VIII of this Lease to maintain and repair the Base Building Work). Landlord will cause its contractor to promptly correct any latent defect timely brought to Landlord's attention by Tenant. Except to the extent that Landlord must retain the ability to enforce warranties to obtain the correction of latent defects, Landlord shall assign to Tenant the right to enforce all warranties issued by Landlord's contractors and suppliers with respect to the Leasehold Improvements. 9.2 Except as otherwise permitted pursuant to the Phase II Development Agreement and Section 9.3 below, Tenant will not make or permit anyone to make any alterations, additions or improvements (hereinafter referred to collectively as "IMPROVEMENTS"), structural or otherwise, upon the Land or in or to the Premises without the prior written consent of Landlord to the proposed improvement (including the plans and specifications therefor). In the case of any proposed improvement that is of a major structural nature or any proposed improvement materially affecting any of the base building systems, Landlord may grant or withhold its consent in its sole discretion, unless the improvement is customary in Class A suburban office buildings in the Market Area, including single user buildings, or would not materially affect, in Landlord's judgment, the value or marketability of the Premises, in which case Landlord's consent shall not be unreasonably withheld, conditioned or delayed. All Improvements made by Tenant shall not be inconsistent with usual and customary improvements to headquarters offices in Class A suburban office buildings in the Market Area, including single user buildings. In the event Landlord fails to respond to a request for its consent to an improvement within ten (10) business days following submission of such request in writing, then Landlord's consent shall be deemed granted. When granting its consent, Landlord may impose any conditions it reasonably deems appropriate, including, but not limited to, the approval by Landlord of the contractor or other persons who will perform the work (which consent shall not be unreasonably withheld, conditioned or delayed), Tenant's obtaining all necessary permits and approvals for such work, and Tenant's obtaining, and providing Landlord with certificates of insurance evidencing, reasonably appropriate levels and types of insurance coverage. In addition, Landlord may condition, at the time it is granted, its approval of any Improvements that are not customarily maintained by landlords in Class A suburban office buildings in the Market Area or would not materially affect, in Landlord's judgment, the value or marketability of the Premises on Tenant's agreeing to maintain such Improvements and/or to remove such Improvements at the expiration or earlier termination of the Lease Term and to restore the Premises to substantially the condition they were in prior to the making of such Improvements. All Improvements permitted by Landlord (or allowed hereunder without Landlord's approval) must conform to all applicable requirements of the insurers of the Building, including, without limitation, Boston Properties' Loss Control Guidelines ("INSURANCE REQUIREMENTS") and to all applicable Legal 25 Requirements. Landlord's review and approval of any such plans and specifications and consent to the performance of work described therein shall not be deemed an agreement by Landlord that such plans, specifications and work conform with all applicable Legal Requirements and Insurance Requirements nor be deemed a waiver of Tenant's obligations under this Lease with respect to Legal Requirements and Insurance Requirements nor impose any liability or obligation upon Landlord with respect to the completeness, design sufficiency or compliance with Legal Requirements or Insurance Requirements of such plans, specifications and work. Upon completion of any Improvements requiring Landlord's approval, Tenant shall provide Landlord with final release of lien forms executed by Tenant's general contractor. If, notwithstanding the foregoing, any mechanic's or materialmen's lien is filed against the Premises, the Building and/or the Land, for work claimed to have been done for, or materials claimed to have been furnished to, the Premises on Tenant's account, such lien shall be discharged by Tenant within twenty (20) days after Tenant has notice thereof, at Tenant's sole cost and expense, by the payment thereof or by the filing of a surety bond that discharges the lien. If Tenant shall fail to discharge any such mechanic's or materialmen's lien within twenty (20) days after receiving written notice thereof from Landlord, Landlord may, at its option, discharge such lien and treat the cost thereof (including reasonable attorneys' fees incurred in connection therewith) as additional rent payable with the next monthly installment of Annual Base Rent falling due. It is further understood and agreed that in the event Landlord shall give its written consent to the making of any Improvements to the Premises, such written consent shall not be deemed to be an agreement or consent by Landlord to subject its interest in the Premises, the Building or the Land to any mechanic's or materialmen's liens which may be filed in connection therewith. Upon completion of any structural Improvements by Tenant, Tenant shall provide Landlord with accurate "as-built" plans showing the new work in a "CADD" format. In addition, if Tenant has made any Improvements (structural or otherwise) in the Premises during the course of any calendar year, then Tenant shall provide Landlord with such "as-built" plans (in CADD format, if available) within thirty (30) days following the end of such calendar year; provided, however, that Tenant shall not be obligated to provided Landlord with as-built plans if such improvements are limited to painting and carpeting all or a portion of the Premises and other work of a cosmetic nature. 9.3 Notwithstanding the provisions of Section 9.2 hereof to the contrary, throughout the Lease Term, Tenant may make alterations or additions to the Premises which (a) cost less than Twenty-Five Thousand Dollars ($25,000.00) individually or Two Hundred Thousand Dollars ($200,000.00) in the aggregate during any twelve (12) consecutive month period, (b) are not structural in nature and which do not relate to or affect the base Building electrical, mechanical, fire or life safety systems, (c) are in conformance with all applicable building, zoning and other codes or regulations affecting or applying to the Building and (d) are shown on working drawings, space plans or plans and specifications copies of which are delivered to Landlord within twenty (20) days of Tenant's completion of such alterations or additions, without obtaining Landlord's prior written approval; provided, however, that upon completion of such work Tenant shall deliver to Landlord copies of lien waivers from the contractors and materialmen providing the supplies, materials and work therefor. In addition to the foregoing, Tenant shall not be required to obtain the consent of Landlord for the making of alterations that are purely decorative or cosmetic in nature, such as painting and carpeting, or alterations consisting of minor re-partitioning and appurtenant changes to distribution systems (i.e., electrical outlets, HVAC vents). In the event Tenant intends to make any alterations to the 26 Premises in accordance with the provisions of this Section 9.3, Tenant, not less than ten (10) days prior to the commencement of such work, shall notify Landlord, in writing, as to (i) the date on which such work is to commence, (ii) the date on which such work is scheduled to be completed, and (iii) the name of the contractor or other person performing such work. In addition, Tenant and Tenant's contractor shall coordinate the performance of such work with the on-site property manager of the Building. 9.4 Tenant shall indemnify and hold Landlord harmless from and against any and all expenses, liens, claims, liabilities and damages based on or arising, directly or indirectly, by reason of the making of any Improvements to the Premises, the furnishing of any services to the Premises or the Building or the repair and maintenance of the Premises or the Building, in each case by Tenant or its employees, agents or contractors; provided that Tenant's obligations to indemnify and hold harmless Landlord pursuant to this Section 9.4 shall not include any costs, damages, claims, liabilities or expenses suffered by or claimed against Landlord directly based on, arising out of or resulting from Landlord's breach of, or default as to, any of its covenants or other obligations under this Lease or Landlord's or its employees negligence or willful misconduct or the gross negligence of Landlord's agents or contractors. If any Improvements are made without the prior written consent of Landlord (if such consent is required hereunder) and they are not removed and the Premises restored within thirty (30) days following Tenant's receipt of written notice from Landlord requiring such removal and restoration, Landlord shall have the right to remove and correct such Improvements and restore the Premises to their condition immediately prior thereto, and Tenant shall be liable for all expenses incurred by Landlord in connection therewith. All Improvements affixed to the Premises or the Building made by either party, including all Improvements made as part of the initial construction of the Building and tenant build-out pursuant to the Phase II Development Agreement, shall remain upon and be surrendered with the Premises as a part thereof at the end of the Lease Term, except that (i) Tenant shall have the right to remove, prior to the expiration of the Lease Term, all furniture, furnishings, fixtures, trade fixtures and equipment installed in the Premises solely at the expense of Tenant or otherwise identified by Tenant and agreed by Landlord, and (ii) except with respect to the initial construction of the Building and Leasehold Improvements pursuant to the Phase II Development Agreement, Tenant shall be required to remove all Improvements to the Premises which Landlord designates in writing for removal at the time Landlord approves installation of such improvement (provided that Landlord shall have the right to designate for removal any Improvements only if they are of a nature that is materially different from that typically included in an office build-out). All damage and injury to the Premises or the Building caused by such removal shall be repaired by Tenant, at Tenant's sole expense, except any damage or injury to tenant finishes in individual tenant space that would customarily be replaced by Landlord in preparation for the next tenant. If any property of Tenant is not removed by Tenant prior to the expiration or termination of this Lease, the same shall become the property of Landlord and shall be surrendered with the Premises as a part thereof. ARTICLE X SIGNS, EQUIPMENT AND FURNISHINGS 10.1 Throughout the Term of this Lease and subject to compliance with any applicable Legal Requirements and Landlord's reasonable prior approval, Tenant shall have the exclusive right to install and maintain, at Tenant's sole expense, such signage identifying Tenant on the 27 Building facade, within the Building and in the form of exterior monument signs on the Land as Tenant shall desire. The size, position, materials, color, style and manner of installation of such signage shall be determined by Tenant, subject to Landlord's reasonable approval. If Tenant and its Affiliates are leasing less than fifty percent (50%) of the rentable area of the Building, then Tenant may continue to maintain any then-existing signage; however, such right shall thereafter be non-exclusive, and shall be subject to such changes in the size and positioning of such signage as Landlord may reasonably require in order to accommodate dual signage in the event that Landlord grants similar signage rights to any tenant leasing space in the Building that is comparable to or greater than the amount of space then leased by Tenant. If Tenant and its Affiliates are leasing less than twenty-five percent (25%) of the rentable area of the Building, then Landlord may require Tenant to remove, at Tenant's sole cost and expense, any then existing signage and Tenant shall repair any damage to the Building resulting therefrom. All of Tenant's signage shall be removed at the expiration or earlier termination of the Lease Term, and Tenant shall repair any damage to the Building resulting therefrom, at Tenant's cost and expense. If any sign, advertisement or notice is exhibited or installed by Tenant in violation of the terms hereof, Landlord shall have the right to remove the same at Tenant's expense. If Tenant sublets all or any portion of the Premises, Tenant may delegate its signage rights hereunder to its sublessee, without obtaining Landlord's consent thereto, provided the name and logo to be displayed by such sublessee is compatible with a Class A suburban office building and Landlord has approved such sign and/or logo, which approval shall not be unreasonably withheld, conditioned or delayed. 10.2 If Tenant and its Affiliates are leasing more than fifty percent (50%) of the rentable area of the Building Tenant shall have the right, subject to (a) Landlord's reasonable approval and (b) the approval, if required, of requisite government authorities, to designate the name of the Building and any associated private roads or drives, provided such names are appropriate for a Class A suburban office building in the Market area. If Tenant or an Affiliate of Tenant, individually or together, ceases at any time to lease at least fifty-one percent (51%) of the rentable area of Premises, Landlord shall have the right to rename the Building and any associated private roads or drives. 10.3 In addition to the other signage rights provided herein, Tenant shall have the right to erect temporary signage during the pre-development and construction periods prior to the Lease Commencement Date, publicizing the names and roles of the parties participating in the development of the Complex; provided that, the design and content thereof shall be subject to the mutual agreement of the parties. The parties agree to act reasonably in attempting to reach such mutual agreement. 10.4 Tenant shall not place or install in any portion of the Premises any safes, fixtures or other equipment which will exceed the load factor for which such portion of the Premises was designed and constructed. Any and all damage or injury to the Premises or the Building caused by moving the property of Tenant into or out of the Premises, or due to the same being in or upon the Premises, other than damage or injury to tenant finishes in individual tenant space that would customarily be replaced by Landlord in preparation for the next tenant shall be repaired at the sole cost of Tenant. Tenant agrees to remove promptly from the parking areas or sidewalks adjacent to the Building any of Tenant's furniture, equipment or other material there delivered or deposited. 28 ARTICLE XI INSPECTION BY LANDLORD 11.1 Subject to Tenant's published security regulations and procedures, Tenant will permit Landlord, or its agents or representatives, to enter the Premises, without charge therefor to Landlord and without diminution of the rent payable by Tenant, (i) to examine, inspect and protect the Premises and the Building, (ii) to make such alterations and/or repairs as in Landlord's reasonable judgment may be required by law or be necessary to maintain the Building in good condition and repair, (iii) to comply with and carry out Landlord's obligations under this Lease, and (iv) to exhibit the same to prospective tenants (provided that Tenant's consent, which shall not be unreasonably withheld, shall be required if the Premises are to be exhibited to a prospective tenant prior to Tenant's exercise of its right to renew this Lease or the expiration of such right as provided in Article XXV below, or if there is no such right in accordance with this Agreement, no earlier than twelve (12) months prior to the expiration of the term of this Lease). In connection with any such entry, Landlord shall reasonably endeavor to minimize the disruption to Tenant's use of the Premises, shall (except in the event of an emergency) give Tenant at least twenty-four (24) hours advance notice of such entry or such greater amount of time as may be reasonable under the circumstances, shall (except in the event of an emergency) conduct such entry only during normal working hours, and, except in the event of an emergency, if requested by Tenant, shall permit a representative of Tenant to escort Landlord (or its agents or representatives) during its entry in the Premises. In connection with any alterations or repairs made pursuant to clause (ii) above, (a) Landlord shall reasonably endeavor to minimize the impact thereof on Tenant, both during and following the period of construction or repair, (b) such alterations and repairs shall not materially reduce the number of square feet of rentable area in the Premises, (c) such alterations and repairs shall be performed in a manner that is reasonably compatible with the then existing architectural and, in Landlord's judgment, aesthetic design of the Premises, and (d) Landlord shall restore any tenant finishes that may be disrupted by such alterations or repairs. Notwithstanding anything to the contrary set forth in this Lease, except in the event of an emergency, Landlord shall not be permitted access to areas previously designated in writing by Tenant as security areas, unless Landlord and its representatives are accompanied by an agent of Tenant designated and made available by Tenant for such purposes. 11.2 Tenant may install additional locks, other devices and systems which restrict access to the Premises and any part thereof. Tenant shall provide Landlord with a means of access to the Premises and any part thereof for emergency purposes, subject to applicable national security clearance requirements and shall provide Landlord with a means of full access to the Premises upon expiration of the Lease Term or earlier termination of this Lease. ARTICLE XII INSURANCE 12.1 Subject to the provisions of Section 6.1 above, Tenant shall not conduct or permit to be conducted any activity, or place any equipment, inventory or other materials, in or about the Premises or the Building that will in any way increase the rate of fire insurance or other insurance on the Building. If any increase in the rate of fire insurance or other insurance is stated 29 by any insurance company or by the applicable Insurance Rating Bureau to be due solely to any activity of Tenant or the placing of any equipment, inventory or other materials by Tenant in or about the Premises or the Building, such statement shall be conclusive evidence that the increase in such rate is due to such activity or equipment and, as a result thereof, Tenant shall be liable for the amount of such increase. Tenant shall reimburse Landlord for such amount upon written demand from Landlord and such sum shall be considered additional rent payable hereunder. 12.2 Throughout the Lease Term, Landlord shall insure the Building against loss due to fire and other casualties included in standard, all-risk, extended coverage insurance policies, in an amount equal to at least ninety-five percent (95%) of the full replacement cost thereof. Throughout the Lease Term, Landlord shall obtain and maintain commercial general liability insurance in a company or companies licensed to do business in the Commonwealth of Virginia. Such insurance shall be in minimum amounts of Five Million Dollars ($5,000,000) per occurrence plus a general aggregate of Five Million Dollars ($5,000,000) for injury to persons and damage to property and shall be for a minimum term of one (1) year. Landlord and Tenant may re-evaluate such minimum amount at the expiration of every third (3rd)Lease Year and such minimum amounts may be adjusted as appropriate to be consistent with Class A suburban office buildings in the Market Area, provided, however, in no event shall such minimum amounts be adjusted downward (i) without the approval of the holder of any mortgage, as defined in Section 22.1 below, secured by the Building or (ii) below any corporate minimum requirements of Landlord. Throughout the Lease Term, Landlord shall obtain and maintain a policy of insurance protecting Landlord from loss of rents and other charges during the period while the Premises are untenantable due to fire or other insured casualty. The insurance required to be maintained by Landlord shall be subject to the foregoing minimum requirements and shall otherwise be in amounts and coverages that are commercially reasonable. So long as Tenant or an Affiliate of Tenant is leasing the entire Building, Landlord's commercial general liability insurance policy shall name Tenant as an additional insured. Receipts or certificates evidencing payment of the premiums for such insurance shall be delivered by Landlord to Tenant if requested by Tenant. Landlord's casualty insurance policy shall contain an endorsement prohibiting cancellation or reduction of coverage without first giving Tenant at least thirty (30) days' prior written notice of such proposed action. 12.3 Throughout the Lease Term, Tenant shall insure the contents of the Premises, including all furnishings, trade fixtures, and equipment used or installed in the Premises by Tenant, and any other personal property of Tenant therein, against loss due to fire and other casualties included in standard extended coverage insurance policies in minimum amounts not less than ninety percent (90%) of the full replacement cost of Tenant's furnishings, trade fixtures, equipment and other personal property. Throughout the Lease Term, Tenant shall obtain and maintain commercial general liability insurance in a company or companies licensed to do business in the Commonwealth of Virginia and reasonably approved by Landlord. Such insurance shall be in minimum amounts of Five Million Dollars ($5,000,000) per occurrence plus a general aggregate of Five Million Dollars ($5,000,000) for injury to persons and damage to property and shall be for a minimum term of one (1) year. Landlord and Tenant may reevaluate such minimum amount at the expiration of every third (3rd) Lease Year and such minimum amounts may be adjusted as appropriate to be consistent with Class A suburban office buildings in the Market Area, provided, however, in no event shall such minimum amounts be adjusted downward (i) without the approval of the holder of any mortgage, as defined in 30 Section 22.1 below, secured by the Building or (ii) below any corporate minimum requirements of Landlord. Such limits may be covered by a combination of a general liability policy and an umbrella liability policy. In addition, Tenant's commercial general liability insurance policy shall name Landlord and the managing agent of the Building, as additional insureds. If requested by the holder of any mortgage or deed of trust against the Building, the commercial general liability policy referred to above shall also name such holder as an additional insured thereunder. Receipts or certificates evidencing payment of the premiums for such insurance shall be delivered by Tenant if requested by Landlord. Each such policy shall contain an endorsement prohibiting cancellation or reduction of coverage without first giving Landlord and the holder of any mortgage or deed of trust on the Building at least thirty (30) days' prior written notice of such proposed action. 12.4 (a) Tenant hereby waives its right of recovery against Landlord and releases Landlord from any losses, claims, casualties or other damages for which Landlord may otherwise be liable to the extent either (i) such loss, claim, casualty or other damage would have been covered under insurance coverage Tenant is required to maintain pursuant to this Article XII (without regard to any deductible) or (ii) Tenant receives insurance proceeds on account of any such losses, claims, casualties or other damages. Each policy of property insurance obtained by Tenant pursuant to the provisions of this Article XII shall include a waiver of the insurer's right of subrogation against Landlord, and shall contain an endorsement to the effect that any loss payable under such policy shall be payable notwithstanding any act or negligence of Landlord, or any agent, contractor, employee or invitee of Landlord, which might, absent such agreement, result in the forfeiture of payment for such loss. (b) Landlord hereby waives its right of recovery against Tenant and releases Tenant from any losses, claims, casualties or other damages for which Tenant may otherwise be liable to the extent either (i) such loss, claim, casualty or other damage would have been covered under insurance coverage Landlord is required to maintain pursuant to this Article XII (without regard to any deductible) or (ii) Landlord receives insurance proceeds on account of any such losses, claims, casualties or other damages. Each policy of property insurance obtained by Landlord with respect to the Building shall include a waiver of the insurer's right of subrogation against Tenant, and shall contain an endorsement to the effect that any loss payable under such policy shall be payable notwithstanding any act or negligence of Tenant, or any agent, contractor employee or invitee of Tenant, which might, absent such agreement, result in the forfeiture of payment for such loss. ARTICLE XIII SERVICES AND UTILITIES 13.1 (a) Landlord will furnish to the Premises during the normal hours of operation of the Building (as set forth hereinbelow) air-conditioning and heating during the seasons when such utilities are required. Landlord will provide the following services consistent with the standards generally applicable to Class A suburban office buildings in the Market Area: char and janitorial service, electricity; elevator service; a perimeter access-control system for the Building; maintenance of the grounds and landscaping surrounding the Building, including prompt waste and snow removal; maintenance of interior common areas, including lighting fixtures and bulb replacements, hot and cold water supply, restroom facilities and furnishing of 31 lavatory supplies; and exterior window-cleaning service. Notwithstanding anything herein to the contrary, Landlord shall have the right to remove elevators from service as may be required for moving freight, or for servicing and maintaining the elevators or the Building. At least one elevator cab shall be available for use by Tenant at all times. The normal hours of operation of the Building will be 7:00 a.m. to 7:00 p.m. on Monday through Friday (except legal holidays) and 8:00 a.m. to 2:00 p.m. on Saturday (except legal holidays) or such alternative hours of operation as Tenant may designate so long as Tenant is the sole lessee of the Building. Landlord shall provide a Building security system in accordance with the Construction Drawings and Specifications, as defined in the Phase II Development Agreement. Tenant shall be permitted access to the Premises on a twenty-four hours, seven-days-a-week basis. (b) Tenant, for so long as it is the sole lessee of the Building, upon not less than thirty (30) days prior written notice to Landlord, may elect to perform janitorial or security services (the "Assumed Services"). If Tenant elects to perform either of the Assumed Services, (i) Landlord shall not be obligated to perform such Assumed Service and shall have no liability to Tenant if such services are not performed to Tenant's satisfaction and (ii) all costs incurred in connection with providing the Assumed Service shall be excluded from Operating Expenses. On the date of execution of this Lease, Tenant has elected to perform janitorial and char services in all secured areas of the Building, all research and development areas and all control centers of the Building. Tenant may, at any time upon thirty (30) days written notice to Landlord elect to discontinue the performance of the Assumed Services and Landlord shall be required to resume or commence such Assumed Service in accordance with Section 13.1(a) beginning on the date set forth in Tenant's notice and such costs shall be included in Operating Expenses. In the event Landlord reasonably determines that Tenant's provider of an Assumed Service is not providing such service in accordance with the standards applicable to Class A suburban office buildings in the Market Area, Landlord shall notify Tenant, in writing, of the deficiencies it has identified and Landlord and Tenant shall use commercially reasonable efforts to correct such identified deficiencies in the provision of such Assumed Service. If the provider of such Assumed Service fails to institute such corrective measures promptly after Tenant's receipt of Landlord's notice, Landlord shall have the right, at its option, upon thirty (30) days prior written notice to Tenant, to direct Tenant to terminate the provider of such Assumed Service and Landlord and Tenant shall mutually agree upon a different provider of such Assumed Service. Landlord shall not undertake any action under the preceding sentence unless such violation or failure shall continue uncured for a period of thirty (30) days after Landlord has given notice to Tenant of such deficiency or failure; provided that if such deficiency or failure is not susceptible of being cured within such thirty (30) day period, Landlord shall not undertake any action if the provider of the Assumed Service commences curative action within such thirty (30) day period and proceeds diligently thereafter to cure such deficiency or failure until completion. 13.2 It is understood and agreed that Landlord shall not have any liability to Tenant whatsoever as a result of Landlord's inability (despite the exercise of its commercially reasonable efforts) to furnish any of the utilities or services required to be furnished by Landlord under the terms of this Lease, whether resulting from breakdown, removal from service for maintenance or repairs, strikes, scarcity of labor or materials, acts of God, governmental requirements or from any other cause whatsoever. It is further agreed that, except as provided in this Section 13.2 and Section 14.6 below, any such inability to furnish the utilities or services required hereunder shall not be considered an eviction, actual or constructive, of Tenant from the 32 Premises, and shall not entitle Tenant to terminate this Lease or to an abatement of any rent payable hereunder. Notwithstanding the foregoing or anything else in this Lease, but subject to the provisions of Section 14.6 below, in the event that Tenant is prevented from using, and does not use, the Premises or any portion thereof for five (5) consecutive business days or for ten (10) business days in any twelve (12) month period (the "ELIGIBILITY PERIOD") as a result of any interruption of utilities or services or access (including elevator access) or any repair, maintenance or alteration performed by Landlord after the Lease Commencement Date (other than repairs undertaken pursuant to Article XVI hereof) which renders the Premises inaccessible or untenantable (the foregoing circumstances being referred to herein as "SUSPENSION EVENTS"), then all Annual Base Rent and additional rent payable hereunder shall be reduced after expiration of the Eligibility Period for such time that Tenant continues to be so prevented from using, and does not use, the Premises or a portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises; provided that, any interruption of utilities or services resulting from Tenant's failure to timely pay for any electricity that is billed directly to Tenant by the electric utility pursuant to Section 4.7 hereof shall not be deemed a Suspension Event and shall not entitle Tenant to any rent abatement hereunder. Landlord will repair and restore any such interrupted services or utilities as soon as reasonably practicable following the interruption thereof. 13.3 (a) Landlord shall enter into a management agreement in form and substance approved by Tenant (the "MANAGEMENT AGREEMENT") with an entity designated by Landlord ("MANAGER"), subject to Tenant's approval, which shall not be unreasonably withheld, conditioned or delayed; provided, however that Tenant's approval of the terms and conditions of the Management Agreement and the Manager shall not be required if the Manager is Landlord or an Affiliate of Landlord and the terms of such agreement are substantially in the form attached hereto as Exhibit F. If the Management Agreement is with a third party, the Management Agreement shall contain a provision permitting Landlord to terminate the Management Agreement without liability on the part of Landlord or Tenant upon thirty (30) days prior notice to Manager and Tenant. Any Management Agreement shall state that it is subject and subordinate to this Lease. Landlord agrees not to cancel, amend or extend the Management Agreement or appoint a new third-party Manager or enter into a new Management Agreement with a third party without Tenant's approval, which shall not be unreasonably withheld, conditioned or delayed. For purposes of this Section 13.3, an "AFFILIATE OF LANDLORD" shall mean any corporation, association, trust, partnership, limited liability company, joint venture or other entity (i) which Controls (as herein defined) Landlord or (ii) which is under the Control of Landlord through stock ownership or otherwise or (iii) which is under common Control with Landlord. The terms "CONTROL" or "CONTROLS" as used in this Section 13.3 shall mean the power to directly or indirectly influence the direction, management or policies of Landlord or such other entity. (b) Prior to the expiration of the fifth (5th) Lease Year, if Landlord or an Affiliate of Landlord is the Manager and Tenant reasonably determines that the Premises are not being managed in accordance with the standards set forth in the Management Agreement, Tenant shall notify Landlord, in writing, of the deficiencies it has identified and Landlord shall use commercially reasonable efforts to correct such identified deficiencies in the management of the Building. If Landlord fails to institute such measures promptly after notice from Tenant, Tenant 33 shall have the right, at its option, upon thirty (30) days prior written notice to Landlord, to terminate the Management Agreement and to direct Landlord to engage a third-party Manager. Tenant shall not undertake any action under the preceding sentence unless such violation or failure shall continue uncured for a period of thirty (30) days after Tenant has given notice to Landlord of such deficiency or failure; provided that if such deficiency or failure is not susceptible of being cured within such thirty (30) day period, Tenant shall not undertake any action if Landlord commences curative action within such thirty (30) day period and proceeds diligently thereafter to cure such deficiency or failure until completion. (c) Commencing in the sixth (6th) Lease Year, provided that (i) there is no Event of Default, and (ii) Tenant and/or its Affiliates are the sole lessees of the Premises, Tenant shall have the right, upon ninety (90) days prior written notice to Landlord to direct Landlord to enter into a Management Agreement with an independent third party manager reasonably acceptable to Landlord. Landlord's approval of such third party manager shall not be unreasonably withheld, conditioned or delayed. (d) In the event Landlord reasonably determines that the third party Manager is not managing the Premises in accordance with the standards set forth in the Management Agreement, Landlord shall notify Tenant, in writing, of the deficiencies it has identified and Landlord and Tenant shall use commercially reasonable efforts to cause the Manager to correct such identified deficiencies in the management of the Building. If the third party Manager fails to institute such corrective measures promptly after Tenant's receipt of Landlord's notice, Landlord shall have the right, at its option, upon thirty (30) days prior written notice to Tenant, to terminate the Management Agreement and Landlord and Tenant shall mutually agree upon a third-party Manager to manage the Building. Landlord shall not undertake any action under the preceding sentence unless such violation or failure shall continue uncured for a period of thirty (30) days after Landlord has given notice to Tenant of such deficiency or failure; provided that if such deficiency or failure is not susceptible of being cured within such thirty (30) day period, Landlord shall not undertake any action if the third-party Manager commences curative action within such thirty (30) day period and proceeds diligently thereafter to cure such deficiency or failure until completion. 13.4 In the event Tenant determines that the services being furnished by any contractor (including, commencing in the sixth (6th) Lease Year, Landlord or an Affiliate of Landlord as Manager) employed by Landlord are unsatisfactory, in Tenant's reasonable judgment, Tenant shall deliver written notice to Landlord specifying in detail the manner in which the services are deemed deficient. If the deficiencies are not, in Tenant's reasonable judgment, substantially corrected during the next succeeding thirty (30) days, then Tenant may deliver a further notice to Landlord advising Landlord of such fact, and, provided such contract is terminated in accordance with its terms and, therefor, Landlord will not incur any liability to the contractor as a result thereof, Landlord shall terminate the contract of such deficient contractor and select a qualified replacement contractor. Landlord shall not be deemed to incur any such liability if Tenant agrees to assume responsibility for any such liability. Landlord shall include a thirty-day termination for convenience clause in any service contracts in which such a clause is customary; any service contract not including such clause shall require Tenant's approval, which approval shall not be unreasonably conditioned, withheld or delayed.. 34 ARTICLE XIV LIABILITY OF LANDLORD 14.1 Except as expressly set forth in this Lease and without limiting or reducing Tenant's rights under the Phase II Development Agreement, Landlord shall not be liable to Tenant, its employees, agents, business invitees, licensees, customers, clients, family members or guests for any damage, injury, loss, compensation or claim, including, but not limited to, claims for the interruption of or loss to Tenant's business, based on, arising out of or resulting from any cause whatsoever (except as hereinbelow set forth), including but not limited to, the following: (i) repairs to any portion of the Premises or the Building; (ii) interruption in the use of the Premises; (iii) any accident or damage resulting from the use or operation (by Landlord, Tenant or any other person or persons) of elevators, or of the heating, cooling, electrical or plumbing equipment or apparatus; (iv) the termination of this Lease by reason of the destruction of the Premises or the Building; (v) any fire, robbery, theft, mysterious disappearance and/or any other casualty; (vi) the actions of other tenants in the Building, if any, or of any other person or persons; and (vii) any leakage in any part or portion of the Premises or the Building, or from water, rain or snow that may leak into, or flow from any part of the Premises or the Building, or from drains, pipes or plumbing fixtures in the Building; provided, however, that Landlord shall not be released pursuant to this Section 14.1 from any liability (a) resulting directly from Landlord's breach of, or default, beyond any applicable notice and cure period, as to, any of its covenants or other obligations under this Lease, or (b) subject to Section 12.4(a) above, property damage, personal injury or death caused directly by Landlord's or its employees' negligence or willful misconduct or the gross negligence or willful misconduct of Landlord's contractors or agents. In no event (notwithstanding anything in the immediately-preceding sentence to the contrary) shall Landlord have any liability to Tenant for any claims based on the interruption of or loss to Tenant's business or consequential damages or indirect losses whatsoever. 14.2 Tenant hereby agrees to indemnify, defend on request, and hold Landlord harmless from and against all costs, damages, claims, liabilities and expenses (including reasonable attorneys' fees and any costs of litigation) suffered by or claimed against Landlord, directly or indirectly, and not covered by the insurance required to be maintained by Landlord hereunder, based on, arising out of or resulting from (i) Tenant's use and occupancy of the Premises or the business conducted by Tenant therein, (ii) any accident, injury or damage whatsoever caused to any person, or to the property of any person, occurring on or about the Premises during the Lease Term, (iii) the operation of a food service, health club, daycare center or other "compatible use" (as defined in Section 6.1 hereof) at the Premises, including any accident, injury or damage whatsoever caused to any person or property arising therefrom, (iv) any act or omission to act by Tenant or its employees, contractors, agents, licensees, or invitees, or (v) any breach or default by Tenant in the performance or observance of its covenants or obligations under this Lease; provided that Tenant's obligations to indemnify and hold harmless Landlord pursuant to this Section 14.2 shall not include any costs, damages, claims, liabilities or expenses suffered by or claimed against Landlord directly based on, arising out of or resulting from Landlord's breach of, or default as to, any of its covenants or other obligations under this Lease or the negligence or willful misconduct of Landlord or its employees or the gross negligence or willful misconduct of Landlord's contractors or agents. 35 14.3 In the event that at any time Landlord shall sell or transfer the Building, provided the purchaser or transferee assumes the obligations of Landlord hereunder, the Landlord named herein shall not be liable to Tenant for any obligations or liabilities based on or arising out of events or conditions occurring on or after the date of such sale or transfer. If requested by Tenant, Landlord shall furnish to Tenant a copy of the agreement pursuant to which any such purchaser or transferee shall have assumed the obligations of Landlord hereunder. Furthermore, upon such assumption, Tenant agrees to attorn to any such purchaser or transferee upon all the terms and conditions of this Lease. Notwithstanding any of the foregoing to the contrary, Landlord agrees that (i) Landlord will not sell or transfer the Building prior to the Lease Commencement Date; (ii) Landlord will not sell or transfer the Building to any person or entity if an Event of Bankruptcy (as hereinafter defined) shall have occurred and be continuing with respect to such transferee at the time Landlord contracts to sell or transfer the Building to such transferee; (iii) Landlord's right to sell the Building shall be subject to Tenant's right of first offer provided in Article XXVIII below; (iv) any sale of the Building shall be subject to Tenant's right of purchase provided in XXVII below and (v) so long as Tenant and/or its Affiliates are the sole lessees of the Building, if Landlord transfers or sells the Building, then Tenant shall have the right, at its option, to assume all of Landlord's operation, maintenance and repair obligations hereunder in lieu of the performance thereof by such successor landlord (in which event no management fee shall be payable to such successor landlord); provided that if Tenant elects to assume such obligations, then Tenant shall perform such obligations to the same extent and in the same manner and to the same standards required of Landlord hereunder; provided further that, prior to the expiration of the fifth (5th) Lease Year, Tenant shall not have the right to self-manage the Building as aforesaid during the initial twelve (12) month period following any such transfer or, if earlier, until the expiration of the fifth (5th) Lease Year, unless the transferee is an institutional investor or other person or entity that is not itself, and is not affiliated with another entity that is, in the business of managing commercial real estate. 14.4 In the event that at any time during the Lease Term Tenant shall have a claim against Landlord, except as otherwise provided in Section 14.6 hereof, Tenant shall not have the right to deduct the amount allegedly owed to Tenant from any rent or other sums payable to Landlord hereunder, it being understood that Tenant's sole remedy for recovering upon such claim shall be to institute an independent action against Landlord. 14.5 Tenant agrees that in the event Tenant is awarded a money judgment against Landlord, Tenant's sole recourse for satisfaction of such judgment shall be limited to execution against Landlord's equity interest in the Building and the Land at the time of such execution, which, if the Building has been sold prior to such execution, shall include the net sale proceeds, after payment of all prior liens, from the sale of the Building. In no event shall Landlord or any partner or member of Landlord or any other person be held to have any personal liability for satisfaction of any claims or judgments that Tenant may have against Landlord. 14.6 In the event Landlord shall be in default with respect to any service or action that Landlord is obligated to furnish or perform under this Lease, then Tenant shall have the right to obtain such service or perform such act on Landlord's account subject to the terms and conditions set forth below. Notwithstanding anything contained herein to the contrary, Tenant shall have the rights set forth in this Section 14.6 with respect to services and actions that materially affect the structure of the Building, materially affect any multi-tenant common area or 36 materially affect any base-building system only if Tenant gives Landlord and Landlord's lender(s) (whose identity and notice address shall have been provided to Tenant) written notice of Landlord's alleged default and Landlord does not in good faith dispute such alleged default in writing within ten (10) business days following the delivery of Tenant's notice. Prior to Tenant undertaking any action to cure or remedy any Landlord default with respect to any service or action that Landlord is obligated to furnish or perform under this Lease, Tenant shall first give written notice of such default to Landlord and Landlord's lender(s) (whose identity and notice address shall have been provided to Tenant) and allow Landlord and such lender(s) ten (10) business days following receipt by Landlord and such lender(s) of such written notice to cure or remedy the condition specified in Tenant's notice; provided, however, that if such condition cannot be cured within the ten (10) business day period despite Landlord's exercise of its commercially reasonable efforts, such period shall be extended for a reasonable additional time, so long as Landlord or such lender(s) commence to cure such condition within the ten (10) business day period and proceed diligently thereafter to effect such cure. Notwithstanding any of the foregoing to the contrary, in the event of a material failure of, or deficiency in, any of the Essential Building Services (as hereinafter defined) which renders all or a substantial portion of the Premises unsafe or unsuitable for the conduct of Tenant's business therein, the period in which Landlord or such lender(s) must cure such condition prior to Tenant's having the right to undertake any such action, shall be forty-eight (48) hours following receipt by Landlord and such lender(s) of such written notice provided notice is received between the hours of 8:00 a.m. and 5:00 p.m. Monday through Friday, or between the hours of 8:00 a.m. and 2:00 p.m. on Saturday, excluding legal holidays; provided that, if the condition cannot be cured within such 48-hour period, then, provided Landlord or such lender(s) commence to cure such condition within such 48-hour period and proceed diligently thereafter to effect such cure, then such 48-hour period shall be extended for such reasonable period as is necessary to effect such cure using diligent efforts. For purposes hereof, the term "ESSENTIAL BUILDING SERVICES" shall mean (i) plumbing systems; (ii) electrical service; (iii) HVAC service; (iv) life-safety systems; (v) elevator service; and (vi) building access systems. If Landlord or such lender(s) fall to cure or remedy any such condition within the applicable time period, as set forth above, then Tenant may cure or remedy such condition and deliver an invoice to Landlord for such costs and expenses, and Landlord shall pay to Tenant the amount of such invoice within thirty (30) days after delivery by Tenant. The amount of such expenses, when paid by Landlord, shall be included within Expenses, to the extent such costs and expenses are not excluded from the definition of Expenses. In the event Landlord fails to pay to Tenant when due any sum which Tenant is entitled to recover from Landlord pursuant to this Section 14.6, then Tenant shall have the right to a credit against Annual Base Rent in the amount of any such unpaid sum, together with interest thereon at the Default Rate (as defined in Section 18.7 below) from the date due until the date paid, if Tenant has obtained a final, nonappealable court judgment that such sum was due and payable to Tenant under the terms of this Section 14.6 but was not paid by Landlord. In the event Tenant seeks to cure or remedy any condition which gives rise to Tenant's remedies set forth in this Section 14.6, Tenant shall (i) proceed in accordance with the applicable provisions of this Lease and all applicable Legal Requirements; (ii) use only such con t ractors, suppliers, etc. as are duly licensed in the Commonwealth of Virginia and insured to effect such repairs and who perform such repairs on first-class buildings in the normal course of their business; (iii) promptly effect such repairs in a good workmanlike quality and in a first-class manner; and (iv) use new or other first-quality materials. Landlord agrees to cooperate with Tenant in the performance of repairs by Tenant's contractors, including granting access to portions of the Building outside the 37 Premises and making available for inspection and copying any plans that might be required by such contractors. Nothing in this Section 14.6 is intended to obviate the provisions of Section 13.2 above. 14.7 Landlord hereby agrees to indemnify, defend on request, and hold Tenant harmless from and against all costs, damages, claims, liabilities and expenses (including reasonable attorneys' fees and court costs) suffered by or claimed against Tenant, directly or indirectly, and not to be covered by the insurance required to be maintained by Tenant hereunder, based on, arising out of or resulting from any breach or default by Landlord in the performance or observance of its covenants or obligations under this Lease, including, but not limited to, Landlord's obligations pursuant to Section 6.5 hereof; provided that Landlord's obligations to indemnify and hold harmless Tenant pursuant to this Section 14.7 shall not include any costs, damages, claims, liabilities, or expenses suffered by or claimed against Tenant directly based on, arising out of or resulting from any negligence or willful misconduct of Tenant or its agents or employees. Notwithstanding anything to the contrary in this Section 14.7 or elsewhere in this Lease, this Section 14.7 shall not apply to the holder of any mortgage or deed of trust secured by the Complex or the Building unless such holder acts as landlord under this Lease or otherwise owns or holds title to the Building by foreclosure or deed-in-lieu of foreclosure. ARTICLE XV RULES AND REGULATIONS 15.1 Tenant agrees to comply with and observe the rules and regulations pertaining to the use and occupancy of the Premises or the Building set forth in Exhibit E hereto, together with all reasonable amendments thereto as may be promulgated hereafter by Landlord (collectively, the "RULES AND REGULATIONS"); provided that (i) any such amendment shall not increase Tenant's monetary obligations hereunder or cause Tenant to incur significant additional costs or adversely affect the rights expressly granted to Tenant hereunder or Tenant's use and enjoyment of the Premises, (ii) Tenant shall be given written notice of such amendment at least thirty (30) days before it takes effect, (iii) if there is any inconsistency between this Lease and the Rules and Regulations, this Lease shall govern; and (iv) while Tenant is the sole tenant of the Building, Tenant shall not be subject to any of the Rules and Regulations or any amendments thereto, except those that are necessary to keep the Building in compliance with the standards applicable to a Class A suburban office building in the Market Area. Without limiting the generality of clause (iii) above, it is understood and agreed that if the Rules and Regulations with respect to a particular matter call for stricter Landlord approval rights than those contained herein, or the Rules and Regulations are otherwise more restrictive than any provision herein governing the same matter, then this Lease shall govern and control. Tenant's failure to keep and observe said Rules and Regulations after applicable notice and opportunity to cure shall constitute an Event of Default under this Lease. Landlord shall use reasonable efforts to enforce the Rules and Regulations, including any exceptions thereto, uniformly and shall not discriminate against Tenant in the enforcement of the Rules and Regulations; provided that it is understood that Landlord may grant exceptions to the Rules and Regulations in circumstances in which it reasonably determines that such exceptions are warranted. 15.2 This Lease is made subject to the provisions of the Declaration of Covenants recorded in Deed Book _________ at Page _______, among the land records of Loudoun 38 County, Virginia and that certain Reciprocal Easement Agreement recorded in Deed Book _________ at Page _______, among the land records of Loudoun County, Virginia a copy of each of which is attached hereto as Exhibit C. Landlord and Tenant agree to observe and to comply with all provisions of said documents which may be applicable to it. The Reciprocal Easement Agreement governs certain easements, rights-of-way and obligations of the owners of the land comprising the Complex deemed necessary or appropriate for utility, construction, pedestrian pathway, shared parking, stormwater management and similar purposes. ARTICLE XVI DAMAGE OR DESTRUCTION 16.1 If, during the Lease Term, the Premises or the Building are totally or partially damaged or destroyed from any cause, thereby rendering the Premises totally or partially inaccessible or unusable by Tenant for its business, Landlord shall diligently (taking into account the time necessary to effectuate a reasonably satisfactory settlement with any insurance company involved) restore, replace and repair the Premises and the Building to substantially the same condition they were in prior to such damage; provided, however, if in the reasonable judgment of an independent architect selected by Landlord the repairs, replacement and restoration cannot be completed within two hundred seventy (270) days after the occurrence of such damage, including the time needed for removal of debris, preparation of plans and issuance of all required governmental permits, then Landlord shall have the right, at its sole option, to terminate this Lease by giving written notice of termination to Tenant within sixty (60) days after the occurrence of such damage. If this Lease is terminated pursuant to the preceding sentence, all rent payable hereunder shall be equitably apportioned and paid to the date of the occurrence of such damage or destruction, and neither Landlord nor Tenant shall have any further rights or remedies as against each other pursuant to this Lease accruing after the date of termination. The judgment by Landlord's independent architect as to whether it will take more than or less than 270 days to complete the repairs, replacement and restoration shall be subject to review and challenge by an independent architect selected by Tenant, as follows. If Tenant wishes to challenge such determination, an independent architect selected by Tenant shall have a period of ten (10) business days following Tenant's receipt of written notice from Landlord of its determination in which to set forth its determination as to whether it will take more than or less than 270 days to complete the repairs, replacement and restoration (without regard to any delay occasioned by such challenge). If Landlord's and Tenant's architects do not agree, then such architects shall jointly appoint an independent architect who shall make a determination as to whether it will take more than or less than 270 days to complete the repairs, replacement and restoration (without regard to any delay occasioned by Tenant's challenge), and the determination of such third architect shall be binding on both Landlord and Tenant. Each party shall be responsible for its own architect's fees, and shall share jointly in the fees of the third architect. 16.2 If the repairs and restoration cannot be completed within two hundred and seventy (270) days after the date of such damage or destruction (as determined pursuant to Section 16.1 above), but Landlord does not elect to terminate this Lease pursuant to Section 16.1, then Landlord shall promptly notify Tenant of such determination. For a period continuing through the tenth (10th) day after receipt of such notice, Tenant shall have the right to terminate this Lease by providing written notice thereof to Landlord, in which event the Lease Term shall end 39 on the date of the giving of such notice as if such date were the date originally provided herein as the end of the Lease Term. If Tenant does not elect to terminate this Lease within such period. and provided Landlord does not elect to terminate this Lease, then Landlord shall proceed diligently to repair and restore the Premises and the Building. 16.3 Notwithstanding anything to the contrary contained herein, in the event the Premises are damaged during the last two (2) years within the Lease Term, and if the period of time reasonably projected by Landlord for restoration of the damage (taking into account the time necessary to effectuate a satisfactory settlement with any insurance company involved) exceeds one-fourth (1/4) of the time remaining in the Lease Term as of the date of the damage, then Landlord and Tenant shall each have the right to terminate this Lease by written notice delivered to the other party within fifteen (15) days after Landlord notifies Tenant in writing of the projected restoration period; provided, however, that if (i) Landlord exercises its right of termination under this Section 16.3, and (ii) at such time, Tenant has a right to renew the Lease Term pursuant to Article XXV hereof, and (iii) Tenant notifies Landlord in writing, within fifteen (15) days following the delivery of Landlord's termination notice, that Tenant is exercising its right to renew the Lease Term, and (iv) pursuant to Article XXV, Landlord and Tenant either reach agreement concerning the Market Rent applicable to the Renewal Term or cause such determination to be made by the means described in Section 25.3(b), then Landlord's termination notice shall be deemed nullified and this Lease shall continue in full force and effect through the remainder of the Lease Term (as thus renewed). 16.4 If this Lease is not terminated in accordance with the provisions of this Article XVI, until the repair and restoration of the Premises is completed, Tenant shall be required to pay Annual Base Rent and additional rent only for that part of the Premises that Landlord and Tenant mutually agree, in their reasonable judgment, that Tenant is able to use (as such use is contemplated by this Lease) while repairs are being made, based on the ratio that the amount of usable rentable area bears to the total rentable area in the Premises. In addition to any abatement granted pursuant to the previous sentence, Tenant's abatement period shall continue until Tenant has been given reasonably sufficient time, and sufficient access to the Premises, to (i) rebuild any portion of the Premises it is required to rebuild, (ii) install its property, furniture, fixtures, cabling and equipment, and (iii) move in over a period of seven (7) consecutive days. The foregoing additional abatement period shall extend for a period not to exceed sixty (60) days following the date Landlord's repair and restoration is substantially complete. In addition, the Lease Term shall be extended for the period of time during which all or any portion of the rent is abated pursuant to this Section 16.4. Subject to the terms of Section 16.5 below, Landlord shall bear the costs and expenses of repairing and restoring the Premises. 16.5 If Landlord repairs and restores the Premises as provided in this Article XVI, Landlord shall not be required to repair or restore any decorations, alterations or Improvements to the Premises previously made by or at the expense of Tenant or any trade fixtures, furnishings, equipment or personal property belonging to Tenant. It shall be Tenant's sole responsibility to repair and restore all such items at Tenant's discretion. 40 ARTICLE XVII CONDEMNATION 17.1 If (i) more than twenty percent (20%) of the rentable area of the portion of the Premises comprised of space leased by Tenant in the Building (the "BUILDING PREMISES"), or (ii) the use or occupancy of more than twenty percent (20%) of the rentable area of the Building Premises, shall be taken or condemned by any governmental or other authority having the power of eminent domain for any public or quasi-public use or purpose (including a sale thereof under threat of such a taking) (each such event being referred to herein as a "TAKING"), then this Lease shall terminate on the date title thereto (or the right to use or occupy, as appropriate) vests in such governmental or quasi-governmental authority, and all Annual Base Rent and additional rent payable hereunder shall be equitably apportioned as of such date. This Lease shall similarly terminate if there is a Taking of more than twenty percent (20%) of the minimum necessary parking for the Building according to the approved Site Plan that cannot be replaced by substitute parking spaces on other portions of the Land. If less than twenty percent (20%) of the rentable area of the Building Premises or such minimum necessary parking area or the use or occupancy thereof is condemned, then this Lease shall continue in full force and effect as to the part of the Building Premises and the Land not condemned, except that (i) as of the date title (or the right to use or occupy, as appropriate) vests in such authority, Annual Base Rent and Expenses with respect to the part of the Building Premises and the Land condemned shall be equitably reduced for the balance of the Lease Term, and (ii) Landlord shall, at its cost, restore the Building Premises to create, to the extent reasonably possible, a single unit of space, including (but not limited to) building or moving demising walls, suite entries, heating and air conditioning equipment, and utility lines. 17.2 All awards, damages and other compensation paid by the condemning authority on account of such Taking shall belong to Landlord, and Tenant hereby assigns to Landlord all rights to such awards, damages and compensation. Tenant agrees not to make any claim against Landlord or the condemning authority for any portion of such award or compensation attributable to damages to the Premises, the value of the unexpired term of this Lease, the loss of profits or goodwill, leasehold improvements or severance damages. Nothing contained herein, however, shall prevent Tenant from pursuing a separate claim against the condemning authority for the value of furnishings, equipment and trade fixtures installed in the Premises at Tenant's expense and for relocation expenses, provided that such claim does not in any way diminish the award or compensation payable to or recoverable by Landlord in connection with such taking or condemnation. ARTICLE XVIII DEFAULT 18.1 The occurrence of any of the following shall constitute an Event of Default by Tenant under this Lease: (a) If Tenant shall fail to pay any installment of Annual Base Rent or additional rent or any other payment required by this Lease when due and such failure shall continue uncured for a period of ten (10) days after Landlord notifies Tenant of such failure in writing; provided, however, that after Landlord has given Tenant two (2) such written notices in 41 any twelve (12)-month period, Tenant shall be in default if any such payment accruing during such twelve (12)-month period (and after the second of such notices) is not made within ten (10) days after such payment is due (without the necessity of any notice being sent by Landlord). (b) If Tenant shall violate or fail to perform any other term, condition, covenant or agreement to be performed or observed by Tenant under this Lease and such violation or failure shall continue uncured for a period of thirty (30) days after Landlord notifies Tenant in writing of such failure. If such violation or failure is not capable of being cured within such thirty (30)-day period, Tenant shall not be deemed to be in default hereunder if Tenant commences curative action within such thirty (30)-day period and proceeds diligently and in good faith thereafter to cure such violation or failure until completion. (c) An Event of Bankruptcy as defined in Article XIX hereof. 18.2 If there shall occur an Event of Default under this Lease, including without limitation an Event of Default prior to the Lease Commencement Date, Landlord shall have the right, at its sole option, to terminate this Lease. In addition, with or without terminating this Lease, Landlord may re-enter, terminate Tenant's right of possession, and take possession of the Premises. The provisions of this Article XVIII shall operate as a notice to quit, and Tenant waives any other notice to quit or notice of Landlord's intention to re-enter the Premises or terminate this Lease. If necessary, Landlord may proceed to recover possession of the Premises under and by virtue of the laws of the Commonwealth of Virginia, or by such other proceedings, including re-entry and possession, as may be applicable. If Landlord terminates this Lease and/or terminates Tenant's right of possession, then everything contained in this Lease on the part of Landlord to be done and performed shall cease without prejudice, however, to the right of Landlord to recover from Tenant all rent and other sums due under this Lease. Whether or not this Lease and/or Tenant's right of possession is terminated by reason of Tenant's default, Landlord shall have the right, after any Event of Default occurs but only during the continuation thereof, to grant or withhold any consent or approval pursuant to this Lease in its sole and absolute discretion. Landlord agrees to use reasonable efforts to relet the Premises for such rent and upon such terms as are not unreasonable under the circumstances, and if the full rental provided herein plus the reasonable costs, expenses and damages hereafter described shall not be realized by Landlord, Tenant shall be liable for all damages sustained by Landlord, including, without limitation, deficiency in Annual Base Rent and additional rent, reasonable attorneys' fees, brokerage fees, and the expenses of placing the Premises in the condition that would have been required if the date of termination had been the date of expiration of the Lease Term. Tenant expressly acknowledges that Landlord's agreement to use reasonable efforts to relet the Premises shall in no event limit, restrict or prejudice in any way Landlord's and Landlord's affiliates' and agents' rights to lease other space in the Building, if any, or the Complex prior to reletting the Premises. Subject to Landlord's obligations pursuant to the preceding two sentences, Landlord shall in no way be responsible or liable for any failure to relet the Premises or any part thereof, or any failure to collect any rent due or accrued upon such reletting, to the end and intent that Tenant may be liable for the Annual Base Rent, additional rent, and any and all other items of cost and expense which Tenant shall have been obligated to pay throughout the remainder of the Lease Term. Any damages or loss of rent sustained by Landlord may be recovered by Landlord, at Landlord's option, at the time of the reletting, or in separate actions, from time to time, as said damage shall have been made more easily ascertainable by successive 42 relettings, or, at Landlord's option, may be deferred until the expiration of the Lease Term, in which event Tenant hereby agrees that the cause of action shall not be deemed to have accrued until the date of expiration of the Lease Term. The provisions contained in this Section 18.2 shall not prevent the enforcement of any claim Landlord may have against Tenant for anticipatory breach of this Lease. 18.3 As an alternative to recovering damages on account of rental deficiencies on a periodic basis as set forth in Section 18.2 above, Landlord may elect to hold Tenant liable from and after the date of termination of this Lease, for the Annual Base Rent, additional rent and all other items of cost and expenses that will accrue under the Lease until the expiration of the Lease Term. In the event Landlord elects to hold Tenant liable for the Annual Base Rent, additional rent and all other items of cost and expenses including, without limitation, brokers' and attorneys' fees (the "DEFAULT AMOUNT") at the time of reletting of the Premises or if Landlord is unable to relet the Premises at the time this Lease is terminated pursuant to this Article XVIII, then Tenant shall pay to Landlord (i) the Default Amount minus (ii) any Annual Base Rent, additional rent and other sums which Tenant proves by a preponderance of the evidence would be received by Landlord upon commercially reasonable efforts to relet the Premises through the expiration of the scheduled Lease Term. The Default Amount shall be discounted at a rate equal to the then current "Prime Rate" as published in the Money Rates section of The Wall Street Journal and such amount shall be payable to Landlord in a lump sum on demand, it being understood that upon payment of such liquidated and agreed upon final damages, Tenant shall be released from further liability under this Lease with respect to the period after the date of such payment and, that if Tenant fails to pay such amount to Landlord within five (5) days thereafter, Landlord may bring suit to collect any such damages at any time after an Event of Default shall have occurred. In the event Landlord relets the Premises together with other premises or for a term extending beyond the scheduled expiration of the Lease Term, it is understood that Tenant will not be entitled to apply any Annual Base Rent, additional rent or other sums generated or projected to be generated by either such other premises or in the period extending beyond the scheduled Lease Term (collectively, the "EXTRA RENT") against Landlord's damages. Similarly in proving the amount that would be received by Landlord upon a reletting of the Premises set forth in clause (ii) above, Tenant shall not take into account the Extra Rent. Nothing herein shall be construed to affect or to prejudice Landlord's right to prove and claim in full unpaid rent accrued prior to termination of this Lease and Tenant's vacating the Premises. If Landlord is entitled or Tenant is required pursuant to any provision hereof to take any action upon the termination of the Lease Term, then Landlord shall be entitled and Tenant shall be required to take such action also upon the termination of Tenant's right of possession. 18.4 All rights and remedies of Landlord set forth herein are in addition to all other tights and remedies available to Landlord pursuant to the Phase II Development Agreement, at law or in equity. All rights and remedies available to Landlord hereunder, pursuant to the Phase II Development Agreement, or at law or in equity are expressly declared to be cumulative. The exercise by Landlord of any such right or remedy shall not prevent the concurrent or subsequent exercise of any other right or remedy; provided that Landlord may not recover more than once for the same damages. No delay in the enforcement or exercise of any such right or remedy shall constitute a waiver of any default by Tenant hereunder or of any of Landlord's rights or remedies in connection therewith. Landlord shall not be deemed to have waived any default by Tenant hereunder unless such waiver is set forth in a written instrument signed by 43 Landlord. If Landlord waives in writing any default by Tenant, such waiver shall not be construed as a waiver of any covenant, condition or agreement set forth in this Lease except as to specific circumstances described in such written waiver. 18.5 If Landlord shall institute proceedings against Tenant and a compromise or settlement thereof shall be made, the same shall not constitute a waiver of default or of any other covenant, condition or agreement set forth herein, nor of any of Landlord's rights hereunder, except to the extent agreed by Landlord in writing in connection with such compromise or settlement. Neither the payment by Tenant of a lesser amount than the installments of base rent, additional rent or of any sums due hereunder nor any endorsement or statement on any check or letter accompanying a check for payment of rent or other sums payable hereunder shall be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or other sums or to pursue any other remedy available to Landlord. Notwithstanding any request or designation by Tenant, Landlord may apply any payment received from Tenant to any payment then due. No re-entry by Landlord, and no acceptance by Landlord of keys from Tenant, shall be considered an acceptance of a surrender of this Lease. 18.6 If Tenant defaults in the making of any payment or in the doing of any act herein required to be made or done by Tenant, then Landlord may (after giving Tenant the appropriate notice and opportunity to cure specified in Section 18.1 hereof), but shall not be required to, make such payment or do such act. If Landlord elects to make such payment or do such act, all reasonable costs and expenses incurred by Landlord, plus interest thereon at the rate per annum which is two percent (2%) higher than the prime rate then being quoted in The Wall Street Journal from the date paid by Landlord to the date of payment thereof by Tenant, shall constitute additional rent hereunder and shall be immediately paid by Tenant to Landlord; provided, however, that nothing contained herein shall be construed as permitting Landlord to charge or receive interest in excess of the maximum rate then allowed by law. The taking of such action by Landlord shall not be considered a cure of such default by Tenant prevent Landlord from pursuing any remedy it is otherwise entitled to in connection with such default. 18.7 If Tenant fails to make any payment of Annual Base Rent or of additional rent on or before the date such payment is due and payable, Tenant shall pay to Landlord a late charge of five percent (5%) of the amount of such payment. In addition, such payment shall bear interest at the rate per annum which is two percent (2%) higher than the prime rate then being quoted in The Wall Street Journal (the "DEFAULT RATE"), from the date such payment became due to the date of payment thereof by Tenant; provided, however, that nothing contained herein shall be construed as permitting Landlord to charge or receive interest in excess of the maximum rate then allowed by law. Notwithstanding any of the foregoing to the contrary, Landlord hereby waives the imposition of such late charge and the interest payable on late payments with respect to the first two (2) such late payments to occur in any twelve (12) month period, provided Tenant in fact cures the default within ten (10) days following Tenant's receipt of notice of such default. Such late charge and interest shall constitute additional rent due and payable hereunder with the next installment of Annual Base Rent due hereunder. 18.8 Notwithstanding anything in this Lease to the contrary, in the event (i) an Event of Default shall occur under this Lease and (ii) Tenant shall thereafter tender performance of the 44 obligation that gave rise to such Event of Default and (iii) Landlord, in its discretion, shall agree to accept such performance as curing the Event of Default, then, for all purposes of this Lease, no Event of Default shall thereafter be deemed to exist. Notwithstanding any of the foregoing to the contrary, Landlord shall be obligated to accept Tenant's cure of the first (1st) Event of Default to occur and be cured within any twelve (12) month period provided such cure, when tendered, includes payment of all interest, late charges, and other costs of enforcement incurred by Landlord on account of such default (including, but not limited to, reasonable attorneys' fees). 18.9 (a) Landlord shall be in default under this Lease if (i) any of Landlord's representations, warranties or covenant contained in this Lease proves to be untrue in any material respect, or (ii) Landlord fails to perform any covenant or agreement to be performed by Landlord hereunder and with respect to clauses (i) and (ii) Landlord either: (A) fails promptly after written notice from Tenant to commence to cure such failure or fails to complete such cure diligently and within thirty (30) days after Tenant's notice or (B) if such failure is of a type that cannot with the exercise of reasonable diligence be cured within such thirty (30) day period, either fails promptly to commence its cure during such period or fails thereafter to use its best efforts to complete its cure in as short a time as possible. (b) Except as otherwise expressly limited in this Lease, in the event a material default by Landlord (as defined below) occurs, upon written notice of such material default to Landlord, Tenant shall have the right to terminate this Lease effective on the date specified in such notice, which date shall not be not less than three (3) months and not more than one (1) year after the date of such notice, provided that Landlord's default has not been cured by such date. As used herein, the term "material" means a breach or failure by Landlord, to cure or if not possible of cure to commerce curing and; thereafter, to diligently pursue the cure of such default within thirty (30) days after Landlord's receipt of Tenant's notice specifying in reasonable detail such failure and such failure, affects in a material, adverse way the ability of Tenant to use and occupy the Premises for any of the purposes permitted hereunder or to exercise its rights hereunder. 18.10 For so long as Orbital Sciences Corporation or any Affiliate of Orbital Sciences is the tenant under this Lease, Landlord hereby releases and waives any and all liens or security interests (including any statutory liens) Landlord may have upon any of Tenant's Personal Property, as herein defined. Landlord agrees that to the extent such liens or security interests may not be waived by Landlord, any such liens or security interests shall at all times be subject and subordinate to any security interests and liens granted by Tenant which may now or hereafter affect Tenant's Personal Property, and to all renewals, modifications, consolidations, replacements and extensions thereof. This clause shall be self-operative and nor further instrument of release, waiver or subordination shall be required to affirm to any secured party the effect of this clause. Notwithstanding the foregoing, in confirmation of such release, waiver and subordination, Landlord shall at Tenant's written request, execute and deliver to Tenant within twenty (20) days of Landlord's receipt of Tenant's request, any reasonable requisite or appropriate certificate, waiver, release or subordination agreement or other document that may be reasonably requested by Tenant or other third party requiring such certificate waiver, release or subordination agreement or document. "Tenant's Personal Property" shall mean the leasehold improvements, good, wares, merchandise, inventory, furniture, trade fixtures, machinery, equipment, telephones, telephone systems, inside wire, business records, accounts receivable and 45 other personal property of Tenant in or about the Premises or that may be placed or kept therein during the Lease Term and also upon all proceeds of any insurance which may accrue to Tenant by reason of damage to or destruction of any such property, chattels or merchandise. ARTICLE XIX BANKRUPTCY 19.1 The following shall be an Event of Bankruptcy under this Lease: (a) Tenant's becoming insolvent, as that term is defined in Title 11 of the United States Code (the "BANKRUPTCY CODE"), or under the insolvency laws of any State, District, Commonwealth or territory of the United States that are applicable to Tenant (the "INSOLVENCY LAWS"); (b) The filing of a voluntary petition under the provisions of the Bankruptcy Code or Insolvency Laws; (c) The filing of an involuntary petition against Tenant as the subject debtor under the Bankruptcy Code or Insolvency Laws, which either (i) is not dismissed within ninety (90) days of filing or (ii) results in the issuance of an order or relief against the debtor; or (d) Tenant's making or consenting to an assignment for the benefit of creditors or a common law composition of creditors. 19.2 (a) Upon occurrence of an Event of Bankruptcy, Landlord shall have all rights and remedies available to Landlord pursuant to Article XVIII, provided that while a case in which Tenant is the subject debtor under the Bankruptcy Code is pending and only for so long as Tenant or its Trustee in Bankruptcy (hereinafter referred to as "TRUSTEE") is in compliance with the provisions of Section 19.2(b), (c) and (d) below, Landlord shall not exercise its rights and remedies pursuant to Article XVIII. (b) In the event Tenant becomes the subject debtor in a case pending under the Bankruptcy Code, Landlord's right to terminate this Lease pursuant to Section 19.2(a) shall be subject to the rights of Trustee to assume or assign this Lease. Trustee shall not have the right to assume or assign this Lease unless Trustee promptly (i) cures all defaults under this Lease, (ii) compensates Landlord for monetary damages incurred as a result of such defaults, and (iii) provides adequate assurance of future performance on the part of Tenant as debtor in possession or on the part of the assignee tenant (c) Landlord and Tenant hereby agree in advance that adequate assurance of future performance, as used in Section 19.2(b) above, shall mean that all of the following minimum criteria must be met: (i) Tenant's gross receipts in the ordinary course of business during the thirty (30) day period immediately preceding the initiation of the case under the Bankruptcy Code must be at least two (2) times greater than the next monthly installment of annual base rent and additional rent due under this Lease; (ii) both the monthly average and median of Tenant's gross receipts in the ordinary course of business during the six month period immediately preceding the initiation of the case under the Bankruptcy Code must be at least two 46 (2) times greater than the next monthly installment of annual base rent and additional rent due under this Lease; (iii) Trustee must deliver to the Trustee adequate security in commercially reasonable amounts said amount to be held by Trustee in escrow, without interest, until either Trustee or Tenant defaults in its payment of rent or other obligations under this Lease (whereupon Landlord shall have the right to draw on such escrowed funds) or until the expiration of this Lease (whereupon the funds shall be returned to Trustee or Tenant); (iv) Tenant must pay its estimated pro rata share of the cost of all services provided by Landlord (whether or not previously included as a part of the annual base rent) in accordance with the provisions of Article IV hereof; (v) Trustee must agree that no prohibited use shall be permitted; and (vi) Tenant or Trustee must agree to redeposit with the Trustee at any time Landlord is authorized to and does draw on the escrow account referred to in (iii) hereof the amount necessary to restore such escrow account to the original level. (d) In the event Tenant is unable to (i) cure its defaults within any applicable notice and cure period, (ii) pay the rent due under this Lease and all other payments required of Tenant under this Lease on time (or within five (5) days of the due date), or (iii) meet the criteria and obligations imposed by Section 19.2(c) above, Tenant agrees in advance that it has not met its burden to provide adequate assurance of future performance and this Lease may be terminated by Landlord in accordance with Section 19.2(a) above. ARTICLE XX SUBORDINATION; MORTGAGES 20.1 This Lease is subject and subordinate to the lien of any and all mortgages (which term "MORTGAGES" shall include both construction and permanent financing and shall include deeds of trust and similar security instruments) which may now or hereafter encumber the Premises, and to all and any renewals, extensions, modifications, recastings or refinancings thereof; provided, however, that the effectiveness of such subordination is subject to the condition that Landlord obtain from any holder of any such mortgage or deed of trust on the Premises a non-disturbance agreement, to the end and intent that as long as Tenant pays all rent when due and punctually observes all other covenants and obligations on its part to be observed under this Lease (subject to applicable notice and cure provisions), the terms and conditions of this Lease shall continue in full force and effect and Tenant's rights under this Lease and its possession, use and occupancy of the Premises shall not be disturbed during the Lease Term by the holder of such mortgage or deed of trust or by any purchaser upon foreclosure of such mortgage or deed of trust. At any time after the execution of this Lease, the holder of any mortgage to which this Lease is subordinate shall have the right to declare this Lease to be superior to the lien of such mortgage, and Tenant agrees to execute all documents required by such holder in confirmation thereof. 20.2 In confirmation of the foregoing subordination and non-disturbance provisions and subject to the provisions of Section 20.1 above, Tenant shall, within fifteen (15) days of its receipt of a request therefor, promptly execute and deliver any reasonable and appropriate certificate or other document evidencing such subordination. Tenant agrees that neither the institution of any suit, action or other proceeding by the holder of any mortgage on the Premises to realize upon such mortgage holder's interest in the Premises, nor any sale of the Premises pursuant to the provisions of the mortgage in favor of such mortgage holder, shall, by operation 47 of law or otherwise, result in the cancellation or termination of this Lease or of the obligations of Tenant hereunder, and that Tenant shall attorn to the purchaser at such foreclosure sale and shall recognize such purchaser as the landlord under this Lease. Tenant further agrees that for the purposes of this Section 20.2, the term "PURCHASER" or "PURCHASER AT A FORECLOSURE SALE" shall mean, without limitation, a purchaser at a foreclosure sale affecting the Premises or the holder of any mortgage on the Premises. Tenant agrees that upon such attornment, such purchaser shall not (a) be bound by any rent credits or payments of Annual Base Rent for more than one (1) month in advance, (b) be bound by the amendment of any material term of this Lease (e.g. an amendment which decreases the Annual Base Rent to be paid by Tenant under this Lease) made without the consent of any lender providing financing for the Premises of which Tenant has notice prior to entering into the amendment, (c) be liable for damages for any act or omission of any prior landlord; or (d) be subject to any offsets or defenses which Tenant might have against any prior landlord; provided, however, that after succeeding to Landlord's interest under this Lease, such purchaser shall perform in accordance with the terms of this Lease all obligations of Landlord arising after the date such purchaser acquires title to the Premises. Upon request by such purchaser, Tenant shall execute and deliver an instrument or instruments confirming its attornment. 20.3 (a) After Tenant receives notice in writing from any person, firm or other entity that it holds a mortgage or deed of trust on the Premises or the Land requesting that copies of notices from Tenant to Landlord be sent to it, no notice from Tenant to Landlord alleging any default by Landlord shall be effective unless and until a copy of the same is given to such holder or Trustee at the last address of such holder or Trustee; that shall have been furnished to Tenant. The curing of any of Landlord's defaults by such holder or Trustee shall be treated as performance by Landlord. (b) In addition to the time afforded Landlord for the curing of any default, except with respect to the time periods set forth in Sections 13.2 and 14.6, any such holder or Trustee shall have an additional fifteen (15) business days after the expiration of the period allowed to Landlord for the cure of any such default within which to commence a cure and such additional time as may be reasonable necessary to effect the cure using diligent efforts. 20.4 In the event that any lender providing construction or permanent financing or any refinancing for the Premises or the Land requires, as a condition of such financing, that modifications to this Lease be obtained, and provided that such modifications (i) are reasonably acceptable to Tenant, (ii) do not adversely affect in a material manner Tenant's rights or obligations hereunder, including its use of the Premises as herein permitted, (iii) do not increase the rent or other sums to be paid by Tenant hereunder, (iv) do not adversely affect in a material manner Tenant's use of the Premises as herein permitted and (v) do not reduce or limit in a material manner Landlord's obligations under this Lease, Landlord may submit to Tenant a written amendment to this Lease incorporating such required changes, and Tenant hereby covenants and agrees to execute, acknowledge and deliver such amendment to Landlord within fifteen (15) days of Tenant's receipt thereof with such modifications as may reasonably agreed upon by Landlord, Tenant and the lender requiring such modifications. 48 ARTICLE XXI HOLDING OVER 21.1 In the event that Tenant shall not immediately surrender the Premises on the date of the expiration of the Lease Term, Tenant shall become a tenant by the month. During such holdover period, Tenant shall pay a rent equal to one hundred fifty percent (150%) of the Annual Base Rent in effect during the last month of the Lease Term. Said monthly tenancy shall commence on the first day following the expiration of the Lease Term. As a monthly tenant, (i) Tenant shall be subject to all the terms, conditions, covenants and agreements of this Lease; (ii) Tenant shall give to Landlord at least thirty (30) days' written notice of any intention to vacate the Premises; and (iii) Tenant shall be entitled to thirty (30) days' written notice to quit the Premises, unless Tenant is in default hereunder, in which event Tenant shall not be entitled to any notice to quit, the usual thirty (30) days' notice to quit being hereby expressly waived. Notwithstanding the foregoing provisions of this Section 21.1, in the event that Tenant shall hold over after the expiration of the Lease Term, and if Landlord shall desire to regain possession of the Premises promptly at the expiration of the Lease Term, then at any time prior to Landlord's acceptance of rent from Tenant as a monthly tenant hereunder, Landlord, at its option, may forthwith re-enter and take possession of the Premises by any legal process in force in the Commonwealth of Virginia. ARTICLE XXII COVENANTS OF LANDLORD 22.1 Landlord represents and covenants that it has the right to make this Lease for the term aforesaid, and Landlord covenants that Tenant shall, during the term hereby created, freely, peaceably and quietly occupy and enjoy the full possession of the Premises without disturbance, molestation or hindrance by any person or entity whatever claiming an interest in the Premises prior or superior to Tenant's. Nothing in this Section 22.1, however, shall prevent Landlord from exercising any remedy available to it on account of an Event of Default by Tenant under this Lease. Landlord and Tenant each acknowledge and agree that Tenant's leasehold estate in and to the Premises vests on the date this Lease is fully executed by Landlord and Tenant, notwithstanding that the Lease Term will not commence until a future date. 22.2 Landlord hereby reserves to itself and its successors and assigns the following rights (all of which are hereby consented to by Tenant): (i) if imposed by Legal Requirements in Landlord's reasonable judgment after consultation with Tenant, if Tenant and/or its Affiliates are the lessees of more than fifty-one percent (51%) of the Premises, to change the street address and/or the arrangement and/or location of entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets, or other public parts of the Building; and (ii) subject to compliance with Landlord's obligations pursuant to Sections 8.1 and 11.1, if imposed by Legal Requirements or if necessary for the proper functioning of the Premises after consultation with Tenant, if Tenant and/or its Affiliates are the lessees of more than fifty-one percent (51%) of the Premises, to erect, use and maintain pipes and conduits in and through the Premises; and (iii) to establish and maintain field offices in the Building for site engineers, property management and maintenance personnel comprising, in the aggregate, approximately 600 rentable square feet; and in number and locations that are typical for Class A suburban office buildings in the Market Area provided that, subject to the foregoing standards, Tenant shall have approval rights over the particular size 49 and locations of such facilities, which approval shall not be unreasonably withheld, conditioned or delayed. Provided Landlord acts reasonably and diligently and in a manner not likely to materially, adversely affect Tenant's continuing and reasonably uninterrupted business functions, Landlord may exercise any or all of the foregoing rights without being deemed to be guilty of an eviction, actual or constructive, or a disturbance or interruption of the business of Tenant or of Tenant's use or occupancy of the Premises and without diminishing the rent payable hereunder. ARTICLE XXIII PARKING 23.1 Parking shall be available in the surface parking areas appurtenant to the Building. Landlord and Tenant shall agree upon reasonable access controls and operating policies that will govern the parking areas, all of which shall be consistent with the standards of Class A suburban office buildings and shall comply with all Legal Requirements (including, but not limited to, those set forth in the Americans with Disabilities Act and similar such laws in effect from time to time). Vehicles may be parked at any time free of charge (during the initial Lease Term), seven (7) days per week, twenty-four (24) hours per day. Landlord and Tenant agree that it is the parties' intention that parking shall be made available to Tenant in a ratio of approximately four (4) vehicles for every 1,000 gross square foot of Building area. Notwithstanding anything in this Section 23.1 to the contrary, in no event shall Landlord be obligated to provide Tenant more parking spaces than shown on the Site Plan for the Building. 23.2 Subject to the provisions of Sections 14.1 and 14.7 hereof, it is understood and agreed that Landlord does not assume any responsibility for, and shall not be held liable for, any damage or loss to any automobiles parked in the parking area or to any personal property located therein, or for any injury sustained by any person in or about the parking areas. ARTICLE XXIV REPRESENTATIONS AND WARRANTIES 24.1 Landlord hereby warrants and represents to Tenant as follows: (a) Landlord is a limited partnership, validly existing and in good standing under the laws of the State of Delaware. (b) Landlord has the full capacity, right, power and authority to execute and deliver this Lease. The individuals signing this Lease and all other documents executed or to be executed pursuant hereto on behalf of Landlord are and shall be duly authorized to sign the same on Landlord's behalf and to bind Landlord thereto. (c) Landlord has not (1) made a general assignment for the benefit of creditors, (ii) filed any involuntary petition in bankruptcy or suffered the filing of any involuntary petition by Landlord's creditors, (iii) suffered the appointment of a receiver to take possession of all or substantially all of Landlord's assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Landlord's assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally. 50 (d) Neither the execution of this Lease nor the consummation of the transaction contemplated hereby will (i) conflict with, or result in a breach of, the terms, conditions or provisions of, or constitute a default under, any agreement or instrument to which Landlord is a party or (ii) violate any restriction or court order to which Landlord is subject. 24.2 Tenant hereby warrants and represents to Landlord as follows: (a) Tenant is a corporation, validly existing and in good standing under the laws of Delaware and is authorized to do business as a foreign corporation in the Commonwealth of Virginia. (b) Tenant has the full capacity, right, power and authority to execute and deliver this Lease. The individuals signing this Lease and all other documents executed or to be executed pursuant hereto on behalf of Tenant are and shall be duly authorized to sign the same on Tenant's behalf and to bind Tenant thereto. (c) Tenant has not (i) made a general assignment for the benefit of creditors, (ii) filed any involuntary petition in bankruptcy or suffered the filing of any involuntary petition by Tenant's creditors, (iii) suffered the appointment of a receiver to take possession of all or substantially all of Tenant's assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Tenant's assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally. (d) Neither the execution of this Lease nor the consummation of the transaction contemplated hereby will (i) conflict with, or result in a breach of, the terms, conditions or provisions of, or constitute a default under, any agreement or instrument to which Tenant is a party or (ii) violate any restriction or court order to which Tenant is subject. 24.3 Neither Landlord nor Tenant will intentionally cause or permit any action to be taken which would cause any of their respective foregoing representations or warranties to be untrue as of the Lease Commencement Date. ARTICLE XXV RENEWAL 25.1 Landlord hereby grants to Tenant three (3) successive five (5)-year renewal options, each exercisable at Tenant's option and subject to the conditions described below (each such five-year term, if exercised, being referred to herein as a "RENEWAL TERM"). If exercised, and if the conditions applicable thereto have been satisfied, the first Renewal Term shall commence immediately following the end of the Lease Term provided in this Lease (as it may be extended pursuant to Section 2.3 hereof), the second Renewal Term shall commence immediately following the end of the first Renewal Term, and the third Renewal Term shall commence immediately following the end of the second Renewal Term. The right of renewal herein granted to Tenant with respect to each Renewal Term shall be subject to, and shall be exercised in accordance with, the following terms and conditions: 51 (a) Tenant shall exercise its right of renewal with respect to each Renewal Term by giving Landlord written notice thereof not earlier than twenty-four (24) months and not later than twelve (12) months prior to the expiration date of the then-current Lease Term. Tenant's exercise of its right of renewal shall be irrevocable (except as provided in Section 25.3(a) below) and shall be binding upon both Landlord and Tenant. (b) In the event a renewal option notice is not given timely, Tenant's right of renewal with respect to such Renewal Term shall lapse and be of no further force or effect. (c) If a monetary or material non-monetary Event of Default has occurred hereunder and has continued for ten (10) business days and is continuing uncured on the date a renewal option notice is sent or on the date such Renewal Term is to commence, then, at Landlord's option, to be exercised within fifteen (15) business days after the expiration of the applicable cure period for such default, such Renewal Term shall not commence and the Lease Term shall expire on the date the Lease Term would have expired without such renewal. (d) In the event this Lease is not renewed for any Renewal Term, Tenant's right to renew this Lease for any subsequent Renewal Terms shall also lapse. 25.2 During any Renewal Term, all the terms, conditions, covenants and agreements set forth in this Lease shall continue to apply and be binding upon Landlord and Tenant, except that: (1) the Annual Base Rent shall be calculated at the beginning of each Renewal Term as provided in this Article XXV so that the Annual Base Rent payable during each Lease Year of such Renewal Term shall be equal to ninety-five percent (95%) of Market Rent for such Renewal Term, including a market-based formula for adjusting Market Rent for each Lease Year of each Renewal Term; (2) Tenant shall pay for parking if such is the market standard at the time it exercises its renewal option or if Tenant does not wish to pay for parking the Annual Base Rent shall be adjusted to take into account that Tenant is not paying for parking when it is market standard at the time the Annual Base Rent is calculated for Tenant to do so; and (3) in no event shall Tenant have the right to renew the Lease Term beyond the expiration of the third Renewal Term provided for in Section 25.1. 25.3 "MARKET RENT" shall be the fair market amount of "net" Annual Base Rent (including escalations if escalations are customary for comparable facilities in the Market Area, as defined below) determined as follows: (a) Following the giving of the renewal option notice, Landlord and Tenant shall commence negotiations concerning the amount of Annual Base Rent that shall constitute Market Rent. The parties shall have sixty (60) days (the "Negotiation Period") after the date Tenant delivers its renewal option notice in which to agree on such Market Rent. If, during such negotiation period, the parties are unable to agree on such Market Rent, then Tenant shall have the right, at its sole election, to rescind its exercise of the renewal option by notice of rescission delivered to Landlord no later than thirty (30) days after the expiration of the Negotiation Period (the "Rescission Period"). The Market Rent shall be stated and comprised of a component of Annual Base Rent for the first Lease Year of the Renewal Term and, if customary, a component of annual escalations to be stated in terms of percentage increases to Annual Base Rent for the second, third, fourth and fifth Lease Years of the Renewal Term. 52 (b) (i) In the event Landlord and Tenant do not reach agreement concerning the Market Rent, and Tenant does not timely exercise the right of rescission described in subsection (a) above, then the Market Rent and a formula for escalations shall be determined by three (3) real estate brokers. Landlord and Tenant shall each, within fifteen (15) days from the expiration of the Rescission Period described in subsection (a) above, designate an independent, licensed real estate broker or a licensed real estate professional associated with a licensed real estate broker who shall have more than ten (10) years' experience as a real estate broker specializing in commercial office leasing, and who shall have expertise with the commercial real estate market in which the Building is located; and the third broker shall be appointed by the first two brokers. For purposes of this Lease, a broker shall not be deemed "independent" if such broker shall have been engaged to work on behalf of the party that is appointing such broker at the time of, or at any time during the three (3) year period preceding, such broker's appointment; provided, however, that the third (3rd) broker selected by the first two brokers shall not be deemed independent if such broker or any entity with which such broker is affiliated shall have been engaged to work on behalf of either Landlord or Tenant during the two (2) year period immediately preceding such broker's appointment. The costs and expenses of each broker appointed separately by Landlord and Tenant will be borne by the party who appointed the broker. The costs and expenses of the third broker will be shared equally by Landlord and Tenant. The brokers appointed by Landlord and Tenant shall select a third broker within fifteen (15) days of the date of appointment of the latter of the first two brokers. (ii) The brokers shall each establish what they believe to be the Market Rent, including, if customary, the escalation formula and shall notify Landlord and Tenant thereof by written notice within thirty (30) days of the date of the appointment of the third broker, which notice shall be accompanied by their reports. The Market Rent shall be stated and comprised of a component of Annual Base Rent for the first Lease Year of the Renewal Term and, if customary, a component of annual escalations to be stated in terms of percentage increases to Annual Base Rent for the second, third, fourth and fifth Lease Years of the Renewal Term. If any broker fails to render its determination within such thirty (30) day period, it shall be disregarded. If the aggregate dollar value (ignoring any present value calculations) of the determinations for the five year Renewal Term of any two or three of the brokers shall be identical in amount, said amount shall be deemed to be the Market Rent for the Premises. If both the highest and the lowest determination differ by less than five percent (5%) from the middle determination, then the Market Rent shall be deemed to be the average of the three determinations. If the lowest determination and/or the highest determination differs by more than five percent (5%) from the middle determination, such determination or determinations shall be disregarded and the Market Rent shall be deemed to be the average of the remaining determinations. (iii) The Market Rent (including escalations, if any) for the Premises to begin as of the first day of the applicable Renewal Term determined in accordance with the provisions of this Section shall be binding and conclusive on Tenant and Landlord. Notwithstanding the foregoing, if either party shall fail to appoint the broker to be appointed by such party within fifteen (15) days following the Rescission Period, the Market Rent of the Premises as determined by the broker so appointed shall be binding and conclusive on Landlord and Tenant. 53 25.4 As used herein, "Market Rent" shall be equal to "triple net" base footage rent which would be available to new tenants (taking into account all rent escalation factors) in buildings (to the extent such tenants are single-users or have the space in a building comparable to the space leased by Tenant in the Building) of similar age, finish, quality, design, location, condition and value as the Building (excluding Improvements installed in the Building at Tenant's sole expense) and located in office parks of quality comparable to and in the Route 28 North (Virginia) area between the Dulles Toll Road and Route 7 (the "MARKET AREA"). The Market Rent shall reflect the absence of landlord concessions such as rental abatement, build-out allowances, free parking, costs such as brokerage commissions and a base year established as the calendar year in which the first day of the Renewal Terms occurs. Such allowable concessions and costs shall be factored into Market Rent by amortizing such concessions and costs over the applicable Renewal Term through a reduction of the base footage rent otherwise payable in the absence of such concessions and costs including a reasonable amount of "downtime" not to exceed nine (9) months. For purposes hereof, leases of between one hundred thousand (100,000) and two hundred thousand (200,000) square feet of rentable area or greater shall be deemed to be leases of similar size. ARTICLE XXVI COMMUNICATIONS EQUIPMENT 26.1 Tenant may install, free of charge (with the right to collect and retain any income that may be derived therefrom), at its sole cost, risk and expense, satellite dishes, antennas and communications equipment (the "COMMUNICATIONS EQUIPMENT") on the roof of the Building and/or on portions of the Land (for so long as such portions of the Land remain subject to this Lease), in an amount and of a type determined by Tenant, subject to Tenant's compliance with the approved Site Plan and all other Legal Requirements and subject further to Landlord's prior written approval of location, placement, plans and specifications for the Communications Equipment and the type and placement of all cabling and wiring ancillary thereto, all of which Landlord approvals shall not be unreasonably withheld, conditioned or delayed. Landlord makes no representation concerning the suitability of the rooftop or the Land as a location for the Communications Equipment, and Landlord's approval of Tenant's plans and specifications shall in no event be construed as constituting such a representation. Tenant shall be responsible for obtaining and maintaining all approvals, permits and licenses required by any federal, state or local government for installation and operation of the Communications Equipment and for paying all fees attendant thereto and for complying with all other Legal Requirements relating to the Communications Equipment. If the Communications Equipment is installed, Tenant shall have sole responsibility for the maintenance, repair and replacement thereof and of all cabling and wiring ancillary thereto. Tenant shall coordinate with Landlord's property manager concerning any penetration of the roof or the exterior facade of the Building, and shall in no event take any action that will void any then-existing roof warranty. All repairs to the Building made necessary by reason of the furnishing, installation, maintenance, operation or removal of the Communications Equipment or any replacements thereof shall be at Tenant's sole cost. Upon expiration or termination of this Lease, Tenant agrees that it will remove, forthwith, the Communications Equipment (but not the wiring or accessories) and shall repair any damage to the Building caused by the installation or removal of the Communications Equipment and related equipment. In the event Tenant fails to remove the Communications Equipment, Landlord may remove and dispose of such Communications Equipment and charge Tenant the entire reasonable 55 cost thereof. Tenant's Communications Equipment shall not interfere with the structure of the Building, any of the building systems, or, at any time that Tenant is not the sole lessee of the Building, the equipment (including airwaves reception and other equipment) of any other tenant in the Building who shall have similar rights to maintain Communications Equipment and shall have exercised those rights prior to the exercise thereof by Tenant hereunder. Any such similar rights granted to any other tenant shall similarly restrict such other tenant's Communications Equipment from interfering with Tenant's Communications Equipment. Landlord shall enforce all such restrictions. If Tenant ceases at any time to be the sole tenant of the Building, Tenant's rights pursuant to this Section 26.1 shall be non-exclusive. Landlord shall have no liability on account of any damage to or interference with the operation of the Communications Equipment by any third party. Notwithstanding the foregoing, Landlord agrees that it will manage the available space on the rooftop so as to accommodate Tenant's needs with respect to the Communications Equipment to the greatest extent reasonably possible, including requesting that other tenants or rooftop users relocate their equipment if such relocation is necessary to enable Tenant to operate its Communications Equipment. Landlord shall have the right to require Tenant to relocate the Communications Equipment at Landlord's cost to another suitable location on the rooftop reasonably acceptable to Tenant, provided such relocation can be done at a time and in a manner that only minimally and temporarily interferes with Tenant's use of the Communications Equipment. ARTICLE XXVII TENANT'S PURCHASE OPTION 27.1 Tenant shall have the one (1) time option (the "PURCHASE OPTION") to purchase the Premises upon six (6) months prior written notice during the period commencing on the first day of the twelfth (12th) Lease Year and continuing through the expiration of the ninth (9th) full calendar month of the thirteenth (13th) Lease Year (the "PURCHASE OPTION WINDOW"). Tenant shall notify Landlord (the "PURCHASE OPTION NOTICE") in writing, of its exercise of the Purchase Option not earlier than the commencement of the seventh (7th) full calendar month of the eleventh (11th) Lease Year and not later than the expiration of the third (3rd) full calendar month of the thirteenth (13th) Lease Year. The purchase price for the Premises shall be determined in accordance with the provisions of Section 27.2 below. 27.2 The purchase price for the Premises shall be their Fair Market Value which shall be determined as follows: (a) During the sixty (60) day period following Landlord's receipt of the Purchase Option Notice (the "PURCHASE PRICE NEGOTIATION PERIOD"), Landlord and Tenant shall meet and shall seek to establish the Fair Market Value of the Premises. For the purposes of this Article XXVII, the term "FAIR MARKET VALUE" shall mean the all-cash price which a ready, willing and able buyer would agree to pay for the Premises, after arm's length negotiations, giving due consideration to all appropriate factors, including, the age, quality, finish, design, current function, location and condition of the Premises and recognizing the effect of this Lease remaining in place as of the Closing Date at the then current Base Rent plus scheduled escalations and rights of renewal. If Landlord and Tenant are unable to agree upon the Fair Market Value of the Premises during the Purchase Price Negotiation Period, Tenant may elect to revoke its Purchase Option Notice by written notice to Landlord within the thirty (30) day period 55 following the expiration of the Purchase Price Negotiation Period (the "PURCHASE OFFER REVOCATION PERIOD"). If Tenant does not revoke its option in accordance with the preceding sentence, it shall, no later than five (5) business days thereafter, post a deposit (the "PURCHASE DEPOSIT") in an amount equal to seven and one-half percent (7.5%) of the then current Annual Base Rent, which deposit shall be held in escrow by a mutually acceptable title insurance company (the "ESCROW AGENT"). Not more than five business days after the Fair Market Value of the Premises is determined, Tenant shall increase the Purchase Deposit in to an amount which will cause the Purchase Deposit to be seven and one-half percent (7.5%) of the Fair Market Value of the Premises. (b) If Tenant does not give written notice of revocation to Landlord within the Purchase Offer Revocation Period, the Fair Market Value of the Premises shall be determined by three (3) MAI appraisers, each of whom shall be licensed in the Commonwealth of Virginia as a real estate appraiser and shall have at least ten (10) years of commercial office sales, acquisition and leasing experience in the Market Area. The three appraisers shall be appointed in the same manner as the three brokers are appointed pursuant to Section 25.3 hereof. In determining the Fair Market Value of the Premises, the appraisers (i) shall be directed to assume a single building user in the Market Area with a five (5) year lease term including full concessions and (ii) shall be directed to determine (x) the market "triple net" rent for the Premises, assuming no defaults under the terms and provisions of this Lease (the "PURCHASE OPTION MARKET Rent") and (y) a market "cap" rate using the same assumptions specified in (i) hereof (the "MARKET CAP RATE"). The Fair Market Value shall then be calculated by dividing the Market Rent by the Market Cap Rate. The Fair Market Value determined pursuant to the preceding sentence shall be further adjusted by taking into account the net present value (using a discount rate of eight percent (8%)) of the difference between Market Rent and the total rent to be paid by Tenant for the balance of the Lease Term (including, without limitation, any Supplemental Land Costs and increases in Annual Base Rent attributable to amortizing Base Building Capital Expenditures). The appraisers shall each establish what they believe to be the Fair Market Value of the Premises and shall notify Landlord and Tenant thereof by written notice within thirty (30) days of the date of appointment of the third appraiser, which notices shall be accompanied by copies of their reports. If any appraiser fails to render its determination within such thirty (30) day period, it shall be disregarded. If the determinations of any two or three of the appraisers shall be identical in amount, said amount shall be deemed to be the Fair Market Value for the Premises. If both the highest and the lowest determination differ by less than two percent (2%) from the middle determination, then the Fair Market Value shall be deemed to be the average of the three determinations. If the lowest determination and/or the highest determination differs by more than two percent (2%) from the middle determination, such determination or determinations shall be disregarded and the Fair Market Value shall be deemed to be the average of the remaining determinations. (c) Notwithstanding anything to the contrary in this Article XXVII, Landlord and Tenant agree that the minimum purchase price for the Premises shall be eighty percent (80%) of the Project Costs escalated by increases in the Revised Consumer Price Index for Urban Wage Earners and Clerical Workers, 1996 Base Year, All Items, Washington, DC-MD-VA Metropolitan Area (CPI-W), as published by the Bureau of Labor Statistics of the United States Department of Labor (herein referred to as the "Index"), which is published for the period that includes the month immediately preceding the first day of the first Lease Year and the 56 month immediately preceding the month that the Purchase Option Notice is dated (herein referred to as the "Adjustment Index"). If the Index is changed so that a base year other than 1996 is used, the Index used herein shall be converted in accordance with the conversion factor published by the Bureau of Labor Statistics of the United States Department of Labor. If the Index is discontinued or otherwise revised during the Lease Term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. (d) The Fair Market Value for the Premises determined in accordance with the provisions of this Section 27.2 shall be binding and conclusive upon Landlord and Tenant. (e) In the event (i) Tenant does not deliver its Purchase Option Notice to Landlord six (6) months prior to the expiration of the Purchase Option Window (the "Purchase Option Expiration Date") or (ii) Tenant elects to revoke its exercise of the Purchase Option as provided above, Tenant's Purchase Option described herein shall lapse and be void and of no further force or effect. 27.3 (a) The closing (the "CLOSING") of the purchase of the Premises shall occur on a date (the "CLOSING DATE") which is no more than six (6) months after the date of Tenant's Purchase Option Notice, but in any event shall occur no later than the expiration of the Purchase Option Window. At Closing, Tenant shall pay the full purchase price by federal wire transfer or other mutually agreeable means. Closing shall be conducted through an escrow with a title company selected by Tenant and reasonably acceptable to Landlord. (b) Landlord shall execute a special warranty deed in customary form conveying to Tenant fee simple title to the Land, in the form attached to the Purchase and Sale Agreement between Landlord and Tenant dated of even date herewith, free and clear of all mortgages, deeds of trust and other encumbrances and subject only to permitted encumbrances and any such other liens, encumbrances, covenants, restrictions, matter or thing of record which (i) were placed on record by or because of Tenant or any Affiliate thereof, (ii) which Tenant or any Affiliate has joined or consented or (iii) which Tenant expressly agrees to assume. Except as provided in the preceding sentence, the Premises shall be conveyed "as is" with no representations or warranties, express or implied. (c) Landlord shall execute a certificate that it is not a foreign person, partnership or other entity and any other affidavits or instruments reasonably requested by the title company handling the closing that are then customary in commercial transactions of a similar nature. (d) The Closing shall take place at a mutually agreed upon time and location in the Washington, D.C. metropolitan area. (e) Landlord and Tenant will each pay their own attorneys' fees in connection with the Closing. Landlord and Tenant shall each pay one-half of all applicable escrow fees charged by the Escrow Agent. All Virginia state, county and all other taxes imposed upon the grantor shall be paid by Landlord. All Virginia state, county and all other taxes and recordation taxes shall be paid by Tenant. Title examination, title insurance premiums, survey charges, 57 notary fees, costs and expenses related purchase money financing and all other charges incident to settlement (other than charges related to the release of any existing liens on the Premises) shall be paid by Tenant. All other charges shall be borne by Landlord or Tenant as is usual and customary to be borne by seller and purchaser, respectively, in customary transactions not involving a landlord/tenant relationship. (f) All rent payments payable or receivable, taxes, assessments, utility charges and other similar items usually adjusted and prorated at closing shall be prorated as of the date of Closing. (g) This Lease shall continue in full force and effect through the Closing Date. 27.4 If either party shall fail to close on the Purchase Option hereunder under circumstances when such party is required to close, then the other party may pursue all remedies available to it at law or in equity, including specific performance. At its election, Landlord may retain the Purchase Deposit as liquidated damages and this Lease shall, at Landlord's sole discretion, continue in full force and effect as if Tenant had never exercised its Purchase Option. 27.5 Nothing set forth in this Article XXVII shall restrict or prevent Landlord from (a) making an assignment of its interest in this Lease for security, (b) admitting lenders or others as limited partners in the partnership which constitutes Landlord or (c) granting to lenders or others equity interests in the Premises or the partnership which constitutes Landlord; provided, however, that any such conveyance shall not affect Tenant's Purchase Option and any such assignee or transferee shall comply with the provisions of this Article XXVII. 27.6 The rights of purchase set forth herein may be exercised by Orbital Sciences Corporation and not by any assignee of Orbital Sciences Corporation other than an Affiliate of Tenant or an assignee permitted pursuant to Section 7.4 above and only if Tenant and/or its Affiliates are occupying not less than fifty percent (50%) of the Premises demised under this Lease. Such rights shall not be assignable by Orbital Sciences Corporation to any third party nor, except as expressly provided herein, to any assignee, subtenant or successor-in-interest to Tenant, other than an Affiliate of Tenant. 27.7 If there is a monetary or material non-monetary Event of Default under this Lease on the date the Purchase Option Notice is delivered to Landlord or at any time thereafter prior to Closing, then, at Landlord's Option, to be exercised within fifteen (15) business days after the expiration of the applicable cure period for such default, Tenant's right to purchase the Premises provided herein shall lapse and be of no further force or effect. ARTICLE XXVIII RIGHT OF FIRST OFFER 28.1 In the event Landlord, during the Lease Term, wishes to sell or assign its fee interest in the Premises Landlord shall first give Tenant the opportunity to purchase such fee interest subject to the following terms and conditions: 58 (a) If Landlord decides to sell the Premises, Landlord shall deliver written notice to Tenant of Landlord's intent to sell the Premises, which notice shall include the cash purchase price and other terms upon which Landlord is willing to sell the Premises (the "NOTICE OF INTENT TO SELL"). If Tenant wishes to purchase the Premises upon the terms and conditions set forth in the Notice to Sell, Tenant shall give Landlord written notice ("OFFER EXERCISE NOTICE") of its election to exercise its right to purchase the Premises within thirty (30) days following Tenant's receipt of the Notice of Intent to Sell. Failure of Tenant to respond within such thirty (30) day period shall be deemed an election not to exercise Tenant's right to purchase granted herein; provided that Tenant agrees to confirm such deemed waiver by executing a recordable written waiver and providing such further assurances thereof as Landlord may reasonably request. (b) If Tenant exercises its right to purchase the Premises pursuant to this Section 28.1, the purchase price shall be the price specified in the Notice of Intent to Sell and closing shall occur within the time frames set forth in the Notice of Intent to Sell (but if Tenant elects to exercise its rights hereunder such closing shall occur within sixty (60) days from the date of Tenant's Offer Exercise Notice) and otherwise pursuant to the terms of Section 27.3 hereof. (c) If a Notice of Intent to Sell is given and Tenant elects (or is deemed to have elected) not to purchase the Premises, then Landlord shall be free to sell the Premises to any other person or entity on terms not materially more favorable to the prospective purchaser than the terms upon which Tenant shall have had the right to purchase the Premises. For purposes hereof, any purchase that is at a purchase price (taking into account the closing costs described in Section 27.3(e) above) that is not less than ninety-five percent (95%) of the purchase price that would have been payable by Tenant shall be deemed not to be materially more favorable to the prospective purchaser. In the event of a proposed sale on terms that are materially more favorable to the prospective purchaser, Landlord shall be required to give Tenant another notice of Intent to Sell, specifying the proposed terms of sale and to afford Tenant the opportunity, once again, to elect to purchase the Premises on the terms so specified, in accordance with the provisions hereof. (d) In no event shall Tenant have the right to purchase and, except as expressly permitted herein, Landlord shall not sell less than the entire Premises. (e) Notwithstanding anything contained herein to the contrary, Tenant shall not be afforded the rights specified in this Section 28.1 and shall not be entitled to purchase the Premises in the case of (i) a sale or other transfer to an Affiliate of Landlord or (ii) any transfer or conveyance of title to the Premises or any interest therein or in Landlord as part of a group of assets marketed for sale, exchange or other disposition in a single or related series of transactions by Landlord or any Affiliate of Landlord. Furthermore, Tenant shall have no rights pursuant to this Article XXVIII with respect to any conveyance or contribution of the Building or any interest therein or in Landlord to a real estate investment trust, umbrella partnership real estate investment trust or other entity as part of a transaction in which shares of a real estate investment trust are being sold to the public. 59 28.2 (a) Provided Tenant has been afforded the rights granted to Tenant in this Article XXVIII, Tenant's right to purchase the Premises pursuant to Section 28.1 shall forever terminate automatically upon the consummation of a sale of the Premises to an unaffiliated third party purchaser. Tenant agrees to confirm the termination of its rights hereunder by executing a recordable, written termination and providing such further assurances thereof as Landlord may reasonably request. (b) Any election by Tenant not to exercise its rights pursuant to Section 28.1 above shall not extinguish or otherwise impair any of Tenant's right to purchase the Premises pursuant to Article XXVII above. 28.3 Nothing set forth in this Article XXVIII shall restrict or prevent Landlord from (a) making an assignment of its interest in this Lease for security, (b) admitting lenders or others as limited partners in the partnership which constitutes Landlord or (c) granting to lenders or others equity interests in the Premises or the partnership which constitutes Landlord; provided, however, that any such conveyance shall not affect Tenant's Right of First Refusal and any such assignee or transferee shall comply with the provisions of this Article XXVIII. 28.4 The rights of purchase set forth herein may be exercised by Orbital Sciences Corporation and not by any assignee of Orbital Sciences Corporation other than an Affiliate of Tenant or an assignee permitted pursuant to Section 7.4 above only during the Lease Term and only if Tenant and/or its Affiliates are occupying not less than fifty percent (50%) of the Premises demised under this Lease. Such rights shall not be assignable by Orbital Sciences Corporation to any third party nor, except as expressly provided in the preceding sentence, to any assignee, subtenant or successor-in-interest to Tenant, other than an Affiliate of Tenant. 28.5 Notwithstanding anything to the contrary set forth herein, Tenant's rights to purchase under this Article XXVIII shall not be applicable to a transaction involving the transfer of the Premises to a mortgagee-in-possession or a receiver of the Building, the Land or the Premises or a purchaser of the Building, the Land or the Premises at any foreclosure sale thereof, or a grantee of the Land, the Building or the Premises under a deed-in-lieu of foreclosure nor shall the provisions of this Article XXVIII be binding upon any such mortgagee-in-possession or receiver or purchaser at foreclosure or grantee under a deed-in-lieu of foreclosure, after a default by Landlord under any financing documents encumbering the Building, the Land or the Premises, as applicable, at any time during the Lease Term. Further, if the Land, the Building or the Premises is sold as a result of any mortgage financing secured thereby (e.g. a convertible mortgage or convertible securities) then Tenant's rights under this Article XXVIII shall terminate and be of no force or effect. Tenant shall have no right to approve nor have any control over the type or extent of financing obtained by Landlord with respect to the Land, the Building or the Premises, except as may be expressly provided in Article XX of this Lease. 28.6 In the event that at any time Landlord sells or transfers any of its interest in the Premises or this Lease to an unaffiliated third party and has otherwise complied with the provisions of this Article XXVIII, then provided the purchaser or transferee assumes the obligations of Landlord hereunder, Landlord named herein shall not be liable to Tenant for any obligations or liabilities based on or arising out of events or conditions occurring on or after the date of such sale or transfer. 60 28.7 If there is an Event of Default under this Lease on the date the Offer Exercise Notice is delivered to Landlord or at any time thereafter prior to Closing, then, at Landlord's Option, Tenant's right to purchase the Premises provided herein shall lapse and be of no further force or effect. ARTICLE XXIX GENERAL PROVISIONS 29.1 Tenant acknowledges that neither Landlord nor any broker, agent or employee of Landlord has made any representations or promises with respect to the Premises or the Building except as herein expressly set forth, and no rights, privileges, easements or licenses are being acquired by Tenant except as herein expressly set forth. The preceding sentence to the contrary notwithstanding, Landlord and Tenant acknowledge the execution and delivery of (a) the Phase II Development Agreement and (b) a purchase and sale agreement with respect to the Land (the "Purchase Contract") concurrently with the execution and delivery of this Lease. Landlord and Tenant agree that the Phase II Development Agreement and the Purchase Contract create certain rights, obligations, liabilities and responsibilities on both Landlord and Tenant as specifically provided therein. Landlord and Tenant agree that each of them has made certain representations and warranties to the other in the Phase II Development Agreement and the Purchase Contract as more specifically provided therein. 29.2 Nothing contained in this Lease shall be construed as creating a partnership or joint venture of or between Landlord and Tenant, or to create any other relationship between the parties hereto other than that of landlord and tenant. 29.3 Landlord and Tenant recognize CB Richard Ellis, Inc. ("CB") as the broker procuring this Lease and Landlord shall pay said broker a commission pursuant to a separate agreement between CB and Landlord, a copy of which agreement is attached hereto as Exhibit C and made a part hereof (the "BROKERAGE AGREEMENT"). Tenant hereby acknowledges and agrees to the terms and provisions of the Brokerage Agreement. Tenant hereby agrees that any and all commissions paid to CB by Landlord in accordance with the terms and provisions of the Brokerage Agreement shall be included in Project Costs as determined in accordance with the provisions of the Phase II Development Agreement. Landlord and Tenant each represents and warrants to the other that, except as provided in the first sentence of this Section 29.3, neither of them has employed or dealt with any broker, agent or finder in carrying on the negotiations relating to this Lease. Each party shall indemnify and hold the other harmless from and against any claim or claims for brokerage or other commissions asserted by any broker, agent or finder engaged by the indemnifying party or with whom the indemnifying party has dealt in connection with this Lease, other than CB. 29.4 Tenant agrees, at any time and from time to time (but no more than twice in any twelve (12) month period), upon not less than fifteen (15) days' prior written notice by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or if there have been any modifications, that the Lease is in full force and effect as modified and stating the modifications); (ii) stating (x) the amounts of Base Rent and Additional Rent currently due and payable by Tenant, (y) that Tenant has not paid rent more than thirty (30) days in advance of its due date and (z) the dates to which 61 the rent and any other charges hereunder have been paid by Tenant; (iii) stating whether or not, to the best knowledge of Tenant, Landlord is in default in the performance of any covenant, agreement or condition contained in this Lease, and if so, specifying the nature of such default; (iv) stating the address to which notices to Tenant are to be sent; (v) certifying that Tenant is (or is not) in possession of the Premises and conducting its business therein; (vi) stating that the Lease Term has commenced and the full rental is now accruing; (vii) stating that any improvements required by the Lease or the Phase II Development Agreement to be made by Landlord have been made to the satisfaction of Tenant; (viii) stating whether there are then existing any set-offs, charges, liens, claims or defenses against the enforcement of any right )and if so, specifying the same in detail); and (ix) stating such other information as Landlord or any mortgagee or prospective mortgagee of the Building may reasonably request. Any such statement delivered by Tenant may be relied upon by any landlord of the Building or the Land, any prospective purchaser of the Building or such land, any mortgagee or prospective mortgagee of the Building or such land or of Landlord's interest therein, or any prospective assignee of any such mortgagee. Landlord agrees, at any time and from time to time (but no more than twice in any twelve (12) month period), upon not less than fifteen (15) days' prior written notice by Tenant, to execute, acknowledge and deliver to Tenant a statement in writing: (i) certifying that this Lease is unmodified and in full force and effect (or if there have been any modifications, that the Lease is in full force and effect as modified and stating the modifications); (ii) stating the dates to which the rent and any other charges hereunder have been paid by Tenant; (iii) stating whether or not, to the best knowledge of Landlord, Tenant is in default in the performance of any covenant, agreement or condition contained in this Lease, and if so, specifying the nature of such default; (iv) stating the address to which notices to Landlord are to be sent; and (v) stating such other information as Tenant may reasonably request. 29.5 Landlord and Tenant each hereby waives trial by jury in any action, proceeding or counterclaim brought by either of them against the other in connection with any matter arising out of or in any way connected with this Lease, the relationship of landlord and tenant hereunder, Tenant's use or occupancy of the Premises, and/or any claim of injury or damage. 29.6 All notices or other communications required hereunder shall be in writing and shall be delivered in person (with receipt therefor), or sent by certified mail, return receipt requested, postage prepaid, or by facsimile transmission, to the following addresses or facsimile numbers: (i) if to Landlord, at: c/o Boston Properties, Inc. 500 E Street, S.W. Washington, D.C. 20024 Attn: Senior Vice President/Property Management facsimile no. 202-488-8644 (verify no. 202-646-7600); 62 with a copy to: c/o Boston Properties, Inc. 500 E Street, S.W. Washington, D.C. 20024 Attn: Associate General Counsel facsimile no. 202-554-4167 (verify no. 202-646-7600); and a copy to: Boston Properties, Inc. Prudential Center 800 Boylston Street Boston, MA 02199-8001 Attn: General Counsel facsimile no. 617-536-4233 (verify no. 617-859-2600); (ii) if to Tenant, at: the Premises Attn: Director, Corporate Finance and Real Estate (facsimile no. to be designated by Tenant by notice given to Landlord in accordance herewith); except that, prior to the Lease Commencement Date, notices to such Director of Operations shall be given at: 21700 Atlantic Boulevard Dulles, VA 20166 facsimile no.: 703 406-3506 (verify no.: 703 406-5051); with a copy to: the Premises Attn: General Counsel facsimile no.: 703-406-5572 (verify no. 703-406-5505); except that, prior to the Lease Commencement Date, notices to such General Counsel shall be given at: 21700 Atlantic Boulevard Dulles, VA 20166 facsimile no.: 703 ____________ (verify no.: 703____________); and a copy to: Carol Weld King, Esq. Hogan & Hartson LLP 555 13th Street, N.W., 63 Washington, D.C. 20004 facsimile no.: 202-637-5910 (verify no. 202-637-5900). 64 Notwithstanding anything contained herein to the contrary, all notices given by Tenant pursuant to Section 14.6 hereof shall be given at the addresses and in the manner specified above but, in addition, in order to constitute effective notice to Landlord, shall be given to the on-site building engineer or to such other person at such other address as Landlord may specify by written notice to Tenant. Either party may change its address for the giving of notices by notice given in accordance with this Section. Notices given by any means other than by facsimile shall be deemed given or received on the date actually received or, if refused, on the date delivery was attempted and refused. Notices given by facsimile shall be deemed given or received when confirmation of complete receipt is obtained by the transmitting party during normal business hours or, if not confirmed during normal business hours, on the next business day. 29.7 If any provision of this Lease or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and enforced to the fullest extent permitted by law. 29.8 Feminine or neuter pronouns shall be substituted for those of the masculine form, and the plural shall be substituted for the singular number, in any place or places herein in which the context may require such substitution. 29.9 The provisions of this Lease shall be binding upon, and shall inure to the benefit of, the parties hereto and each of their respective representatives, successors and assigns, subject to the provisions hereof restricting assignment by Landlord or Tenant or subletting by Tenant. The term "Tenant" as used in this Lease shall include Orbital's permitted assigns in accordance with the provisions of Article VII of this Lease. 29.10 This Lease, together with the Phase II Development Agreement and the other contemporaneous agreements entered into pursuant thereto, contains and embodies the entire agreement of the parties hereto and supersedes all other prior agreements, negotiations and discussions between the parties hereto, all of which are merged herein. Any representation, inducement or agreement that is not contained in this Lease shall not be of any force or effect. This Lease may not be modified or changed in whole or in part in any manner other than by an instrument in writing duly signed by both parties hereto. 29.11 This Lease shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia, without regard to the principles of conflicts of law. 29.12 Article and section numbers and headings are used herein for the convenience of reference and shall not be considered when construing or interpreting this Lease. In this Lease, unless otherwise specified, (a) the singular includes the plural and the plural the singular; (b) words and terms which include a number of constituent parts, things or elements, including the terms Premises, Land, Building, Parking Structure and Personal Property, unless otherwise specified, shall be construed as referring separately to each constituent part, thing, or element thereof as well as to all of such constituent parts, things or elements as a whole; (c) reference to statutes are to be construed as including all rules and regulations adopted pursuant to the statute 65 referred to; (d) references to agreements and other contractual instruments shall be deemed to include all subsequent amendments thereto or changes therein entered into in accordance with their respective terms; (e) references to persons include their permitted successors and assigns; (f) the words "hereto" or "herein" or "hereof" or "hereunder" or words of similar import refer to this Lease in its entirety; and (g) the words "including" or "include" or words of similar import, unless otherwise specified shall be deemed to be followed by the words "without limitation". 29.13 The submission of an unsigned copy of this document to Tenant for Tenant's consideration does not constitute an offer to lease the Premises or an option to or for the Premises. This document shall become effective and binding only upon the execution and delivery of this Lease by both Landlord and Tenant. 29.14 Time is of the essence of each provision of this Lease. 29.15 This Lease shall not be recorded, except that upon the request of either party, the parties agree to execute, in recordable form, a short-form memorandum of this Lease, provided that such memorandum shall not contain any of the specific rental terms set forth herein and shall otherwise be mutually acceptable to Landlord and Tenant. Such memorandum may be recorded in the land records of Loudoun County, Virginia, and the party desiring such recordation shall pay all recordation costs. 29.16 Except as otherwise specifically provided herein, any additional rent owed by Tenant to Landlord, and any cost, expense, damage or liability shall be paid by Tenant to Landlord no later than fifty (50) days after the date Landlord notifies Tenant in writing of the amount of such additional rent or such cost, expense, damage or liability; provided that regularly scheduled monthly payments of additional rent pursuant to Article IV hereof shall be due and payable on the first day of each month, subject to the terms and conditions of Article IV. If any payment hereunder is due after the end of the Lease Term, such additional rent or such cost, expense, damage or liability shall be paid by Tenant to Landlord not later than fifty (50) days after Landlord notifies Tenant of the amount of such additional rent or such cost, expense, damage or liability. 29.17 All claims by Landlord with respect to Tenant's duties and obligations hereunder, including but not limited to Tenant's duties and obligations to pay Annual Base Rent, additional rent and the costs, expenses, damages and liabilities incurred by Landlord for which Tenant is liable, shall survive the termination of this Lease for any reason whatsoever. All claims by Tenant with respect to Landlord's duties and obligations hereunder shall survive the termination of this Lease for any reason whatsoever. 29.18 Except as expressly provided in the Phase II Development Agreement with respect to the initial construction of the Building and the Leasehold Improvements, in the event either Tenant or Landlord is in any way delayed, interrupted or prevented from performing any of its respective obligations under this Lease (other than Tenant's obligation to pay any rent due hereunder), and such delay, interruption or prevention is due to fire, act of God, governmental or quasi-governmental act (including, but not limited to, any delay in the issuance of required permits or in the scheduling or performance of required inspections), national emergency, strike, labor dispute, unusual delays in transportation, inability to procure materials or utilities (where 66 such inability was not reasonably capable of being anticipated), or any other cause beyond Tenant's or Landlord's reasonable control (whether similar or dissimilar) (all of which are collectively referred to herein as "FORCE MAJEURE"), then Tenant or Landlord (as applicable) shall be excused from performing the affected obligations for the period of such delay, interruption or prevention. Notwithstanding the foregoing, each party shall use reasonable efforts to mitigate the delay in such party's performance due to Force Majeure. 29.19 Any amounts required to be paid by Tenant under this Lease shall be considered additional rent. All payments of additional rent shall be paid to Landlord without diminution, set-off or deduction (except as otherwise provided in Section 14.6 hereof) in the same manner as Annual Base Rent pursuant to Section 3.3 hereof or as may otherwise be provided in this Lease. 29.20 If Landlord or Tenant is required or elects to take legal action against the other party to enforce the provisions of this Lease and a judgment is rendered in such action by a court of competent jurisdiction, then the prevailing party in such action shall be entitled to collect from the other party its costs and expenses incurred in connection with such legal action (including, but not limited to, reasonable attorneys' fees and court costs). 29.21 Notwithstanding anything to the contrary in this Lease, for so long as Orbital Sciences Corporation or any Affiliate of Orbital Sciences Corporation is the tenant under this Lease, Landlord agrees that any liability of Tenant arising out of or in connection with this Lease or the relationship of Landlord and Tenant and the ability of Landlord to recover damages or other relief under this Lease shall be limited solely to the assets of Tenant. For so long as Orbital Sciences Corporation or any Affiliate of Orbital Sciences Corporation is the tenant under this Lease, in no instance whatsoever shall any present, past or future employee, officer, director or shareholder of Orbital Sciences Corporation or any Affiliate of Orbital Sciences Corporation have any personal liability to Landlord for the satisfaction of any obligations or liabilities of Tenant under this Lease. 29.22 This Lease includes and incorporates Exhibits A, A-1, A-2, B, C, D, E and F attached hereto. The parties hereto acknowledge and agree that this Lease and the Phase II Development Agreement shall be interpreted, to the maximum extent possible, so that they are consistent with each other and with the view that they are intended to effectuate common and unified purposes. In the event that there is any conflict or inconsistency between the terms or conditions in any of these documents, or if the application of the terms or conditions in these documents to any circumstances may result in inconsistent treatment, the parties agree that the terms and conditions of this Lease shall take precedence over the Phase II Development Agreement. 67 ARTICLE XXX DIRECTORY OF DEFINED TERMS The following terms used herein are defined where indicated below: 68
Term Additional Leasehold Improvement Allowance..............Section 3.2 (a) Additional Security Deposit.............................Section 5.4 (a) Additional Security Deposit Reduction Date..............Section 5.4(b) Affiliate of Tenant.....................................Section 7.5 Affiliate of Landlord...................................Section 13.3(a) Annual Base Rent........................................Section 3.1 Bankruptcy Code.........................................Section 19.1(a) Base Building Capital Expenditures......................Section 4.8 Base Building Work......................................Section 8.1 Brokerage Agreement.....................................Section 29.3 Building................................................Recital B Building Premises.......................................Section 17.1 Closing.................................................Section 27.3 Closing Date............................................Section 27.3 Communications Equipment................................Section 26.1 Complex.................................................Recital A Default Amount..........................................Section 18.3 Default Rate............................................Section 18.7 Divisible Portion of the Building Premises..............Section 26.1 Effective Date..........................................Introduction Eligibility Period......................................Section 13.2 Environmental Default...................................Section 6.4 Environmental Law.......................................Section 6.4 Escrow Agent............................................Section 27.2(a) Essential Building Services.............................Section 14.6 Expenses................................................Section 4.2 Fair Market Value.......................................Section 27.2 Formula Rent............................................Section 3.1(c) Hazardous Materials.....................................Section 6.4 Improvements............................................Section 9.2 Insolvency Laws.........................................Section 19.1 Insurance Requirements..................................Section 9.2 Invitees................................................Section 6.4 Landlord Affiliate......................................Section 13.3 Lease Commencement Date.................................Section 2.2 Lease Term..............................................Section 2.1 Lease Year..............................................Section 2.2 Leasehold Improvements..................................Section 8.2 Legal Requirements......................................Section 6.1 Management Agreement....................................Section 13.3(a) Manager.................................................Section 13.3(a) Market Area.............................................Section 25.4 Market Cap Rate.........................................Section 27.2(b) Market Rent.............................................Section 26.3 Minimum Net Worth Amount................................Section 5.1
69 mortgages...............................................Section 20.1 Notice of Intent to Sell................................Section 28.1(a) Offer Exercise Notice...................................Section 28.1(a) Operating Expenses......................................Section 4.2 Operating Plan..........................................Section 4.1 Parking Structure.......................................Section 23.3 Phase II Development Agreement..........................Recital B Premises................................................Section 1.1 Project Architect.......................................Section 1.3 Project Costs...........................................Section 3.1 Purchase Deposit........................................Section 27.2 Purchase Offer Revocation Period........................Section 27.2 Purchase Option.........................................Section 27.1 Purchase Option Market Rent.............................Section 27.2(b) Purchase Option Notice..................................Section 27.1 Purchase Option Window..................................Section 27.1 Purchase Price Negotiation Period.......................Section 27.2 purchaser/purchaser at a foreclosure sale...............Section 20.2 Real Estate Taxes.......................................Section 4.2 Reconciliation Statement................................Section 4.5 Renewal Term............................................Section 26.1 Rent Recalculation Date.................................Section 3.1 Right of First Offer....................................Section 28.2 Rules and Regulations...................................Section 15.1 security deposit........................................Section 5.1 Supplemental Land Costs.................................Section 4.2(c) Suspension Events.......................................Section 13.2 Taking..................................................Section 17.1 Tenant Installations....................................Section 2.2(b) Trustee.................................................Section 19.2
70 IN WITNESS WHEREOF, Landlord and Tenant have executed this Deed of Lease under seal on or as of the day and year first above written. WITNESS: LANDLORD: By: BOSTON PROPERTIES LIMITED PARTNERSHIP, a Delaware limited partnership By: Boston Properties, Inc. its General Partner [SIG] By: /s/ E. Mitchell Norville - ---------------------- -------------------------------- [Corporate Seal] Name: E. Mitchell Norville Title: Senior Vice President WITNESS: TENANT: ORBITAL SCIENCES CORPORATION, a Delaware corporation [SIG] By:/s/ Hollis M. Thompson - --------------------- --------------------------------------- [Corporate Seal] Name: Hollis M. Thompson Title: Vice Pres. & Corp. Controller 71 EX-10.13 7 w58627ex10-13.txt PERFORMANCE SHARE AGREEMENT Exhibit 10.13 PERFORMANCE SHARE AGREEMENT This Performance Share Agreement (the "Agreement") is made as of the 18th day of May, 2001 by and between Orbital Sciences Corporation, a Delaware corporation (the "Company"), and David W. Thompson, Chairman and Chief Executive Officer of the Company (the "Executive"). WHEREAS, the Human Resources and Nominating Committee of the Board of Directors of the Company (the "Committee") has determined that it is desirable and in the best interests of the Company to grant to the Executive the right to receive performance share units (the "Performance Shares"), in order to provide the Executive with further incentive to enhance the profitability and financial strength of the Company by linking a component of the Executive's compensation to Company stock value, which Performance Shares entitle the Executive to receive an annual bonus measured by the increased value of the Company's common stock, par value $.01 per share (the "Common Stock"). NOW THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereby agree as follows: 1. GRANT OF PERFORMANCE SHARES. The Company hereby grants to the Executive a total of 80,000 Performance Shares, which shall have the features set forth below. The date of the grant of the Performance Shares is May 18, 2001, the date on which the grant was approved by the Committee. a. Vesting. The 80,000 Performance Shares shall vest immediately. b. Performance Bonus Calculation. Until expiration or termination, each vested Performance Share shall entitle the Executive to receive a bonus (the "Performance Bonus"). The Performance Bonus shall be calculated on each of March 31, 2002 and 2003 with respect to the aggregate number of Performance Shares that have vested as of March 1 of such year. The Performance Bonus shall be equal to the increase, if any, from the Base Price to the Anniversary Valuation Price, as illustrated below for each applicable calendar year.
NUMBER OF ANNIVERSARY PERFORMANCE SHARES BASE DATE BASE PRICE VALUATION PRICE - ------------------ --------- ---------- --------------- 80,000 March 31, 2001 Fair Market Value Fair Market Value on March 31, 2001 on March 31, 2002 80,000 March 31, 2002 Fair Market Value Fair Market Value on March 31, 2002 on March 31, 2003
c. Payment of Performance Bonus. The Performance Bonus, if any, shall be paid in cash in the form of a credit to the Executive's account under the Company's 1995 Deferred Compensation Plan. Such payment shall be made as soon as practicable after calculation of the Performance Bonus. Fifty percent (50%) of such credit shall vest immediately, with the other Fifty percent (50%) vesting on March 31 of the subsequent year. d. Expiration. The Performance Shares shall expire on April 1, 2003 unless this Agreement is terminated according to its terms at an earlier time. e. Fair Market Value. For purposes of this Agreement, the Fair Market Value shall be equal to the average closing sales price of the Common Stock on the national securities exchange on which the Common Stock is then principally traded, calculated for the first 20 trading days in March of the applicable valuation year. 2. LIMITATION ON TRANSFER. The Performance Shares are not transferable by the Executive. 3. PERFORMANCE SHARE ADJUSTMENTS. a. Changes in Stock. If the outstanding shares of Common Stock of the Company are increased, decreased, changed into or exchanged for a different number or kind of shares of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, upon authorization of the Board, a proportionate adjustment shall be made in the number or kind of Common Stock subject to the Performance Shares, so that the proportionate interest of the Executive immediately following such event shall, to the extent practicable, be the same as immediately prior to such event. Any such adjustment to Performance Shares shall include a corresponding proportionate adjustment in the Base Price per share of Common Stock. b. Reorganization in Which the Company is the Surviving Corporation. Subject to subparagraph (c) below, if the Company shall be the surviving corporation in any reorganization, merger or consolidation of the Company with one or more other corporations, the Performance Shares shall pertain to and apply to the securities to which a holder of the number of shares of Common Stock subject to the Performance Shares would have been entitled immediately following such reorganization, merger or consolidation, with a corresponding proportionate adjustment in the Base Price per share of Common Stock so that the aggregate Base Price thereafter shall be the same as the aggregate Base Price of the Common Stock remaining subject to the Performance Shares immediately prior to such reorganization, merger or consolidation. c. Reorganization in Which the Company is Not the Surviving Corporation or Sale of Assets or Stock. Upon the dissolution or liquidation of the Company, or upon a merger, consolidation or reorganization of the Company with one or more other corporations in which the Company is not the surviving corporation, or upon a sale of substantially all the assets of the Company to another corporation, or upon any transaction (including, without limitation, a merger or reorganization in which the Company is the surviving corporation) approved by the Board which results in any person or entity owning Eighty percent (80%) or more of the combined voting power of all classes of the stock of the Company, unless provision is made in writing in connection with such transaction for the assumption of this Agreement with such adjustments as the Board deems appropriate with respect to the features, terms and conditions of the Performance Shares, the Performance Shares hereunder shall immediately entitle the Executive to a Performance Bonus in an amount equal to the difference between the applicable Base Price and the Fair Market Value of the per share Common Stock on the trading date immediately preceding the closing date of such Transaction, and any unpaid portion of a previously vested Performance Bonus shall be immediately paid. d. Adjustments. In all cases, the nature and extent of adjustments under this Section 3 shall be determined by the Committee in its sole discretion, and any such determination as to what adjustments shall be made, and the extent thereof, shall be final and binding. 4. WITHHOLDING OF TAXES. The parties hereto recognize that the Company may be obligated to withhold federal, state and local income taxes and Social Security taxes to the extent that the Executive realizes ordinary income in connection with receipt of the Performance Bonus pursuant to this Agreement. The Executive agrees that the Company may withhold amounts needed to cover such taxes from payments otherwise due and owing to the Executive. 5. DISCLAIMER OF RIGHTS. No provision in this Agreement shall be construed to confer upon the Executive the right to be employed by the Company, or to interfere in any way with the right and authority of the Company either to increase or decrease the compensation of the Executive at any time, or to terminate any employment or other relationship between the Executive and the Company. 6. INTERPRETATION OF PERFORMANCE SHARE AGREEMENT. All decisions and interpretations made by the Committee or the Board of Directors of the Company with regard to any questions arising under this Agreement shall be binding and conclusive on the Company and the Executive. 7. TERMINATION. Except as otherwise provided herein, this Agreement shall terminate and all rights and obligations of the parties hereunder shall be void and of no effect immediately upon the date the Executive ceases to hold the same, equivalent or higher grade office as that office set forth in the first paragraph of this Agreement or March 31, 2004, whichever occurs first. For purposes of this Agreement, an approved leave of absence shall not be deemed an event resulting in the Executive ceasing to hold such office under this Agreement. An approved leave of absence shall mean an absence approved by the Committee for military leave, sick leave, or other bona fide leave, as long as the Executive's right to re-employment is guaranteed by contract, statute or the policy of the Company. 8. MISCELLANEOUS a. Title and Headings. Titles and headings of sections of the Agreement are for convenience of reference only and shall not affect the construction of any provision of this Agreement. b. Governing Law. This Agreement shall be governed by, interpreted under and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of Delaware. c. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes any prior communications, agreements or understandings, whether oral or written, with respect to the matters contained herein. 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. IN WITNESS WHEREOF, the parties have executed this agreement as of May 18, 2001. ORBITAL SCIENCES CORPORATION By: _______________________________ _______________________________ Kelly H. Burke David W. Thompson Chairman of the Human Resources Chairman and and Nominating Committee Chief Executive Officer EX-10.14 8 w58627ex10-14.txt PERFORMANCE SHARE AGREEMENT Exhibit 10.14 PERFORMANCE SHARE AGREEMENT This Performance Share Agreement (the "Agreement") is made as of the 18th day of May, 2001 by and between Orbital Sciences Corporation, a Delaware corporation (the "Company"), and James R. Thompson, President and Chief Operating Officer of the Company (the "Executive"). WHEREAS, the Human Resources and Nominating Committee of the Board of Directors of the Company (the "Committee") has determined that it is desirable and in the best interests of the Company to grant to the Executive the right to receive performance share units (the "Performance Shares"), in order to provide the Executive with further incentive to enhance the profitability and financial strength of the Company by linking a component of the Executive's compensation to Company stock value, which Performance Shares entitle the Executive to receive an annual bonus measured by the increased value of the Company's common stock, par value $.01 per share (the "Common Stock"). NOW THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereby agree as follows: 1. GRANT OF PERFORMANCE SHARES. The Company hereby grants to the Executive a total of 60,000 Performance Shares, which shall have the features set forth below. The date of the grant of the Performance Shares is May 18, 2001, the date on which the grant was approved by the Committee. a. Vesting. The 60,000 Performance Shares shall vest immediately. b. Performance Bonus Calculation. Until expiration or termination, each vested Performance Share shall entitle the Executive to receive a bonus (the "Performance Bonus"). The Performance Bonus shall be calculated on each of March 31, 2002 and 2003 with respect to the aggregate number of Performance Shares that have vested as of March 1 of such year. The Performance Bonus shall be equal to the increase, if any, from the Base Price to the Anniversary Valuation Price, as illustrated below for each applicable calendar year.
NUMBER OF ANNIVERSARY PERFORMANCE SHARES BASE DATE BASE PRICE VALUATION PRICE - ------------------ --------- ---------- --------------- 60,000 March 31, 2001 Fair Market Value Fair Market Value on March 31, 2001 on March 31, 2002 60,000 March 31, 2002 Fair Market Value Fair Market Value on March 31, 2002 on March 31, 2003
c. Payment of Performance Bonus. The Performance Bonus, if any, shall be paid in cash in the form of a credit to the Executive's account under the Company's 1995 Deferred Compensation Plan. Such payment shall be made as soon as practicable after calculation of the Performance Bonus. Fifty percent (50%) of such credit shall vest immediately, with the other Fifty percent (50%) vesting on March 31 of the subsequent year. d. Expiration. The Performance Shares shall expire on April 1, 2003 unless this Agreement is terminated according to its terms at an earlier time. e. Fair Market Value. For purposes of this Agreement, the Fair Market Value shall be equal to the average closing sales price of the Common Stock on the national securities exchange on which the Common Stock is then principally traded, calculated for the first 20 trading days in March of the applicable valuation year. 2. LIMITATION ON TRANSFER. The Performance Shares are not transferable by the Executive. 3. PERFORMANCE SHARE ADJUSTMENTS. a. Changes in Stock. If the outstanding shares of Common Stock of the Company are increased, decreased, changed into or exchanged for a different number or kind of shares of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, upon authorization of the Board, a proportionate adjustment shall be made in the number or kind of Common Stock subject to the Performance Shares, so that the proportionate interest of the Executive immediately following such event shall, to the extent practicable, be the same as immediately prior to such event. Any such adjustment to Performance Shares shall include a corresponding proportionate adjustment in the Base Price per share of Common Stock. b. Reorganization in Which the Company is the Surviving Corporation. Subject to subparagraph (c) below, if the Company shall be the surviving corporation in any reorganization, merger or consolidation of the Company with one or more other corporations, the Performance Shares shall pertain to and apply to the securities to which a holder of the number of shares of Common Stock subject to the Performance Shares would have been entitled immediately following such reorganization, merger or consolidation, with a corresponding proportionate adjustment in the Base Price per share of Common Stock so that the aggregate Base Price thereafter shall be the same as the aggregate Base Price of the Common Stock remaining subject to the Performance Shares immediately prior to such reorganization, merger or consolidation. c. Reorganization in Which the Company is Not the Surviving Corporation or Sale of Assets or Stock. Upon the dissolution or liquidation of the Company, or upon a merger, consolidation or reorganization of the Company with one or more other corporations in which the Company is not the surviving corporation, or upon a sale of substantially all the assets of the Company to another corporation, or upon any transaction (including, without limitation, a merger or reorganization in which the Company is the surviving corporation) approved by the Board which results in any person or entity owning Eighty percent (80%) or more of the combined voting power of all classes of the stock of the Company, unless provision is made in writing in connection with such transaction for the assumption of this Agreement with such adjustments as the Board deems appropriate with respect to the features, terms and conditions of the Performance Shares, the Performance Shares hereunder shall immediately entitle the Executive to a Performance Bonus in an amount equal to the difference between the applicable Base Price and the Fair Market Value of the per share Common Stock on the trading date immediately preceding the closing date of such Transaction, and any unpaid portion of a previously vested Performance Bonus shall be immediately paid. d. Adjustments. In all cases, the nature and extent of adjustments under this Section 3 shall be determined by the Committee in its sole discretion, and any such determination as to what adjustments shall be made, and the extent thereof, shall be final and binding. 4. WITHHOLDING OF TAXES. The parties hereto recognize that the Company may be obligated to withhold federal, state and local income taxes and Social Security taxes to the extent that the Executive realizes ordinary income in connection with receipt of the Performance Bonus pursuant to this Agreement. The Executive agrees that the Company may withhold amounts needed to cover such taxes from payments otherwise due and owing to the Executive. 5. DISCLAIMER OF RIGHTS. No provision in this Agreement shall be construed to confer upon the Executive the right to be employed by the Company, or to interfere in any way with the right and authority of the Company either to increase or decrease the compensation of the Executive at any time, or to terminate any employment or other relationship between the Executive and the Company. 6. INTERPRETATION OF PERFORMANCE SHARE AGREEMENT. All decisions and interpretations made by the Committee or the Board of Directors of the Company with regard to any questions arising under this Agreement shall be binding and conclusive on the Company and the Executive. 7. TERMINATION. Except as otherwise provided herein, this Agreement shall terminate and all rights and obligations of the parties hereunder shall be void and of no effect immediately upon the date the Executive ceases to hold the same, equivalent or higher grade office as that office set forth in the first paragraph of this Agreement or March 31, 2004, whichever occurs first. For purposes of this Agreement, an approved leave of absence shall not be deemed an event resulting in the Executive ceasing to hold such office under this Agreement. An approved leave of absence shall mean an absence approved by the Committee for military leave, sick leave, or other bona fide leave, as long as the Executive's right to re-employment is guaranteed by contract, statute or the policy of the Company. 8. MISCELLANEOUS a. Title and Headings. Titles and headings of sections of the Agreement are for convenience of reference only and shall not affect the construction of any provision of this Agreement. b. Governing Law. This Agreement shall be governed by, interpreted under and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of Delaware. c. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes any prior communications, agreements or understandings, whether oral or written, with respect to the matters contained herein. 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. IN WITNESS WHEREOF, the parties have executed this agreement as of May 18, 2001. ORBITAL SCIENCES CORPORATION By: _______________________________ _______________________________ Kelly H. Burke James R. Thompson Chairman of the Human Resources President and and Nominating Committee Chief Operating Officer EX-10.15 9 w58627ex10-15.txt PERFORMANCE SHARE AGREEMENT Exhibit 10.15 PERFORMANCE SHARE AGREEMENT This Performance Share Agreement (the "Agreement") is made as of the 18th day of May, 2001 by and between Orbital Sciences Corporation, a Delaware corporation (the "Company"), and Garrett E. Pierce, Executive Vice President and Chief Financial Officer of the Company (the "Executive"). WHEREAS, the Human Resources and Nominating Committee of the Board of Directors of the Company (the "Committee") has determined that it is desirable and in the best interests of the Company to grant to the Executive the right to receive performance share units (the "Performance Shares"), in order to provide the Executive with further incentive to enhance the profitability and financial strength of the Company by linking a component of the Executive's compensation to Company stock value, which Performance Shares entitle the Executive to receive an annual bonus measured by the increased value of the Company's common stock, par value $.01 per share (the "Common Stock"). NOW THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereby agree as follows: 1. GRANT OF PERFORMANCE SHARES. The Company hereby grants to the Executive a total of 60,000 Performance Shares, which shall have the features set forth below. The date of the grant of the Performance Shares is May 18, 2001, the date on which the grant was approved by the Committee. a. Vesting. The 60,000 Performance Shares shall vest immediately. b. Performance Bonus Calculation. Until expiration or termination, each vested Performance Share shall entitle the Executive to receive a bonus (the "Performance Bonus"). The Performance Bonus shall be calculated on each of March 31, 2002 and 2003 with respect to the aggregate number of Performance Shares that have vested as of March 1 of such year. The Performance Bonus shall be equal to the increase, if any, from the Base Price to the Anniversary Valuation Price, as illustrated below for each applicable calendar year.
NUMBER OF ANNIVERSARY PERFORMANCE SHARES BASE DATE BASE PRICE VALUATION PRICE - ------------------ --------- ---------- --------------- 60,000 March 31, 2001 Fair Market Value Fair Market Value on March 31, 2001 on March 31, 2002 60,000 March 31, 2002 Fair Market Value Fair Market Value on March 31, 2002 on March 31, 2003
c. Payment of Performance Bonus. The Performance Bonus, if any, shall be paid in cash in the form of a credit to the Executive's account under the Company's 1995 Deferred Compensation Plan. Such payment shall be made as soon as practicable after calculation of the Performance Bonus. Fifty percent (50%) of such credit shall vest immediately, with the other Fifty percent (50%) vesting on March 31 of the subsequent year. d. Expiration. The Performance Shares shall expire on April 1, 2003 unless this Agreement is terminated according to its terms at an earlier time. e. Fair Market Value. For purposes of this Agreement, the Fair Market Value shall be equal to the average closing sales price of the Common Stock on the national securities exchange on which the Common Stock is then principally traded, calculated for the first 20 trading days in March of the applicable valuation year. 2. LIMITATION ON TRANSFER. The Performance Shares are not transferable by the Executive. 3. PERFORMANCE SHARE ADJUSTMENTS. a. Changes in Stock. If the outstanding shares of Common Stock of the Company are increased, decreased, changed into or exchanged for a different number or kind of shares of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, upon authorization of the Board, a proportionate adjustment shall be made in the number or kind of Common Stock subject to the Performance Shares, so that the proportionate interest of the Executive immediately following such event shall, to the extent practicable, be the same as immediately prior to such event. Any such adjustment to Performance Shares shall include a corresponding proportionate adjustment in the Base Price per share of Common Stock. b. Reorganization in Which the Company is the Surviving Corporation. Subject to subparagraph (c) below, if the Company shall be the surviving corporation in any reorganization, merger or consolidation of the Company with one or more other corporations, the Performance Shares shall pertain to and apply to the securities to which a holder of the number of shares of Common Stock subject to the Performance Shares would have been entitled immediately following such reorganization, merger or consolidation, with a corresponding proportionate adjustment in the Base Price per share of Common Stock so that the aggregate Base Price thereafter shall be the same as the aggregate Base Price of the Common Stock remaining subject to the Performance Shares immediately prior to such reorganization, merger or consolidation. c. Reorganization in Which the Company is Not the Surviving Corporation or Sale of Assets or Stock. Upon the dissolution or liquidation of the Company, or upon a merger, consolidation or reorganization of the Company with one or more other corporations in which the Company is not the surviving corporation, or upon a sale of substantially all the assets of the Company to another corporation, or upon any transaction (including, without limitation, a merger or reorganization in which the Company is the surviving corporation) approved by the Board which results in any person or entity owning Eighty percent (80%) or more of the combined voting power of all classes of the stock of the Company, unless provision is made in writing in connection with such transaction for the assumption of this Agreement with such adjustments as the Board deems appropriate with respect to the features, terms and conditions of the Performance Shares, the Performance Shares hereunder shall immediately entitle the Executive to a Performance Bonus in an amount equal to the difference between the applicable Base Price and the Fair Market Value of the per share Common Stock on the trading date immediately preceding the closing date of such Transaction, and any unpaid portion of a previously vested Performance Bonus shall be immediately paid. d. Adjustments. In all cases, the nature and extent of adjustments under this Section 3 shall be determined by the Committee in its sole discretion, and any such determination as to what adjustments shall be made, and the extent thereof, shall be final and binding. 4. WITHHOLDING OF TAXES. The parties hereto recognize that the Company may be obligated to withhold federal, state and local income taxes and Social Security taxes to the extent that the Executive realizes ordinary income in connection with receipt of the Performance Bonus pursuant to this Agreement. The Executive agrees that the Company may withhold amounts needed to cover such taxes from payments otherwise due and owing to the Executive. 5. DISCLAIMER OF RIGHTS. No provision in this Agreement shall be construed to confer upon the Executive the right to be employed by the Company, or to interfere in any way with the right and authority of the Company either to increase or decrease the compensation of the Executive at any time, or to terminate any employment or other relationship between the Executive and the Company. 6. INTERPRETATION OF PERFORMANCE SHARE AGREEMENT. All decisions and interpretations made by the Committee or the Board of Directors of the Company with regard to any questions arising under this Agreement shall be binding and conclusive on the Company and the Executive. 7. TERMINATION. Except as otherwise provided herein, this Agreement shall terminate and all rights and obligations of the parties hereunder shall be void and of no effect immediately upon the date the Executive ceases to hold the same, equivalent or higher grade office as that office set forth in the first paragraph of this Agreement or March 31, 2004, whichever occurs first. For purposes of this Agreement, an approved leave of absence shall not be deemed an event resulting in the Executive ceasing to hold such office under this Agreement. An approved leave of absence shall mean an absence approved by the Committee for military leave, sick leave, or other bona fide leave, as long as the Executive's right to re-employment is guaranteed by contract, statute or the policy of the Company. 8. MISCELLANEOUS a. Title and Headings. Titles and headings of sections of the Agreement are for convenience of reference only and shall not affect the construction of any provision of this Agreement. b. Governing Law. This Agreement shall be governed by, interpreted under and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of Delaware. c. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes any prior communications, agreements or understandings, whether oral or written, with respect to the matters contained herein. The Performance Share Agreement dated August 9, 2000 by and between the Company and the Executive shall terminate upon execution of this Agreement and all rights and obligations of the parties shall be void and of no effect as of the date of this Agreement. 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. IN WITNESS WHEREOF, the parties have executed this agreement as of May 18, 2001. ORBITAL SCIENCES CORPORATION By: _______________________________ _______________________________ Kelly H. Burke Garrett E. Pierce Chairman of the Human Resources Executive Vice President and and Nominating Committee Chief Financial Officer EX-10.23 10 w58627ex10-23.txt LOAN AND SECURITY AGREEMENT EXHIBIT 10.23 Execution Copy ================================================================================ LOAN AND SECURITY AGREEMENT BY AND AMONG ORBITAL SCIENCES CORPORATION AS BORROWER, THE LENDERS THAT ARE SIGNATORIES HERETO AS THE LENDERS, AND FOOTHILL CAPITAL CORPORATION AS THE ARRANGER AND AGENT DATED AS OF MARCH 1, 2002 ================================================================================ LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of March 1, 2002, between and among, on the one hand, the lenders identified on the signature pages hereof (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), FOOTHILL CAPITAL CORPORATION, a California corporation, as the arranger and agent for the Lenders ("Agent"), and, on the other hand, ORBITAL SCIENCES CORPORATION, a Delaware corporation ("Borrower"). The parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION. 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following definitions: "Ableco" means Ableco Finance LLC, a Delaware limited liability company. "Account Debtor" means any Person who is or who may become obligated under, with respect to, or on account of, an Account, Chattel Paper, or a General Intangible. "Accounts" means all of Borrower's now owned or hereafter acquired right, title, and interest with respect to "accounts" (as that term is defined in the Code), and any and all Supporting Obligations in respect thereof. "ACH Transactions" means any cash management or related services (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system) provided by Wells Fargo or its Affiliates for the account of Borrower or its Subsidiaries. "Additional Documents" has the meaning set forth in Section 4.4. "Advances" has the meaning set forth in Section 2.1. "Affiliate" means, as applied to any Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise; provided, however, that, for purposes of the definition of Eligible Accounts and Section 7.14 hereof: (a) any Person which owns directly or indirectly 10% or more of the securities having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed to control such Person; (b) each director (or comparable manager) of a Person shall be deemed to 1 be an Affiliate of such Person; and (c) each partnership or joint venture in which a Person is a partner or joint venturer shall be deemed to be an Affiliate of such Person. For the avoidance of doubt, as of the Closing Date, ORBIMAGE is an Affiliate of Borrower and its Subsidiaries. "Agent" means Foothill, solely in its capacity as agent for the Lender Group hereunder, and any successor thereto. "Agent's Account" means an account at a bank designated by Agent from time to time as the account into which Borrower shall make all payments to Agent for the benefit of the Lender Group and into which the Lender Group shall make all payments to Agent under this Agreement and the other Loan Documents; unless and until Agent notifies Borrower and the Lender Group to the contrary, Agent's Account shall be that certain deposit account listed on Schedule A-1. "Agent Advances" has the meaning set forth in Section 2.3(e)(i). "Agent's Liens" means the Liens granted by Borrower or any Guarantor to Agent for the benefit of the Lender Group under this Agreement or the other Loan Documents. "Agent-Related Persons" means Agent together with its Affiliates, officers, directors, employees, and agents. "Agreement" has the meaning set forth in the preamble hereto. "Andersen" means Arthur Andersen LLP. "Applicable Prepayment Premium" means, as of any date of determination, an amount equal to (a) during the period of time from and after the date of the execution and delivery of this Agreement up to the date that is the first anniversary of the Closing Date, 3.0% times the Maximum Revolver Amount, (b) during the period of time from and including the date that is the first anniversary of the Closing Date up to the date that is the second anniversary of the Closing Date, 2.0% times the Maximum Revolver Amount, and (c) during the period of time from and including the date that is the second anniversary of the Closing Date up to the Maturity Date, 1.0% times the Maximum Revolver Amount. Notwithstanding the foregoing, if the Lenders, in their Permitted Discretion, choose not to reduce the Baseline Reserve to $0 upon the satisfaction of the Baseline Reserve Reduction Events, the Applicable Prepayment Premium shall be reduced to one-half of the otherwise then Applicable Prepayment Premium as set forth in the preceding sentence. "Assignee" has the meaning set forth in Section 14.1. "Assignment and Acceptance" means an Assignment and Acceptance in the form of Exhibit A-1. "Assignment of Claims Act" means the Assignment of Claims Act of 1940, as amended, 31 U.S.C. Section 3727, 41 U.S.C. Section 15, or any replacement statute thereto. 2 "Authorized Person" means any officer or other employee of Borrower. "Availability" means, as of any date of determination, if such date is a Business Day, and determined at the close of business on the immediately preceding Business Day, if such date of determination is not a Business Day, the amount that Borrower is entitled to borrow as Advances under Section 2.1 (after giving effect to all then outstanding Obligations (other than Bank Product Obligations) and all sublimits and reserves applicable hereunder). "Bank Product Agreements" means those certain cash management service agreements entered into from time to time by Borrower or its Subsidiaries in connection with any of the Bank Products. "Bank Product Obligations" means all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by Borrower or its Subsidiaries to Wells Fargo or its Affiliates pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all such amounts that Borrower is obligated to reimburse to Agent or any member of the Lender Group as a result of Agent or such member of the Lender Group purchasing participations or executing indemnities or reimbursement obligations with respect to the Bank Products provided to Borrower or its Subsidiaries pursuant to the Bank Product Agreements. "Bank Products" means any service or facility extended to Borrower or its Subsidiaries by Wells Fargo or any Affiliate of Wells Fargo including: (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash management, including controlled disbursement accounts or services, or (g) Hedge Agreements. "Bank Product Reserves" means, as of any date of determination, the amount of reserves that Agent has established (based upon Wells Fargo's or its Affiliate's reasonable determination of the credit exposure in respect of then extant Bank Products) for Bank Products then provided or outstanding; provided that such reserves are established at the time Wells Fargo or its Affiliate provides such Bank Products. "Bankruptcy Code" means the United States Bankruptcy Code, as in effect from time to time. "Baseline Contract" means each of the twenty (20) largest Firm Contracts of Borrower (other than Excluded Contracts), determined on the basis of remaining firm backlog under each such Firm Contract as of the last day of the immediately preceding fiscal quarter, provided, however, that any Firm Contract entered into after the Closing Date shall not be a Baseline Contract until such time as Borrower has formally established the Baseline EAC Profit of such contract in a manner consistent with past practices for establishing such amount on similar contracts. "Baseline EAC Profit" means, as of any date of determination, the aggregate estimated profit at completion as established for all of the Baseline Contracts as of most recently 3 ended fiscal year. For purposes of calculating Baseline EAC Profit as of any date of determination pursuant to Section 7.20(c), Baseline EAC Profit may be adjusted to reflect any amendment, modification or termination of any Baseline Contract that occurs during any fiscal quarter. "Baseline Reserve" means a $5,000,000 reserve against Availability, which reserve may be reduced to $0 by the Lenders, in their sole discretion, upon the occurrence of the Baseline Reserve Reduction Events. "Baseline Reserve Reduction Events" means (a) for two consecutive fiscal quarters, commencing with the fiscal quarter ending June 30, 2002 or any fiscal quarter thereafter, Borrower achieves 90% of its projected cumulative EBITDA for such fiscal quarters, as set forth in the Closing Date Business Plan, and (b) during the second consecutive fiscal quarter in which the condition in clause (a) is satisfied, Borrower shall have maintained an average daily amount of Excess Availability plus unrestricted cash and Cash Equivalents of not less than $25,000,000. "Base Rate" means, the rate of interest announced within Wells Fargo at its principal office in San Francisco as its "prime rate", with the understanding that the "prime rate" is one of Wells Fargo's base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publication or publications as Wells Fargo may designate. "Base Rate Revolving Loan Margin" means 2.25 percentage points. "Base Rate Term Loan Margin" means 6.0 percentage points. "Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35) of ERISA) for which Borrower or any Subsidiary or ERISA Affiliate of Borrower has been an "employer" (as defined in Section 3(5) of ERISA) within the past six (6) years. "Board of Directors" means the board of directors (or comparable managers) of Borrower or any committee thereof duly authorized to act on behalf of the board. "Boeing" means The Boeing Company, a Delaware corporation, and its Subsidiaries. "Books" means Borrower's and its Subsidiaries now owned or hereafter acquired books and records (including all of its Records indicating, summarizing, or evidencing its assets (including the Collateral) or liabilities, all of Borrower's or its Subsidiaries' Records relating to its or their business operations or financial condition, and all of its or their goods or General Intangibles related to such information). "Borrower" has the meaning set forth in the preamble to this Agreement. 4 "Borrowing" means a borrowing hereunder consisting of Advances (or term loans, in the case of the Term Loan) made on the same day by the Lenders (or Agent on behalf thereof), or by Swing Lender in the case of a Swing Loan, or by Agent in the case of an Agent Advance. "Borrowing Base" has the meaning set forth in Section 2.1. "Borrowing Base Certificate" means a certificate substantially in the form of Exhibit B-1 delivered by the chief financial officer or chief accounting officer of Borrower to Agent. "Business Day" means any day that is not a Saturday, Sunday, or other day on which national banks are authorized or required to close. "Capital Expenditures" means capital expenditures as determined in accordance with Borrower's consolidated statement of cash flows determined in accordance with GAAP. "Capital Lease" means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. "Capitalized Lease Obligation" means any Indebtedness represented by obligations under a Capital Lease. "Cash Equivalents" means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one (1) year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within one (1) year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's, (c) commercial paper maturing no more than two hundred seventy (270) days from the date of acquisition thereof and, at the time of acquisition, having a rating of A-1 or P-1, or better, from S&P or Moody's, and (d) certificates of deposit or bankers' acceptances maturing within one (1) year from the date of acquisition thereof either (i) issued by any bank organized under the laws of the United States or any state thereof which bank has a rating of A or A2, or better, from S&P or Moody's, or (ii) certificates of deposit less than or equal to $100,000 in the aggregate issued by any other bank insured by the Federal Deposit Insurance Corporation. "Cash Management Bank" has the meaning set forth in Section 2.7(a). "Cash Management Account" has the meaning set forth in Section 2.7(a). "Cash Management Agreements" means those certain cash management service agreements, including, without limitation, lockbox agreements and blocked account agreements, in form and substance satisfactory to Agent, each of which is among Borrower, Agent, and one of the Cash Management Banks. 5 "Change of Control" means (a) any "person" or "group" (within the meaning of Sections 13(d) and 14(d) of the Exchange Act), becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30%, or more, of the Stock of Borrower having the right to vote for the election of members of the Board of Directors, or (b) a majority of the members of the Board of Directors do not constitute Continuing Directors, or (c) Borrower ceases to directly own and control (i) 100% of the outstanding capital Stock of each of its Subsidiaries (other than Orbital Communications) extant as of the Closing Date (other than in connection with any permitted dissolution of such Subsidiary in accordance with the Loan Documents), or (ii) 99% of the outstanding capital stock of Orbital Communications. "Chattel Paper" means all of Borrower's now owned or hereafter acquired right, title and interest with respect to the "chattel paper" as that term is defined in the Code, including, without limitation, tangible chattel paper and electronic chattel paper. "Closing Date" means the date of the making of the initial Advance (or other extension of credit) hereunder or the date on which Agent sends Borrower a written notice that each of the conditions precedent set forth in Section 3.1 either have been satisfied or have been waived. "Closing Date Baseline EAC Analysis" shall mean the Baseline Contract analysis as of December 31, 2001 attached hereto as Schedule C-2. "Closing Date Business Plan" means the set of consolidated Projections of Borrower and all divisions thereof for the three (3) year period commencing on January 1, 2002 (on a year by year basis, and for the one (1) year period following the Closing Date, on a quarter by quarter basis, attached hereto as Schedule C-3. "Code" means the New York Uniform Commercial Code, as in effect from time to time. "Collateral" means all of Borrower's now owned or hereafter acquired right, title, and interest in and to each of the following: (a) Accounts, (b) Books, (c) Chattel Paper, (d) Deposit Accounts, including any DDAs, (e) Equipment, (f) Financial Assets, (g) General Intangibles, 6 (h) Inventory, (i) Investment Property, (j) Negotiable Collateral, (k) Real Property Collateral, (l) Supporting Obligations, (m) any "commercial tort claims" as that term is defined in the Code, as set forth on Schedule C-4 attached hereto, (n) money, cash (except as otherwise excluded by clause (b) of the definition of "Excluded Collateral"), Cash Equivalents, or other assets of Borrower that now or hereafter come into the possession, custody, or control of any member of the Lender Group, and (o) the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance or commercial tort claims, covering any or all of the foregoing, and any and all Accounts, Books, Chattel Paper, Deposit Accounts, Equipment, Financial Assets, General Intangibles, Inventory, Investment Property, Negotiable Collateral, Real Property, Supporting Obligations, money, Deposit Accounts, or other tangible or intangible property resulting from the sale, lease, license, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof, and (p) to the extent not included in the foregoing and to the extent such assets are not Excluded Collateral, all other personal property of Borrower of any kind or description. "Collateral Access Agreement" means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the Equipment or Inventory, in each case, in form and substance satisfactory to Agent in its Permitted Discretion. "Collections" means all cash, checks, notes, instruments, and other items of payment (including insurance proceeds, Net Proceeds of cash sales, Net Proceeds from equity issuances, rental proceeds, and tax refunds) of Borrower. "Commitment" means, with respect to each Lender, its Revolver Commitment, its Term Loan Commitment, or its Total Commitment, as the context requires, and, with respect to all Lenders, their Revolver Commitments, their Term Loan Commitments, or their Total Commitments, as the context requires, in each case as such Dollar amounts are set forth beside such Lender's name under the applicable heading on Schedule C-1 or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1. 7 "Compliance Certificate" means a certificate substantially in the form of Exhibit C-1 delivered by the chief financial officer of Borrower to Agent. "Continuing Director" means (a) any member of the Board of Directors who was a director (or comparable manager) of Borrower on the Closing Date, and (b) any individual who becomes a member of the Board of Directors after the Closing Date if such individual was appointed or nominated for election to the Board of Directors by a majority of the Continuing Directors, but excluding any such individual originally proposed for election in opposition to the Board of Directors in office at the Closing Date in an actual or threatened election contest relating to the election of the directors (or comparable managers) of Borrower (as such terms are used in Rule 14a-11 under the Exchange Act) and whose initial assumption of office resulted from such contest or the settlement thereof. "Control Agreement" means a control agreement, in form and substance satisfactory to Agent in its Permitted Discretion, executed and delivered by Borrower or any Subsidiary of Borrower, as applicable, Agent, and the applicable securities intermediary with respect to a Securities Account or a bank with respect to a deposit account. "Current EAC Profit" means, as of the date of determination, the aggregate profit as of such date of determination and the remaining aggregate estimated profit at completion for all the Baseline Contracts, solely to the extent the profit with respect to such Baseline Contracts is included in the Baseline EAC Profit, calculated in a manner consistent with the Closing Date Baseline EAC Analysis. "Daily Balance" means, with respect to each day during the term of this Agreement, the amount of an Obligation owed at the end of such day. "DDA" means any checking or other demand deposit account maintained by Borrower or a Subsidiary of Borrower. "Default" means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default. "Defaulting Lender" means any Lender that fails to make any Advance (or other extension of credit) that it is required to make hereunder on the date that it is required to do so hereunder. "Defaulting Lender Rate" means (a) the Base Rate for the first three (3) days from and after the date the relevant payment is due, and (b) thereafter, at the interest rate then applicable to Advances (inclusive of the Base Rate Revolving Loan Margin applicable thereto). "Deposit Accounts" means all of Borrower's now owned or hereafter acquired right, title, and interest with respect to any "deposit account" as that term is defined in the Code, including, without limitation, any DDA maintained by Borrower. 8 "Designated Account" means that certain account in Borrower's name at the Designated Account Bank designated as such on Schedule B-1, or such other deposit account of Borrower (located within the United States) that has been designated as such, in writing, by Borrower to Agent. "Designated Account Bank" means the designated institution that has been designated as such on Schedule B-1 or has otherwise been designated as such, in writing by Borrower to Agent. "Designated Insurance Policy" has the meaning set forth in Section 6.8(a). "Dilution" means, as of any date of determination, a percentage, based upon the experience of the immediately prior three (3) months, that is the result of dividing the Dollar amount of (a) bad debt write-downs, discounts, credits, or other dilutive items with respect to the Accounts during such period, by (b) Borrower's sales during such period (excluding extraordinary items) plus the Dollar amount of clause (a). "Dilution Reserve" means, as of any date of determination, an amount sufficient to reduce the advance rate against Eligible Accounts by one percentage point for each percentage point by which Dilution is in excess of 5.0%. "Disbursement Letter" means an instructional letter executed and delivered by Borrower to Agent regarding the extensions of credit to be made on the Closing Date, in form and substance satisfactory to Agent. "Dollars" or "$" means United States dollars. "EBITDA" means, with respect to any fiscal period, Borrower's and its Subsidiaries' consolidated net earnings (or loss), plus interest expense, income taxes and depreciation and amortization, for such period, as determined in accordance with GAAP, plus the non-cash portion of extraordinary losses (including, without limitation, non-cash losses from equity adjustments), minus gains as a result of the termination of the X-34 project with NASA, minus extraordinary gains (excluding insurance recoveries under any Mission Success Policy). "Eligible Accounts" means, collectively, the Eligible Domestic Billed Accounts, the Eligible Domestic Unbilled Accounts, the Eligible Foreign Billed Accounts and the Eligible Foreign Unbilled Accounts. "Eligible Domestic Accounts" means those Accounts created by Borrower in the ordinary course of its business, that arise out of Borrower's sale of goods or rendition of services, that comply with each of the representations and warranties respecting Eligible Domestic Accounts made by Borrower in the Loan Documents, and that are not excluded as ineligible by virtue of one or more of the criteria set forth below; provided, however, that such criteria may be fixed and revised from time to time by Agent in Agent's Permitted Discretion to address the results of any accounts receivable audit performed by Agent from time to time after the Closing Date. The amount to be included with respect to any Eligible Domestic Account shall be 9 calculated net of customer deposits (to the extent not applied) and unapplied cash remitted to Borrower in connection with such Eligible Domestic Account. Eligible Domestic Accounts shall not include the following: (a) Accounts with respect to which the Account Debtor is an employee, Affiliate, or agent of Borrower; (b) Accounts arising in a transaction wherein goods are placed on consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale on approval, a bill and hold, or any other terms by reason of which the payment by the Account Debtor may be conditional; (c) Accounts that are not payable in Dollars; (d) Accounts with respect to which the Account Debtor either (i) does not maintain its chief executive office in the United States, or (ii) is not organized under the laws of the United States or any state thereof, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof; (e) Accounts with respect to which the Account Debtor is the United States or any United States Agency, exclusive of (i) any Account with a remaining billable contract value of less than $2,000,000 after the Closing Date, and (ii) any Account with a remaining billable contract value equal to or greater than $2,000,000 after the Closing Date if (A) Agent has received a written acknowledgement from the relevant government contracting officer (or other authorized party) acknowledging receipt of a notice of assignment under the Assignment of Claims Act for such Account or (B) (I) if such Account relates to a contract existing on the Closing Date, (x) Borrower prepares and delivers to Agent on the Closing Date a notice of assignment or other documentation required pursuant to F.A.R. Section 32.802 and F.A.R. Section 32.805 and (y) the ninetieth (90th) day following the Closing Date has not yet occurred, or (II) if such Account relates to a contract entered into after the Closing Date, (x) Borrower prepares and delivers to Agent a notice of assignment or other documentation required pursuant to F.A.R. Section 32.802 and F.A.R. Section 32.805 within twenty (20) days of the execution of such contract and (y) the ninetieth (90th) day following the execution of such contract has not yet occurred; provided, however, that no Account shall be excluded pursuant to this clause (e) if the reason that an acknowledgement was not received within the requisite ninety (90) day period is due to Agent's failure to execute and deliver the notice of assignment or other required documentation provided by Borrower to Agent in a timely manner; (f) Accounts with respect to which the Account Debtor is a State of the United States, exclusive of (i) any Account with a remaining billable contract value of less than $2,000,000 after the Closing Date, (ii) any Account owed by any State that does not have a statutory counterpart to the Assignment of Claims Act, and (iii) any Account with a remaining billable contract value equal to or greater than $2,000,000 after the Closing Date that is owed by a State that has a statutory counterpart of the Assignment of Claims Act if (A) Agent has 10 received a written acknowledgement (to the extent applicable under the applicable state statute) from the relevant government contracting officer (or other authorized party) acknowledging receipt of a notice of assignment under the applicable statute for such Account or (B) (I) if such Account relates to a contract existing on the Closing Date, (x) Borrower prepares and delivers to Agent on the Closing Date a notice of assignment or other documentation required pursuant to applicable statute and (y) the ninetieth (90th) day following the Closing Date has not yet occurred, or (II) if such Account relates to a contract entered into after the Closing Date, (x) Borrower prepares and delivers to Agent a notice of assignment or other documentation required pursuant applicable statute within twenty (20) days of the execution of such contract and (y) the ninetieth (90th) day following the execution of such contract has not yet occurred; provided, however, that no Account shall be excluded pursuant to this clause (f) if the reason that an acknowledgement (to the extent applicable under the applicable state statute) was not received within the requisite ninety (90) day period is due to (x) Agent's failure to execute and deliver the notice of assignment or other required documentation provided by Borrower to Agent in a timely manner, or (y) the applicable State does not provide such acknowledgements under the applicable state statute; (g) Accounts with respect to which the Account Debtor is a creditor of Borrower, has (i) asserted a right of setoff, or (ii) disputed its liability to pay the Account, to the extent of such right of setoff or dispute; (h) Accounts with respect to (i) an Account Debtor (other than Boeing or any United States Agency) whose total obligations owing to Borrower exceed 15% (such percentage as applied to a particular Account Debtor being subject to reduction by Agent in its Permitted Discretion if the creditworthiness of such Account Debtor deteriorates) of all Eligible Accounts, to the extent the obligations owing by such Account Debtor exceed such percentage, (ii) Boeing, as Account Debtor, to the extent its total obligations owing to Borrower exceed 20% of all Eligible Accounts, (iii) any United States Agency other than NASA, as Account Debtor, to the extent the total obligations of such United States Agency owing to Borrower exceed 30% of all Eligible Accounts, and (iv) NASA, as Account Debtor, to the extent its total obligations owing to Borrower exceed 40% of all Eligible Accounts; (i) Accounts with respect to which the Account Debtor is subject to an Insolvency Proceeding, is not Solvent, has gone out of business, or as to which Borrower has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition of such Account Debtor; (j) Accounts with respect to which the Account Debtor is located in the states of New Jersey, Minnesota, or West Virginia (or any other state that requires a creditor to file a business activity report or similar document in order to bring suit or otherwise enforce its remedies against such Account Debtor in the courts or through any judicial process of such state), unless Borrower has qualified to do business in New Jersey, Minnesota, West Virginia, or such other states, or has filed a business activities report with the applicable division of taxation, the department of revenue, or with such other state offices, as appropriate, for the then-current year, or is exempt from such filing requirement; 11 (k) Accounts, the collection of which, Agent, in its Permitted Discretion, believes to be doubtful by reason of the Account Debtor's financial condition; (l) Accounts that are not subject to a valid and perfected first priority Agent's Lien; (m) Accounts with respect to which the services giving rise to such Account have not been performed; or (n) Accounts for which Borrower is required to provide the Account Debtor with a performance or other form of surety bond that entitles the surety or other issuer to have a claim (in law or equity) on the Accounts. "Eligible Domestic Billed Accounts" means all Eligible Domestic Accounts other than the following: (a) Accounts that the Account Debtor has failed to pay within ninety (90) days of the original invoice date or Accounts with selling terms of more than sixty (60) days; (b) Accounts owed by an Account Debtor (or its Affiliates) where 50% or more of all Accounts owed by that Account Debtor (or its Affiliates) are deemed ineligible under clause (a) above; or (c) Accounts with respect to which the services giving rise to such Account have not been billed to the Account Debtor, and Accounts that constitute Eligible Domestic Unbilled Accounts. "Eligible Domestic Unbilled Accounts" means all Eligible Domestic Accounts with respect to which the services giving rise to such Account have been performed (and the revenue earned) but not billed to the Account Debtor, provided, (a) Agent, in its Permitted Discretion, has not determined such Account Debtor to be uncreditworthy, and (b) not more than 180 days have passed after the initial unbilled services by Borrower were performed (it being understood that the requirement set forth in this clause (b) shall be applicable only upon the earlier of the date forty-five (45) days following the Closing Date or the date Agent has established a methodology for calculating aging of unbilled services in its Permitted Discretion after consultation with Borrower), and provided further that Eligible Domestic Unbilled Accounts shall not include the Accounts of any Account Debtor (or its Affiliates) as to which 50% or more of all billed Accounts owed by such Person are unpaid more than ninety (90) days after the original invoice date or have selling terms of more than sixty (60) days. "Eligible Foreign Accounts" means those Accounts created by Borrower in the ordinary course of its business, that arise out of Borrower's sale of goods or rendition of services, that comply with each of the representations and warranties respecting Eligible Foreign Accounts made by Borrower in the Loan Documents, and that are not excluded as ineligible by virtue of one or more of the criteria set forth below; provided, however, that such criteria may be fixed and revised from time to time by Agent in Agent's Permitted Discretion to address the results of 12 any accounts receivable audit performed by Agent from time to time after the Closing Date. The amount to be included with respect to any Eligible Foreign Account shall be calculated net of customer deposits (to the extent not applied) and unapplied cash remitted to Borrower in connection with such Eligible Foreign Accounts. Eligible Foreign Accounts shall not include the following: (a) Accounts with respect to which the Account Debtor is an employee, Affiliate, or agent of Borrower; (b) Accounts arising in a transaction wherein goods are placed on consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale on approval, a bill and hold, or any other terms by reason of which the payment by the Account Debtor may be conditional; (c) Accounts that are not payable in Dollars other than any such Accounts with respect to which a Hedge Agreement that Agent has approved in its Permitted Discretion and that specifically relates to such Accounts has been entered into with Wells Fargo or a bank acceptable to Agent; (d) Accounts with respect to which the Account Debtor either (i) maintains its chief executive office in the United States, or (ii) is organized under the laws of the United States or any state thereof, (iii) is the United States or any department, agency or instrumentality of the United States, or (iv) is any state of the United States; (e) Accounts with respect to which the Account Debtor is a creditor of Borrower, has (i) asserted a right of setoff or (ii) disputed its liability to pay the Account, to the extent of such right of setoff or dispute; (f) Accounts with respect to an Account Debtor whose total obligations owing to Borrower or its Subsidiaries exceed 15% of all Eligible Accounts, to the extent of the obligations owing by such Account Debtor exceed such percentage; (g) Accounts with respect to which the Account Debtor is subject to an Insolvency Proceeding, is not Solvent, has gone out of business, or as to which Borrower has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition of such Account Debtor; (h) Accounts, the collection of which, Agent, in its Permitted Discretion, believes to be doubtful by reason of the Account Debtor's financial condition; (i) Accounts that are not subject to a valid and perfected first priority Agent's Lien; (j) Accounts with respect to which the services giving rise to such Account have not been performed; or 13 (k) Accounts for which Borrower is required to provide the Account Debtor with a performance or other form of surety bond that entitles the surety or other issuer to have a claim (in law or equity) on the Accounts. "Eligible Foreign Billed Accounts" means all Eligible Foreign Accounts (i) that are supported by an irrevocable letter of credit satisfactory to Agent (as to form, substance, and issuer or domestic confirming bank) or (ii) not less than 90% of which have been irrevocably guaranteed by EXIM upon terms satisfactory to Agent, in each case, exclusive of the following: (a) Accounts that the Account Debtor has failed to pay within ninety (90) days of the original invoice date or Accounts with selling terms of more than sixty (60) days; (b) Accounts owed by an Account Debtor (or its Affiliates) where 50% or more of all Accounts owed by that Account Debtor (or its Affiliates) are deemed ineligible under clause (a) above; or (c) Accounts with respect to which the services giving rise to such Account have not been billed to the Account Debtor, and Accounts that constitute Eligible Foreign Unbilled Accounts. "Eligible Foreign Unbilled Accounts" means all Eligible Foreign Accounts, not less than 90% of which have been irrevocably guaranteed by EXIM upon terms satisfactory to Agent, and with respect to which the services giving rise to such Account have been performed (and the revenue earned) but not billed to the Account Debtor, provided, (a) Agent, in its Permitted Discretion, has not determined such Account Debtor to be uncreditworthy, and (b) not more than one hundred eighty (180) days have passed after the initial unbilled services by Borrower were performed (it being understood that the requirement set forth in this clause (b) shall be applicable only upon the earlier of the date forty-five (45) days following the Closing Date or the date Agent has established a methodology for calculating aging of unbilled services in its Permitted Discretion after consultation with Borrower), and provided further that Eligible Foreign Unbilled Accounts shall not include the Accounts of any Account Debtor (or its Affiliates) as to which 50% or more of all billed Accounts owed by such Person are unpaid more than ninety (90) days after the original invoice date or have selling terms of more than sixty (60) days. "Eligible Transferee" means (a) a commercial bank organized under the laws of the United States, or any state thereof, and having total assets in excess of $250,000,000, (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development or a political subdivision of any such country and which has total assets in excess of $250,000,000, provided that such bank is acting through a branch or agency located in the United States, (c) a finance company, insurance company, or other financial institution or fund that is engaged in making, purchasing, or otherwise investing in commercial loans in the ordinary course of its business and having (together with its Affiliates) total assets in excess of $250,000,000, (d) any Affiliate (other than individuals) of a Lender that was party hereto as of the Closing Date, (e) so long as no Event of 14 Default has occurred and is continuing, any other Person approved by Agent and Borrower, and (f) during the continuation of an Event of Default, any other Person approved by Agent. "Environmental Actions" means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter, or other communication from any Governmental Authority, or any third party involving violations of Environmental Laws or releases of Hazardous Materials from (a) any assets, properties, or businesses of Borrower or any Subsidiary of Borrower or any predecessor in interest, (b) from adjoining properties or businesses, or (c) from or onto any facilities which received Hazardous Materials generated by Borrower or any Subsidiary of Borrower or any predecessor in interest. "Environmental Indemnity Agreement" means that certain environmental indemnity agreement dated as of even date herewith executed and delivered by Borrower in favor of Agent, for the benefit of the Lender Group. "Environmental Law" means any applicable federal, state, provincial, foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy or rule of common law, as in effect from time to time, and in each case as amended, or any applicable judicial or administrative interpretation thereof, including any applicable judicial or administrative order, consent decree or judgment, to the extent binding on Borrower or any Subsidiary of Borrower, relating to the environment, or Hazardous Materials (including occupational exposure to Hazardous Materials), including CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 3803 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the Hazardous Material Transportation Act, 49 U.S.C. Section 1801 et seq.; and the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq. (to the extent it regulates occupational exposure to Hazardous Materials); any applicable state and local or foreign counterparts or equivalents, in each case as amended from time to time. "Environmental Liabilities and Costs" means all liabilities, monetary obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts, or consultants, and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand by any Governmental Authority or any third party, and which relate to any Environmental Action. "Environmental Lien" means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs. "Equipment" means all of Borrower's now owned or hereafter acquired right, title, and interest with respect to equipment (including, without limitation, the manufacturing equipment located at Borrower's Highbay facility whether or not any such equipment is so 15 attached to the real property that it constitutes fixtures), machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, excluding assets described in clause (a) of the definition of "Excluded Collateral". "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto. "ERISA Affiliate" means (a) any Person subject to ERISA whose employees are treated as employed by the same employer as the employees of Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated service group of which Borrower is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any Person subject to ERISA that is a party to an arrangement with Borrower and whose employees are aggregated with the employees of Borrower under IRC Section 414(o). "ERISA Event" means (a) a Reportable Event with respect to any Benefit Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of Borrower's Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c) the providing of notice of intent to terminate a Benefit Plan in a distress termination (as described in Section 4041 (c) of ERISA), (d) the institution by the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e) any event or condition (i) that provides a basis under Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the partial or complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of Borrower, any of Borrower's Subsidiaries or ERISA Affiliates from a Multiemployer Plan, or (g) providing any security to any plan under Section 401(a)(29) of the IRC by Borrower or any of its Subsidiaries or any of their ERISA Affiliates. "Event of Default" has the meaning set forth in Section 8. "Excess Availability" means the amount, as of the date any determination thereof is to be made, equal to (a) Availability minus (b) the aggregate amount, if any, of all vouchered and unvouchered trade payables of Borrower that are more than sixty (60) days past due and all book overdrafts in excess of Borrower's historical practices with respect thereto, in each case under clause (b) of this definition as determined by Agent in its Permitted Discretion. "Exchange Act" means the Securities Exchange Act of 1934, as in effect from time to time. 16 "Excluded Collateral" means all of Borrower's now owned right, title, and interest in and to each of the following: (a) that certain aircraft with Model Number L-1011-385-1-15, Serial Number 193E-1067, and Registration Number N#140SC, and the engines and all other parts attached thereto, (b) the money, in an amount not to exceed $10,355,676 in the aggregate, so long as such money is collateralizing the following existing letters of credit: (i) (a) the letter of credit number M-12870/01G in the amount of $1,847,500, the letter of credit number M-12974/02G in the amount of $2,804,219, the letter of credit number M-12945/01G in the amount of $735,474, which amount is being increased to $5,516,057, each of which were issued by the International Commercial Bank of China in favor of the National Science Counsel, the Executive Yuan of the Republic of China, (ii) the letter of credit number 930718 in the amount of $27,900 issued by Bank of America, N.A. (successor by merger to NationsBank, N.A.) in favor of Hellenic Air Force Command, and (iii) the letter of credit number SM416742C in the amount of $160,000 issued by Wachovia Bank, N.A. (successor by merger to First Union National Bank) in favor of Boston Properties Limited Partnership, and (c) the common stock of ORBIMAGE that is owned or beneficially held by Borrower. "Excluded Contracts" means the System Procurement Agreement and Subcontract PO #MSB0081500 for Bus Subsystem, Satellite Supervising and Control Equipment, System Engineering and Launch Services between Lockheed Martin Corporation (acting by and through Lockheed Martin Commercial Space Systems) and Borrower and any other contract as Borrower and Agent shall from time to time agree in writing to exclude from the requirements of Section 7.20(c). "Excluded Coverages" has the meaning set forth in Section 6.8(a). "Executive Officer" means the chairman of the board, president, each executive vice president, Borrower's chief financial officer, principal accounting officer, and any vice president of Borrower in charge of a principal business unit, division or function, and any other officer appointed by the board of directors of Borrower who performs a policy-making function. "EXIM" means the Export-Import Bank of the United States. "F.A.R." means the Federal Acquisition Regulation, 48 C.F.R. Part 1, as in effect from time to time and any replacement regulations thereto. "FCC" means the Federal Communications Commission of the United States. "FCC Licenses" means, collectively, those certain licenses issued by the FCC and held by Orbital Communications relating to the space and ground segments of the ORBCOMM NVNG MSS system (ITU designation LEOTELCOM-1) (the "ORBCOMM System') as follows: 17 Space Segment Authorizations and Special Temporary Authority (SAT-STA-20001215-00165) issued under FCC Call Sign S2103 relating to construction, launch and operation of the ORBCOMM System; Ground Segment Authorizations Associated with the ORBCOMM System issued under FCC Call Signs E940534, E940535, E940536, E940537 and E940538; Experimental Authorizations Associated with the ORBCOMM System under FCC Call Signs WB2XDL and WB2XGL; C-Bank Relay Earth Station Authorizations Associated with the ORBCOMM System under VCC Call Signs E9900557, E990058, E990059, E990060 and E990061. "Fee Letter" means that certain fee letter, dated as of even date herewith, among Borrower, Agent and Ableco. "FEIN" means Federal Employer Identification Number. "Firm Contracts" means contracts that have been executed and delivered to Borrower or that are included in "backlog" pursuant to Regulation S-K of the Securities Act of 1933. "Financial Asset" means all of Borrower's now owned or hereafter acquired right, title and interest with respect to any "financial asset" as that term is defined in the Code. "Foothill" means Foothill Capital Corporation, a California corporation. "Funding Date" means the date on which a Borrowing occurs. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States, consistently applied. "General Intangibles" means all of Borrower's now owned or hereafter acquired right, title, and interest with respect to general intangibles (including payment intangibles, contract rights, rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringement claims, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, money, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims), and any and all Supporting Obligations in respect thereof, and any other personal property other than goods, Accounts, Investment Property, Negotiable Collateral and Chattel Paper. "Governing Documents" means, with respect to any Person, the certificate or articles of incorporation, bylaws, or other organizational documents of such Person. "Governmental Authority" means any federal, state, local, or other governmental or administrative body, instrumentality, department, or agency or any court, tribunal, 18 administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body. "Guarantor" means each of Orbital Communications and Orbital International. "Guarantor Security Agreement" means that certain guarantor security agreement dated as of even date herewith among the Guarantors and Agent. "Guaranty" means that certain guaranty dated as of even date herewith executed and delivered by each Guarantor in favor of Agent, for the benefit of the Lender Group. "Hazardous Materials" means (a) substances that are defined or listed in, or otherwise classified pursuant to, any Environmental Laws as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty (50) parts per million. "Hedge Agreement" means any and all transactions, agreements, or documents now existing or hereafter entered into between Borrower or its Subsidiaries and Wells Fargo or its Affiliates, which provide for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging Borrower's or its Subsidiaries' exposure to fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices. "Holdout Lender" has the meaning set forth in Section 15.2(a). "Indebtedness" means (a) all obligations for borrowed money, (b) all obligations evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect of letters of credit, bankers acceptances, interest rate swaps, or other financial products, (c) all obligations under Capital Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of Borrower or its Subsidiaries, irrespective of whether such obligation or liability is assumed, (e) all obligations for the deferred purchase price of assets (other than trade debt incurred in the ordinary course of business and repayable in accordance with customary trade practices), and (f) any obligation guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse) any obligation of any other Person. It is understood by the parties hereto that amounts owed by Borrower pursuant to the ORBIMAGE Purchase Agreement shall not constitute "Indebtedness" for purposes of this Agreement. 19 "Indemnified Liabilities" has the meaning set forth in Section 11.3. "Indemnified Person" has the meaning set forth in Section 11.3. "Indenture" means that certain Indenture dated September 16, 1997 between Borrower and Deutsche Bank AG, New York Branch, as trustee, for $100,000,000 of 5.0% Convertible Subordinated Notes due 2002. "Indostar" means, collectively, PT. Datakom Asia, PT. Matahori Lintas Cakrawala, PT. Media Citra Indostar, and all of their respective Subsidiaries and Affiliates. "Insolvency Proceeding" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief. "Intellectual Property Security Agreement" means that certain intellectual property security agreement dated as of even date herewith between Borrower and Agent. "Inventory" means all Borrower's now owned or hereafter acquired right, title, and interest with respect to inventory, including goods held for sale or lease or to be furnished under a contract of service, goods that are leased by Borrower as lessor, goods that are furnished by Borrower under a contract of service, and raw materials, work in process, or materials used or consumed in Borrower's business; including all accessions, additions, attachments, improvements, substitutions and replacements thereto and therefor. "Investment" means (a) with respect to any Person (including ORBIMAGE), any investment by such Person in any other Person (including Affiliates) in the form of loans, guarantees, advances, or capital contributions (excluding (i) commission, travel, and similar advances to officers and employees of such Person made in the ordinary course of business, and (ii) bona fide Accounts arising in the ordinary course of business consistent with past practices), purchases or other acquisitions for consideration of Indebtedness or Stock, and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP, and (b) with respect to ORBIMAGE, Borrower's purchase of the ORBIMAGE Accounts pursuant to the provisions of the ORBIMAGE Purchase Agreement. "Investment Property" means all of Borrower's now owned or hereafter acquired right, title, and interest with respect to "investment property" as that term is defined in the Code, and any and all Supporting Obligations in respect thereof, excluding assets described in clause (c) of the definition of "Excluded Collateral". "IRC" means the Internal Revenue Code of 1986, as in effect from time to time. "IRS" means the Internal Revenue Service of the United States. 20 "Issuing Lender" means Foothill or any other Lender that, at the request of Borrower and with the consent of Agent agrees, in such Lender's sole discretion, to become an Issuing Lender for the purpose of issuing L/Cs or L/C Undertakings pursuant to Section 2.12. "JPMorgan" means JPMorgan Chase Bank (f/k/a Morgan Guaranty Trust Company of New York), as administrative agent and collateral agent under that certain Third Amended and Restated Credit and Reimbursement Agreement dated as of December 21, 1998 (as amended and restated from time to time). "L/C" has the meaning set forth in Section 2.12(a). "L/C Disbursement" means a payment made by the Issuing Lender pursuant to a Letter of Credit. "L/C Undertaking" has the meaning set forth in Section 2.12(a). "Lender" and "Lenders" have the respective meanings set forth in the preamble to this Agreement, and shall include any other Person made a party to this Agreement in accordance with the provisions of Section 14.1. "Lender Group" means, individually and collectively, each of the Lenders (including the Issuing Lender) and Agent. "Lender Group Expenses" means all (a) costs or expenses (including taxes, and insurance premiums) required to be paid by Borrower under any of the Loan Documents that are paid or incurred by any one or more members of the Lender Group, (b) reasonable out-of-pocket costs paid or incurred by any one or more members of the Lender Group in connection with any one or more members of the Lender Group's transactions with Borrower, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunications, (c) fees and charges paid or incurred by (i) Agent for public record searches (including tax lien, judgment, and Uniform Commercial Code searches and including searches with the patent and trademark office, the copyright office, or the department of motor vehicles and periodic status reports from Borrower's jurisdiction of formation), filings, recordings and publications, and (ii) one or more members of the Lender Group in connection with appraisals (including periodic Collateral appraisals or appraisals of any other collateral securing the Obligations or business valuations to the extent of the fees and charges (and up to the amount of any limitation contained in this Agreement), real estate surveys, real estate title policies and endorsements, and environmental audits conducted in accordance with this Agreement or pursuant to the Environmental Indemnity Agreement, (d) costs and expenses incurred by any one or more members of the Lender Group in the disbursement of funds to Borrower (by wire transfer or otherwise), (e) charges paid or incurred by any one or more members of the Lender Group resulting from the dishonor of checks, (f) reasonable costs and expenses paid or incurred by the Lender Group to correct any Default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is 21 consummated, (g) audit fees and expenses of any one or more members of the Lender Group related to audit examinations of the Books to the extent of the fees and charges (and up to the amount of any limitation) contained in this Agreement, (h) reasonable costs and expenses of third party claims or any other suit paid or incurred by any one or more members of the Lender Group in enforcing or defending the Loan Documents or in connection with the transactions contemplated by the Loan Documents or any one or more members of the Lender Group's relationship with Borrower or any guarantor of the Obligations, (i) Agent's and each Lender's reasonable fees and expenses (including attorneys' fees) incurred in advising, structuring, drafting, reviewing, administering, or amending the Loan Documents, and (j) Agent's and each Lender's reasonable fees and expenses (including attorneys' fees) incurred in terminating, enforcing (including attorneys fees and expenses incurred in connection with a "workout," a "restructuring," or an Insolvency Proceeding concerning Borrower or any Subsidiary of Borrower or in exercising rights or remedies under the Loan Documents), or defending the Loan Documents, irrespective of whether suit is brought, or in taking any Remedial Action concerning the Collateral or any other collateral securing the Obligations. Notwithstanding the foregoing, the attorneys' fees to be paid by Borrower in accordance with clauses (i) and (j) of this definition shall be limited to the fees of one law firm representing Agent and the fees of one law firm representing all Lenders with a Term Loan Commitment (other than Foothill or any other Lender that is a successor Agent hereunder) and the fees of any local counsel representing Agent and the fees of any local counsel representing all Lenders with a Term Loan Commitment. It is further understood that counsel for Agent or any successor Agent hereunder shall primarily be responsible for the items set forth in clauses (i) and (j) and in no event shall Lender Group Expenses include amounts in respect of any obligations that are excluded pursuant to Section 2.12(c) or Section 11.3 or any other provision of the Loan Documents. "Lender-Related Person" means, with respect to any Lender, such Lender, together with such Lender's Affiliates, and the officers, directors, employees, and agents of such Lender. "Letter of Credit" means an L/C or an L/C Undertaking, as the context requires. "Letter of Credit Reimbursement Agreement" means that certain letter agreement dated as of January 8, 2002 between Foothill and Borrower and acknowledged by Ableco. "Letter of Credit Usage" means, as of any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit, including, without limitation, so long as such letters of credit are outstanding, the Letters of Credit originally issued pursuant to the Letter of Credit Reimbursement Agreement, plus 100% of the amount of outstanding time drafts accepted by an Underlying Issuer as a result of drawings under Underlying Letters of Credit. "Lien" means any interest in an asset securing an obligation owed to, or a claim by, any Person other than the owner of the asset, whether such interest shall be based on the common law, statute, or contract, whether such interest shall be recorded or perfected, and whether such interest shall be contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances, including the lien or security interest 22 arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also including reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Real Property. "Loan Account" has the meaning set forth in Section 2.10. "Loan Documents" means this Agreement, the Bank Product Agreements, the Cash Management Agreements, the Control Agreements, the Intellectual Property Security Agreement, the Disbursement Letter, the Environmental Indemnity Agreement, the Fee Letter, the Guaranty, the Guarantor Security Agreement, the Letters of Credit, the Mortgages, the Officers' Certificate, the Stock Pledge Agreement, any note or notes executed by Borrower in connection with this Agreement and payable to a member of the Lender Group, and any other agreement entered into, now or in the future, by Borrower and the Lender Group in connection with this Agreement. "Material Adverse Change" means (a) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Borrower or any Subsidiary of Borrower, taken as a whole; provided, however, that a "going concern" qualification on the auditor's report on the financial statements of Borrower for the fiscal year ended December 31, 2001 shall not constitute a Material Adverse Change, (b) a material impairment of Borrower's or any Guarantor's ability, taken as a whole, to perform its obligations under the Loan Documents to which it is a party or of the Lender Group's ability to enforce the Obligations or realize upon the Collateral or any other collateral securing the Obligations, or (c) a material impairment of the enforceability or priority of the Agent's Liens with respect to the Collateral or any other collateral securing the Obligations as a result of an action or failure to act on the part of Borrower or any Guarantor. "Maturity Date" has the meaning set forth in Section 3.4. "Maximum Revolver Amount" means $35,000,000. "MetLife" means MetLife Capital Corporation, a Delaware corporation. "Mission Success Policy" has the meaning set forth in Section 6.8(a). "Moody's" means Moody's Investors Service, Inc., a Delaware corporation, and its successors. "Mortgage Policy" has the meaning set forth in Section 3.1(v). "Mortgages" means, individually and collectively, (a) that certain credit line deed of trust and security agreement dated as of the date hereof executed by Borrower in favor of Agent, for the benefit of the Lender Group, and (b) any other mortgages, deeds of trust, or deeds to secure debt, executed and delivered by Borrower in favor of Agent, for the benefit of the 23 Lender Group, in form and substance satisfactory to Agent in its Permitted Discretion, that encumber the Real Property Collateral and the related improvements thereto. "Multiemployer Plan" means a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any ERISA Affiliate has contributed, or was obligated to contribute, within the past six (6) years. "NASA" means the National Aeronautics and Space Administration of the United States. "Negotiable Collateral" means all of Borrower's now owned and hereafter acquired right, title, and interest with respect to letters of credit, letter of credit rights, instruments, promissory notes, drafts and documents and any and all supporting obligations in respect thereof. "Net Proceeds" means, with respect to any asset disposition by Borrower or any Subsidiary or any proceeds from casualty insurance received by Borrower or any issuance by Borrower of Stock, the aggregate amount of cash or Cash Equivalents received for such assets or Stock, net of (a) reasonable and customary transaction costs and expenses, (b) transfer taxes (including sales and use taxes), (c) amounts payable to holders of applicable Permitted Liens hereunder to the extent that such Permitted Liens, if any, are senior in priority to the Agent's Liens, (d) an appropriate reserve for income taxes in accordance with GAAP, and (e) appropriate amounts to be provided as a reserve against liabilities or otherwise held in escrow in association with any such disposition, in each case clauses (a) though (e) to the extent the amounts so deducted are properly attributable to such transaction and payable (or reserved) by Borrower in connection with such disposition or loss or the issuance of Stock, including without limitation reasonable and customary commissions and underwriting discounts, to a Person that is not an Affiliate of Borrower or such Subsidiary. "Obligations" means (a) all loans (including the Term Loan), Advances, debts, principal, interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), contingent reimbursement obligations with respect to outstanding Letters of Credit, premiums, liabilities (including all amounts charged to Borrower's Loan Account pursuant hereto), obligations, fees (including the fees provided for in the Fee Letter), charges, costs, Lender Group Expenses (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued), guaranties, covenants, and duties of any kind and description owing by Borrower to the Lender Group pursuant to or evidenced by the Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all Lender Group Expenses that Borrower is required to pay or reimburse by the Loan Documents, by law, or otherwise, and (b) all Bank Product Obligations. Any reference in this Agreement or in the Loan Documents to the Obligations shall include all amendments, changes, extensions, modifications, renewals replacements, substitutions, and supplements, thereto and thereof, as applicable, both prior and subsequent to any Insolvency Proceeding. 24 "Officers' Certificate" means the representations and warranties of officers in the form submitted by Agent to Borrower, together with Borrower's completed responses to the inquiries set forth therein, the form and substance of such responses to be satisfactory to Agent. "ORBCOMM System" has the meaning set forth in the definition of "FCC Licenses". "ORBIMAGE" means Orbital Imaging Corporation, a Delaware corporation. "ORBIMAGE Accounts" has the meaning set forth in Section 7.13. "ORBIMAGE Purchase Agreement" means that certain Purchase Agreement dated as of February 9, 2001 between Borrower and ORBIMAGE. "ORBIMAGE Reserve" means a reserve against Availability established by Agent in an amount equal to the difference between the purchase price of the ORBIMAGE Accounts paid by Borrower (not to exceed $10,000,000) and the actual value of the ORBIMAGE Accounts, as determined by Agent in its Permitted Discretion pursuant to its audit, which reserve shall be reduced by $1.00 for each $1.00 collected by Borrower from the ORBIMAGE Accounts. Notwithstanding anything else in this Agreement to the contrary, the ORBIMAGE Reserve shall be released upon the occurrence of each of the ORBIMAGE Reserve Termination Events. "ORBIMAGE Reserve Termination Events" means, each of the following events: (a) the ORBIMAGE Reserve has not been reduced to $0 upon the collection of all of the ORBIMAGE Accounts, (b) the first anniversary date of the closing date of the first purchase by Borrower of a portion of the ORBIMAGE Accounts has occurred, (c) no Default or Event of Default exists under this Agreement or the Loan Documents, and (d) for two consecutive fiscal quarters, Borrower has maintained an average daily amount of Excess Availability and unrestricted cash and Cash Equivalents of not less than $20,000,000. "Orbital Communications" means Orbital Communications Corporation, a Delaware corporation. "Orbital Holdings" means Orbital Holdings Corporation, a Delaware corporation. "Orbital International" means Orbital International, Inc., a Virginia corporation. 25 "Organizational I.D. Number" means, with respect to any Person, the organizational identification number assigned to such Person by the applicable governmental unit or agency of the jurisdiction of organization of such Person. "Originating Lender" has the meaning set forth in Section 14.1(e). "Overadvance" has the meaning set forth in Section 2.5. "Participant" has the meaning set forth in Section 14.1(e). "Paul Hastings" has the meaning set forth in Section 16.19. "PBGC" means the Pension Benefit Guaranty Corporation as defined in Title IV of ERISA, or any successor thereto. "Permitted Discretion" means a determination made in good faith and in the exercise of reasonable (from the perspective of a secured asset-based lender) business judgment. "Permitted Dispositions" means (a) sales or other dispositions by Borrower or its Subsidiaries of Equipment that is substantially worn, damaged, or obsolete or otherwise not necessary and useful in the ordinary course of business, (b) sales by Borrower or its Subsidiaries of Inventory or services to buyers in the ordinary course of business, (c) the use or transfer of money or Cash Equivalents by Borrower or its Subsidiaries in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents, (d) the licensing by Borrower or its Subsidiaries, on a non-exclusive basis, of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business, (e) the sale by Borrower of its TMS division so long as (i) no Event of Default has occurred and is continuing at the time such sale is consummated, and (ii) Borrower receives a minimum of $15,000,000 in Net Proceeds for such sale, (f) the transfer from Orbital Communications to OGLP Acquisition Sub LLC (or any successor thereof) of the FCC Licenses so long as such transfer is required pursuant to the provisions of that certain Asset Purchase Agreement dated as of April 23, 2001 between Orbital Communications, OGLP Acquisition Sub LLC and OGLP Acquisition Sub II Corp., as such agreement exists as of the date hereof or as amended with the consent of the Required Lenders, and (g) the sale by Borrower of the unimproved Real Property located at Steeplechase Industrial Park, Lots 1-4 so long as (i) no Event of Default has occurred and is continuing at the time such sale is consummated, and (ii) Borrower receives a minimum of $3,000,000 in Net Proceeds for such sale. "Permitted Investments" means (a) investments in Cash Equivalents, (b) investments in negotiable instruments for collection, (c) advances made in connection with purchases of goods or services in the ordinary course of business, (d) investments in any Guarantor not to exceed $10,000 per year per Guarantor, (e) deposits to secure the performance of (i) letters of credit (not to exceed an aggregate amount of $500,000 at any time outstanding), (ii) bids, tenders, or obtaining of any license from a governmental authority, or (iii) indemnification obligations (not to exceed an aggregate amount of $100,000 at any time outstanding), or (iv) operating leases in the ordinary course of business, (f) deposits existing as 26 of the Closing Date in escrow accounts or securing the letters of credit of the type described in clause (b) of the definition of Excluded Collateral, (g) deposits in connection with the sale of TMS (including, without limitation, deposits to secure indemnification obligations arising in connection therewith), and (h) the Stock and debt instruments held by Borrower as set forth on Schedule P-2. "Permitted Liens" means (a) Liens held by Agent for the benefit of Agent and the Lenders, (b) Liens for unpaid taxes that either (i) are not yet delinquent, or (ii) do not constitute an Event of Default hereunder and are the subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the interests of lessors under operating leases, (e) purchase money Liens or the interests of lessors under Capital Leases to the extent that such Liens or interests secure Permitted Purchase Money Indebtedness and so long as such Lien attaches only to the asset purchased or acquired and the proceeds thereof, (f) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted Protests, (g) Liens arising from deposits made in connection with obtaining worker's compensation or other unemployment insurance, (h) Liens or deposits to secure performance of (i) bids or tenders, (ii) letters of credit existing in an aggregate face amount not to exceed $10,355,676, which amount shall automatically be reduced by the face amount of any letter of credit existing as of the Closing Date upon the expiration of, or draw under, such letter of credit (which may not be renewed without the prior consent of the Required Lenders, specifically excluding that certain letter of credit number M12870/1G in the amount of $1,847,500 issued by the International Commercial Bank of China), or (iii) leases incurred in the ordinary course of business and not in connection with the borrowing of money, (i) Liens granted as security for surety, appeal bonds, performance bonds and other similar obligations in connection with obtaining such bonds in the ordinary course of business, which Liens shall secure only the aggregate face value of such bonds, (j) Liens resulting from any judgment or award that is not an Event of Default hereunder, (k) Liens with respect to the Real Property Collateral that are exceptions to the commitments for title insurance issued in connection with the Mortgages, as accepted by Agent, and any further zoning restrictions that do not materially interfere with or impair the use or operation thereof, (l) with respect to any Real Property that is not part of the Real Property Collateral, easements, rights of way, and zoning restrictions that do not materially interfere with or impair the use or operation thereof, (m) the non-exclusive right granted to Boeing to use certain property of Borrower pursuant to that certain letter agreement dated December 4, 2001 between Borrower and Boeing, but only to the extent such right exists on the date hereof, (n) Liens granted to the United States government pursuant to F.A.R. 52.232-16 and F.A.R. 52.245-5 on certain assets of Borrower specified in prime contracts between Borrower and the United States Government or any United States Agency or as specified in subcontracts to which Borrower is a party, and (o) encumbrances on the FCC Licenses pursuant to the Asset Purchase Agreement described in clause (f) of the definition of Permitted Dispositions, as such agreement exists on the date hereof or as amended with the consent of the Required Lenders. "Permitted Protest" means the right of Borrower or any Subsidiary of Borrower to protest any Lien (other than any such Lien that secures the Obligations), taxes (other than payroll 27 taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on the Books in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by Borrower or such Subsidiary, as applicable, in good faith, and (c) Agent is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Agent's Liens. It is understood that the requirements of clause (c) of this definition of "Permitted Protest" have been satisfied with respect to Borrower's protest of the Internal Revenue Service assessment against Borrower, as successor to ETI Technologies, Inc., in the amount of $241,288 for the tax year 1994. "Permitted Purchase Money Indebtedness" means (a) Purchase Money Indebtedness existing as of the Closing Date and (b) Purchase Money Indebtedness incurred after the Closing Date; provided, however, (i) during the fiscal year ending December 31, 2002, Borrower shall not incur in excess of $12,000,000 in Purchase Money Indebtedness, (ii) during the fiscal year ending December 31, 2003, Borrower shall not incur in excess of $13,000,000 in Purchase Money Indebtedness and (iii) from the period beginning on January 1, 2004 until the Maturity Date, Borrower shall not incur in excess of $14,000,000 in Purchase Money Indebtedness. "Person" means natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof. "Personal Property Collateral" means all Collateral other than Real Property. "Projections" means Borrower's (including all divisions thereof) forecasted (a) balance sheets, (b) profit and loss statements, and (c) cash flow statements, all prepared on a basis consistent with Borrower's historical financial statements, together with appropriate supporting details and a statement of underlying assumptions. "Pro Rata Share" means: (a) with respect to a Lender's obligation to make Advances and receive payments of principal, interest, fees, costs, and expenses with respect thereto, (x) prior to the date the Revolver Commitments have been terminated or permanently reduced to zero, the percentage obtained by dividing (i) such Lender's Revolver Commitment, by (ii) the aggregate Revolver Commitments of all Lenders and (y) from and after the date the Revolver Commitments have been terminated or permanently reduced to zero, the percentage obtained by dividing (i) the aggregate unpaid principal amount of such Lender's Advances, by (ii) the aggregate unpaid principal amounts of all Advances, (b) with respect to a Lender's obligation to participate in Letters of Credit, to reimburse the Issuing Lender, and to receive payments of fees with respect thereto, (x) prior to the date the Revolver Commitments have been terminated or permanently reduced to zero, the 28 percentage obtained by dividing (i) such Lender's Revolver Commitment, by (ii) the aggregate Revolver Commitments of all Lenders, and (y) from and after the date the Revolver Commitments have been terminated or permanently reduced to zero, the percentage obtained by dividing (i) the aggregate unpaid principal amount of such Lender's Advances, by (ii) the aggregate unpaid principal amounts of all Advances, (c) with respect to a Lender's obligation to make the Term Loan and receive payments of interest, fees, and principal with respect thereto, (x) prior to the date the Term Loan Commitments have been terminated or permanently reduced to zero, the percentage obtained by dividing (i) such Lender's Term Loan Commitment, by (ii) the aggregate amount of all Lenders' Term Loan Commitments and (y) from and after the date the Term Loan Commitments have been terminated or permanently reduced to zero, the percentage obtained by dividing (i) the aggregate unpaid principal amount of such Lender's Term Loans, by (ii) the aggregate unpaid principal amount of all Term Loans, and (d) with respect to all other matters (including the indemnification obligations arising under Section 16.7) prior to the date the Commitments have been terminated or permanently reduced to zero, the percentage obtained by dividing (i) such Lender's Total Commitment, by (ii) the aggregate amount of Total Commitments of all Lenders and (y) from and after the date all Commitments have been terminated or permanently reduced to zero, the percentage obtained by dividing (i) the aggregate unpaid amount of such Lender's outstanding Obligations, by (ii) the aggregate unpaid amount of all outstanding Obligations. "Purchase Money Indebtedness" means Indebtedness (other than the Obligations, but including Capitalized Lease Obligations), incurred at the time of, or within one hundred twenty (120) days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof. "Real Property" means any estates or interests in real property now owned or hereafter acquired by Borrower and the improvements thereto. "Real Property Collateral" means the parcel or parcels of Real Property identified on Schedule R-1 and any Real Property hereafter acquired by Borrower. "Record" means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form. "Remedial Action" means all actions to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor or outdoor environment, (b) prevent or minimize a release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) perform any pre-remedial studies, investigations, or post-remedial operation and maintenance activities, or (d) conduct any other actions in the nature of removal, remedial, or response actions as defined under 42 U.S.C. Section 9601(23), (24) and (25). "Replacement Lender" has the meaning set forth in Section 15.2(a). 29 "Report" has the meaning set forth in Section 16.17. "Reportable Event" means any of the events described in Section 4043(c) of ERISA or the regulations thereunder other than a Reportable Event as to which the provision of thirty (30) days notice to the PBGC is waived under applicable regulations. "Required Availability" means (a) Excess Availability plus (b) unrestricted cash and Cash Equivalents (inclusive of amounts borrowed by Borrower under the Term Loan) minus (c) the aggregate amount of fees and expenses incurred in connection with the closing of this Agreement and the Loan Documents, in an amount of not less than $30,000,000. "Required Lenders" means, at any time, Lenders whose Pro Rata Shares aggregate 51% of the Total Commitments, or if the Commitments have been terminated irrevocably, 51% of the Obligations (other than Bank Product Obligations) then outstanding. "Responsible Officer" means each of the following officers who shall have been appointed by Borrower's board of directors in accordance with Borrower's Governing Documents: the chairman of the board, president, any executive vice president, the senior vice president of finance, the treasurer, any assistant treasurer, Borrower's chief financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), Borrower's principal legal officer, and any vice president/assistant general counsel. "Revolver Commitment" means, with respect to each Lender, its Revolver Commitment, and, with respect to all Lenders, their Revolver Commitments, in each case as such Dollar amounts are set forth beside such Lender's name under the applicable heading on Schedule C-1 or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1. "Revolver Usage" means, as of any date of determination, the sum of (a) the then extant amount of outstanding Advances, plus (b) the then extant amount of the Letter of Credit Usage. "Risk Participation Liability" means, as to each Letter of Credit, all reimbursement obligations of Borrower to the Issuing Lender with respect to an L/C Undertaking, consisting of (a) the amount available to be drawn or which may become available to be drawn, (b) all amounts that have been paid by the Issuing Lender to the Underlying Issuer to the extent not reimbursed by Borrower, whether by the making of an Advance or otherwise, and (c) all accrued and unpaid interest, fees, and expenses payable with respect thereto. "S&P" means Standard & Poor's Rating Service, a division of The McGraw Hill Companies, Inc., a New York corporation, and its successors. "SEC" means the United States Securities and Exchange Commission and any successor thereto. 30 "Securities Account" means a "securities account" as that term is defined in the Code. "Settlement" has the meaning set forth in Section 2.3(f)(i). "Settlement Date" has the meaning set forth in Section 2.3(f)(i). "Solvent" means, with respect to any Person on a particular date, that such Person is not insolvent (as such term is defined in the Uniform Fraudulent Transfer Act). "Stock" means all shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act). "Stock Pledge Agreement" means that certain stock pledge agreement dated as of even date herewith between Borrower and Agent with respect to the pledge of the Stock of each Subsidiary owned by Borrower. "Subsidiary" of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the shares of Stock having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity. Notwithstanding the foregoing, ORBIMAGE shall not be deemed to be a Subsidiary of Borrower or its Subsidiaries for the purpose of this Agreement. "Supporting Obligation" means all of Borrower's now owned or hereafter acquired right, title and interest with respect to any "supporting obligation" as that term is defined in the Code. "Swing Lender" means Foothill or any other Lender that, at the request of Borrower and with the consent of Agent agrees, in such Lender's sole discretion, to become the Swing Lender hereunder. "Swing Loan" has the meaning set forth in Section 2.3(d)(i). "System Procurement Agreement" means that certain Amended and Restated Orbimage System Procurement Agreement, dated February 26, 1998, as amended by Amendment No. 1 dated December 31, 1998, as amended by Amendment No. 2 dated September 15, 1999, as amended by Amendment No. 3 dated March 30, 2000, as amended by Amendment No. 4 dated June 29, 2000 by and between Borrower and ORBIMAGE, as such Agreement may be amended in accordance with the Agreement. "Taxes" has the meaning set forth in Section 16.11. 31 "Term Loan" has the meaning set forth in Section 2.2. "Term Loan Amount" means $25,000,000. "Term Loan Commitment" means, with respect to each Lender, its Term Loan Commitment, and, with respect to all Lenders, their Term Loan Commitments, in each case as such Dollar amounts are set forth beside such Lender's name under the applicable heading on Schedule C-1 or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1. "TMS" means the Transportation Management Systems division of Borrower. "Total Commitment" means, with respect to each Lender, its Total Commitment, and, with respect to all Lenders, their Total Commitments, in each case as such Dollar amounts are set forth beside such Lender's name under the applicable heading on Schedule C-1 attached hereto or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1. "Underlying Issuer" means a third Person that is the beneficiary of an L/C Undertaking and that has issued a letter of credit at the request of the Issuing Lender for the benefit of Borrower. Unless otherwise agreed between Borrower and Agent, the Underlying Issuer shall be Wells Fargo. "Underlying Letter of Credit" means a letter of credit that has been issued by an Underlying Issuer. "United States Agency" means any department, agency, public corporation or instrumentality of the United States. For the avoidance of doubt, each branch of the United States military shall be considered a separate United States Agency for all purposes of this Agreement. "Voidable Transfer" has the meaning set forth in Section 17.7. "Wells Fargo" means Wells Fargo Bank, National Association, a national banking association. 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term "financial statements" shall include the notes and schedules thereto. Whenever the term "Borrower" is used in respect of a financial covenant or a related definition, it shall be understood to mean Borrower and its Subsidiaries on a consolidated basis unless the context clearly requires otherwise. 1.3 CODE. Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein. 32 1.4 CONSTRUCTION. Unless the context of this Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term "including" is not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in the other Loan Documents to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein to any Person shall be construed to include such Person's successors and assigns. Any requirement of a writing contained herein or in the other Loan Documents shall be satisfied by the transmission of a Record and any Record transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein. 1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference. 2. LOAN AND TERMS OF PAYMENT. 2.1 REVOLVER ADVANCES. (a) Subject to the terms and conditions of this Agreement, and during the term of this Agreement, each Lender with a Revolver Commitment agrees (severally, not jointly or jointly and severally) to make advances ("Advances") to Borrower in an amount at any one time outstanding not to exceed such Lender's Pro Rata Share of an amount equal to the lesser of (i) the Maximum Revolver Amount less the sum of (A) the Letter of Credit Usage and (B) the aggregate amount of the reserves established by Agent under Section 2.1(b), or (ii) the Borrowing Base less the Letter of Credit Usage. For purposes of this Agreement, "Borrowing Base," as of any date of determination, shall mean the result of: (x) the lesser of (i) the sum of (1) 85% of Eligible Domestic Billed Accounts, plus (2) the least of (A) 50% of Eligible Domestic Unbilled Accounts, (B) $30,000,000, or (C) 150% of the Eligible Domestic Billed Accounts plus (3) the lesser of (A) the sum of (I) 85% of Eligible Foreign Billed Accounts and (II) 50% of the Eligible Foreign Unbilled Accounts or (B) $15,000,000, collectively less the amount, 33 if any, of the sum of the Dilution Reserve and the ORBIMAGE Reserve, and (ii) an amount equal to Borrower's Collections with respect to Accounts for the immediately preceding 75 day period, minus (y) the aggregate amount of reserves established by Agent under Section 2.1(b). (b) Anything to the contrary in this Section 2.1 notwithstanding, Agent shall have the right to establish reserves in such amounts, and with respect to such matters, as Agent in its Permitted Discretion shall deem necessary or appropriate, against the Borrowing Base, including the Bank Product Reserves, the Baseline Reserve and additional reserves with respect to (i) sums that Borrower is required to pay (such as taxes, assessments, insurance premiums, or, in the case of leased assets, rents or other amounts payable under such leases) and has failed to pay when due, or if no due date is provided, upon demand, under any Section of this Agreement or any other Loan Document, and (ii) amounts owing by Borrower to any Person to the extent secured by a Lien on, or trust over, any of the Collateral (other than any existing Permitted Lien set forth on Schedule P-1 and any Lien arising after the date hereof that secures Permitted Purchase Money Indebtedness), which Lien or trust, in the Permitted Discretion of Agent likely would have a priority superior to the Agent's Liens (such as Liens or trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen, laborers, or suppliers, or Liens or trusts for ad valorem, excise, sales, or other taxes where given priority under applicable law) in and to such item of the Collateral; provided, however, that in no event shall a reserve be created pursuant to this Section 2.1(b)(ii) in respect of Permitted Liens of the type described in clauses (b) (to the extent the unpaid taxes are not delinquent), (h), and (i) of the definition of Permitted Liens. (c) The Lenders with Revolver Commitments shall have no obligation to make additional Advances hereunder to the extent such additional Advances would cause the Revolver Usage to exceed the Maximum Revolver Amount. (d) Amounts borrowed pursuant to this Section may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement. 2.2 TERM LOAN. Subject to the terms and conditions of this Agreement, on the Closing Date each Lender with a Term Loan Commitment agrees (severally, not jointly or jointly and severally) to make term loans (collectively, the "Term Loan") to Borrower in an amount equal to such Lender's Pro Rata Share of the Term Loan Amount. The Term Loan shall be repaid in full on the Maturity Date. (a) Borrower shall prepay the Term Loan in accordance with Section 2.4 of this Agreement without any penalty or premium: 34 (i) from the Net Proceeds received by Borrower from the sale of TMS in an amount equal to the greater of (A) thirty percent (30%) of such Net Proceeds received by Borrower therefor or (B) $5,000,000; and (ii) from the Net Proceeds received by Borrower from the sale of the Real Property located at Steeplechase Lots 1-4; provided, however, that if an Event of Default has occurred and is continuing, such Net Proceeds shall be applied to the Obligations in accordance with Section 2.4(b)(i)(A)-(S). Borrower shall cause the Net Proceeds from each disposition described in clause (a)(i) and (ii) above to be remitted directly to the Agent's Account. (b) Borrower may, at any time, prepay all or a portion of the Term Loan in accordance with Section 2.4 of this Agreement without any penalty or premium: (i) from the Net Proceeds received by Borrower in connection with equity issuances after the date of this Agreement, so long as (A) Borrower notifies Agent in writing prior to the deposit of the Net Proceeds therefor into a Cash Management Account pursuant to Section 2.7 that such Net Proceeds are earmarked for prepayment of the Term Loan, (B) no Event of Default has occurred and is continuing at the time of such prepayment, and (C) Borrower shall have Excess Availability plus unrestricted cash on hand or Cash Equivalents in an aggregate amount of not less than $20,000,000 after giving effect to such prepayment; or (ii) so long as (A) such prepayment is not effected using proceeds of Advances, and (B) upon any such prepayment and after giving effect thereto, there shall be no outstanding Advances hereunder. (c) The outstanding unpaid principal balance and all accrued and unpaid interest under the Term Loan shall be due and payable on the date of termination of this Agreement, whether by its terms, by prepayment, or by acceleration. All amounts outstanding under the Term Loan shall constitute Obligations. 2.3 BORROWING PROCEDURES AND SETTLEMENTS. (a) PROCEDURE FOR BORROWING. Each Borrowing shall be made by an irrevocable written request by an Authorized Person delivered to Agent (which notice must be received by Agent no later than 1:00 p.m. (Atlanta time) on the Business Day prior to the date that is the requested Funding Date in the case of a request for an Advance or the Term Loan specifying (i) the amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day; provided, however, that in the case of a request for a Swing Loan in an amount of $5,000,000, or less, such notice will be timely received if it is received by Agent no later than 1:00 p.m. (Atlanta time) on the Business Day that is the requested Funding Date) specifying (i) the amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day. At Agent's election, in lieu of delivering the above-described written request, any 35 Authorized Person may give Agent telephonic notice of such request by the required time, with such telephonic notice to be confirmed in writing within twenty-four (24) hours of the giving of such notice. (b) AGENT'S ELECTION. Promptly after receipt of a request for a Borrowing pursuant to Section 2.3(a), Agent shall elect, in its discretion, (i) to have the terms of Section 2.3(c) apply to such requested Borrowing, or (ii) if the Borrowing is for an Advance, to request Swing Lender to make a Swing Loan pursuant to the terms of Section 2.3(d) in the amount of the requested Borrowing; provided, however, that if Swing Lender declines in its sole discretion to make a Swing Loan pursuant to Section 2.3(d), Agent shall elect to have the terms of Section 2.3(c) apply to such requested Borrowing. (c) MAKING OF ADVANCES. (i) In the event that Agent shall elect to have the terms of this Section 2.3(c) apply to a requested Borrowing as described in Section 2.3(b), then promptly after receipt of a request for a Borrowing pursuant to Section 2.3(a), Agent shall notify the Lenders, not later than 4:00 p.m. (Atlanta time) on the Business Day immediately preceding the Funding Date applicable thereto, by telecopy, telephone, or other similar form of transmission, of the requested Borrowing. Each Lender shall make the amount of such Lender's Pro Rata Share of the requested Borrowing available to Agent in immediately available funds, to Agent's Account, not later than 1:00 p.m. (Atlanta time) on the Funding Date applicable thereto. After Agent's receipt of the proceeds of such Advances (or the Term Loan, as applicable), upon satisfaction of the applicable conditions precedent set forth in Section 3 hereof, Agent shall make the proceeds thereof available to Borrower on the applicable Funding Date by transferring immediately available funds equal to such proceeds received by Agent to Borrower's Designated Account; provided, however, that, subject to the provisions of Sections 2.3(e) and 2.3(i), Agent shall not request any Lender to make, and no Lender shall make, any Advance (or its portion of the Term Loan) if Agent shall have actual knowledge that (1) one or more of the applicable conditions precedent set forth in Section 3 will not be satisfied on the requested Funding Date for the applicable Borrowing unless such condition has been waived, or (2) the requested Borrowing would exceed the Availability on such Funding Date. (ii) Unless Agent receives notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one (1) Business Day prior to the date of such Borrowing, that such Lender will not make available as and when required hereunder to Agent for the account of Borrower the amount of that Lender's Pro Rata Share of the Borrowing, Agent may assume that each Lender has made or will make such amount available to Agent in immediately available funds on the Funding Date and Agent may (but shall not be so required), in reliance upon such assumption, make available to Borrower on such date a corresponding amount. If and to the extent any Lender 36 shall not have made its full amount available to Agent in immediately available funds and Agent in such circumstances has made available to Borrower such amount, that Lender shall on the Business Day following such Funding Date make such amount available to Agent, together with interest at the Defaulting Lender Rate for each day during such period. A notice submitted by Agent to any Lender with respect to amounts owing under this subsection shall be conclusive, absent manifest error. If such amount is so made available, such payment to Agent shall constitute such Lender's Advance on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to Agent on the Business Day following the Funding Date, Agent will notify Borrower of such failure to fund and, upon demand by Agent, Borrower shall pay such amount to Agent for Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Advances composing such Borrowing. The failure of any Lender to make any Advance on any Funding Date shall not relieve any other Lender of any obligation hereunder to make an Advance on such Funding Date, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on any Funding Date. (iii) Agent shall not be obligated to transfer to a Defaulting Lender any payments made by Borrower to Agent for the Defaulting Lender's benefit, and, in the absence of such transfer to the Defaulting Lender, Agent shall transfer any such payments to each other non-Defaulting Lender member of the Lender Group ratably in accordance with their Commitments (but only to the extent that such Defaulting Lender's Advance was funded by the other members of the Lender Group) or, if so directed by Borrower and if no Default or Event of Default had occurred and is continuing (and to the extent such Defaulting Lender's Advance was not funded by the Lender Group), retain same to be re-advanced to Borrower as if such Defaulting Lender had made Advances to Borrower. Subject to the foregoing, if Borrower does not so direct Agent (and to the extent the Defaulting Lender's Advance was not funded by the Lender Group), Agent may hold and, in its Permitted Discretion, re-lend to Borrower for the account of such Defaulting Lender the amount of all such payments received and retained by it for the account of such Defaulting Lender. Solely for the purposes of voting or consenting to matters with respect to the Loan Documents, such Defaulting Lender shall be deemed not to be a "Lender" and such Lender's Commitment shall be deemed to be zero. This Section shall remain effective with respect to such Lender until (x) the Obligations under this Agreement shall have been declared or shall have become immediately due and payable, (y) the non-Defaulting Lenders, Agent, and Borrower shall have waived such Defaulting Lender's default in writing, or (z) the Defaulting Lender makes its Pro Rata Share of the applicable Advance and pays to Agent all amounts owing by Defaulting Lender in respect thereof. The operation of this Section shall not be construed to increase or otherwise affect the Commitment of any Lender, to relieve or excuse the performance by such Defaulting Lender or any other Lender of its duties and 37 obligations hereunder, or to relieve or excuse the performance by Borrower of its duties and obligations hereunder to Agent or to the Lenders other than such Defaulting Lender. Any such failure to fund by any Defaulting Lender shall constitute a material breach by such Defaulting Lender of this Agreement and shall entitle Borrower at its option, upon written notice to Agent, to arrange for a substitute Lender to assume the Commitment of such Defaulting Lender, such substitute Lender to be acceptable to Agent. In connection with the arrangement of such a substitute Lender, the Defaulting Lender shall have no right to refuse to be replaced hereunder, and agrees to execute and deliver a completed form of Assignment and Acceptance Agreement in favor of the substitute Lender (and agrees that it shall be deemed to have executed and delivered such document if it fails to do so) subject only to being repaid its share of the outstanding Obligations (other than Bank Product Obligations) (including an assumption of its Pro Rata Share of the Risk Participation Liability) without any premium or penalty of any kind whatsoever; provided further, however, that any such assumption of the Commitment of such Defaulting Lender shall not be deemed to constitute a waiver of any of the Lender Groups' or Borrower's rights or remedies against any such Defaulting Lender arising out of or in relation to such failure to fund. (d) MAKING OF SWING LOANS. (i) In the event Agent shall elect, with the consent of Swing Lender, as a Lender, to have the terms of this Section 2.3(d) apply to a requested Borrowing as described in Section 2.3(b), Swing Lender as a Lender shall make such Advance in the amount of such Borrowing (any such Advance made solely by Swing Lender as a Lender pursuant to this Section 2.3(d) being referred to as a "Swing Loan" and such Advances being referred to collectively as "Swing Loans") available to Borrower on the Funding Date applicable thereto by transferring immediately available funds to Borrower's Designated Account. Each Swing Loan is an Advance hereunder and shall be subject to all the terms and conditions applicable to other Advances, except that all payments on any Swing Loan shall be payable to Swing Lender as a Lender solely for its own account (and for the account of the holder of any participation interest with respect to such Swing Loan). Subject to the provisions of Section 2.3(i), Agent shall not request Swing Lender as a Lender to make, and Swing Lender as a Lender shall not make, any Swing Loan if Agent has actual knowledge that (i) one or more of the applicable conditions precedent set forth in Section 3 will not be satisfied on the requested Funding Date for the applicable Borrowing unless such condition has been waived, or (ii) the requested Borrowing would exceed the Availability on such Funding Date. Swing Lender as a Lender shall not otherwise be required to determine whether the applicable conditions precedent set forth in Section 3 have been satisfied on the Funding Date applicable thereto prior to making, in its sole discretion, any Swing Loan. 38 (ii) The Swing Loans shall be secured by the Agent's Liens, shall constitute Advances and Obligations hereunder, and shall bear interest at the rate applicable from time to time to Advances. (e) AGENT ADVANCES. (i) Agent hereby is authorized by Borrower and the Lenders, from time to time in Agent's sole discretion, (1) after the occurrence and during the continuance of a Default or an Event of Default, or (2) at any time that any of the other applicable conditions precedent set forth in Section 3 have not been satisfied, to make Advances to Borrower on behalf of the Lenders that Agent, in its Permitted Discretion deems necessary or desirable (A) to preserve or protect the Collateral and any other collateral securing the Obligations, or any portion thereof, (B) to enhance the likelihood of repayment of the Obligations (other than Bank Product Obligations), or (C) to pay any other amount chargeable to Borrower pursuant to the terms of this Agreement, including, without double counting, Lender Group Expenses and the costs, fees, and expenses described in Section 10 (any of the Advances described in this Section 2.3(e) shall be referred to as "Agent Advances"); provided, that notwithstanding anything to the contrary in this Section 2.3(e), the aggregate principal amount of Agent Advances outstanding at any time, when taken together with the aggregate principal amount of Overadvances in accordance with Section 2.3(i) hereof outstanding at any time, shall not exceed an amount equal to the lesser of (x) 10% of the Borrowing Base then in effect and (y) $3,500,000. Each Agent Advance is an Advance hereunder and shall be subject to all the terms and conditions applicable to other Advances, except that all payments on any Agent Advance shall be payable to Agent solely for its own account (and for the account of the holder of any participation interest with respect to such Agent Advance). (ii) The Agent Advances shall be repayable by Borrower on demand. All Agent Advances shall be secured by Agent's Liens granted to Agent under the Loan Documents, shall constitute Advances and Obligations hereunder, and shall bear interest at the rate applicable from time to time to Advances. (f) SETTLEMENT. It is agreed that each Lender's funded portion of the Advances is intended by the Lenders to equal, at all times, such Lender's Pro Rata Share of the outstanding Advances. Such agreement notwithstanding, Agent, Swing Lender, and the other Lenders agree (which agreement shall not be for the benefit of or enforceable by Borrower) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the Advances, the Swing Loans, and the Agent Advances shall take place on a periodic basis in accordance with the following provisions: (i) Agent shall request settlement ("Settlement") with the Lenders on a monthly basis, or on a more frequent basis if so determined by Agent, (1) on behalf of Swing Lender, with respect to each outstanding Swing Loan, (2) for 39 itself, with respect to each Agent Advance, and (3) with respect to Collections received, as to each by notifying the Lenders by telecopy, telephone, or other similar form of transmission, of such requested Settlement, no later than 4:00 p.m. (Atlanta time) on the Business Day immediately prior to the date of such requested Settlement (the date of such requested Settlement being the "Settlement Date"). Such notice of a Settlement Date shall include a summary statement of the amount of outstanding Advances, Swing Loans, and Agent Advances for the period since the prior Settlement Date. Subject to the terms and conditions contained herein (including Section 2.3(c)(iii)): (y) if a Lender's balance of the Advances, Swing Loans, and Agent Advances exceeds such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of a Settlement Date, then Agent shall, by no later than 3:00 p.m. (Atlanta time) on the Settlement Date, transfer in immediately available funds to the account of such Lender as such Lender may designate, an amount such that each such Lender shall, upon receipt of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances, Swing Loans, and Agent Advances, and (z) if a Lender's balance of the Advances, Swing Loans, and Agent Advances is less than such Lender's Pro Rata Share of the Advances, Swing Loans, and the Agent Advances as of a Settlement Date, such Lender shall no later than 3:00 p.m. (Atlanta time) on the Settlement Date transfer in immediately available funds to Agent's Account, an amount such that each such Lender shall, upon transfer of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances, Swing Loans, and Agent Advances. Such amounts made available to Agent under clause (z) of the immediately preceding sentence shall be applied against the amounts of the applicable Swing Loan or Agent Advance and, together with the portion of such Swing Loan or Agent Advance representing Swing Lender's Pro Rata Share thereof, shall constitute Advances of such Lenders. If any such amount is not made available to Agent by any Lender on the Settlement Date applicable thereto to the extent required by the terms hereof, Agent shall be entitled to recover for its account such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate. (ii) In determining whether a Lender's balance of the Advances, Swing Loans, and Agent Advances is less than, equal to, or greater than such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of a Settlement Date, Agent shall, as part of the relevant Settlement, apply to such balance the portion of payments actually received in good funds by Agent with respect to principal, interest and fees payable by Borrower and allocable to the Lenders hereunder, and proceeds of Collateral and any other collateral securing the Obligations. To the extent that a net amount is owed to any such Lender after such application, such net amount shall be distributed by Agent to that Lender as part of such next Settlement. (iii) Between Settlement Dates, Agent, to the extent no Agent Advances or Swing Loans are outstanding, may pay over to Swing Lender any 40 payments received by Agent, that in accordance with the terms of this Agreement would be applied to the reduction of the Advances, for application to Swing Lender's Pro Rata Share of the Advances. If, as of any Settlement Date, Collections received since the then immediately preceding Settlement Date have been applied to Swing Lender's Pro Rata Share of the Advances other than to Swing Loans, as provided for in the previous sentence, Swing Lender shall pay to Agent for the accounts of the Lenders, and Agent shall pay to the Lenders, to be applied to the outstanding Advances of such Lenders, an amount such that each Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Advances. During the period between Settlement Dates, Swing Lender with respect to Swing Loans, Agent with respect to Agent Advances, and each Lender (subject to the effect of letter agreements between Agent and individual Lenders) with respect to the Advances other than Swing Loans and Agent Advances, shall be entitled to interest at the applicable rate or rates payable under this Agreement on the daily amount of funds employed by Swing Lender, Agent, or the Lenders, as applicable. (g) NOTATION. Agent shall record on its books the principal amount of the Advances owing to each Lender, including the Swing Loans owing to Swing Lender, and Agent Advances owing to Agent, and the interests therein of each Lender, from time to time. In addition, each Lender is authorized, at such Lender's option, to note the date and amount of each payment or prepayment of principal of such Lender's Advances in its books and records, including computer records, such books and records constituting conclusive evidence, absent manifest error, of the accuracy of the information contained therein. (h) LENDERS' FAILURE TO PERFORM. All Advances (other than Swing Loans and Agent Advances) shall be made by the Lenders contemporaneously and in accordance with their Pro Rata Shares. It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Advance (or other extension of credit) hereunder, nor shall any Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligations hereunder, and (ii) no failure by any Lender to perform its obligations hereunder shall excuse any other Lender from its obligations hereunder. (i) OPTIONAL OVERADVANCES. (i) Any contrary provision of this Agreement notwithstanding, the Lenders hereby authorize Agent or Swing Lender, as applicable, and Agent or Swing Lender, as applicable, may, but is not obligated to, knowingly and intentionally, continue to make Advances (including Swing Loans) to Borrower notwithstanding that an Overadvance exists or thereby would be created, so long as (A) after giving effect to such Advances (including a Swing Loan), together with the aggregate principal amount of Agent Advances in accordance with Section 2.3(e) hereof outstanding at any time, the outstanding Revolver Usage does not exceed the Borrowing Base by more than an amount equal to the lesser 41 of (x) 10% of the Borrowing Base then in effect and (y) $3,500,000, (B) after giving effect to such Advances (including any Swing Loan) the outstanding Revolver Usage (except for and excluding amounts charged to the Loan Account for interest, fees, or Lender Group Expenses) does not exceed the Maximum Revolver Amount, and (C) at the time of the making of any such Advance (including a Swing Loan), Agent does not believe, in good faith, that the Overadvance created by such Advance will be outstanding for more than ninety (90) days. The foregoing provisions of this Section 2.3(i) are for the exclusive benefit of Agent, Swing Lender, and the Lenders and are not intended to benefit Borrower in any way. The Advances and Swing Loans, as applicable, that are made pursuant to this Section 2.3(i) shall be subject to the same terms and conditions as any other Advance or Swing Loan, as applicable, except that the rate of interest applicable thereto shall be the rate applicable to Advances under Section 2.6(c) hereof without regard to the presence or absence of a Default or Event of Default. (ii) In the event Agent obtains actual knowledge that the Revolver Usage exceeds the amounts permitted by the preceding paragraph, regardless of the amount of, or reason for, such excess, Agent shall notify Lenders as soon as practicable (and prior to making any (or any additional) intentional Overadvances (except for and excluding amounts charged to the Loan Account for interest, fees, or Lender Group Expenses) unless Agent determines that prior notice would result in imminent harm to the Collateral or any other collateral securing the Obligations or their value), and the Lenders with Revolver Commitments thereupon shall, together with Agent, jointly determine the terms of arrangements that shall be implemented with Borrower intended to reduce, within a reasonable time, the outstanding principal amount of the Advances to Borrower to an amount permitted by the preceding paragraph. In the event Agent or any Lender disagrees over the terms of reduction or repayment of any Overadvance, the terms of reduction or repayment thereof shall be implemented according to the determination of the Required Lenders. (iii) Each Lender with a Revolver Commitment shall be obligated to settle with Agent as provided in Section 2.3(f) for the amount of such Lender's Pro Rata Share of any unintentional Overadvances by Agent reported to such Lender, any intentional Overadvances made as permitted under this Section 2.3(i), and any Overadvances resulting from the charging to the Loan Account of interest, fees, or Lender Group Expenses. 42 2.4 PAYMENTS. (a) PAYMENTS BY BORROWER. (i) Except as otherwise expressly provided herein, all payments by Borrower shall be made to Agent's Account for the account of the Lender Group and shall be made in immediately available funds, no later than 2:00 p.m. (Atlanta time) on the date specified herein. Any payment received by Agent later than 2:00 p.m. (Atlanta time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day. (ii) Unless Agent receives notice from Borrower prior to the date on which any payment is due to the Lenders that Borrower will not make such payment in full as and when required, Agent may assume that Borrower has made (or will make) such payment in full to Agent on such date in immediately available funds and Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent Borrower does not make such payment in full to Agent on the date when due, each Lender severally shall repay to Agent on demand such amount distributed to such Lender, together with interest thereon at the Defaulting Lender Rate for each day from the date such amount is distributed to such Lender until the date repaid. (b) APPORTIONMENT AND APPLICATION OF PAYMENTS. (i) Except as otherwise provided with respect to Defaulting Lenders and except as otherwise provided in the Loan Documents (including letter agreements between Agent and individual Lenders), aggregate principal and interest payments shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Obligations to which such payments relate held by each Lender) and payments of fees and expenses (other than fees or expenses that are for Agent's separate account, after giving effect to any letter agreements between Agent and individual Lenders) shall be apportioned ratably among the Lenders having a Pro Rata Share of the type of Commitment or Obligation to which a particular fee relates. All payments shall be remitted to Agent and, subject to Section 2.4(b)(iii), all such payments, and all proceeds of Accounts or other Collateral received by Agent pursuant to Section 2.7(a) or other applicable provisions of this Agreement, shall be applied on the applicable date required by Section 2.8 as follows: (A) first, to pay any Lender Group Expenses then due to Agent under the Loan Documents, until paid in full, 43 (B) second, to pay any Lender Group Expenses then due to the Lenders under the Loan Documents, on a ratable basis, until paid in full, (C) third, to pay any fees then due to Agent (for its separate accounts, after giving effect to any letter agreements between Agent and the individual Lenders) under the Loan Documents until paid in full, (D) fourth, to pay any fees then due to any or all of the Lenders (after giving effect to any letter agreements between Agent and individual Lenders) under the Loan Documents, on a ratable basis, until paid in full, (E) fifth, to pay interest due in respect of all Agent Advances, until paid in full, (F) sixth, ratably to pay interest due in respect of the Advances (other than Agent Advances), the Swing Loans and the Term Loan until paid in full, (G) seventh, so long as no Event of Default has occurred and is continuing, to pay the principal of all Agent Advances until paid in full, (H) eighth, so long as no Event of Default has occurred and is continuing, to pay the principal of all Swing Loans until paid in full, (I) ninth, so long as no Event of Default has occurred and is continuing, and at Agent's election (which election Agent agrees will not be made if an Overadvance would be created thereby), to pay amounts then due and owing by Borrower or its Subsidiaries in respect of Bank Products, until paid in full, (J) tenth, so long as no Event of Default has occurred and is continuing, to pay the principal of all Advances until paid in full, (K) eleventh, so long as no Event of Default has occurred and is continuing or, if an Event of Default has occurred and is continuing and Agent agrees in its sole discretion, to ratably pay all principal amounts then due and payable (other than as a result of an acceleration thereof) with respect to the Term Loan until paid in full (if an Event of Default has occurred and is continuing and Agent, in its sole discretion, does not agree to the order of payment set forth in this item "eleventh," the priority of the payment of principal then due with respect to the Term Loan is deferred to item "seventeenth" below), (L) twelfth, if an Event of Default has occurred and is continuing, to pay the principal of all Agent Advances until paid in full, 44 (M) thirteenth, if an Event of Default has occurred and is continuing, to pay the principal of all Swing Loans until paid in full, (N) fourteenth, if an Event of Default has occurred and is continuing, to Agent, to be held by Agent, for the benefit of Wells Fargo or its Affiliates, as applicable, as cash collateral in an amount up to the amount of the Bank Product Reserves established prior to the occurrence of, and not in contemplation of, the subject Event of Default until Borrower's and its Subsidiaries' obligations in respect of the then extant Bank Products have been paid in full or the cash collateral amount has been exhausted, (O) fifteenth, if an Event of Default has occurred and is continuing to pay the principal of all Advances until paid in full, (P) sixteenth, if an Event of Default has occurred and is continuing, to Agent, to be held by Agent, for the ratable benefit of Issuing Lender and those Lenders having a Revolver Commitment, as cash collateral in an amount up to 110% of the then extant Letter of Credit Usage until paid in full, (Q) seventeenth, if an Event of Default has occurred and is continuing, to pay the outstanding principal balance of the Term Loan until the Term Loan is paid in full, (R) eighteenth, to pay any other Obligations due and payable (including Bank Product Obligations) until paid in full, and (S) nineteenth, to Borrower (to be wired to the Designated Account) or such other Person entitled thereto under applicable law. (ii) Agent promptly shall distribute to each Lender, pursuant to the applicable wire instructions received from each Lender in writing, such funds as it may be entitled to receive, subject to a Settlement delay as provided in Section 2.3(f). (iii) So long as no Event of Default has occurred and is continuing, Section 2.4(b)(i) shall not apply to (A) any payment by Borrower specified by Borrower to be for the payment of specific Obligations then due and payable (or prepayable) under any provision of this Agreement and (B) any prepayment permitted or required pursuant to Section 2.2. (iv) For purposes of the foregoing, "paid in full" means payment of all amounts owing under the Loan Documents according to the terms thereof, including loan fees, service fees, professional fees, interest (and specifically including interest accrued after the commencement of any Insolvency 45 Proceeding), default interest, interest on interest, and expense reimbursements, in each case, to the extent included in the Obligations, whether or not the same would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding. (v) In the event of a direct conflict between the priority provisions of this Section 2.4 and other provisions contained in any other Loan Document, it is the intention of the parties hereto that such priority provisions in such documents shall be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of this Section 2.4 shall control and govern. 2.5 OVERADVANCES. If, at any time or for any reason, the amount of Obligations (other than Bank Product Obligations) owed by Borrower to the Lender Group pursuant to Sections 2.1 and 2.12 is greater than either the Dollar or percentage limitations set forth in Sections 2.1 or 2.12, (an "Overadvance"), Borrower shall promptly, and in any event within two (2) Business Days after the occurrence thereof, pay to Agent, in cash, the amount of such excess, which amount shall be used by Agent to reduce the Obligations in accordance with the priorities set forth in Section 2.4(b). In addition, Borrower hereby promises to pay the Obligations (including principal, interest, fees, costs, and expenses) in Dollars in full to the Lender Group as and when due and payable under the terms of this Agreement and the other Loan Documents. 2.6 INTEREST RATES AND LETTER OF CREDIT FEE: RATES, PAYMENTS, AND CALCULATIONS. (a) INTEREST RATES. Except as provided in clause (c) below, all Obligations (except for undrawn Letters of Credit and except for Bank Product Obligations) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof as follows (i) if the relevant Obligation is the Term Loan, at a per annum rate equal to the Base Rate plus the Base Rate Term Loan Margin, and (ii) otherwise, at a per annum rate equal to the Base Rate plus the Base Rate Revolving Loan Margin. The foregoing notwithstanding, at no time shall any portion of the Obligations (other than Bank Product Obligations and the Term Loan) bear interest on the Daily Balance thereof at a per annum rate less than 7%, nor shall any portion of the Term Loan bear interest on the Daily Balance thereof at a per annum rate less than 11%. To the extent that interest accrued hereunder at the rate set forth herein would be less than the foregoing minimum daily rate, the interest rate chargeable hereunder for such day automatically shall be deemed increased to the minimum rate. (b) LETTER OF CREDIT FEE. Borrower shall pay Agent (for the ratable benefit of the Lenders with a Revolver Commitment, subject to any letter agreement between Agent and individual Lenders), a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.12(e)) which shall accrue at a rate equal to 2.5% per annum times the Daily Balance of the undrawn amount of all outstanding Letters of Credit. 46 (c) DEFAULT RATE. Upon the occurrence and during the continuation of an Event of Default (and at the election of Agent or the Required Lenders in the case of all Obligations other than Obligations attributable to the Term Loan, and, at the election of the Lenders with a Term Loan Commitment, in the case of Obligations attributable to the Term Loan), (i) all Obligations (except for undrawn Letters of Credit and except for Bank Product Obligations) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to 3.0 percentage points above the per annum rate otherwise applicable hereunder, and (ii) the Letter of Credit fee provided for above shall be increased by 3.0 percentage points above the per annum rate otherwise applicable hereunder. (d) PAYMENT. Interest, Letter of Credit fees, and all other fees payable hereunder shall be due and payable, in arrears, on the first day of each month at any time that Obligations or Commitments are outstanding. Borrower hereby authorizes Agent, from time to time, without prior notice to Borrower, to charge and, subject to the other provisions of this Agreement, prior to an Event of Default and subject to the provisions of Section 2.3(i), Agent agrees to charge such interest and fees, all Lender Group Expenses (as and when incurred), the charges, commissions, fees, and costs provided for in Section 2.12(e) (as and when accrued or incurred), the fees and costs provided for in Section 2.11 (as and when accrued or incurred), and all other payments as and when due and payable under any Loan Document (including the installments due and payable with respect to the Term Loan and including any amounts due and payable to Wells Fargo or its Affiliates in respect of Bank Products up to the amount of the then extant Bank Product Reserves) to Borrower's Loan Account, which amounts thereafter shall constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances hereunder. Any interest not paid when due shall be charged to Borrower's Loan Account and shall thereafter constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances hereunder. (e) COMPUTATION. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. In the event the Base Rate is changed from time to time hereafter, the rates of interest hereunder based upon the Base Rate automatically and immediately shall be increased or decreased by an amount equal to such change in the Base Rate. (f) INTENT TO LIMIT CHARGES TO MAXIMUM LAWFUL RATE. In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. Borrower and the Lender Group, in executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it; provided, however, that, anything contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the 47 maximum allowable under applicable law, then, ipso facto, as of the date of this Agreement, Borrower is and shall be liable only for the payment of such maximum as allowed by law, and payment received from Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess. 2.7 CASH MANAGEMENT. (a) Borrower shall (i) establish and maintain cash management services of a type and on terms satisfactory to Agent at one or more of the banks set forth on Schedule 2.7(a) (each, a "Cash Management Bank"), and shall request in writing and otherwise take such reasonable steps to ensure that all of its Account Debtors forward payment of the amounts owed by them directly to a bank account in Agent's name (a "Cash Management Account") at such Cash Management Bank, and, except as otherwise provided in Section 2.2(a), (ii) deposit or cause to be deposited promptly, and in any event no later than (1) the fifth Business Day after the receipt thereof with respect to amounts in an aggregate amount of less than $100,000 or (2) the second Business Day after the receipt thereof with respect to all other Collections (including those sent directly by Account Debtors to a Cash Management Bank) into a Cash Management Account. (b) Each Cash Management Bank shall establish and maintain Cash Management Agreements with Agent and Borrower, in form and substance acceptable to Agent in its Permitted Discretion. Each such Cash Management Agreement shall provide, among other things, that (i) all items of payment deposited in such Cash Management Account and proceeds thereof are held by such Cash Management Bank as agent or bailee-in-possession for Agent, (ii) the Cash Management Bank has no rights of setoff or recoupment or any other claim against the applicable Cash Management Account, other than for payment of its service fees and other charges directly related to the administration of such Cash Management Account and for returned checks or other items of payment, and (iii) it immediately will forward by daily sweep all amounts in the applicable Cash Management Account to the Agent's Account. (c) So long as no Default or Event of Default has occurred and is continuing, Borrower may amend Schedule 2.7(a) to add or replace a Cash Management Bank or Cash Management Account by delivering written notice to Agent with reference to such Schedule 2.7(a); provided, however, that (i) such prospective Cash Management Bank shall be reasonably satisfactory to Agent and Agent shall have consented in writing in advance to the opening of such Cash Management Account with the prospective Cash Management Bank, and (ii) prior to the time of the opening of such Cash Management Account, Borrower and such prospective Cash Management Bank shall have executed and delivered to Agent a Cash Management Agreement. In the event Borrower receives notice from Agent that (x) the creditworthiness of any Cash Management Bank is no longer acceptable in Agent's reasonable judgment, or (y) the operating performance, funds transfer, or availability procedures or performance of the Cash Management Bank with respect to Cash Management Accounts or Agent's liability under any Cash Management Agreement with such Cash Management Bank is no longer acceptable in Agent's reasonable judgment, Borrower shall (I) within thirty (30) days of Borrower's receipt of notice from Agent, request in writing and otherwise take such reasonable steps to ensure that, 48 within ninety (90) days from the date thereof, all of Borrower's Account Debtors that make payments into such Cash Management Accounts make payments into (A) another existing Cash Management Account that has not been determined by Agent to be unacceptable in accordance with this Section 2.7(c) or (B) any new Cash Management Account established in accordance with this Section 2.7(c), and (II) close its existing Cash Management Accounts with the Cash Management Banks that are subject to such notice from Agent within ninety (90) days from Borrower's receipt thereof. (d) The Cash Management Accounts shall be cash collateral accounts, with all cash, checks and similar items of payment in such accounts securing payment of the Obligations, and in which Borrower is hereby deemed to have granted a Lien to Agent. 2.8 CREDITING PAYMENTS; FLOAT CHARGE. (a) The receipt of any payment item by Agent (whether from transfers to Agent by the Cash Management Banks pursuant to the Cash Management Agreements or otherwise) shall not be considered a payment on account unless such payment item is a wire transfer of immediately available federal funds made to the Agent's Account or unless and until such payment item is honored when presented for payment. Should any payment item not be honored when presented for payment, then Borrower shall be deemed not to have made such payment and interest shall be calculated accordingly. Anything to the contrary contained herein notwithstanding, any payment item shall be deemed received by Agent only if it is received into the Agent's Account on a Business Day on or before 2:00 p.m. (Atlanta time). If any payment item is received into the Agent's Account on a non-Business Day or after 2:00 p.m. (Atlanta time) on a Business Day, it shall be deemed to have been received by Agent as of the opening of business on the immediately following Business Day. All payment items received by Agent on any Business Day in accordance with this Section 2.8 shall be applied pursuant to Section 2.4(b) on such Business Day. (b) From and after the Closing Date, Agent shall be entitled to charge Borrower for two (2) Business Days of 'clearance' or 'float' at the rate applicable to Advances under Section 2.6 on all Collections that are received by Borrower (regardless of whether forwarded by the Cash Management Banks to Agent); provided, however, that the "clearance" or "float" charge pursuant to this Section 2.8(b) shall not be charged to Collections constituting (i) proceeds from equity issuances or (ii) proceeds from the sale by Borrower of TMS. The two (2) Business Day's 'clearance' or 'float' charge applicable pursuant to this Section 2.8(b) is acknowledged by the parties to constitute an integral aspect of the pricing of the financing of Borrower and shall apply irrespective of whether there are any outstanding monetary Obligations; the effect of such clearance or float charge being the equivalent of charging two (2) Business Days of interest on such Collections to which it is applicable. The parties acknowledge and agree that the economic benefit of the foregoing provisions of this Section 2.8 shall be for the exclusive benefit of Agent. For the avoidance of doubt, the 'clearance' or 'float' charge applicable to funds received into the Agent's Account pursuant to this Section 2.8 is solely for the purpose of computing interest, and in no event shall such charge affect the date on which "collected funds" received into the Agent's Account are applied to the Loan Account or the Obligations. 49 2.9 DESIGNATED ACCOUNT. Agent is authorized to make the Advances and the Term Loan, and Issuing Lender is authorized to issue the Letters of Credit, under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person, or without instructions if pursuant to Section 2.6(d). Borrower agrees to establish and maintain the Designated Account with the Designated Account Bank for the purpose of receiving (i) the proceeds of the Advances requested by Borrower and made by Agent or the Lenders hereunder and (ii) receiving the balance of any funds remaining in the Agent's Account after the application of the funds in the Agent's Account pursuant to Section 2.4(b). Unless otherwise agreed by Agent and Borrower, any Advance, Agent Advance, or Swing Loan requested by Borrower and made by Agent or the Lenders hereunder shall be made to the Designated Account. 2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS. Agent shall maintain an account on its books in the name of Borrower (the "Loan Account") on which Borrower will be charged with the Term Loan, all Advances (including Agent Advances and Swing Loans) made by Agent, Swing Lender, or the Lenders to Borrower or for Borrower's account, the Letters of Credit issued by Issuing Lender for Borrower's account, and with all other payment Obligations hereunder or under the other Loan Documents (except for Bank Product Obligations), including, accrued interest, fees and expenses, and Lender Group Expenses. On each Business Day, the Loan Account will be credited with all payments received and collected into the Agent's Account on or before 2:00 p.m. (Atlanta time) on such day from Borrower or for Borrower's account, including all amounts received in the Agent's Account from any Cash Management Bank. Agent shall render statements regarding the Loan Account to Borrower, including principal, interest, fees, and including an itemization of all charges and expenses constituting Lender Group Expenses owing, and such statements shall be conclusively presumed, absent manifest error, to be correct and accurate and constitute an account stated between Borrower and the Lender Group unless, within sixty (60) days after receipt thereof by Borrower, Borrower shall deliver to Agent written objection thereto describing the error or errors contained in any such statements. 2.11 FEES. Borrower shall pay to Agent the following fees and charges, which fees and charges shall be fully earned when due and non-refundable when paid (irrespective of whether this Agreement is terminated thereafter) and shall be apportioned among the Lenders in accordance with the terms of letter agreements between Agent and individual Lenders: (a) UNUSED LINE FEE. On the first day of each month during the term of this Agreement, an unused line fee in an amount equal to 0.75% per annum times the result of (a) the Maximum Revolver Amount, less (b) the sum of (i) the average Daily Balance of Advances that were outstanding during the immediately preceding month, plus (ii) the average Daily Balance of the Letter of Credit Usage during the immediately preceding month, plus (iii) the amount of any Bank Product Reserves established by the Agent with respect to Hedge Agreements, plus (iv) the Baseline Reserve plus (v) the amount of any Advances requested by Borrower but not advanced as a result of the failure of any Defaulting Lender to make such Advance; 50 (b) FEE LETTER FEES. As and when due and payable under the terms of the Fee Letter, Borrower shall pay to Agent and Lenders the fees set forth in the Fee Letter; and (c) AUDIT, APPRAISAL, AND VALUATION CHARGES. For the separate account of Agent, audit, appraisal, and valuation fees and charges as follows (i) a fee of $850 per day, per auditor, plus out-of-pocket expenses for each financial audit of Borrower performed by personnel employed by Agent (excluding routine administration matters performed by an account executive) and (ii) the actual charges paid or incurred by Agent if it elects to employ the services of one or more third Persons to perform financial audits of Borrower, to appraise the Collateral, or any portion thereof, or to assess Borrower's business valuation. 2.12 LETTERS OF CREDIT. (a) Subject to the terms and conditions of this Agreement, the Issuing Lender agrees to issue letters of credit for the account of Borrower (each, an "L/C"), to purchase participations or execute indemnities or reimbursement obligations (each such undertaking, an "L/C Undertaking") with respect to letters of credit issued by an Underlying Issuer or cause an Underlying Issuer to issue Underlying Letters of Credit, in each case for the account of Borrower in accordance with Borrower's instructions. To request the issuance of an L/C, an L/C Undertaking, or an Underlying Letter of Credit issued by the Underlying Issuer (or the amendment, renewal, or extension of an outstanding L/C, L/C Undertaking, or an Underlying Letter of Credit issued by the Underlying Issuer), Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Lender) to the Issuing Lender and Agent (reasonably in advance of the requested date of issuance, amendment, renewal, or extension) a notice requesting the issuance of an L/C, L/C Undertaking, or an Underlying Letter of Credit issued by the Underlying Issuer, or identifying the L/C, L/C Undertaking, or an Underlying Letter of Credit issued by the Underlying Issuer to be amended, renewed, or extended, the date of issuance, amendment, renewal, or extension, the date on which such L/C, L/C Undertaking, or Underlying Letter of Credit issued by the Underlying Issuer is to expire, the amount of such L/C, L/C Undertaking, or Underlying Letter of Credit issued by the Underlying Issuer, the name and address of the beneficiary thereof (or the beneficiary of the Underlying Letter of Credit, as applicable), and such other information as shall be necessary to prepare, amend, renew, or extend such L/C, L/C Undertaking, or Underlying Letter of Credit issued by the Underlying Issuer. If requested by the Issuing Lender, Borrower also shall be an applicant under the application with respect to any Underlying Letter of Credit that is to be the subject of an L/C Undertaking. The Issuing Lender shall have no obligation to issue a Letter of Credit if any of the following would result after giving effect to the requested Letter of Credit: (i) the Letter of Credit Usage would exceed the Borrowing Base less the amount of outstanding Advances, or (ii) the Letter of Credit Usage would exceed $20,000,000 or 51 (iii) the Letter of Credit Usage would exceed the Maximum Revolver Amount less the then extant amount of outstanding Advances. Each Letter of Credit (and corresponding Underlying Letter of Credit) shall be in form and substance consistent with Borrower's instructions and acceptable to the Issuing Lender (in the exercise of its Permitted Discretion), including the requirement that the amounts payable thereunder must be payable in Dollars. If Issuing Lender is obligated to advance funds under a Letter of Credit, Borrower immediately shall reimburse such L/C Disbursement to Issuing Lender by paying to Agent an amount equal to such L/C Disbursement not later than 2:00 p.m., Georgia time, on the date that such L/C Disbursement is made, if Borrower shall have received written or telephonic notice of such L/C Disbursement prior to 1:00 p.m., Georgia time, on such date, or, if such notice has not been received by Borrower prior to such time on such date, then not later than 11:00 a.m., Georgia time, on (i) the Business Day that Borrower receives such notice, if such notice is received prior to 1:00 p.m., Georgia time, on the date of receipt, and, in the absence of such reimbursement, the L/C Disbursement immediately and automatically shall be deemed to be an Advance hereunder and, thereafter, shall bear interest at the rate then applicable to Advances under Section 2.6. To the extent an L/C Disbursement is deemed to be an Advance hereunder, Borrower's obligation to reimburse such L/C Disbursement shall be discharged and replaced by the resulting Advance. Promptly following receipt by Agent of any payment from Borrower pursuant to this paragraph, Agent shall distribute such payment to the Issuing Lender or, to the extent that Lenders have made payments pursuant to Section 2.12(c) to reimburse the Issuing Lender, then to such Lenders and the Issuing Lender as their interest may appear. (b) Promptly following receipt of a notice of L/C Disbursement pursuant to Section 2.12(a), each Lender with a Revolver Commitment agrees to fund its Pro Rata Share of any Advance deemed made pursuant to the foregoing subsection on the same terms and conditions as if Borrower had requested such Advance and Agent shall promptly pay to Issuing Lender the amounts so received by it from the Lenders. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Lender or Lenders with Revolver Commitments, the Issuing Lender shall be deemed to have granted to each Lender with a Revolver Commitment, and each Lender with a Revolver Commitment shall be deemed to have purchased, a participation in each Letter of Credit, in an amount equal to its Pro Rata Share of the Risk Participation Liability of such Letter of Credit, and each such Lender agrees to pay to Agent, for the account of the Issuing Lender, such Lender's Pro Rata Share of any payments made by the Issuing Lender under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender with a Revolver Commitment hereby absolutely and unconditionally agrees to pay to Agent, for the account of the Issuing Lender, such Lender's Pro Rata Share of each L/C Disbursement made by the Issuing Lender and not reimbursed by Borrower on the date due as provided in clause (a) of this Section, or of any reimbursement payment required to be refunded to Borrower for any reason. Each Lender with a Revolver Commitment acknowledges and agrees that its obligation to deliver to Agent, for the account of the Issuing Lender, an amount equal to its respective Pro Rata Share pursuant to this Section 2.12(b) shall be absolute and unconditional and such remittance shall be made notwithstanding the occurrence or continuation of an Event of Default 52 or Default or the failure to satisfy any condition set forth in Section 3 hereof. If any such Lender fails to make available to Agent the amount of such Lender's Pro Rata Share of any payments made by the Issuing Lender in respect of such Letter of Credit as provided in this Section, Agent (for the account of the Issuing Lender) shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate until paid in full. (c) Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless from any loss, cost, expense, or liability, and reasonable attorneys fees incurred by the Lender Group arising out of or in connection with any Letter of Credit; provided, however, that Borrower shall not be obligated hereunder to indemnify for any loss, cost, expense, or liability that is caused by the gross negligence or willful misconduct of the Issuing Lender, the Underlying Issuer (if the Underlying Issuer is Wells Fargo) or any other member of the Lender Group. Borrower agrees to be bound by the Underlying Issuer's regulations and interpretations of any Underlying Letter of Credit or by Issuing Lender's interpretations of any L/C issued by Issuing Lender to or for Borrower's account, even though this interpretation may be different from Borrower's own, and Borrower understands and agrees that the Lender Group shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower's instructions or those contained in the Letter of Credit or any modifications, amendments, or supplements thereto except for any error, negligence or mistake that is caused by the gross negligence or willful misconduct of any member of the Lender Group or the Underlying Issuer (if the Underlying Issuer is Wells Fargo). Borrower understands that the L/C Undertakings may require Issuing Lender to indemnify the Underlying Issuer for certain costs or liabilities arising out of claims by Borrower against such Underlying Issuer. Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless with respect to any loss, cost, expense (including reasonable attorneys fees), or liability incurred by the Lender Group under any L/C Undertaking as a result of the Lender Group's indemnification of any Underlying Issuer; provided, however, that Borrower shall not be obligated hereunder to indemnify for any loss, cost, expense, or liability that is caused by the gross negligence or willful misconduct of the Issuing Lender, the Underlying Issuer (if such Underlying Issuer is Wells Fargo) or any other member of the Lender Group. (d) Borrower hereby authorizes and directs any Underlying Issuer to deliver to the Issuing Lender all instruments, documents, and other writings and property received by such Underlying Issuer pursuant to such Underlying Letter of Credit and to accept and rely upon the Issuing Lender's instructions with respect to all matters arising in connection with such Underlying Letter of Credit and the related application; provided, however, that the Issuing Lender shall be liable to Borrower for any damages suffered by Borrower as a result of any directions of Borrower concerning the Underlying Letter of Credit being incorrectly communicated to the Underlying Issuer as a result of the Issuing Lender's gross negligence or willful misconduct. (e) Any and all charges, commissions, fees, and costs incurred by the Issuing Lender relating to Underlying Letters of Credit shall be Lender Group Expenses for purposes of this Agreement and immediately shall be reimbursable by Borrower to Agent for the account of the Issuing Lender; it being acknowledged and agreed by Borrower that, as of the Closing Date, 53 the issuance charge imposed by the Underlying Issuer is .825% per annum times the face amount of each Underlying Letter of Credit, that such issuance charge may be changed from time to time upon thirty (30) days' prior written notice to Borrower, and that the Underlying Issuer also imposes a schedule of charges for amendments, extensions, drawings, and renewals. (f) If by reason of (i) any change in any applicable law, treaty, rule, or regulation or any change in the interpretation or application thereof by any Governmental Authority, or (ii) compliance by the Underlying Issuer or the Lender Group with any direction, request, or requirement (irrespective of whether having the force of law) of any Governmental Authority or monetary authority including, Regulation D of the Federal Reserve Board as from time to time in effect (and any successor thereto): (i) any reserve, deposit, or similar requirement is or shall be imposed or modified in respect of any Letter of Credit issued hereunder, or (ii) there shall be imposed on the Underlying Issuer or the Lender Group any other condition regarding any Underlying Letter of Credit or any Letter of Credit issued pursuant hereto, and the result of the foregoing is to increase, directly or indirectly, the cost to the Lender Group of issuing, making, guaranteeing, or maintaining any Letter of Credit or to reduce the amount receivable in respect thereof by the Lender Group, then, and in any such case, Agent may, at any time within a reasonable period after the additional cost is incurred or the amount received is reduced, notify Borrower in reasonable detail of the circumstances giving rise to such additional cost or reduced receipt, and Borrower shall pay on demand such amounts as Agent may specify to be necessary to compensate the Lender Group for such additional cost or reduced receipt, together with interest on such amount from the date of such demand until payment in full thereof at the rate then applicable to Advances. The determination by Agent of any amount due pursuant to this Section, as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto. (g) As of the Closing Date, without further action by the parties hereto, each letter of credit issued under the Letter of Credit Reimbursement Agreement shall be deemed to be an L/C issued pursuant to this Agreement and each such L/C shall be governed by the provisions hereof and, by its terms, the Letter of Credit Reimbursement Agreement shall be terminated. 2.13 [INTENTIONALLY OMITTED]. 2.14 CAPITAL REQUIREMENTS. If, after the date hereof, any Lender determines that (i) the adoption of or change in any law, rule, regulation or guideline regarding capital requirements for banks or bank holding companies, or any change in the interpretation or application thereof by any Governmental Authority charged with the administration thereof, or (ii) compliance by such Lender or its parent bank holding company with any guideline, request 54 or directive of any such entity regarding capital adequacy (whether or not having the force of law), has the effect of reducing the return on such Lender's or such holding company's capital as a consequence of such Lender's Commitments hereunder to a level below that which such Lender or such holding company could have achieved but for such adoption, change, or compliance (taking into consideration such Lender's or such holding company's then existing policies with respect to capital adequacy and assuming the full utilization of such entity's capital) by any amount deemed by such Lender to be material, then such Lender may notify Borrower and Agent thereof. Following receipt of such notice, Borrower agrees to pay such Lender on demand the amount of such reduction of return of capital as and when such reduction becomes effective, payable within ninety (90) days after presentation by such Lender of a statement in the amount and setting forth in reasonable detail such Lender's calculation thereof and the assumptions upon which such calculation was based (which statement shall be deemed true and correct absent manifest error); provided that in no event shall Borrower be liable for any reduced return on capital incurred prior to the date that is one hundred twenty (120) days prior to the date of the delivery of such notice. In determining such amount, such Lender may use any reasonable averaging and attribution methods. 3. CONDITIONS; TERM OF AGREEMENT. 3.1 CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT. The obligation of the Lender Group (or any member thereof) to make the initial Advance (or otherwise to extend any credit provided for hereunder), is subject to the fulfillment, to the satisfaction of Agent, of each of the conditions precedent set forth below: (a) the Closing Date shall occur on or before March 4, 2002; (b) Agent shall have received all financing statements required by Agent, duly authorized by Borrower or, as applicable, a Guarantor, and Agent shall have received confirmations reflecting the filing of all such financing statements; (c) Agent shall have received each of the following documents, in form and substance satisfactory to Agent, duly executed, and each such document shall be in full force and effect: (i) the Cash Management Agreements, including, without limitation, with respect to (A) lockbox account No. 0030134412 at Bank of America, N.A., (B) lockbox account No. 2086827474 at Bank of America, N.A., (C) Deposit Account No. 4113052459 at Bank of America, N.A., (D) lockbox account No. 0015891942 at Allfirst Bank, and (E) lockbox account Nos. 4950050062, 4950050070, 4950050054 at Wells Fargo; (ii) to the extent required pursuant to Section 7.13, the Control Agreements; (iii) the Intellectual Property Security Agreement; 55 (iv) the Disbursement Letter; (v) the Due Diligence Letter; (vi) the Fee Letter; (vii) the Guaranty; (viii) the Guarantor Security Agreement; (ix) the Mortgages; (x) the Officers' Certificate; (xi) the Stock Pledge Agreement, together with all certificates representing the shares of Stock pledged thereunder, as well as Stock powers with respect thereto endorsed in blank; (xii) a Borrowing Base Certificate dated as of the Closing Date; and (xiii) a Compliance Certificate dated as of the Closing Date; (d) Agent shall have received a certificate from the secretary or assistant secretary of Borrower (i) attesting to the resolutions of Borrower's Board of Directors authorizing its execution, delivery, and performance of this Agreement and the other Loan Documents to which Borrower is a party and authorizing specific officers of Borrower to execute the same, and (ii) certifying the names and true signatures of the officers of Borrower authorized to sign each Loan Document; (e) Agent shall have received copies of Borrower's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the secretary or assistant secretary of Borrower; (f) Agent shall have received a certificate of status with respect to Borrower, dated within ten (10) days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of Borrower, which certificate shall indicate that Borrower is in good standing in such jurisdiction; (g) Agent shall have received certificates of status with respect to Borrower, each dated within thirty (30) days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of Borrower) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that Borrower is in good standing in such jurisdictions; (h) Agent shall have received a certificate from the secretary or assistant secretary of each Guarantor attesting to the resolutions of such Guarantor's Board of Directors 56 authorizing its execution, delivery, and performance of the Loan Documents to which such Guarantor is a party and authorizing specific officers of such Guarantor to execute the same; (i) Agent shall have received copies of each Guarantor's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the secretary or assistant secretary of such Guarantor; (j) Agent shall have received a certificate of status with respect to each of its Subsidiaries extant as of the Closing Date, dated within ten (10) days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of such Subsidiary, which certificate shall indicate that such Subsidiary is in good standing in such jurisdiction; (k) Agent shall have received certificates of status with respect to each Subsidiary extant as of the Closing Date, each dated within thirty (30) days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of such Subsidiary) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that such Subsidiary is in good standing in such jurisdictions; (l) Agent shall have received a certificate of insurance, together with the endorsements thereto, as are required by Section 6.8, the form and substance of which shall be satisfactory to Agent; (m) Agent shall have received an opinion of Borrower's counsel in form and substance satisfactory to the Lenders, including, without limitation, Borrower's Virginia counsel; (n) Agent shall have a certificate of the chief financial officer of Borrower certifying that all tax returns required to be filed by Borrower have been timely filed and all taxes upon Borrower or its properties, assets, income, and franchises (including Real Property taxes and payroll taxes) have been paid prior to delinquency, except such taxes that are the subject of a Permitted Protest; (o) Borrower shall have the Required Availability after giving effect to the initial extensions of credit hereunder; (p) Agent shall have completed its business, legal, and collateral due diligence, including (i) a collateral audit and review of Borrower's books and records and verification of Borrower's representations and warranties to the Lender Group, the results of which shall be satisfactory to the Lenders in their Permitted Discretion, and (ii) a lien search on Borrower and its Subsidiaries, the results of which are satisfactory to Agent; (q) Agent shall have received the unaudited financial statements for Borrower as of December 31, 2001, which shall be in form and substance satisfactory to the Lenders; 57 (r) The Lenders shall have completed their review of the final enterprise valuation of Borrower calculated by Andersen, the results of which shall be satisfactory to Lenders; (s) The Lenders shall have received Borrower's Closing Date Business Plan; (t) Borrower shall pay, or shall have provided irrevocable directions to pay from the loan proceeds, all Lender Group Expenses incurred in connection with the transactions evidenced by this Agreement; (u) Agent shall have received (i) appraisals of the Real Property Collateral satisfactory to the Lenders, and (ii) mortgagee title insurance policies pursuant to ALTA Lender's Policies of Title Insurance (or marked commitments to issue the same) for the Real Property Collateral issued by a title insurance company satisfactory to Agent, together with any endorsements thereto, (each a "Mortgage Policy" and, collectively, the "Mortgage Policies") in amounts satisfactory to Agent assuring Agent that the Mortgages on such Real Property Collateral are valid and enforceable first priority mortgage Liens on such Real Property Collateral free and clear of all defects and encumbrances except Permitted Liens, and the Mortgage Policies otherwise shall be in form and substance satisfactory to Agent; (v) Agent shall have received (i) a copy of the Phase-I environmental report and a reliance letter issued to Agent for the benefit of the Lender Group for the unimproved Real Property Collateral located at Steeplechase Industrial Park, Lots 1-4, and (ii) an ALTA/ACSM survey certified to Agent for the benefit of the Lender Group with respect to each parcel composing the Real Property Collateral; the environmental consultants and surveyors retained for such ALTA/ACSM survey, the scope of the reports or surveys, and the results of both the survey and the Phase-I report shall be reasonably acceptable to Agent; (w) Agent shall have received copies of each of (i) the Indenture, (ii) the pay-off letter executed by JPMorgan, together with Uniform Commercial Code termination statements and other documentation evidencing the termination by JPMorgan of its Liens on and to the properties and assets of Borrower and its Subsidiaries, (iii) the pay-off letter executed by MetLife, together with Uniform Commercial Code termination statements and other documentation evidencing the termination by MetLife of its Liens on and to the properties and assets of Borrower and its Subsidiaries, except as in respect of any operating lease between Borrower and MetLife or one of its Affiliates, and (iv) termination statements for all other financing statements that have not otherwise lapsed, naming Borrower or its Subsidiaries as "debtor", excluding the Permitted Liens; (x) Borrower shall have received all licenses, approvals or evidence of other actions required by any Governmental Authority in connection with the execution and delivery by Borrower of this Agreement or any other Loan Document or with the consummation of the transactions contemplated hereby and thereby; 58 (y) Agent shall have received evidence satisfactory to it that Borrower has dissolved each of its Subsidiaries other than Orbital Communications, Orbital Holdings, and Orbital International; (z) Borrower shall have executed a final settlement agreement with Indostar, the terms of which are substantially similar to the terms previously provided to Agent; (aa) Agent shall have received evidence satisfactory to it that Borrower has prepared notices of assignment to be delivered to the relevant government contracting officers (or other authorized parties) pursuant to the Assignment of Claims Act and the applicable provisions of the F.A.R. with respect to all Accounts existing as of the date hereof with a remaining billable contract value equal to or greater than $2,000,000 after the Closing Date for which the United States or any department, agency or instrumentality thereof is the Account Debtor; (bb) Borrower shall have established a cash management system satisfying the requirements of Section 2.7 and Section 7.13; provided, however, that the Cash Management Accounts with Bank of America, N.A. referenced in Section 3.2(g) shall not be required to be in Agent's name; and (cc) all other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall be in form and substance satisfactory to Agent. 3.2 CONDITIONS SUBSEQUENT TO THE INITIAL EXTENSION OF CREDIT. The obligation of the Lender Group (or any member thereof) to continue to make Advances (or otherwise extend credit hereunder) is subject to the fulfillment, on or before the date applicable thereto, of each of the conditions subsequent set forth below (except as set forth in Section 3.2(a), the failure by Borrower to so perform or cause to be performed constituting an Event of Default): (a) within ten (10) days of the Closing Date, Borrower shall deliver to Agent evidence that Borrower is in good standing and qualified to do business in the States of Virginia, Arizona and California and that Orbital Communications is in good standing and qualified to do business in the State of Virginia. (b) within ten (10) days of the date Agent delivers to Borrower executed copies of the notices of assignment to be delivered to the relevant governmental contracting officers (or other authorized parties) pursuant to the Assignment of Claims Act and F.A.R. with respect to all Accounts existing as of the Closing Date with a remaining billable Contract Value equal to or greater than $2,000,000 after the Closing Date for which any United States Agency is the Account Debtor, Borrower shall deliver to Agent evidence of the submission of such notices to the relevant governmental contracting officers (or other authorized parties). (c) within fifteen (15) days (with respect to the properties listed in clauses (i), (iii) and (iv) below) and within thirty (30) days (with respect to the property listed in clause (ii) 59 below) of the Closing Date, Borrower shall deliver to Agent Collateral Access Agreements with respect to each of the following properties; (i) 21829, 21839 Atlantic Boulevard, Dulles, Virginia; (ii) 3380 South Price Road, Chandler, Arizona; (iii) 7170 Riverwood Drive, Columbia, Maryland; and (iv) 21700 Atlantic Boulevard, Dulles, Virginia; provided, however, that, in the event Borrower fails to deliver to Agent a fully executed Collateral Access Agreement with respect to any of the above-referenced properties on or before the fifteenth day following the Closing Date, no Default or Event of Default shall occur, however, Agent shall establish a reserve against the Borrowing Base in an amount equal to the aggregate amount of rent payable by Borrower during a three (3) month period for the lease of each property described above for which no Collateral Access Agreement is delivered to Agent, and provided further that such reserve with respect to any such lease shall be released on the next succeeding Business Day following the date on which Borrower delivers to Agent a fully executed Collateral Access Agreement with respect to such lease; (d) within thirty (30) days of the Closing Date, Borrower shall deliver to Agent certified copies of the policies of insurance, together with the endorsements thereto, as are required by Section 6.8, the form and substance of which shall be satisfactory to Agent and its counsel; (e) within thirty (30) days of the Closing Date, Borrower shall request in writing and take all reasonable steps to ensure that all Account Debtors forward payment of the amounts owed by them directly to a Cash Management Account (other than accounts described in Section 3.2(g)) acceptable to Agent; (f) within thirty (30) days of the Closing Date, Borrower shall deliver to Agent evidence satisfactory to Agent that the public record in Montgomery County, Maryland reflects that the judgment in favor of Thomas van der Heyden has been satisfied or otherwise removed from the public record; (g) within ninety (90) days of the Closing Date, Borrower shall deliver to Agent evidence that Borrower has closed its existing lockbox account numbers 0030134412 and 2086827474 with Bank of America, N.A., and lockbox account number 0015891942 with Allfirst Bank and deliver an updated Schedule 2.7(a), reflecting the absence of such account at Bank of America, N.A. and Allfirst Bank; and (h) within fifteen (15) days of the Closing Date, Borrower shall cause its counsel or in-house counsel to deliver to Agent an opinion regarding the stock pledged pursuant to the Stock Pledge Agreement, in form and substance satisfactory to Agent. 60 3.3 CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT. The obligation of the Lender Group (or any member thereof) to make all Advances (or to extend any other credit hereunder) shall be subject to the following conditions precedent: (a) the representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date), (b) no Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof, (c) no injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any Governmental Authority against Borrower, Agent, any Lender, or any of their Affiliates, and (d) no Material Adverse Change shall have occurred. The request by Borrower of an Advance (or other extension of credit) hereunder shall be deemed to be a certification by Borrower that all of the requirements set forth in this Section 3.3 have been satisfied. 3.4 TERM. This Agreement shall become effective upon the execution and delivery hereof by Borrower, Agent, and the Lenders and, unless otherwise terminated pursuant to this Agreement, shall continue in full force and effect for a term ending on the third anniversary of the Closing Date (the "Maturity Date"). The foregoing notwithstanding, the Lender Group, upon the election of the Required Lenders, shall have the right to terminate its obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default. 3.5 EFFECT OF TERMINATION. On the date of termination of this Agreement, all Obligations (including contingent reimbursement obligations of Borrower with respect to outstanding Letters of Credit and including all Bank Product Obligations) immediately shall become due and payable without notice or demand (including (a) either (i) providing cash collateral to be held by Agent for the benefit of those Lenders with a Revolver Commitment in an amount equal to 110% of the aggregate face amount of the then extant Letter of Credit Usage, (ii) providing letters of credit, in form and substance and from issuing banks acceptable to Agent, naming Agent as the beneficiary thereof and in an amount equal to 110% of the aggregate face amount of the then extent Letter of Credit Usage, or (iii) causing the original Letters of Credit to be returned to the Issuing Lender, and (b) providing cash collateral to be held by Agent for the benefit of Wells Fargo or its Affiliates with respect to the then extant Bank Product Obligations). No termination of this Agreement, however, shall relieve or discharge Borrower of its duties, Obligations, or covenants hereunder and the Agent's Liens in the Collateral shall remain in effect until all Obligations have been fully and finally discharged and the Lender Group's obligations 61 to provide additional credit hereunder have been terminated; provided, however, that upon Borrower's compliance with clauses (a) and (b) of this Section or Section 3.6 and upon full and final payment of all Obligations (other than contingent obligations in respect of outstanding Letters of Credit and Bank Product Obligations described in clauses (a) and (b) of this Section or Section 3.6) and the irrevocable termination of the Commitments, (1) Borrower shall no longer have an obligation to comply with Section 2.7, Section 2.8, Article 6 and Article 7, Section 8.3, Section 8.4, Section 8.5, Section 8.6, Section 8.7, Section 8.8, Section 8.9, Section 8.10, Section 8.12 and Section 8.13 (except as it relates to cash collateral or back up letters of credit securing outstanding Letters of Credit or cash collateral securing Bank Products Obligations) of this Agreement and (2) except with respect to cash collateral or back up letters of credit provided pursuant to clauses (a) and (b) of this Section, Agent will, at Borrower's sole expense, execute and deliver any termination statements to be filed pursuant to the Code, lien releases, mortgage releases, re-assignments of intellectual property, discharges of security interests, payoff letters and other similar discharge or release documents (and, if applicable, in recordable form) as are reasonably necessary to release, as of record, the Agent's Liens and all notices of security interests and liens previously filed by or on behalf of Agent with respect to the Obligations. Any remaining cash collateral relating to Letter of Credit Usage and Bank Product Obligations and any back up letter of credit with an undrawn amount shall be returned to Borrower (a) in the case of any Letter of Credit surrendered for termination, no later than three (3) Business Days following such surrender to Agent or the Issuing Lender of such Letters of Credit, (b) in the case of any Letter of Credit that expires, no later than thirty (30) days of the expiration of such Letters of Credit, and (c) in the case of the Bank Product Reserve, no later than ten (10) Business Days following the termination of the Bank Product Obligations. 3.6 EARLY TERMINATION BY BORROWER. Borrower has the option, at any time upon sixty (60) days prior written notice to Agent, to terminate this Agreement by paying to Agent, for the benefit of the Lender Group, in cash, the Obligations (including (a) either (i) providing cash collateral to be held by Agent for the benefit of those Lenders with a Revolver Commitment in an amount equal to 110% of the aggregate face amount of the then extant Letter of Credit Usage, (ii) providing letters of credit, in form and substance and from issuing banks acceptable to Agent, naming Agent as the beneficiary thereof and in an amount equal to 110% of the aggregate face amount of the then extent Letter of Credit Usage, or (iii) causing the original Letters of Credit to be returned to the Issuing Lender, and (b) providing cash collateral to be held by Agent for the benefit of Wells Fargo or its Affiliates with respect to the then extant Bank Products Obligations), in full, together with the Applicable Prepayment Premium (to be allocated based upon letter agreements between Agent and individual Lenders). Any remaining cash collateral relating to Letter of Credit Usage and Bank Product Obligations and any back up letter of credit with an undrawn amount shall be returned to Borrower (1) in the case of any Letter of Credit surrendered for termination, no later than three (3) Business Days following such surrender to Agent or the Issuing Lender of such Letters of Credit, (2) in the case of any Letter of Credit that expires, no later than thirty (30) days of the expiration of such Letters of Credit, and (3) in the case of the Bank Product Reserve, no later than ten (10) Business Days following the termination of the Bank Products Obligations. If Borrower has sent a notice of termination pursuant to the provisions of this Section, then, unless on or before the date fifteen (15) days prior to the termination date set forth in such notice Borrower shall revoke such notice, the Commitments 62 shall terminate and Borrower shall be obligated to repay the Obligations (including (a) either (i) providing cash collateral to be held by Agent for the benefit of those Lenders with a Revolver Commitment in an amount equal to 110% of the aggregate face amount of the then extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to the Issuing Lender, and (b) providing cash collateral to be held by Agent for the benefit of Wells Fargo or its Affiliates with respect to the then extant Bank Product Obligations), in full, together with the Applicable Prepayment Premium, on the date set forth as the date of termination of this Agreement in such notice. In the event of the termination of this Agreement and repayment of the Obligations at any time prior to the Maturity Date, for any other reason, including (I) termination upon the election of the Required Lenders to terminate after the occurrence of an Event of Default, (II) foreclosure and sale of Collateral, (III) sale of the Collateral in any Insolvency Proceeding, or (IV) restructure, reorganization or compromise of the Obligations by the confirmation of a plan of reorganization, or any other plan of compromise, restructure, or arrangement in any Insolvency Proceeding, then, in view of the impracticability and extreme difficulty of ascertaining the actual amount of damages to the Lender Group or profits lost by the Lender Group as a result of such early termination, and by mutual agreement of the parties as to a reasonable estimation and calculation of the lost profits or damages of the Lender Group, Borrower shall pay the Applicable Prepayment Premium to Agent (to be allocated based upon letter agreements between Agent and individual Lenders), measured as of the date of such termination. 4. CREATION OF SECURITY INTEREST. 4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to Agent, for the benefit of the Lender Group, a continuing security interest in all of its right, title, and interest in all currently existing and hereafter acquired or arising Personal Property Collateral in order to secure prompt repayment of any and all of the Obligations in accordance with the terms and conditions of the Loan Documents and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. The Agent's Liens in and to the Personal Property Collateral shall attach to all Personal Property Collateral without further act on the part of Agent or Borrower. Anything contained in this Agreement or any other Loan Document to the contrary notwithstanding, except for Permitted Dispositions, Borrower has no authority, express or implied, to dispose of any item or portion of the Collateral. 4.2 NEGOTIABLE COLLATERAL AND CHATTEL PAPER. Borrower covenants and agrees with the Lenders that from and after the date of this Agreement and until the date of termination of this Agreement in accordance with Section 3.5 hereof: (a) In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, and if and to the extent that perfection or priority of Agent's security interest is dependent on or enhanced by possession, Borrower, immediately upon the request of Agent, shall endorse and deliver physical possession of such Negotiable Collateral or Chattel Paper to Agent. 63 (b) Borrower shall take all steps reasonably necessary to grant Agent control of all electronic Chattel Paper in accordance with the Code and all "transferable records" as defined in each of the Uniform Electronic Transaction Act and the Electronic Signatures in Global and National Commerce Act; and (c) if Borrower retains possession of any Chattel Paper or instruments with Agent's consent, such Chattel Paper and instruments shall be marked with the following legend: "This writing and the obligations evidenced or secured thereby are subject to the security interest of Foothill Capital Corporation, as Agent." 4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE COLLATERAL. At any time after the occurrence and during the continuation of an Event of Default, Agent or Agent's designee may (a) notify Account Debtors of Borrower that the Accounts, Chattel Paper, or General Intangibles have been assigned to Agent or that Agent has a security interest therein, or (b) collect the Accounts, Chattel Paper, or General Intangibles directly and charge the collection costs and expenses to the Loan Account. Borrower agrees that it will hold in trust for the Lender Group, as the Lender Group's trustee, any Collections that it receives and immediately will deliver said Collections to Agent or a Cash Management Bank in their original form as received by Borrower. 4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time upon the request of Agent, Borrower shall execute (or cause to be executed) and deliver to Agent, any and all financing statements, original financing statements in lieu of continuation statements, fixture filings, security agreements, pledges, assignments, endorsements of certificates of title, and all other documents (the "Additional Documents") upon which Borrower's signature may be required that Agent may request in its Permitted Discretion, in form and substance satisfactory to Agent, to perfect and continue perfected or better perfect the Agent's Liens in the Collateral (whether now owned or hereafter arising or acquired), to create and perfect Liens in favor of Agent in any Real Property acquired after the Closing Date, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents. To the maximum extent permitted by applicable law, Borrower authorizes Agent to execute any such Additional Documents in Borrower's name and authorizes Agent to file such executed Additional Documents in any appropriate filing office. In addition, on such periodic basis as Agent shall reasonably require, Borrower shall (a) provide Agent with a report of all new trademark applications or registrations, copyright registrations, or patent applications or issued patents acquired or generated by Borrower during the prior period, (b) cause all patents, copyrights, and trademarks acquired or generated by Borrower that are material to Borrower's business and that are not already the subject of a registration with the appropriate filing office (or an application therefor diligently prosecuted) to be registered with such appropriate filing office in a manner sufficient to impart constructive notice of Borrower's ownership thereof, and (c) to the extent required by the Intellectual Property Security Agreement, cause to be prepared, executed, and delivered to Agent supplemental schedules to the applicable Loan Documents to identify such patents, copyrights, and trademarks as being subject to the security interests created thereunder. Borrower authorizes Agent to transmit, communicate or, as applicable, file any financing statement under the Code, record, in-lieu financing statement, amendment, correction statement, 64 continuation statement, termination statement or other instrument describing the Collateral as "all personal property of Debtor" or "all assets of Debtor" or words of similar effect, exclusive of the Excluded Collateral, in such jurisdictions and in such filing offices as Agent may deem necessary or desirable in order to perfect any security interest granted by Borrower under this Agreement and the other Loan Documents without signature. Borrower hereby ratifies, to the extent necessary, Agent's authorization to file a financing statement or amendment thereto, if such financing statement has been pre-filed by Agent prior to the Closing Date. Prior to repayment in full and final discharge of the Obligations, including Borrower's delivery of cash collateral in an amount equal to 110% of the aggregate face value of the then extant Letter of Credit Usage to be held by Agent for the benefit of any Underlying Issuer with respect to the then extant Letter of Credit Usage or return of the original Letters of Credit to the Issuing Lender, Borrower shall not terminate, amend or file a correction statement with respect to any Uniform Commercial Code financing statements filed pursuant to this Section 4.4 without Agent's prior written consent. 4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes, constitutes, and appoints Agent (and any of Agent's officers, employees, or agents designated by Agent) as Borrower's true and lawful attorney, with power to (a) if Borrower refuses to, or fails timely to execute and deliver any of the documents described in Section 4.4, sign the name of Borrower on any of the documents described in Section 4.4, (b) at any time that an Event of Default has occurred and is continuing, sign Borrower's name on any invoice or bill of lading relating to the Collateral, drafts against Account Debtors, or notices to Account Debtors, (c) (i) prior to the occurrence of an Event of Default, (A) conduct verifications in coordination with Borrower pursuant to procedures agreed upon by Agent, or (B) if Agent determines in its reasonable discretion that Borrower is not cooperating in good faith with the efforts of Agent to conduct verifications, Agent may communicate directly with Account Debtors to conduct such verifications, and (ii) at any time that an Event of Default has occurred and is continuing, send requests for verification of Accounts, (d) endorse Borrower's name on any Collection item that may come into the Lender Group's possession for deposit into any Cash Management Account or the Agent's Account, (e) at any time that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under Borrower's policies of insurance and make all determinations and decisions with respect to such policies of insurance, and (f) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting the Accounts, Chattel Paper, or General Intangibles directly with Account Debtors, for amounts and upon terms that Agent determines to be reasonable, and Agent may cause to be executed and delivered any documents and releases that Agent determines to be necessary. The appointment of Agent as Borrower's attorney, and each and every one of its rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully and finally repaid and performed and the Lender Group's obligations to extend credit hereunder are terminated. 4.6 RIGHT TO INSPECT; APPRAISALS. Subject to any confidentiality obligations to which Borrower is subject with respect to information that has been designated as classified by the United States government or other applicable governmental authority: 65 (a) Collateral Audits. Agent and each Lender (through any of their respective officers, employees, or agents) shall have the right, from time to time hereafter to inspect the Books and to check, test, and conduct audits of the Collateral and any other collateral securing the Obligations in order to verify Borrower's and each Guarantor's financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral or any other collateral securing the Obligations; provided, however, so long as no Event of Default has occurred and is continuing, Agent shall not conduct audits and inspections at Borrower's expense more than four (4) times per calendar year, and (b) Appraisals. So long as any principal amount of the Term Loan is outstanding and so long as no Event of Default has occurred and is continuing, Agent shall have the right to conduct not more than one (1) appraisal or valuation per year at Borrower's expense. At any time an Event of Default has occurred and is continuing, Agent shall have the right to conduct appraisals and valuations in its Permitted Discretion at Borrower's expense. 4.7 CONTROL AGREEMENTS. Borrower agrees that it will not transfer assets out of any Securities Accounts other than as permitted under Section 7.13 and, if to another securities intermediary, unless Borrower, Agent, and the substitute securities intermediary have entered into a Control Agreement. No arrangement contemplated hereby or by any Control Agreement in respect of any Securities Accounts or other Investment Property shall be modified by Borrower without the prior written consent of Agent. Upon the occurrence and during the continuance of an Event of Default, Agent may notify any securities intermediary to liquidate the applicable Securities Account or any related Investment Property maintained or held thereby and remit the proceeds thereof to the Agent's Account. 4.8 COMMERCIAL TORT CLAIMS. Borrower shall promptly notify Agent in writing upon incurring or otherwise obtaining a commercial tort claim, as that term is defined in the Code, after the date hereof against any third party and, upon request of Agent, promptly amend Schedule C-4 to this Agreement, authorize the filing of additional or amendments to existing financing statements and do such other acts or things deemed necessary or desirable by Agent to give Agent a security interest in any such commercial tort claim. 5. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender Group to enter into this Agreement, Borrower makes the following representations and warranties to the Lender Group, which representations and warranties shall be true, correct, and complete, in all material respects, as of the date hereof, and shall be true, correct, and complete and deemed made, in all material respects, as of the Closing Date and at and as of the date of the making of each Advance (or other extension of credit) made thereafter, as though made on and as of the date of such Advance (or other extension of credit) (except to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement: 66 5.1 NO ENCUMBRANCES. Borrower has good and indefeasible title to the Collateral and the Real Property, free and clear of Liens except for Permitted Liens. 5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide existing payment obligations of Account Debtors created by the sale and delivery of Inventory or the rendition of services to such Account Debtors in the ordinary course of Borrower's business, owed to Borrower without defenses, counterclaims, or rights of return or cancellation. As to each Account that is identified by Borrower as an Eligible Account in the most recent Borrowing Base Certificate submitted to Agent, such Account is not excluded as ineligible by virtue of one or more of the excluding criteria set forth in the definitions of Eligible Domestic Accounts, Eligible Domestic Billed Accounts, Eligible Domestic Unbilled Accounts, Eligible Foreign Accounts, Eligible Foreign Billed Accounts and Eligible Foreign Unbilled Accounts, as applicable. 5.3 [INTENTIONALLY OMITTED]. 5.4 EQUIPMENT. All of the Equipment is used or held for use in Borrower's business and is fit for such purposes. 5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and Equipment are not stored with a bailee, warehouseman, or similar party and are located only at the locations identified on Schedule 5.5 or such other location as permitted by Section 6.9. 5.6 INVENTORY RECORDS. Borrower keeps correct and accurate records itemizing and describing the type, quality, and quantity of its Inventory and the book value thereof. 5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN; ORGANIZATIONAL I.D. NUMBER. The chief executive office of Borrower and each Guarantor is located at the address indicated in Schedule 5.7 or at such other address as shall have been disclosed to Agent in writing pursuant to Section 7.18 and Borrower's and each Guarantor's FEIN and Organizational I.D. Number are identified in Schedule 5.7. 5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES (a) Borrower is duly organized and existing and in good standing under the laws of the jurisdiction of its organization and qualified to do business in any state where the failure to be so qualified reasonably could be expected to have a Material Adverse Change. (b) Set forth on Schedule 5.8(b) or as disclosed to Agent in writing from time to time with reference to Schedule 5.8, is a complete and accurate description of the authorized capital Stock of Borrower, by class, and, as of the Closing Date, a description of the number of shares of each such class that are issued and outstanding. Other than as described on Schedule 5.8(b) or as disclosed to Agent in writing from time to time with reference to Schedule 5.8, there are no subscriptions, options, warrants, or calls relating to any shares of Borrower's capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. Other than as described on Schedule 5.8(b), Borrower is not subject to any 67 obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital Stock or any security convertible into or exchangeable for any of its capital Stock. (c) Set forth on Schedule 5.8(c) or as disclosed to Agent in writing from time to time with reference to Schedule 5.8, is a complete and accurate list of Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of their organization, (ii) the number of shares of each class of common and preferred Stock authorized for each of such Subsidiaries, and (iii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly by Borrower. All of the outstanding capital Stock of each such Subsidiary has been validly issued and is fully paid and non-assessable. (d) Except as set forth on Schedule 5.8(c) or as disclosed to Agent in writing from time to time with reference to Schedule 5.8, there are no subscriptions, options, warrants, or calls relating to any shares of Borrower's Subsidiaries' capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. Neither Borrower nor any of its respective Subsidiaries is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of Borrower's Subsidiaries' capital Stock or any security convertible into or exchangeable for any such capital Stock. (e) Except for the FCC Licenses (to which neither Borrower nor Orbital Communications ascribe any value), none of the Guarantors or Orbital Holdings has assets with an aggregate value in excess of $10,000 or annual operating expenses in excess of $10,000. 5.9 DUE AUTHORIZATION; NO CONFLICT. (a) The execution, delivery, and performance by Borrower of this Agreement and the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of Borrower. (b) The execution, delivery, and performance by Borrower of this Agreement and the Loan Documents to which it is a party do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to Borrower, the Governing Documents of Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of Borrower, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of Borrower, other than Permitted Liens, or (iv) require any approval of Borrower's interest holders or any approval or consent of any Person under any material contractual obligation of Borrower. (c) Other than the filing of financing statements, fixture filings, notices under the Assignment of Claims Act, Intellectual Property Security Agreement and Mortgages, the execution, delivery, and performance by Borrower of this Agreement and the Loan Documents to which Borrower is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person. 68 (d) This Agreement and the other Loan Documents to which Borrower is a party, and all other documents contemplated hereby and thereby, when executed and delivered by Borrower will be the legally valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally. (e) The Agent's Liens are validly created, perfected, and first priority Liens, subject only to Permitted Liens except with respect to satellites in orbit owned by Borrower and existing as of the Closing Date, consisting of the ORBVIEW-2 and the MUBLCOM satellites, as to which no representations and warranties are given. (f) The execution, delivery, and performance by each Guarantor of the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of such Guarantor. (g) The execution, delivery, and performance by each Guarantor of the Loan Documents to which it is a party do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to such Guarantor, the Governing Documents of such Guarantor, or any order, judgment, or decree of any court or other Governmental Authority binding on such Guarantor, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of such Guarantor, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of such Guarantor, other than Permitted Liens, or (iv) require any approval of such Guarantor's interest holders or any approval or consent of any Person under any material contractual obligation of such Guarantor. (h) The execution, delivery, and performance by each Guarantor of the Loan Documents to which such Guarantor is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person. (i) The Loan Documents to which each Guarantor is a party, and all other documents contemplated hereby and thereby, when executed and delivered by such Guarantor will be the legally valid and binding obligations of such Guarantor, enforceable against such Guarantor in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally. 5.10 LITIGATION. Other than those matters disclosed on Schedule 5.10, there are no actions, suits, or proceedings pending or, to the best knowledge of Borrower, threatened against Borrower, or any of its Subsidiaries, as applicable, except for (a) matters that are fully covered by insurance (subject to customary deductibles), and (b) matters arising after the Closing Date that, if decided adversely to Borrower, or any of its Subsidiaries, as applicable, reasonably could not be expected to result in a Material Adverse Change. 69 5.11 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. The unaudited consolidated balance sheet of Borrower as of September 30, 2001 and the related unaudited consolidated statements of operations and cash flows for the three (3) months then ended, copies of which have been delivered to Agent, fairly represent in all material respects, in conformity with GAAP, the consolidated financial position of Borrower as of such date and its consolidated results of operations and cash flows for such three (3) month period (subject to normal year-end adjustments). Since the date of the most recent financial statements included in Borrower's reports filed with the SEC on Form 10-K and 10-Q, as applicable, there has been no Material Adverse Change. 5.12 FRAUDULENT TRANSFER. (a) Borrower and each Guarantor. taken as a whole, are Solvent. (b) No transfer of property is being made by Borrower or any Guarantor and no obligation is being incurred by Borrower or any Guarantor in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of Borrower or such Guarantor. 5.13 EMPLOYEE BENEFITS. None of Borrower, any of its Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any Benefit Plan, other than those listed on Schedule 5.13. Borrower, each of its Subsidiaries and each of their ERISA Affiliates have satisfied the minimum funding standards of ERISA and the IRC with respect to each Benefit Plan to which it is obligated to contribute. No ERISA Event has occurred nor has any other event occurred that may result in an ERISA Event that reasonably could be expected to result in a Material Adverse Change. None of Borrower, any of its Subsidiaries, any of their ERISA Affiliates, or, to their knowledge, any fiduciary of any Benefit Plan is subject to any direct or indirect liability with respect to any Benefit Plan under any applicable law, treaty, rule, regulation, or agreement. None of Borrower, any of its Subsidiaries or any of their ERISA Affiliates is required to provide security to any Benefit Plan under Section 401(a)(29) of the IRC. 5.14 ENVIRONMENTAL CONDITION. Except as set forth on Schedule 5.14, (a) to Borrower's knowledge, none of Borrower's or any Subsidiary of Borrower's assets has ever been used by Borrower, any such Subsidiary or by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials, where such production, storage, handling, treatment, release or transport was in violation, in any material respect, of Environmental Law, (b) to Borrower's knowledge, none of Borrower's or any Subsidiary of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any Environmental Law as a Hazardous Materials disposal site, (c) Borrower has not and, to Borrower's knowledge, no Subsidiary of Borrower has received notice that a Lien arising under any Environmental Law has attached to any revenues or to any Real Property owned or operated by Borrower or any Subsidiary of Borrower, and (d) Borrower has not and, to Borrower's knowledge, no Subsidiary of Borrower has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or state governmental agency concerning any action or omission by Borrower or any Subsidiary of Borrower resulting 70 in the releasing or disposing of Hazardous Materials into the environment in violation of the Environmental Laws. Notwithstanding any other provision of this Agreement and except as otherwise set forth in the Environmental Indemnity Agreement, this Section 5.14 sets forth Borrower's sole and exclusive representation regarding Environmental Matters, Environmental Laws and Hazardous Materials. 5.15 BROKERAGE FEES. Borrower has not utilized the services of any broker or finder in connection with Borrower's obtaining financing from the Lender Group under this Agreement and no brokerage commission or finders fee is payable by Borrower in connection herewith. 5.16 INTELLECTUAL PROPERTY. Borrower and each Subsidiary of Borrower owns, or holds licenses in, all trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of its business as currently conducted. Attached hereto as Schedule 5.16 is a true, correct, and complete listing of all material patents, patent applications, trademarks, trademark applications, copyrights, and copyright registrations as to which Borrower or any such Subsidiary is the owner or is an exclusive licensee. Upon filing of the Intellectual Property Security Agreement with the United States Copyright Office and the United States Patent and Trademark Office, as applicable, and the filing of appropriate financing statements, all action necessary to protect and perfect the Agent's Lien on Borrower's material patents, patent applications, trademarks, trademark applications, copyrights, and copyright registrations shall have been duly taken. 5.17 LEASES. Borrower and each Subsidiary of Borrower enjoys peaceful and undisturbed possession under all leases material to the business of Borrower or such Subsidiary, as applicable, and to which it is a party or under which it is operating. All of such leases are valid and subsisting and no material default by Borrower or any such Subsidiary exists under any of them. 5.18 DDAS. Set forth on Schedule 2.7(a) (or as disclosed to Agent in writing from time to time in accordance with and with reference to Schedule 2.7(a)) are all of Borrower's and each Subsidiary of Borrower's DDAs, including, with respect to each depository (i) the name and address of such depository, and (ii) the account numbers of the accounts maintained with such depository. 5.19 COMPLETE DISCLOSURE. Except as provided in the following sentence, all factual information (taken as a whole) furnished by or on behalf of Borrower or any Subsidiary of Borrower in writing to Agent or any Lender (including all information contained in the Schedules hereto or in the other Loan Documents) for purposes of or in connection with this Agreement, the other Loan Documents, or any transaction contemplated herein or therein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of Borrower or any Subsidiary of Borrower in writing to Agent or any Lender will be, true and accurate, in all material respects, on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. On the Closing Date, the Closing Date Business Plan 71 represents, and as of the date on which any other Projections are delivered to Agent, such additional Projections represent Borrower's good faith best estimate of its future performance for the periods covered thereby (it being understood that the projections contained therein are or will be based on assumptions of fact and opinion as to future events, and are subject to significant uncertainties and contingencies, many of which are beyond Borrower's control, and no assurance can be given that such projections will be realized in any manner). 5.20 INDEBTEDNESS. Set forth on Schedule 5.20 is a true and complete list of all material Indebtedness of Borrower and its Subsidiaries outstanding immediately prior to the Closing Date that is to remain outstanding after the Closing Date and such Schedule accurately reflects the aggregate principal amount of such Indebtedness and a description of the documentation evidencing such Indebtedness. 5.21 REGULATION U. Neither Borrower or any of its Subsidiaries is, nor will be, engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T, U or X of the Board of Governors of the Federal Reserve System), and no proceeds of any Advance or the Term Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. 5.22 PERMITS, ETC. Borrower and each of its Subsidiaries has, and is in compliance with, all permits, licenses, authorizations, approvals, entitlements and accreditations required for such Person lawfully to own, lease, manage or operate, or to acquire, each business and the Real Property currently owned, leased, managed or operated, or to be acquired, by such Person except for such permits, licenses, authorizations, approvals, entitlements and accreditations the absence of which could not reasonably be expected to result in a Material Adverse Change. To Borrower's knowledge, no condition exists or event has occurred that, in itself or with the giving of notice or lapse of time or both, would result in the suspension, revocation, impairment, forfeiture or non-renewal of any such permit, license, authorization, approval, entitlement or accreditation, and, to Borrower's knowledge, there is no claim that any thereof is not in full force and effect. 6. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations and the termination of this Agreement, Borrower shall and shall, to the extent not otherwise performed by Borrower on behalf of such Subsidiary, cause each of its Subsidiaries to do all of the following; provided, however, that Borrower's non-operating Subsidiaries shall not be required to comply with Section 6.1, Section 6.2, except with respect to financial statements of Borrower on a consolidated basis with its Subsidiaries, Section 6.3(a) through (e), Section 6.5, Section 6.6 and Section 6.8: 6.1 ACCOUNTING SYSTEM. Maintain a system of accounting that enables Borrower and its Subsidiaries to produce financial statements prepared in accordance with GAAP and maintain 72 records pertaining to the Collateral as may be required to comply with their obligations set forth in Section 6.2. Borrower and its Subsidiaries also shall keep an inventory reporting system that shows all additions, sales, claims, returns, and allowances with respect to the Inventory. 6.2 COLLATERAL REPORTING. Provide Agent (with copies for each Lender) with the following documents at the following times in form satisfactory to Agent: - -------------------------------------------------------------------------------- Monthly (not later than (a) a detailed calculation of the Borrowing Base the 20th day of each (including detail regarding those Accounts that month, or to the next are not billed or unbilled Eligible Accounts), succeeding Business Day if the 20th day is not a (b) a detailed aging, by total, of the Accounts, Business Day) together with a "roll-forward" of Accounts from the prior month with supporting documentation to include, without limitation, cash journals, sales journals, debit memos, and credit memos (it being understood that an aging of unbilled services shall be required only upon the earlier of the date forty-five (45) days following the Closing Date or the date Agent has established a methodology for calculating aging of unbilled services in its Permitted Discretion in consultation with Borrower), (c) a summary aging, by vendor, of Borrower's vouchered and unvouchered accounts payable and any book overdraft, and (d) a calculation of Dilution for the prior month, including any allowances made by Borrower for such period, - -------------------------------------------------------------------------------- Quarterly (not later than (e) a detailed list of Borrower's customers, and the 30th day after the end of each quarter, or (f) a report regarding Borrower's and its to the next succeeding Subsidiaries' accrued, but unpaid, ad valorem Business Day if the 30th taxes, or, if not applicable, a certification day is not a Business Day) that all such taxes have been paid, - -------------------------------------------------------------------------------- Within a reasonable time (g) copies of invoices in connection with the after being requested by Accounts, credit memos, remittance advices, Agent, acting in its deposit slips, shipping and delivery documents Permitted Discretion in connection with the Accounts and, for Inventory and Equipment acquired by Borrower, purchase orders and invoices, and (h) such other reports as to the Collateral or any other collateral securing the Obligations, or the financial condition of Borrower and its Subsidiaries as Agent may request. - --------------------------------------------------------------------------------
73 In addition, Borrower agrees to cooperate with Agent to facilitate and implement a system of electronic collateral reporting in order to provide electronic reporting of each of the items set forth above. 6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to Agent, with copies to each Lender: (a) as soon as available, but in any event within thirty (30) days (forty-five (45) days in the case of a month that is the end of any fiscal quarter in a fiscal year) after the end of each month during each of Borrower's fiscal years, (i) consolidated and consolidating balance sheets, statements of operations, and statements of cash flow prepared by Borrower covering the operations of Borrower, its Subsidiaries and all divisions thereof during such month, (ii) a company prepared forecast of collections and disbursements for the next succeeding three (3) month period for Borrower, its Subsidiaries and all divisions thereof, (iii) a company prepared report of Baseline Contracts and a comparison of monthly Current EAC Profit to Baseline EAC Profit, (iv) a certificate signed by the chief financial officer or chief accounting officer of Borrower to the effect that: (A) the financial statements delivered hereunder are true and accurate based on good faith estimates of Borrower, (B) the representations and warranties of Borrower and, to the knowledge of Borrower, of each Subsidiary of Borrower contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of such certificate, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date), and (C) there does not exist any condition or event that constitutes a Default or Event of Default (or, to the extent of any non-compliance, describing such non-compliance as to which he or she may have knowledge and what action Borrower has taken, is taking, or proposes to take with respect thereto), (b) as soon as available, but in any event within forty-five (45) days after the end of each of Borrower's fiscal quarters, consolidated and consolidating balance sheets, statements of operations, and statements of cash flow covering the operations of Borrower, its Subsidiaries and all divisions thereof for such quarter, in the form of financial statements 74 delivered to Agent prior to the Closing Date, all certified (subject to the lack of footnotes and normal year-end adjustments) as to the fairness of presentation in all material respects and in conformity with GAAP by the chief financial officer or chief accounting officer of Borrower, (c) for each period that is a date on which a financial covenant in Section 7.20 is to be tested, as soon as available, but in any event within forty-five (45) days after the end of such month, a Compliance Certificate demonstrating, in reasonable detail, compliance at the end of such period with the applicable financial covenants contained in Section 7.20; provided, however, that in the case of any Compliance Certificate delivered pursuant to this Section 6.3(c) with respect to the last quarter of any fiscal year, the certifications with respect to the financial covenants contained in Section 7.20(a) and (b) shall be certified as good faith preliminary estimates of Borrower's results to be reported pursuant to Section 6.3(d)(iii), and in no event shall Borrower be required to update such Compliance Certificate until the date of delivery of the final Compliance Certificate pursuant to Section 6.3(d)(iii) is due, (d) as soon as available, but in any event within ninety (90) days after the end of each of Borrower's fiscal years, (i) consolidated and consolidating balance sheets, statements of operations, and statements of cash flow covering the operations of Borrower, its Subsidiaries and all divisions thereof for such fiscal year, in the form currently prepared by Borrower, all such consolidated and consolidating statements prepared in conformity with GAAP and reported (without qualifications or explanatory paragraph, including any "going concern" exception or qualification except for a "going concern" qualification on the auditor's report for the financial statements of Borrower for the fiscal year ended December 31, 2001) in a manner acceptable to the SEC by PricewaterhouseCoopers or other independent public accountants of nationally recognized standing, (ii) a statement of such accountants whether anything has come to their attention to cause them to believe that Borrower was not in compliance with the requirements of Section 7.20 (other than Section 7.20(a)(ii) and 7.20(c)) on the date of such financial statements, and (iii) a final compliance certificate meeting the requirements of Section 6.3(c) with respect to the financial covenants set forth in Section 7.20(a) and (b) in respect of the last quarter of the previous fiscal year, (e) as soon as available, but in any event within thirty (30) days after to the start of each of Borrower's fiscal years, (i) copies of Borrower's Projections, in the form (including as to scope and underlying assumptions) of the Closing Date Business Plan, for the current and forthcoming two (2) years, year by year, and for the current fiscal year, quarter by quarter, as approved by Borrower's Board of Directors, 75 (f) if and when filed by Borrower or any Subsidiary of Borrower, (i) copies of Form 10-Q quarterly reports, Form 10-K annual reports, and Form 8-K current reports, (ii) notice of (and, upon the request of Agent, copies of) any other filings made by Borrower or any Subsidiary of Borrower with the SEC, and (iii) notice of (and, upon the request of Agent, copies of) any other information that is provided by Borrower to its shareholders generally, (g) upon request of Agent, if and when filed by Borrower, (i) copies of Borrower's and its Subsidiaries' federal income tax returns, and any amendments thereto, filed with the Internal Revenue Service, (ii) satisfactory evidence of payment of applicable excise taxes in each jurisdiction (A) in which Borrower or any such Subsidiary, as applicable, conducts business or is required to pay any such excise tax, (B) where Borrower's or any such Subsidiary's, as applicable, failure to pay any such applicable excise tax would result in a Lien on the properties or assets of Borrower or any Subsidiary of Borrower, or (C) where Borrower's or any such Subsidiary's, as applicable, failure to pay any such applicable excise tax reasonably could be expected to result in a Material Adverse Change, (h) promptly after the commencement thereof, but in any event within ten (10) days after the service of process with respect thereto on Borrower or any of its Subsidiaries, notice of all actions, suits or proceedings brought by or against Borrower before any Governmental Authority that, if determined adversely to Borrower, could reasonably be expected to result in a Material Adverse Change, (i) within three (3) Business Days after any Responsible Officer of Borrower has knowledge of any event or condition that constitutes a Default or an Event of Default, notice thereof and a statement of the curative action that Borrower proposes to take with respect thereto, and (j) upon the request of Agent, any other report reasonably requested relating to the financial condition of Borrower and its Subsidiaries. Borrower agrees that, upon prior notice to Borrower, Agent may communicate with Borrower's independent certified public accountants and that such accountants are authorized to release to Agent whatever financial information concerning Borrower Agent reasonably may request. Borrower agrees that Agent may communicate directly with, and request financial information and documents from, such accountants. Borrower waives the right to assert a confidential relationship, if any, it may have with any accounting firm or service bureau in connection with any information requested by Agent in accordance with this Section 6.3. 6.4 [INTENTIONALLY OMITTED]. 76 6.5 ALLOWANCES. Cause allowances as between Borrower and its Account Debtors, to be on the same basis and in accordance with the usual customary practices of Borrower, as they exist at the time of the execution and delivery of this Agreement. If, at a time when an Event of Default has occurred and is continuing, any Account Debtor requests an allowance from Borrower, Borrower promptly shall determine the reason for such allowance and, if Agent consents (which consent shall not be unreasonably withheld), issue a credit memorandum (with a copy to be sent to Agent) in the appropriate amount to such Account Debtor. 6.6 MAINTENANCE OF PROPERTIES. Maintain and preserve all of its properties that are necessary and useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted, and comply at all times with the provisions of all leases to which it is a party as lessee, so as to prevent any loss or forfeiture thereof or thereunder. 6.7 TAXES. Cause all assessments and taxes, whether real, personal, or otherwise, due or payable by, or imposed, levied, or assessed against Borrower, any Subsidiary of Borrower, or any of assets of Borrower or such Subsidiary to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. Borrower will, and will cause each of its Subsidiaries to, make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Agent with proof satisfactory to Agent indicating that Borrower and each of its Subsidiaries have made such payments or deposits. 6.8 INSURANCE. (a) At Borrower's expense, maintain insurance respecting its assets wherever located, covering loss or damage by fire, theft, explosion, and all other hazards and risks as ordinarily are insured against by other Persons engaged in the same or similar businesses. Borrower also shall maintain business interruption, general liability, and product liability insurance, as well as employee dishonesty insurance. All such policies of insurance shall be in such amounts and with such insurance companies as are reasonably satisfactory to Agent. Borrower shall also procure mission success insurance (a "Mission Success Policy") with respect to any launch or satellite mission for which Borrower has reasonably determined that Borrower is at risk for $500,000 or more, provided that such insurance is available on commercially reasonably terms, if at all. Agent acknowledges that the policies and amounts set forth in Schedule 6.8(a) are reasonably satisfactory to Agent as of the date hereof. Borrower shall deliver copies of all such policies to Agent with a lender's loss payable endorsement reasonably satisfactory to Agent naming Agent as loss payee or additional insured, as appropriate, on each insurance policy required to be maintained pursuant to this Section 6.8, but excluding any Mission Success Policy or portion thereof obtained by Borrower or a Subsidiary on behalf of a customer as to which such customer is named loss payee (such excluded policies, or portions thereof, 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")). 77 (b) Borrower shall give Agent prompt notice of any loss greater than $200,000 covered by such insurance. Borrower agrees 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 Agent is loss payee shall be adjusted by Agent in accordance with the provisions of this Section 6.8, and (ii) with respect to any claims on any Mission Success Policy in excess of $1,000,000 per claim, Agent shall have the right to attend all scheduled meetings and to participate in all teleconferences, to the extent practicable, relating to the adjustment of any such claim and shall be provided with all information relating to such claim provided by Borrower to the insurance company with which such claim is being adjusted and any additional information Agent may reasonably request relating to such claim. Each Designated Insurance Policy shall include an endorsement whereby (A) all proceeds of any Designated Insurance Policy shall be paid to Agent as loss payee, (B) to the extent such policy is not a prepaid policy, the insurer shall notify Agent of any failure by Borrower to pay any premiums or other amounts due on any insurance policy, and (C) no cancellation or termination of such Designated Insurance Policy shall be effective until at least thirty (30) days after receipt by 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 fifteen (15) days after receipt by Agent of written notice thereof. Borrower agrees that it will (x) give prior notice to Agent of any meeting referred to in clause (ii) of this subsection, (y) to the extent practicable, promptly upon request, provide 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 Agent, which consent shall not be unreasonably withheld. Agent acknowledges that only United States citizens or permanent residents will be entitled to participate in any meetings/teleconferences referenced by clause (ii) above. (c) Any monies received as payment for any loss under any insurance policy mentioned above (other than liability insurance policies) or as payment of any award or compensation for condemnation or taking by eminent domain, (i) so long as no Event of Default shall have occurred and be continuing, shall be paid to Agent to repay any outstanding Advances with the remaining proceeds, if any, to be remitted to Borrower, or (ii) upon the occurrence and during the continuation of an Event of Default, shall be paid over to Agent to be applied at the option of the Required Lenders either to the prepayment of the Obligations or to be disbursed to Borrower under staged payment terms reasonably satisfactory to the Required Lenders for application to the cost of repairs, replacements, or restorations. Any such repairs, replacements, or restorations shall be effected with reasonable promptness and shall be of a value at least equal to the value of the items of property destroyed prior to such damage or destruction. (d) Borrower will not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 6.8, unless Agent is included thereon as additional insured with the loss payable to Agent under a lender's loss payable endorsement or its equivalent. Borrower immediately shall notify Agent whenever such separate insurance is taken out, specifying the insurer thereunder and full particulars as to the policies evidencing the same, and copies of such policies promptly shall be provided to Agent. 78 6.9 LOCATION OF INVENTORY AND EQUIPMENT. Except for Inventory or Equipment that is temporarily moved for the purpose of (a) testing, (b) conducting the launches described on Schedule 6.9 (or, for a launch not described on Schedule 6.9 otherwise described to Agent within thirty (30) days prior to the relocation of any Inventory or Equipment for such launch), or (c) otherwise fulfilling Borrower's contractual obligations in the ordinary course of business consistent with past practices, keep the Inventory and Equipment only at the locations identified on Schedule 5.5 or at such other location as shall be disclosed to Agent in writing from time to time with reference to Schedule 5.5 not less than thirty (30) days prior to the date on which the Inventory or Equipment is moved to such new location. If such new location is outside the United States, Borrower agrees that it shall execute and deliver all documentation that Agent, in its Permitted Discretion, determines to be necessary to perfect the Agent's Liens in accordance with applicable law. 6.10 COMPLIANCE WITH LAWS. Comply with the requirements of all applicable laws, rules, regulations, and orders of any Governmental Authority, including the Fair Labor Standards Act and the Americans With Disabilities Act, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, would not result in and reasonably could not be expected to result in a Material Adverse Change. 6.11 LEASES. Pay when due (after giving effect to any cure period applicable thereto) all rents and other amounts payable under leases to which Borrower or any Subsidiary of Borrower is a party or by which Borrower's or any Subsidiary of Borrower's properties and assets are bound, unless such payments are the subject of a Permitted Protest. 6.12 BROKERAGE COMMISSIONS. Pay any and all brokerage commission or finders' fees incurred as a result of Borrower's retention of any broker or finder for obtaining financing from the Lender Group under this Agreement. Borrower agrees and acknowledges that payment of all such brokerage commissions or finders' fees shall be the sole responsibility of Borrower, and Borrower agrees to indemnify, defend, and hold Agent and the Lender Group harmless from and against any claim of any broker or finder retained by Borrower arising out of Borrower's obtaining financing from the Lender Group under this Agreement. 6.13 EXISTENCE. At all times preserve and keep in full force and effect Borrower's and its Subsidiaries' valid existence and good standing and any rights and franchises material to Borrower's and its Subsidiaries' businesses; provided that, upon prior written notice to Agent, Borrower shall be permitted to dissolve any Subsidiary, the assets of which are transferred to Borrower. Borrower agrees that it shall execute all Additional Documents pursuant to Section 4.4 as Agent may deem necessary to perfect the Agent's Lien in such transferred assets. 6.14 ENVIRONMENTAL. (a) Keep any property either owned or operated by Borrower or any Subsidiary of Borrower free of any Environmental Liens or post bonds or other financial assurances sufficient to satisfy the obligations or liability evidenced by such Environmental Liens, (b) comply, in all material respects, with Environmental Laws and provide to Agent 79 documentation of such compliance which Agent reasonably requests, (c) promptly notify Agent of any release of a Hazardous Material in any reportable quantity from or onto property owned or operated by Borrower or any Subsidiary of Borrower and take any Remedial Actions required by Environmental Laws to abate said release or otherwise to come into compliance with applicable Environmental Law, and (d) promptly provide Agent with written notice within ten (10) days of the receipt of any of the following: (i) notice that an Environmental Lien has been filed against any of the real or personal property of Borrower or any Subsidiary of Borrower, (ii) commencement of any Environmental Action against Borrower or any Subsidiary of Borrower or notice that an Environmental Action will be filed against Borrower or any Subsidiary of Borrower, and (iii) notice of a violation, citation, or other administrative order issued to Borrower or any Subsidiary of Borrower which reasonably could be expected to result in a Material Adverse Change. 6.15 DISCLOSURE UPDATES. Promptly and in no event later than five (5) Business Days after a Responsible Officer of Borrower obtains knowledge thereof, (a) notify Agent if any written information, exhibit, or report furnished to the Lender Group pursuant to Section 6.2 or Section 6.3 (exclusive of Section 6.2(h) or Section 6.3(j)) contained, at the time made, any untrue statement of a material fact or omitted to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, (b) notify Agent if any written material information furnished to the Lender Group pursuant Section 6.2(h) or Section 6.3(j) taken as a whole with any other information at any time furnished to the Lender Group contained, at the time made, any untrue statement of a material fact or omitted to state any material fact necessary to make the statement contained therein not misleading in light of the circumstances in which made, and (c) correct any material defect or error that may be discovered in any Loan Document or in the execution, acknowledgement, filing, or recordation thereof; provided, however, that in no event shall the requirements of this Section 6.15 apply to any projections, forecasts or other forward looking statements provided to Agent or the Lender Group. 6.16 EMPLOYEE BENEFITS. (a) (i) Promptly, and in any event within ten (10) Business Days after Borrower or any Subsidiary of Borrower knows or should know that an ERISA Event has occurred that reasonably could be expected to result in a Material Adverse Change, a written statement of the chief financial officer of Borrower describing such ERISA Event and any action that is being taking with respect thereto by Borrower, any such Subsidiary or ERISA Affiliate, and any action taken or threatened by the IRS, Department of Labor, or PBGC, and Borrower or such Subsidiary, as applicable, shall be deemed to know all facts known by the administrator of any Benefit Plan of which it is the plan sponsor, (ii) promptly, and in any event within three (3) Business Days after the filing thereof with the IRS, a copy of each funding waiver request filed with respect to any Benefit Plan and all communications received by Borrower, any Subsidiary of Borrower or, to the knowledge of Borrower, any ERISA Affiliate with respect to such request, and (iii) promptly, and in any event within three (3) Business Days after receipt by Borrower, any Subsidiary of Borrower or, to the knowledge of Borrower, any ERISA Affiliate, of the 80 PBGC's intention to terminate a Benefit Plan or to have a trustee appointed to administer a Benefit Plan, copies of each such notice. (b) Cause to be delivered to Lender, upon Lender's request, each of the following: (i) a copy of each Benefit Plan (or, where any such plan is not in writing, complete description thereof) (and if applicable, related trust agreements or other funding instruments) and all amendments thereto, all written interpretations thereof and written descriptions thereof that have been distributed to employees or former employees of Borrower or its Subsidiaries; (ii) the most recent determination letter issued by the IRS with respect to each Benefit Plan; (iii) for the three (3) most recent plan years, annual reports on Form 5500 Series required to be filed with any governmental agency for each Benefit Plan; (iv) all actuarial reports prepared for the last three (3) plan years for each Benefit Plan; (v) a listing of all Multiemployer Plans, with the aggregate amount of the most recent annual contributions required to be made by Borrower, any Subsidiary of Borrower, or any ERISA Affiliate to each such plan and copies of the collective bargaining agreements requiring such contributions; (vi) any information that has been provided to Borrower, any Subsidiary of Borrower or any ERISA Affiliate regarding withdrawal liability under any Multiemployer Plan; and (vii) the aggregate amount of the most recent annual payments made to former employees of Borrower or its Subsidiaries under any Retiree Health Plan. 7. NEGATIVE COVENANTS. Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations and the termination of this Agreement, Borrower will not and will not permit any of its Subsidiaries to do any of the following: 7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except: (a) Indebtedness evidenced by this Agreement and the other Loan Documents, together with Indebtedness owed to Underlying Issuers with respect to Underlying Letters of Credit, (b) Indebtedness set forth on Schedule 5.20, (c) Permitted Purchase Money Indebtedness, (d) refinancings, renewals, or extensions of Indebtedness permitted under clauses (b) and (c) of this Section 7.1 (and continuance or renewal of any Permitted Liens associated therewith) so long as: (i) the terms and conditions of such refinancings, renewals, or extensions do not, in Agent's Permitted Discretion, materially impair the prospects of repayment of the Obligations by Borrower or materially impair Borrower's or any Subsidiary of Borrower's creditworthiness, (ii) such refinancings, renewals, or extensions do not result in an increase in the principal amount of, or interest rate with respect to, the Indebtedness so refinanced, renewed, or extended, (iii) such refinancings, renewals, or extensions do not result in a shortening of the 81 average weighted maturity of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or conditions, that, taken as a whole, are materially more burdensome or restrictive to Borrower and its Subsidiaries, and (iv) if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension Indebtedness must include subordination terms and conditions that are at least as favorable to the Lender Group as those that were applicable to the refinanced, renewed, or extended Indebtedness and such subordination terms must be satisfactory to Agent in its Permitted Discretion; (e) Indebtedness composing Permitted Investments; and (f) other Indebtedness in an amount not to exceed $1,000,000. 7.2 LIENS. Create, incur, assume, or permit to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens (including Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced, renewed, or extended under Section 7.1(d) and so long as the replacement Liens only encumber those assets that secured the refinanced, renewed, or extended Indebtedness). Borrower shall not enter into any "advance payment" arrangement with respect to any of its contracts with a United States Agency without the prior written consent of Lenders. 7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES; DISPOSAL OF ASSETS. (a) Enter into any merger, consolidation, reorganization, or recapitalization, or reclassification of its Stock. (b) Except as permitted pursuant to Schedule 6.13, liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution). (c) Except for Permitted Dispositions, convey, sell, lease, license, assign, transfer, or otherwise dispose of any of its assets. Upon consummation of any Permitted Disposition, receipt by Agent of the Net Proceeds therefrom and receipt by Agent of a certificate of Borrower certifying that such disposition constitutes a Permitted Disposition, Agent shall release its Lien on such assets sold in accordance with Section 16.12. (d) Create any Subsidiary of Borrower on or after the Closing Date; provided that Borrower shall be permitted to create any direct Subsidiary so long as Borrower provides to Agent thirty (30) days' prior written notice of the creation of such Subsidiary, such Subsidiary becomes a Guarantor under this Agreement, and such Subsidiary executes such Additional Documents as Agent may require to perfect the Agent's Liens in the assets of such Subsidiary and the Agent's Lien in the Stock of such Subsidiary held by Borrower. (e) Except for Permitted Dispositions, change the principal nature of its business or suspend or got out of a substantial portion of its business. 82 7.4 [INTENTIONALLY OMITTED]. 7.5 CHANGE NAME. Change Borrower's or any Subsidiary of Borrower's name, FEIN, or identity, add any new fictitious name; or reincorporate or reorganize itself under the laws of any jurisdiction other than the jurisdiction in which it is incorporated or organized as of the date hereof; provided, however, that Borrower or any of its Subsidiaries may change its name upon at least thirty (30) days' prior written notice to Agent of such change and so long as, at the time of such written notification, Borrower or any such Subsidiary, as applicable, provides or authorizes the filing of any financing statements or fixture filings necessary to perfect and continue perfected the Agent's Liens. 7.6 GUARANTEE. Guarantee or otherwise become in any way liable with respect to the obligations of any third Person except (a) with respect to any Guarantor, pursuant to the Loan Documents, (b) by endorsement of instruments or items of payment for deposit to the account of Borrower or which are transmitted or turned over to Agent, or (c) as otherwise set forth in Section 7.1(b). 7.7 [INTENTIONALLY OMITTED]. 7.8 PREPAYMENTS AND AMENDMENTS. (a) Except in connection with a refinancing permitted by Section 7.1(d), prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of Borrower or any Subsidiary of Borrower, other than the Obligations in accordance with this Agreement, and (b) Except in connection with a refinancing permitted by Section 7.1(d), directly or indirectly, amend, modify, alter, increase, or change any of the terms or conditions of any agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness permitted under Sections 7.1(b) or (c) that (i) increases the principal amount of such Indebtedness, (ii) increases the interest rate with respect to such Indebtedness, (iii) increases the frequency or amount or shortens the maturity of any payments of principal or interest thereof, or (iv) makes such agreement, instrument, document, indenture or other writing materially more restrictive on Borrower or any Subsidiary of Borrower or adversely affects in any material respect (x) Borrower's, any Subsidiary of Borrower's, Agent's, or any Lender's rights or interest thereunder or hereunder or under the Loan Documents in any material respect or (y) Borrower's ability to fulfill its obligations hereunder or under the Loan Documents. (c) Directly or indirectly amend, modify, alter, increase or change any of the terms or conditions of any of the following documents in any manner adverse to Borrower, any Subsidiary of Borrower, Agent or Lenders: (i) that certain Asset Purchase Agreement dated as of April 23, 2001 between Orbital Communications, OGLP Acquisition Sub LLC and OGLP Acquisition Sub II Corp., 83 (ii) that certain letter agreement dated December 4, 2001 between Borrower and Boeing, (iii) that certain letter agreement dated as of April 12, 2001 among Borrower, Orbital Holdings (f/k/a MDA Holdings Corporation), and the purchasers and optionholders party thereto concerning Borrower's sale of its stock in MacDonald, Dettwiler and Associates Ltd., (iv) that certain Amended and Restated Registration Rights Agreement dated as of May 30, 2001 among Borrower, Orbital Holdings (f/k/a MDA Holdings Corporation), and the purchasers and optionholders party thereto concerning Borrower's sale of its stock in MacDonald, Dettwiler and Associates Ltd., and (v) that certain Option and Ancillary Rights Agreement dated as of May 30, 2001 among Borrower, Orbital Holdings (f/k/a MDA Holdings Corporation), and the purchasers and optionholders party thereto concerning Borrower's sale of its stock in MacDonald, Dettwiler and Associates Ltd. 7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or indirectly, any Change of Control. 7.10 CONDITIONAL SALES. Sell any Inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale. 7.11 DISTRIBUTIONS. Make any distribution or declare or pay any dividends (in cash or other property, other than common Stock) on, or purchase, acquire, redeem, or, except as provided on Schedule 7.11, retire any of Borrower's Stock, of any class, whether now or hereafter outstanding. 7.12 ACCOUNTING METHODS. Modify or change its method of accounting (other than as may be required or permitted in conformity with GAAP). 7.13 INVESTMENTS. Except for Permitted Investments, directly or indirectly, make or acquire any Investment or incur any liabilities (including contingent obligations) for or in connection with any Investment; provided, however, that Borrower and its Subsidiaries shall not have Permitted Investments (other than in the Cash Management Accounts) in deposit accounts or Securities Accounts in excess of $500,000 outstanding at any one time in the aggregate (excluding the Excluded Collateral) unless Borrower or its Subsidiary, as applicable, and the applicable securities intermediary or bank have entered into Control Agreements governing such Permitted Investments, that are satisfactory to Agent in its Permitted Discretion, to perfect (and further establish) the Agent's Liens in such Permitted Investments. Notwithstanding the foregoing, Borrower shall be permitted to purchase accounts (the "ORBIMAGE Accounts") for the aggregate purchase price not to exceed $10,000,000 pursuant to the ORBIMAGE Purchase Agreement, as such agreement exists on the date hereof or as amended with the consent of the Required Lenders or as amended in a manner that is not adverse to Borrower, any Subsidiary of 84 Borrower, Agent or any Lender, if all of the following conditions are satisfied on each date on which Borrower purchases such accounts: (a) effective as of the closing date of any purchase of ORBIMAGE Accounts, Agent, for the benefit of the Lender Group, shall have received a valid first priority Lien upon such ORBIMAGE Accounts purchased by Borrower on such closing date; and (b) Agent shall have completed an audit of the ORBIMAGE Accounts, which audit Agent agrees to complete within thirty (30) days following Borrower's request, and pursuant to the results of such audit, Agent shall have established the ORBIMAGE Reserve; provided, however that if Agent has not completed its audit at the time the purchase is to be consummated, the condition set forth in this clause (b) shall be deemed to be satisfied by the establishment of the ORBIMAGE Reserve at the maximum amount of $10,000,000, which amount shall be adjusted upon completion by Agent of its audit. 7.14 TRANSACTIONS WITH AFFILIATES. (a) Directly or indirectly enter into or permit to exist any transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower's business that are fully disclosed to Agent, that are no less favorable to Borrower than would be obtained in an arm's length transaction with a non-Affiliate, or (b) make any payment to ORBIMAGE; provided, however that Borrower may make payments to ORBIMAGE that (x) satisfy the requirements of clause (a) above, or (y) are pursuant to any contract or agreement with ORBIMAGE set forth on Schedule 7.14 as such contracts exist as of the date hereof. 7.15 [INTENTIONALLY OMITTED]. 7.16 COMPENSATION. Increase the annual fee or per-meeting fees paid to the members of its Board of Directors during any year by more than 15% over the prior year; pay or accrue total cash compensation other than compensation earned pursuant to any agreement described on Schedule 7.16, during any year, to an Executive Officer in an aggregate amount in excess of 150% of that paid or accrued in the prior calendar year with respect to such Executive Officer unless Borrower achieves 125% of the cumulative EBITDA amounts set forth in Section 7.20(a)(i) for such prior calendar year. 7.17 USE OF PROCEEDS. Use the proceeds of the Advances and the Term Loan for any purpose other than (a) on the Closing Date, to pay transactional fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby, and (b) consistent with the terms and conditions hereof, for its general corporate and working capital purposes, including, without limitation, payments to subcontractors, capital expenditures, litigation and settlement expenses and letters of credit. The foregoing notwithstanding, Borrower shall not, without the prior consent of the Required Lenders, which consent shall not be unreasonably withheld, use the proceeds of the Advances and the Term Loan to repay, in full or in part, any of the principal amount of the bonds issued under the Indenture. 85 7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND EQUIPMENT WITH BAILEES; BOOK AND RECORDS. Relocate its chief executive office to a new location without providing thirty (30) days' prior written notification thereof to Agent and so long as, at the time of such written notification, Borrower or any Subsidiary of Borrower, as applicable, provides any financing statements or fixture filings, or authorization to file such financing statements or fixture filings, necessary to perfect and continue perfected Agent's Liens and also provides to Agent a Collateral Access Agreement with respect to such new location. Agent may, after the date hereof and in its Permitted Discretion, require Borrower to use its commercially reasonable efforts to obtain a Collateral Access Agreement with respect to any Inventory and Equipment that may now or hereafter be stored with a bailee, warehouseman, or similar party. 7.19 [INTENTIONALLY OMITTED]. 7.20 FINANCIAL COVENANTS. (a) Fail to maintain: (i) MINIMUM EBITDA. EBITDA, measured on a fiscal quarter-end basis, of not less than the required amount set forth in the following table for the applicable period set forth opposite thereto; 86
- ----------------------------------------------------------------------------------------------------------------- Applicable Amount Applicable Amount (if Borrower has not (if Borrower has consummated consummated the sale of TMS) the sale of TMS) Applicable Period - ----------------------------------------------------------------------------------------------------------------- $ 7,475,000 $ 6,139,000 For the 3 month period ending 03/31/02 - ----------------------------------------------------------------------------------------------------------------- $16,457,000 $13,785,000 For the 6 month period ending 06/30/02 - ----------------------------------------------------------------------------------------------------------------- $25,531,000 $21,523,000 For the 9 month period ending 09/30/02 - ----------------------------------------------------------------------------------------------------------------- $34,755,000 $29,411,000 For the 12 month period ending 12/31/02 - ----------------------------------------------------------------------------------------------------------------- $37,348,000 $32,004,000 For the 12 month period ending 03/31/03 - ----------------------------------------------------------------------------------------------------------------- $38,434,000 $33,090,000 For the 12 month period ending 06/30/03 - ----------------------------------------------------------------------------------------------------------------- $39,428,000 $34,084,000 For the 12 month period ending 09/30/03 - ----------------------------------------------------------------------------------------------------------------- $40,272,000 $34,928,000 For the 12 month period ending 12/31/03 - ----------------------------------------------------------------------------------------------------------------- $42,794,000 $37,450,000 For the 12 month period ending 3/31/04 - ----------------------------------------------------------------------------------------------------------------- $45,315,000 $39,971,000 For the 12 month period ending 06/30/04 - ----------------------------------------------------------------------------------------------------------------- $47,837,000 $42,493,000 For the 12 month period ending 09/30/04 - ----------------------------------------------------------------------------------------------------------------- $50,358,000 $45,014,000 For the 12 month period ending 12/31/04 - -----------------------------------------------------------------------------------------------------------------
(ii) MINIMUM BACKLOG. A minimum backlog of Firm Contracts, measured on a fiscal quarter-end basis, sufficient to support: (A) for the period commencing on the Closing Date until the first Anniversary of the Closing Date, at least 80% of the projected revenues of Borrower for the next succeeding four fiscal quarters, as set forth in the Closing Date Business Plan for such period; (B) for the period commencing with and including the first anniversary of the Closing Date until the second anniversary of the Closing Date, at least 75% of the projected revenues of Borrower for the next succeeding four fiscal quarters, as set forth in the Closing Date Business Plan for such period; and 87 (C) for the period commencing with and including the second anniversary of the Closing Date until the Maturity Date, at least 70% of the projected revenues of Borrower for the next succeeding four fiscal quarters, as set forth in the Closing Date Business Plan for such period. For the purpose of making the calculations under this Section 7.20 for any fiscal quarter occurring during 2002 or 2003, the projected revenues for such fiscal quarter shall be deemed to be 25% of the projected revenues for the fiscal year in which such fiscal quarter occurs. (b) Make: (i) CAPITAL EXPENDITURES. Capital Expenditures in any fiscal year in excess of the amount set forth in the following table for the applicable period:
- ----------------------------------------------------------------------------------------------------------- Fiscal Year 2002 Fiscal Year 2003 Fiscal Year 2004 - ----------------------------------------------------------------------------------------------------------- Applicable Amount $16,920,000 $17,640,000 $20,160,000 (if Borrower has not consummated the sale of TMS) - ----------------------------------------------------------------------------------------------------------- Applicable Amount $16,080,000 $16,800,000 $19,320,000 (if Borrower has consummated the sale of TMS) - -----------------------------------------------------------------------------------------------------------
(c) Fail to maintain: (i) CURRENT EAC PROFIT. Current EAC Profit, measured on a fiscal month-end basis, of not less than 80% of the Baseline EAC Profit (it being understood that any Baseline Contracts that were terminated or completed during the calendar year shall be excluded from the calculations of Current EAC Profit and Baseline EAC Profit). 7.21 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or indirectly: (a) engage, or permit any Subsidiary of Borrower to engage, in any prohibited transaction which is reasonably likely to result in a civil penalty or excise tax described in Sections 406 of ERISA or 4975 of the IRC for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the Department of Labor; (b) permit to exist with respect to any Benefit Plan any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of the IRC), whether or not waived; 88 (c) fail, or permit any Subsidiary of Borrower to fail, to pay timely required contributions or annual installments due with respect to any waived funding deficiency to any Benefit Plan; (d) terminate, or permit any Subsidiary of Borrower to terminate, any Benefit Plan where such event would result in any liability of Borrower, any Subsidiary of Borrower or any ERISA Affiliate under Title IV of ERISA; (e) fail, or permit any Subsidiary of Borrower to fail, to make any required contribution or payment to any Multiemployer Plan; (f) fail, or permit any Subsidiary of Borrower to fail, to pay any required installment or any other payment required under Section 412 of the IRC on or before the due date for such installment or other payment; (g) amend, or permit any Subsidiary of Borrower to amend, a Plan resulting in an increase in current liability for the plan year such that any of Borrower, any Subsidiaries of Borrower or ERISA Affiliates is required to provide security to such Plan under Section 401(a)(29) of the IRC; or (h) withdraw, or permit any Subsidiary of Borrower to withdraw, from any Multiemployer Plan where such withdrawal is reasonably likely to result in any liability of any such entity under Title IV of ERISA; that, individually or in the aggregate, results in or reasonably would be expected to result in a claim against or liability of Borrower, any Subsidiary of Borrower or any ERISA Affiliate in excess of $25,000. 8. EVENTS OF DEFAULT. Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement: 8.1 Borrower fails to pay when due and payable, or when declared due and payable, all or any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and charges due the Lender Group, reimbursement of Lender Group Expenses, or other amounts constituting Obligations); 8.2 (a) If Borrower or any Guarantor, as applicable, fails to perform, keep, or observe any term, provision, condition, covenant, or agreement contained in Sections 2.7 (Cash Management), 6.8 (a), (c) and (d) (Insurance), 6.13 (Existence) (except with respect to maintaining good standing in a State other than its State of formation), 6.14 (a) and (b) (Environmental), 6.15, (Disclosure Updates), and (7) (Negative Covenants) (except for Section 7.18 (Change in Location of Chief Executive Office; Inventory and Equipment with Bailees; Books and Records)), (b) if Borrower or any Guarantor, as applicable, fails to perform, keep, or 89 observe any term, provision, condition, covenant, or agreement contained in Sections 6.2 (Collateral Reporting), 6.3 (Financial Statements, Reports, Certificates), 6.7 (Taxes), 6.9 (Location of Inventory and Equipment), 6.10 (Compliance with Laws), or 6.11 (Leases) of this Agreement, and such failure continues for a period of five (5) Business Days; (c) if Borrower fails to perform, keep, or observe any term, provision, condition, covenant, or agreement contained in Sections 6.1 (Accounting System), 6.5 (Allowances), or 6.6 (Maintenance of Properties) of this Agreement, and such failure continues for a period of fifteen (15) Business Days; or (d) if Borrower or any Guarantor fails to perform, keep, or observe any other term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower or any Guarantor and Agent or any Lender and such failure continues for a period of five (5) Business Days; in each case, other than any such term, provision, condition, covenant, or agreement that is the subject of another provision of this Article 8, in which event such other provision of this Article 8 shall govern; provided, that during any period of time that any such failure or non-performance of Borrower or any Guarantor referred to in this paragraph exists, even if such failure or non-performance is not yet an Event of Default by virtue of the existence of a grace or cure period or the pre-condition of the giving of a notice, at the option of Lender, Lender shall not be required during such period to make Advances to Borrower; 8.3 If any material portion of Borrower's or any of its Subsidiaries' assets, taken as a whole, is attached, seized, subjected to a writ or distress warrant, or comes into the possession of any third Person; 8.4 If an Insolvency Proceeding is commenced by any Borrower or any of its Subsidiaries; 8.5 If an Insolvency Proceeding is commenced against Borrower, or any of its Subsidiaries, and any of the following events occur: (a) Borrower or the Subsidiary consents to the institution of such Insolvency Proceeding against it, (b) the petition commencing the Insolvency Proceeding is not timely controverted, (c) the petition commencing the Insolvency Proceeding is not dismissed within sixty (60) calendar days of the date of the filing thereof; provided, however, that, during the pendency of such period, Agent (including any successor agent) and each other member of the Lender Group shall be relieved of its obligations to extend credit hereunder, (d) an interim trustee is appointed to take possession of all or any substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, Borrower or any of its Subsidiaries, or (e) an order for relief shall have been entered therein; 8.6 If Borrower or any of its Subsidiaries is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs; 8.7 (i) If a notice of Lien, levy, or assessment in respect of a claim in excess of $250,000, individually or in the aggregate, is filed of record with respect to any of Borrower's or any of its Subsidiaries' assets, taken as a whole, by the United States, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, or (ii) if 90 any taxes or debts in excess of $250,000, individually or in the aggregate, owing at any time hereafter to any one or more of such entities becomes a Lien other than a Permitted Lien of the type described in Section (b)(i) of the definition thereof or a Lien subject to a Permitted Protest, whether choate or otherwise, upon any of Borrower's or any of its Subsidiaries' assets and the same is not paid before such payment is delinquent; 8.8 If a judgment (other than a money judgment to the extent the amount of such judgment is covered by a valid and binding policy of insurance between the defendant and the insurer covering full payment therefor and such insurer has acknowledged coverage) or other claim in excess of $500,000, individually or in the aggregate, becomes a Lien or encumbrance upon any material portion of any of Borrower's or any of its Subsidiaries' assets, taken as a whole, and such judgment remains undischarged, unvacated, unbonded or unstayed for a period of ten (10) Business Days; 8.9 If there is a default under any agreement relating to Indebtedness to which Borrower or any of its Subsidiaries is a party and such default (a) (i) occurs at the final maturity of the obligations thereunder, or (ii) results in a right by the other party thereto, irrespective of whether exercised, to accelerate the maturity of Borrower's or its Subsidiaries' obligations thereunder, to terminate such agreement, or to refuse to renew such agreement pursuant to an automatic renewal right therein, and (b) involves Indebtedness in an aggregate amount in excess of $500,000; 8.10 If any Borrower or any of its Subsidiaries makes any payment on account of Indebtedness that has been contractually subordinated in right of payment to the payment of the Obligations, except to the extent such payment is permitted by the terms of the subordination provisions applicable to such Indebtedness; 8.11 If any misstatement or misrepresentation (or, with respect to any statement or representation that is not otherwise qualified by a materiality standard, any material misstatement or misrepresentation) exists now or hereafter in any written warranty, representation, statement, or Record when made or deemed made to the Lender Group by Borrower, its Subsidiaries, or any Responsible Officer of Borrower or any of its Subsidiaries; 8.12 If the obligation of any Guarantor under the Guaranty is limited or terminated by operation of law or by such Guarantor thereunder; provided, however, that the termination of a Guaranty in connection with the dissolution of a Guarantor in accordance with Section 6.13 shall not constitute an Event of Default; 8.13 If this Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien on or security interest in the Collateral covered hereby or thereby; or 8.14 Any provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by Borrower or 91 any Guarantor, or a proceeding shall be commenced by Borrower, any Guarantor or by any Governmental Authority having jurisdiction over Borrower or any Guarantor, seeking to establish the invalidity or unenforceability thereof, or Borrower or any Guarantor shall deny that Borrower or such Guarantor has any liability or obligation purported to be created under any Loan Document. 9. THE LENDER GROUP'S RIGHTS AND REMEDIES. 9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the continuation, of an Event of Default, the Required Lenders (at their election but without notice of their election and without demand) may authorize and instruct Agent to do any one or more of the following on behalf of the Lender Group (and Agent, acting upon the instructions of the Required Lenders, shall do the same on behalf of the Lender Group), all of which are authorized by Borrower: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable; (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement, under any of the Loan Documents, or under any other agreement between Borrower and the Lender Group; (c) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of the Lender Group to make Advances or issue Letters of Credit, but without affecting any of the Agent's Liens in the Collateral and without affecting the other Obligations; (d) To the extent allowed by applicable law, settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Agent considers advisable, and in such cases, Agent will credit Borrower's Loan Account with only the net amounts received by Agent in payment of such disputed Accounts after deducting all Lender Group Expenses incurred or expended in connection therewith; (e) Cause Borrower to hold all returned Inventory in trust for the Lender Group, segregate all returned Inventory from all other assets of Borrower or in Borrower's possession and conspicuously label said returned Inventory as the property of the Lender Group; (f) Without notice to or demand upon Borrower or Guarantor, make such payments and do such acts as Agent considers necessary or reasonable to protect its security interests in the Collateral or any other collateral securing the Obligations. Borrower agrees to assemble the Personal Property Collateral if Agent so requires, and to make the Personal Property Collateral available to Agent at a place that Agent may designate which is reasonably convenient to both parties. Borrower authorizes Agent to enter the premises where the Personal Property Collateral is located, to take and maintain possession of the Personal Property Collateral, or any part of it, and to pay, purchase, contest, or compromise any Lien that in Agent's determination appears to conflict with the Agent's Liens and to pay all expenses incurred in connection therewith and to charge Borrower's Loan Account therefor. With respect 92 to any of Borrower's owned or leased premises, Borrower hereby grants Agent a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of the Lender Group's rights or remedies provided herein, at law, in equity, or otherwise; (g) Without notice to Borrower (such notice being expressly waived), and without constituting a retention of any collateral in satisfaction of an obligation (within the meaning of the Code), set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by the Lender Group (including any amounts received in the Cash Management Accounts), or (ii) Indebtedness at any time owing to or for the credit or the account of Borrower held by the Lender Group; (h) Hold, as cash collateral, any and all balances and deposits of Borrower held by the Lender Group, and any amounts received in the Cash Management Accounts, to secure the full and final repayment of all of the Obligations; (i) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Personal Property Collateral. Borrower hereby grants to Agent a license or other right to use, without charge, Borrower's labels, patents, copyrights, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Personal Property Collateral, in completing production of, advertising for sale, and selling any Personal Property Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to the Lender Group's benefit; (j) Sell the Personal Property Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Agent determines is commercially reasonable in accordance with applicable law. It is not necessary that the Personal Property Collateral be present at any such sale; (k) Agent shall give notice of the disposition of the Personal Property Collateral as follows: (i) Agent shall give Borrower a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Personal Property Collateral, the time on or after which the private sale or other disposition is to be made; and (ii) The notice shall be personally delivered or mailed, postage prepaid, to Borrower as provided in Section 12, at least ten (10) days before the earliest time of disposition set forth in the notice; no notice needs to be given prior to the disposition of any portion of the Personal Property Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized market; 93 (l) Agent, on behalf of the Lender Group, may credit bid and purchase at any public sale; and (m) Agent may seek the appointment of a receiver or keeper to take possession of all or any portion of the Collateral, all or any portion of other collateral securing the Obligations or to operate same and, to the maximum extent permitted by law, may seek the appointment of such a receiver without the requirement of prior notice or a hearing; (n) The Lender Group shall have all other rights and remedies available at law or in equity or pursuant to any other Loan Document; and (o) Any deficiency that exists after disposition of the Personal Property Collateral as provided above will be paid immediately by Borrower. Any excess will be returned, without interest and subject to the rights of third Persons, by Agent to Borrower. 9.2 REMEDIES CUMULATIVE. The rights and remedies of the Lender Group under this Agreement, the other Loan Documents, and all other agreements shall be cumulative. The Lender Group shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by the Lender Group of one right or remedy shall be deemed an election, and no waiver by the Lender Group of any Event of Default shall be deemed a continuing waiver. No delay by the Lender Group shall constitute a waiver, election, or acquiescence by it. 10. TAXES AND EXPENSES If Borrower or any Subsidiary of Borrower fails to pay any monies (whether taxes, assessments, insurance premiums, or, in the case of leased properties or assets, rents or other amounts payable under such leases) due to third Persons, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, Agent, in its Permitted Discretion and upon notice to Borrower or any such Subsidiary, may do any or all of the following: (a) make payment of the same or any part thereof, (b) set up such reserves in Borrower's Loan Account as Agent deems necessary in its Permitted Discretion to protect the Lender Group from the exposure created by such failure, or (c) in the case of the failure to comply with Section 6.8 hereof, obtain and maintain insurance policies of the type described in Section 6.8 and take any action with respect to such policies as Agent deems prudent. Any such amounts paid by Agent shall constitute Lender Group Expenses and any such payments shall not constitute an agreement by the Lender Group to make similar payments in the future or a waiver by the Lender Group of any Event of Default under this Agreement. Agent need not inquire as to, or contest the validity of, any such expense, tax, or Lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing. 11. WAIVERS; INDEMNIFICATION 11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, 94 release, compromise, settlement, extension, or renewal of documents, instruments, Chattel Paper, and guarantees at any time held by the Lender Group on which Borrower may in any way be liable. 11.2 THE LENDER GROUP'S LIABILITY FOR COLLATERAL. Borrower hereby agrees that: (a) so long as Agent complies with its obligations, if any, under the Code, the Lender Group shall not in any way or manner be liable or responsible for: (i) the safekeeping of the Collateral, (ii) any loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value thereof, or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of loss, damage, or destruction of the Collateral shall be borne by Borrower. 11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend, and hold the Agent-Related Persons, the Lender-Related Persons with respect to each Lender, each Participant, and each of their respective officers, directors, employees, agents, and attorneys-in-fact (each, an "Indemnified Person") harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, and damages, and all reasonable attorneys fees and disbursements and other costs and expenses actually incurred in connection therewith (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them (a) in connection with or as a result of or related to the execution, delivery, enforcement, performance, or administration of this Agreement, any of the other Loan Documents, or the transactions contemplated hereby or thereby, and (b) with respect to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event, or circumstance in any manner related thereto (all the foregoing, collectively, the "Indemnified Liabilities"). The foregoing to the contrary notwithstanding, Borrower shall have no obligation to any Indemnified Person under this Section 11.3 with respect to any Indemnified Liability that a court of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnified Person. This provision shall survive the termination of this Agreement and the repayment of the Obligations. If any Indemnified Person makes any payment to any other Indemnified Person with respect to an Indemnified Liability as to which Borrower was required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by Borrower with respect thereto, but only to the extent of Borrower's obligations to such other Indemnified Person for the Indemnified Liabilities. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON. 12. NOTICES Unless otherwise provided in this Agreement, all notices or demands by Borrower or Agent to the other relating to this Agreement or any other Loan Document shall be in writing 95 and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier, electronic mail (at such email addresses as Borrower or Agent, as applicable, may designate to each other in accordance herewith), or telefacsimile to Borrower or Agent, as the case may be, at its address set forth below: If to Borrower: ORBITAL SCIENCES CORPORATION 21839 Atlantic Boulevard Dulles, Virginia 20166 Attn: Mr. Michael R. Williams Fax No. (703) 406-3502 with copies to: ORBITAL SCIENCES CORPORATION 21839 Atlantic Boulevard Dulles, Virginia 20166 Attn: General Counsel Fax No. (703) 406-5572 with copies to: HOGAN & HARTSON LLP 555 13th Street, N.W. Washington, D.C. 20004 Attn: Ben Hammond, Esq. Fax No. (202) 637-5910 If to Agent: FOOTHILL CAPITAL CORPORATION 1000 Abernathy Rd., N.E., Suite 1450 Atlanta, Georgia 30328 Attn: Business Finance Division Manager Fax No.: (770) 508-1374 with copies to: FOOTHILL CAPITAL CORPORATION 2450 Colorado Avenue Suite 3000 West Santa Monica, California 90404 Attn: Business Finance Division Manager Fax No. (310) 459-7413 and with copies to: PAUL, HASTINGS, JANOFSKY & WALKER LLP 600 Peachtree Street, N.E., Suite 2400 Atlanta, Georgia 30308 Attn: Jesse H. Austin, III, Esq. Fax No. (404) 815-2424 If to Ableco: ABLECO FINANCE LLC 96 450 Park Avenue, 28th Floor New York, New York 10022 Attn: Mr. Ken J. Kohrs Fax No. (212) 909-1421 with copies to: ABLECO FINANCE LLC 450 Park Avenue, 28th Floor New York, New York 10022 Attn: Mr. Kevin Genda Fax No. (212) 909-1421 with copies to: SCHULTE ROTH & ZABEL LLP 919 Third Avenue New York, New York 10022 Attn: Frederic L. Ragucci, Esq. Fax No.: (212) 593-5955 Agent and Borrower may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other party. All notices or demands sent in accordance with this Section 12, other than notices by Agent in connection with enforcement rights against the Collateral under the provisions of the Code, shall be deemed received on the earlier of the date of actual receipt or three (3) Business Days after the deposit thereof in the mail. Borrower acknowledges and agrees that notices sent by the Lender Group in connection with the exercise of enforcement rights against Collateral under the provisions of the Code shall be deemed sent when deposited in the mail or personally delivered, or, where permitted by law, transmitted by telefacsimile or any other method set forth above. 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER (a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE 97 BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER AND THE LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13(b). (c) BORROWER AND THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND THE LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 98 14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS 14.1 ASSIGNMENTS AND PARTICIPATIONS. (a) Any Lender may, with the written consent of Agent (provided that no written consent of Agent shall be required in connection with any assignment and delegation by a Lender to an Eligible Transferee and no notice to Agent shall be required in connection with any assignment and delegation by a Lender to an Affiliate of a Lender or a fund or account managed by a Lender), assign and delegate to one or more assignees (each an "Assignee") all, or any ratable part of all, of the Obligations, the Commitments and the other rights and obligations of such Lender hereunder and under the other Loan Documents, in a minimum amount of $5,000,000 (except that such minimum amount shall not apply to an Affiliate of a Lender or to a fund or account managed by a Lender); provided, however, that Borrower and Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses, and related information with respect to the Assignee, have been given to Borrower and Agent by such Lender and the Assignee, (ii) such Lender and its Assignee have delivered to Borrower and Agent an Assignment and Acceptance in form and substance satisfactory to Agent, and (iii) the assignor Lender or Assignee has paid to Agent for Agent's separate account a processing fee in the amount of $5,000. Anything contained herein to the contrary notwithstanding, the consent of Agent shall not be required (and payment of any fees shall not be required) if (A) such assignment is in connection with any merger, consolidation, sale, transfer, or other disposition of all or any substantial portion of the business or loan portfolio of Ableco or an Affiliate of Ableco or (B) the assignor is Ableco or an Affiliate of Ableco and the assignee is Ableco, an Affiliate (other than individual(s)) of Ableco, or a fund, money market account, investment account or other account managed by Ableco or an Affiliate of Ableco. (b) From and after the date that Agent notifies the assignor Lender (with a copy to Borrower) that it has received an executed Assignment and Acceptance and payment (if applicable) of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (except with respect to Section 11.3 hereof) and be released from its obligations under this Agreement (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement and the other Loan Documents, such Lender shall cease to be a party hereto and thereto), and such assignment shall effect a novation between Borrower and the Assignee. (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (1) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with 99 respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto, (2) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or the performance or observance by Borrower of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto, (3) such Assignee confirms that it has received a copy of this Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance, (4) such Assignee will, independently and without reliance upon Agent, such assigning Lender or any other Lender, 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 action under this Agreement, (5) such Assignee appoints and authorizes Agent to take such actions and to exercise such powers under this Agreement as are delegated to Agent, by the terms hereof, together with such powers as are reasonably incidental thereto, and (6) such Assignee agrees that it will perform all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance and receipt and acknowledgment by Agent of such fully executed Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Lender pro tanto. (e) Any Lender may at any time sell to one or more commercial banks, financial institutions, or other Persons not Affiliates of such Lender (a "Participant") participating interests in its Obligations, the Commitment, and the other rights and interests of that Lender (the "Originating Lender") hereunder and under the other Loan Documents; provided, however, that (i) the Originating Lender shall remain a "Lender" for all purposes of this Agreement and the other Loan Documents and the Participant receiving the participating interest in the Obligations, the Commitments, and the other rights and interests of the Originating Lender hereunder shall not constitute a "Lender" hereunder or under the other Loan Documents and the Originating Lender's obligations under this Agreement shall remain unchanged, (ii) the Originating Lender shall remain solely responsible for the performance of such obligations, (iii) Borrower, Agent, and the Lenders shall continue to deal solely and directly with the Originating Lender in connection with the Originating Lender's rights and obligations under this Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant any participating interest under which the Participant has the right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations hereunder in which such Participant is participating, (B) reduce the interest rate applicable to the Obligations hereunder in which such Participant is participating, (C) release all or a material portion of the Collateral or guaranties (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations hereunder in which such Participant is participating, (D) 100 postpone the payment of, or reduce the amount of, the interest or fees payable to such Participant through such Lender, (E) change the amount or due dates of scheduled principal repayments or prepayments or premiums, or (F) subordinate the Liens of Agent for the benefit of the Lender Group on all or substantially all of the Collateral to the Liens of any other creditor of Borrower, and (v) all amounts payable by Borrower hereunder shall be determined as if such Lender had not sold such participation, except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. The rights of any Participant only shall be derivative through the Originating Lender with whom such Participant participates and no Participant shall have any rights under this Agreement or the other Loan Documents or any direct rights as to the other Lenders, Agent, Borrower, the Collections, the Collateral, or otherwise in respect of the Obligations. No Participant shall have the right to participate directly in the making of decisions by the Lenders among themselves. The provisions of this Section 14.1(e) are solely for the benefit of the Lender Group, and Borrower shall have no rights as a third party beneficiary of such provisions. (f) In connection with any such assignment or participation or proposed assignment or participation, a Lender may disclose to a third party all documents and information which it now or hereafter may have relating to Borrower or Borrower's business, provided that such Lender shall obtain from assignees or participants confidentiality covenants substantially equivalent to those contained in Section 16.17(d). (g) Any other provision in this Agreement notwithstanding, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank or United States Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 14.2 SUCCESSORS. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties hereto; provided, however, that Borrower may not assign this Agreement or any rights or duties hereunder without the Lenders' prior written consent and any prohibited assignment shall be absolutely void ab initio. No consent to assignment by the Lenders shall release Borrower from its Obligations. A Lender may assign this Agreement and the other Loan Documents and its rights and duties hereunder and thereunder pursuant to Section 14.1 hereof and, except as expressly required pursuant to Section 14.1 hereof, no consent or approval by Borrower is required in connection with any such assignment. 15. AMENDMENTS; WAIVERS 15.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by the 101 Required Lenders (or by Agent with the written consent of the Required Lenders) and Borrower and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all of the Lenders affected thereby and Borrower, do any of the following: (a) increase or extend any Commitment of any Lender, (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees, or other amounts due hereunder or under any other Loan Document, (c) reduce the principal of, or the rate of interest on, any loan or other extension of credit hereunder, or reduce any fees or other amounts payable hereunder or under any other Loan Document, (d) change the percentage of the Commitments that is required to take any action hereunder, (e) amend, modify or waive this Section or any provision of the Agreement providing for consent or other action by all Lenders, (f) release Collateral other than as permitted by Section 16.12, (g) change the definition of "Required Lenders" or "Pro Rata Share", (h) contractually subordinate any of the Agent's Liens, (i) release Borrower or any Guarantor from any obligation for the payment of money, (j) increase the advance rates with respect to Advances (except for the restoration of an advance rate after the prior reduction thereof), (k) change the definition of Borrowing Base or the definitions of Eligible Accounts, Eligible Domestic Billed Accounts, Eligible Domestic Unbilled Accounts, Eligible Foreign Billed Accounts, Eligible Foreign Unbilled Accounts, Maximum Revolver Amount, Term Loan Amount, or change, modify or waive Section 2.1(b) or Section 2.4(b), or (l) amend, modify or waive any of the provisions of Section 16 or Section 2.1(a), Section 2.2 or Section 2.3(i). and, provided further, however, that no amendment, waiver or consent shall, unless in writing and signed by Agent, Issuing Lender, or Swing Lender, as applicable, affect the rights or duties of Agent, Issuing Lender, or Swing Lender, as applicable, under this Agreement or any other Loan Document. The foregoing notwithstanding, any amendment, modification, waiver, 102 consent, termination, or release of, or with respect to, any provision of this Agreement or any other Loan Document that relates only to the relationship of the Lender Group among themselves, and that does not affect the rights or obligations of Borrower, shall not require consent by or the agreement of Borrower. Agent and Lenders (other than Lenders with a Term Loan Commitment), on the one hand, and Lenders with a Term Loan Commitment, on the other hand, have executed a letter agreement on the Closing Date. The rights and duties of Agent and Lenders are subject to such agreement. 15.2 REPLACEMENT OF HOLDOUT LENDER (a) If any action to be taken by the Lender Group or Agent hereunder requires the unanimous consent, authorization, or agreement of all Lenders, and a Lender ("Holdout Lender") fails to give its consent, authorization, or agreement, then Agent, upon at least five (5) Business Days prior irrevocable notice to the Holdout Lender, may permanently replace the Holdout Lender with one or more substitute Lenders (each, a "Replacement Lender"), and the Holdout Lender shall have no right to refuse to be replaced hereunder. Such notice to replace the Holdout Lender shall specify an effective date for such replacement, which date shall not be later than fifteen (15) Business Days after the date such notice is given. (b) Prior to the effective date of such replacement, the Holdout Lender and each Replacement Lender shall execute and deliver an Assignment and Acceptance Agreement, subject only to the Holdout Lender's being repaid its share of the outstanding Obligations (including an assumption of its Pro Rata Share of the Risk Participation Liability) without any premium or penalty of any kind whatsoever. If the Holdout Lender shall refuse or fail to execute and deliver any such Assignment and Acceptance Agreement prior to the effective date of such replacement, the Holdout Lender shall be deemed to have executed and delivered such Assignment and Acceptance Agreement. The replacement of any Holdout Lender shall be made in accordance with the terms of Section 14.1. Until such time as the Replacement Lenders shall have acquired all of the Obligations, the Commitments, and the other rights and obligations of the Holdout Lender hereunder and under the other Loan Documents, the Holdout Lender shall remain obligated to make the Holdout Lender's Pro Rata Share of Advances and to purchase a participation in each Letter of Credit, in an amount equal to its Pro Rata Share of the Risk Participation Liability of such Letter of Credit. 15.3 NO WAIVERS; CUMULATIVE REMEDIES. No failure by Agent or any Lender to exercise any right, remedy, or option under this Agreement or, any other Loan Document, or delay by Agent or any Lender in exercising the same, will operate as a waiver thereof. No waiver by Agent or any Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by Agent or any Lender on any occasion shall affect or diminish Agent's and each Lender's rights thereafter to require strict performance by Borrower of any provision of this Agreement. Agent's and each Lender's rights under this Agreement and the other Loan Documents will be cumulative and not exclusive of any other right or remedy Agent or any Lender may have. 103 16. AGENT; THE LENDER GROUP 16.1 APPOINTMENT AND AUTHORIZATION OF AGENT. Each Lender hereby designates and appoints Foothill as its representative under this Agreement and the other Loan Documents and each Lender hereby irrevocably authorizes Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Agent agrees to act as such on the express conditions contained in this Section 16. The provisions of this Section 16 are solely for the benefit of Agent, and the Lenders, and Borrower shall have no rights as a third party beneficiary of any of the provisions contained herein. Any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent; it being expressly understood and agreed that the use of the word "Agent" is for convenience only, that Foothill is merely the representative of the Lenders, and only has the contractual duties set forth herein. Except as expressly otherwise provided in this Agreement, Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions that Agent expressly is entitled to take or assert under or pursuant to this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, or of any other provision of the Loan Documents that provides rights or powers to Agent, Lenders agree that Agent shall have the right to exercise the following powers as long as this Agreement remains in effect: (a) maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Collateral, the Collections, and related matters, (b) execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to the Loan Documents, (c) make Advances, for itself or on behalf of Lenders as provided in the Loan Documents, (d) exclusively receive, apply, and distribute the Collections as provided in the Loan Documents, (e) open and maintain such bank accounts and cash management arrangements as Agent deems necessary and appropriate in accordance with the Loan Documents for the foregoing purposes with respect to the Collateral and the Collections, (f) perform, exercise, and enforce any and all other rights and remedies of the Lender Group with respect to Borrower, the Obligations, the Collateral, the Collections, or otherwise related to any of same as provided in the Loan Documents, and (g) incur and pay such Lender Group Expenses as Agent may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Loan Documents. 16.2 DELEGATION OF DUTIES. Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made without gross negligence or willful misconduct. 104 16.3 LIABILITY OF AGENT. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by Borrower or any Subsidiary or Affiliate of Borrower, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the Books or properties of Borrower or the books or records or properties of any of Borrower's Subsidiaries or Affiliates. 16.4 RELIANCE BY AGENT. Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent, or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Borrower or counsel to any Lender), independent accountants and other experts selected by Agent. Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless Agent shall first receive such advice or concurrence of the Lenders as it deems appropriate and until such instructions are received, Agent shall act, or refrain from acting, as it deems advisable. If Agent so requests, it shall first be indemnified to its reasonable satisfaction by Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. 16.5 NOTICE OF DEFAULT OR EVENT OF DEFAULT. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest, fees, and expenses required to be paid to Agent for the account of the Lenders, except with respect to Defaults and Events of Default of which Agent has actual knowledge, unless Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a "notice of default." Agent promptly will notify the Lenders of its receipt of any such notice or of any Event of Default of which Agent has actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Agent of such Event of Default. Each Lender shall be solely responsible for giving any notices to its Participants, if any. Subject to Section 16.4, Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with Section 9; provided, however, that unless and until Agent has received any such 105 request, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable. 16.6 CREDIT DECISION. Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by Agent hereinafter taken, including any review of the affairs of Borrower and its Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower and any other Person (other than the Lender Group) party to a Loan Document, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrower. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower and any other Person (other than the Lender Group) party to a Loan Document. Except for notices, reports, and other documents expressly herein required to be furnished to the Lenders by Agent, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of Borrower and any other Person party to a Loan Document that may come into the possession of any of the Agent-Related Persons. 16.7 COSTS AND EXPENSES; INDEMNIFICATION. Agent may incur and pay Lender Group Expenses to the extent Agent reasonably deems necessary or appropriate for the performance and fulfillment of its functions, powers, and obligations pursuant to the Loan Documents, including court costs, reasonable attorneys' fees and expenses, costs of collection by outside collection agencies and auctioneer fees and costs of security guards or insurance premiums paid to maintain the Collateral or any other collateral securing the Obligations, whether or not Borrower is obligated to reimburse Agent or Lenders for such expenses pursuant to the Loan Agreement or otherwise. Agent is authorized and directed to deduct and retain sufficient amounts from Collections received by Agent to reimburse Agent for such out-of-pocket costs and expenses prior to the distribution of any amounts to Lenders. In the event Agent is not reimbursed for such costs and expenses from Collections received by Agent, each Lender hereby agrees that it is and shall be obligated to pay to or reimburse Agent for the amount of such Lender's Pro Rata Share thereof. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrower and without limiting the obligation of Borrower to do so), according to their Pro Rata Shares, from and against any and all Indemnified Liabilities; provided, however, that no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct nor shall any Lender be liable for the obligations of any Defaulting Lender in 106 failing to make an Advance or other extension of credit hereunder. Without limitation of the foregoing, each Lender shall reimburse Agent upon demand for such Lender's ratable share of any costs or out-of-pocket expenses (including attorneys fees and expenses) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrower. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of Agent. 16.8 AGENT IN INDIVIDUAL CAPACITY. Foothill and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in, and generally engage in any kind of banking, lending, trust, financial advisory, underwriting, or other business with Borrower and its Subsidiaries and Affiliates and any other Person (other than the Lender Group) party to any Loan Documents as though Foothill were not Agent hereunder, and, in each case, without notice to or consent of the other members of the Lender Group. The other members of the Lender Group acknowledge that, pursuant to such activities, Foothill or its Affiliates may receive information regarding Borrower or its Affiliates and any other Person (other than the Lender Group) party to any Loan Documents that is subject to confidentiality obligations in favor of Borrower or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver Agent will use its reasonable best efforts to obtain), Agent shall not be under any obligation to provide such information to them. The terms "Lender" and "Lenders" include Foothill in its individual capacity. 16.9 SUCCESSOR AGENT. Agent may resign as Agent upon forty-five (45) days' notice to the Lenders. If Agent resigns under this Agreement, the Required Lenders shall appoint a successor Agent for the Lenders. If no successor Agent is appointed prior to the effective date of the resignation of Agent, Agent may appoint, after consulting with the Lenders, a successor Agent. If Agent has materially breached or failed to perform any material provision of this Agreement or of applicable law, the Required Lenders may agree in writing to remove and replace Agent with a successor Agent from among the Lenders. In any such event, upon the acceptance of its appointment as successor Agent hereunder, such successor Agent shall succeed to all the rights, powers, and duties of the retiring Agent and the term "Agent" shall mean such successor Agent and the retiring Agent's appointment, powers, and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 16 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor Agent has accepted appointment as Agent by the date which is forty-five (45) days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of Agent hereunder until such time, if any, as the Lenders appoint a successor Agent as provided for above. 107 16.10 LENDER IN INDIVIDUAL CAPACITY. Any Lender and its respective Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with Borrower and its Subsidiaries and Affiliates and any other Person (other than the Lender Group) party to any Loan Documents as though such Lender were not a Lender hereunder without notice to or consent of the other members of the Lender Group. The other members of the Lender Group acknowledge that, pursuant to such activities, such Lender and its respective Affiliates may receive information regarding Borrower or its Affiliates and any other Person (other than the Lender Group) party to any Loan Documents that is subject to confidentiality obligations in favor of Borrower or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver such Lender will use its reasonable best efforts to obtain), such Lender not shall be under any obligation to provide such information to them. With respect to the Swing Loans and Agent Advances, Swing Lender shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the sub-agent of Agent. 16.11 WITHHOLDING TAXES. (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the IRC and such Lender claims exemption from, or a reduction of, United States withholding tax under Sections 1441 or 1442 of the IRC, such Lender agrees with and in favor of Agent and Borrower, to deliver to Agent and Borrower: (i) if such Lender claims an exemption from withholding tax pursuant to its portfolio interest exception, (a) a statement of the Lender, signed under penalty of perjury, that it is not a (1) a "bank" as described in Section 881(c)(3)(A) of the IRC, (2) a 10% shareholder (within the meaning of Section 881(c)(3)(B) of the IRC), or (3) a controlled foreign corporation described in Section 881(c)(3)(C) of the IRC, and (b) a properly completed IRS Form W-8BEN, before the first payment of any interest under this Agreement and at any other time reasonably requested by Agent or Borrower; (ii) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed IRS Form W-8BEN before the first payment of any interest under this Agreement and at any other time reasonably requested by Agent or Borrower; (iii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two properly completed and executed copies of IRS Form W-8ECI before the first payment of any interest is due under this Agreement and at any other time reasonably requested by Agent or Borrower; and 108 (iv) such other form or forms as may be required under the IRC or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Lender agrees promptly to notify Agent and Borrower of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form W-8BEN and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of Borrower to such Lender, such Lender agrees to notify Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of Borrower to such Lender. To the extent of such percentage amount, Agent will treat such Lender's IRS Form W-8BEN as no longer valid. (c) If any Lender is entitled to a reduction in the applicable withholding tax, Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to Agent, then Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (d) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify and hold Agent harmless for all amounts paid, directly or indirectly, by Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to Agent under this Section, together with all costs and expenses (including attorneys fees and expenses). The obligation of the Lenders under this subsection shall survive the payment of all Obligations and the resignation or replacement of Agent. (e) All payments made by Borrower hereunder or under any note will be made without setoff, counterclaim, or other defense, except as required by applicable law other than for Taxes (as defined below). All such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction (other than the United States) or by any political subdivision or taxing authority thereof or therein (other than of the United States) with respect to such payments (but excluding, any tax imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein (i) measured by or based on the net income or net profits of a Lender, or (ii) to the extent that such tax results from a change in the circumstances of the Lender, including a change in the residence, place of organization, or principal place of business of the Lender, or a change in the branch or lending office of the Lender participating in the transactions set forth herein) and all 109 interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any note, including any amount paid pursuant to this Section 16.11(e) after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein; provided, however, that Borrower shall not be required to increase any such amounts payable to Agent or any Lender (i) that is not organized under the laws of the United States, if such Person fails to comply with the other requirements of this Section 16.11, or (ii) if the increase in such amount payable results from Agent's or such Lender's own willful misconduct or gross negligence. Borrower will furnish to Agent as promptly as possible after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by Borrower. 16.12 COLLATERAL MATTERS. (a) The Lenders hereby irrevocably authorize Agent, at its option and in its sole discretion, to release any Lien on any Collateral or other collateral securing the Obligations (i) upon the termination of the Commitments and payment and satisfaction in full by Borrower of all Obligations, (ii) constituting property being sold or disposed of if a release is required or desirable in connection therewith and if Borrower certifies to Agent that the sale or disposition is permitted under Section 7.4 of this Agreement or the other Loan Documents (and Agent may rely conclusively on any such certificate, without further inquiry), (iii) constituting property in which Borrower owned no interest at the time the security interest was granted or at any time thereafter, or (iv) constituting property leased to Borrower under a lease that has expired or is terminated in a transaction permitted under this Agreement. Except as provided above, Agent will not execute and deliver a release of any Lien on any Collateral or other collateral securing the Obligations without the prior written authorization of (y) if the release is of all or substantially all of the Collateral or other collateral securing the Obligations, all Lenders, or (z) otherwise, the Required Lenders. Upon request by Agent or Borrower at any time, the Lenders will confirm in writing Agent's authority to release any such Liens on particular types or items of Collateral or other collateral securing the Obligations pursuant to this Section 16.12; provided, however, that (1) Agent shall not be required to execute any document necessary to evidence such release on terms that, in Agent's opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Lien without recourse, representation, or warranty, and (2) such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of Borrower in respect of) all interests retained by Borrower, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral or the other collateral securing the Obligations. (b) Agent shall have no obligation whatsoever to any of the Lenders to assure that the Collateral or other collateral securing the Obligations exists or is owned by Borrower or a Guarantor or is cared for, protected, or insured or has been encumbered, or that the Agent's Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or 110 are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral or other collateral securing the Obligations, or any act, omission, or event related thereto, subject to the terms and conditions contained herein, Agent may act in any manner it may deem appropriate, absent Agent's gross negligence or willful misconduct, in its sole discretion given Agent's own interest in the Collateral or other collateral securing the Obligations in its capacity as one of the Lenders and that Agent shall have no other duty or liability whatsoever to any Lender as to any of the foregoing, except as otherwise provided herein. 16.13 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF PAYMENTS (a) Each of the Lenders agrees that it shall not, without the express consent of Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the request of Agent, set-off against the Obligations, any amounts owing by such Lender to Borrower or any deposit accounts of Borrower now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so by Agent, take or cause to be taken any action, including, the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral the purpose of which is, or could be, to give such Lender any preference or priority against the other Lenders with respect to the Collateral. (b) If, at any time or times any Lender shall receive (i) by payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments with respect to the Obligations arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such Lender from Agent pursuant to the terms of this Agreement, or (ii) payments from Agent in excess of such Lender's Pro Rata Share of all such distributions by Agent, such Lender promptly shall (1) turn the same over to Agent, in kind, and with such endorsements as may be required to negotiate the same to Agent, or in immediately available funds, as applicable, for the account of all of the Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (2) purchase, without recourse or warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance with their Pro Rata Shares; provided, however, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment. 16.14 AGENCY FOR PERFECTION. Agent hereby appoints each other Lender as its agent (and each Lender hereby accepts such appointment) for the purpose of perfecting the Agent's Liens in assets which, in accordance with Article 9 of the Code can be perfected only by possession. Should any Lender obtain possession of any such Collateral or other collateral 111 securing the Obligations, such Lender shall notify Agent thereof, and, promptly upon Agent's request therefor shall deliver such Collateral or other collateral securing the Obligations to Agent or in accordance with Agent's instructions. 16.15 PAYMENTS BY AGENT TO THE LENDERS. All payments to be made by Agent to the Lenders shall be made by bank wire transfer or internal transfer of immediately available funds pursuant to such wire transfer instructions as each party may designate for itself by written notice to Agent. Concurrently with each such payment, Agent shall identify whether such payment (or any portion thereof) represents principal, premium, or interest of the Obligations. 16.16 CONCERNING THE COLLATERAL AND RELATED LOAN DOCUMENTS. Each member of the Lender Group authorizes and directs Agent to enter into this Agreement and the other Loan Documents relating to the Collateral and the other collateral securing the Obligations, for the benefit of the Lender Group. Each member of the Lender Group agrees that any action taken by Agent in accordance with the terms of this Agreement or the other Loan Documents relating to the Collateral and the other collateral securing the Obligations and the exercise by Agent of its powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders. 16.17 FIELD AUDITS AND EXAMINATION REPORTS; CONFIDENTIALITY; DISCLAIMERS BY LENDERS; OTHER REPORTS AND INFORMATION. By becoming a party to this Agreement, each Lender: (a) is deemed to have requested that Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report (each a "Report" and collectively, "Reports") prepared by or at the request of Agent, and Agent shall so furnish each Lender with such Reports, (b) expressly agrees and acknowledges that Agent does not (i) make any representation or warranty as to the accuracy of any Report, and (ii) shall not be liable for any information contained in any Report, (c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Agent or other party performing any audit or examination will inspect only specific information regarding Borrower and will rely significantly upon the Books, as well as on representations of Borrower's personnel, (d) agrees to keep all Reports and other material, non-public information regarding Borrower and its Subsidiaries and their operations, assets, and existing and contemplated business plans in a confidential manner; it being understood and agreed by Borrower that in any event such Lender may make disclosures (i) to counsel for and other advisors, accountants, and auditors to such Lender, (ii) reasonably required by any bona fide potential or actual Assignee or Participant in connection with any contemplated or actual assignment or transfer by such Lender of an interest herein or any participation interest in such Lender's rights hereunder, (iii) of information that has become public by disclosures made by 112 Persons other than such Lender, its Affiliates, assignees, transferees, or Participants, or (iv) as required or requested by any court, governmental or administrative agency, pursuant to any subpoena or other legal process, or by any law, statute, regulation, or court order; provided, however, that, unless prohibited by applicable law, statute, regulation, or court order, such Lender shall notify Borrower of any request by any court, governmental or administrative agency, or pursuant to any subpoena or other legal process for disclosure of any such non-public material information concurrent with, or where practicable, prior to the disclosure thereof; provided further, that any disclosures pursuant to the preceding clauses (i) and (ii) shall be made subject to the recipient of the disclosures agreeing to be bound by the confidentiality provisions hereof; and provided further that, notwithstanding any other provisions in this Agreement to the contrary, Borrower is an intended third-party beneficiary to, and Agent shall be bound by, this Section 16.17(d), and (e) without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold Agent and any other Lender preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the indemnifying Lender has made or may make to Borrower, or the indemnifying Lender's participation in, or the indemnifying Lender's purchase of, a loan or loans of Borrower, and (ii) to pay and protect, and indemnify, defend and hold Agent, and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including, attorneys fees and costs) incurred by Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender. In addition to the foregoing: (x) any Lender may from time to time request in writing that Agent provide to such Lender a copy of any report or document provided by Borrower to Agent that has not been contemporaneously provided by Borrower to such Lender, and, upon receipt of such request, Agent shall provide a copy of same to such Lender, (y) to the extent that Agent is entitled, under any provision of the Loan Documents, to request additional reports or information from Borrower, any Lender may, from time to time, reasonably request Agent to exercise such right as specified in such Lender's notice to Agent, whereupon Agent promptly shall request of Borrower the additional reports or information reasonably specified by such Lender, and, upon receipt thereof from Borrower, Agent promptly shall provide a copy of same to such Lender, and (z) any time that Agent renders to Borrower a statement regarding the Loan Account, Agent shall send a copy of such statement to each Lender. 16.18 SEVERAL OBLIGATIONS; NO LIABILITY. Notwithstanding that certain of the Loan Documents now or hereafter may have been or will be executed only by or in favor of Agent in its capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of the Lenders to make any credit available hereunder shall constitute the several (and not joint) obligations of the respective Lenders on a ratable basis, according to their respective Commitments, to make an amount of such credit not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments. Nothing contained herein shall confer upon any Lender any interest in, or subject any Lender to any liability for, or in respect of, 113 the business, assets, profits, losses, or liabilities of any other Lender. Each Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participant of any other Lender. Except as provided in Section 16.7, no member of the Lender Group shall have any liability for the acts or any other member of the Lender Group. No Lender shall be responsible to any Borrower or any other Person for any failure by any other Lender to fulfill its obligations to make credit available hereunder, nor to advance for it or on its behalf in connection with its Commitment, nor to take any other action on its behalf hereunder or in connection with the financing contemplated herein. 16.19 LEGAL REPRESENTATION OF AGENT. In connection with the negotiation, drafting, and execution of this Agreement and the other Loan Documents, or in connection with future legal representation relating to loan administration, amendments, modifications, waivers, or enforcement of remedies, Paul, Hastings, Janofsky & Walker LLP ("Paul Hastings") only has represented and only shall represent Foothill in its capacity as Agent and as a Lender. Each other Lender hereby acknowledges that Paul Hastings does not represent it in connection with any such matters. 17. GENERAL PROVISIONS 17.1 EFFECTIVENESS. This Agreement shall be binding and deemed effective when executed by Borrower, Agent, and each Lender whose signature is provided for on the signature pages hereof. 17.2 SECTION HEADINGS. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement. 17.3 INTERPRETATION. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed against the Lender Group or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto. 17.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 17.5 AMENDMENTS IN WRITING. This Agreement only can be amended by a writing signed by Agent (on behalf of the requisite Lenders) and Borrower. 17.6 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original 114 executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis. 17.7 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or payment of the Obligations by Borrower or any Guarantor or the transfer to the Lender Group of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if the Lender Group is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that the Lender Group is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of the Lender Group related thereto, the liability of Borrower [or Guarantor] automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. 17.8 INTEGRATION. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof. [Signature page to follow] 115 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. ORBITAL SCIENCES CORPORATION, a Delaware corporation, as Borrower By: ----------------------------------- Title: -------------------------------- FOOTHILL CAPITAL CORPORATION, a California corporation, as Agent and as a Lender By: ----------------------------------- Title: -------------------------------- ABLECO FINANCE LLC, a Delaware limited liability company, as a Lender By: ----------------------------------- Title: -------------------------------- TABLE OF CONTENTS
Page ---- 1. DEFINITIONS AND CONSTRUCTION.........................................................................1 1.1 Definitions................................................................................1 1.2 Accounting Terms..........................................................................31 1.3 Code......................................................................................31 1.4 Construction..............................................................................31 1.5 Schedules and Exhibits....................................................................32 2. LOAN AND TERMS OF PAYMENT...........................................................................32 2.1 Revolver Advances.........................................................................32 2.2 Term Loan.................................................................................33 2.3 Borrowing Procedures and Settlements......................................................34 2.4 Payments..................................................................................41 2.5 Overadvances..............................................................................44 2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations...............44 2.7 Cash Management...........................................................................46 2.8 Crediting Payments; Float Charge..........................................................47 2.9 Designated Account........................................................................47 2.10 Maintenance of Loan Account; Statements of Obligations....................................48 2.11 Fees......................................................................................48 2.12 Letters of Credit.........................................................................49 2.13 [Intentionally Omitted]...................................................................52 2.14 Capital Requirements......................................................................52 3. CONDITIONS; TERM OF AGREEMENT.......................................................................52 3.1 Conditions Precedent to the Initial Extension of Credit...................................52 3.2 Conditions Subsequent to the Initial Extension of Credit..................................56 3.3 Conditions Precedent to all Extensions of Credit..........................................58 3.4 Term......................................................................................58 3.5 Effect of Termination.....................................................................58 3.6 Early Termination by Borrower.............................................................59 4. CREATION OF SECURITY INTEREST.......................................................................60 4.1 Grant of Security Interest................................................................60
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Page ---- 4.2 Negotiable Collateral and Chattel Paper...................................................60 4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral....................61 4.4 Delivery of Additional Documentation Required.............................................61 4.5 Power of Attorney.........................................................................62 4.6 Right to Inspect; Appraisals..............................................................62 4.7 Control Agreements........................................................................63 4.8 Commercial Tort Claims....................................................................63 5. REPRESENTATIONS AND WARRANTIES......................................................................63 5.1 No Encumbrances...........................................................................63 5.2 Eligible Accounts.........................................................................63 5.3 [Intentionally Omitted]...................................................................64 5.4 Equipment.................................................................................64 5.5 Location of Inventory and Equipment.......................................................64 5.6 Inventory Records.........................................................................64 5.7 Location of Chief Executive Office; FEIN; Organizational I.D. Number......................64 5.8 Due Organization and Qualification; Subsidiaries..........................................64 5.9 Due Authorization; No Conflict............................................................65 5.10 Litigation................................................................................66 5.11 Financial Statements; No Material Adverse Change..........................................66 5.12 Fraudulent Transfer.......................................................................66 5.13 Employee Benefits.........................................................................67 5.14 Environmental Condition...................................................................67 5.15 Brokerage Fees............................................................................67 5.16 Intellectual Property.....................................................................67 5.17 Leases....................................................................................68 5.18 DDAs......................................................................................68 5.19 Complete Disclosure.......................................................................68 5.20 Indebtedness..............................................................................68 5.21 Regulation U..............................................................................68
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Page ---- 5.22 Permits, Etc..............................................................................69 6. AFFIRMATIVE COVENANTS...............................................................................69 6.1 Accounting System.........................................................................69 6.2 Collateral Reporting......................................................................69 6.3 Financial Statements, Reports, Certificates...............................................70 6.4 [Intentionally Omitted]...................................................................73 6.5 Allowances................................................................................73 6.6 Maintenance of Properties.................................................................73 6.7 Taxes.....................................................................................73 6.8 Insurance.................................................................................73 6.9 Location of Inventory and Equipment.......................................................75 6.10 Compliance with Laws......................................................................75 6.11 Leases....................................................................................75 6.12 Brokerage Commissions.....................................................................75 6.13 Existence.................................................................................76 6.14 Environmental.............................................................................76 6.15 Disclosure Updates........................................................................76 6.16 Employee Benefits.........................................................................76 7. NEGATIVE COVENANTS..................................................................................77 7.1 Indebtedness..............................................................................77 7.2 Liens.....................................................................................78 7.3 Restrictions on Fundamental Changes; Disposal of Assets...................................78 7.4 [Intentionally Omitted]...................................................................79 7.5 Change Name...............................................................................79 7.6 Guarantee.................................................................................79 7.7 [Intentionally Omitted]...................................................................79 7.8 Prepayments and Amendments................................................................79 7.9 Change of Control.........................................................................80 7.10 Conditional Sales.........................................................................80
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Page ---- 7.11 Distributions.............................................................................80 7.12 Accounting Methods........................................................................80 7.13 Investments...............................................................................80 7.14 Transactions with Affiliates..............................................................81 7.15 [Intentionally Omitted]...................................................................81 7.16 Compensation..............................................................................81 7.17 Use of Proceeds...........................................................................81 7.18 Change in Location of Chief Executive Office; Inventory and Equipment with Bailees; Book and Records............................................................82 7.19 [Intentionally Omitted]...................................................................82 7.20 Financial Covenants.......................................................................82 7.21 No Prohibited Transactions Under ERISA....................................................84 8. EVENTS OF DEFAULT...................................................................................85 9. THE LENDER GROUP'S RIGHTS AND REMEDIES..............................................................88 9.1 Rights and Remedies.......................................................................88 9.2 Remedies Cumulative.......................................................................90 10. TAXES AND EXPENSES..................................................................................90 11. WAIVERS; INDEMNIFICATION............................................................................90 11.1 Demand; Protest; etc......................................................................90 11.2 The Lender Group's Liability for Collateral...............................................90 11.3 Indemnification...........................................................................91 12. NOTICES.............................................................................................91 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER..........................................................93 14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS..........................................................94 14.1 Assignments and Participations............................................................94 14.2 Successors................................................................................96 15. AMENDMENTS; WAIVERS.................................................................................96 15.1 Amendments and Waivers....................................................................96 15.2 Replacement of Holdout Lender.............................................................98 15.3 No Waivers; Cumulative Remedies...........................................................98
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Page ---- 16. AGENT; THE LENDER GROUP.............................................................................98 16.1 Appointment and Authorization of Agent....................................................98 16.2 Delegation of Duties......................................................................99 16.3 Liability of Agent........................................................................99 16.4 Reliance by Agent........................................................................100 16.5 Notice of Default or Event of Default....................................................100 16.6 Credit Decision..........................................................................100 16.7 Costs and Expenses; Indemnification......................................................101 16.8 Agent in Individual Capacity.............................................................102 16.9 Successor Agent..........................................................................102 16.10 Lender in Individual Capacity............................................................102 16.11 Withholding Taxes........................................................................103 16.12 Collateral Matters.......................................................................104 16.13 Restrictions on Actions by Lenders; Sharing of Payments..................................105 16.14 Agency for Perfection....................................................................106 16.15 Payments by Agent to the Lenders.........................................................106 16.16 Concerning the Collateral and Related Loan Documents.....................................106 16.17 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information...................................................106 16.18 Several Obligations; No Liability........................................................108 16.19 Legal Representation of Agent............................................................108 17. GENERAL PROVISIONS.................................................................................108 17.1 Effectiveness............................................................................108 17.2 Section Headings.........................................................................108 17.3 Interpretation...........................................................................109 17.4 Severability of Provisions...............................................................109 17.5 Amendments in Writing....................................................................109 17.6 Counterparts; Telefacsimile Execution....................................................109 17.7 Revival and Reinstatement of Obligations.................................................109 17.8 Integration..............................................................................109
-v- Page ---- C-1 EX-21 11 w58627ex21.txt SUBSIDIARIES Exhibit 21 Subsidiaries of Orbital Sciences Corporation Orbital Communications Corporation Orbital International, Inc. Orbital Holdings Corporation EX-23.1 12 w58627ex23-1.txt CONSENT OF PRICEWATERHOUSE COOPERS LLP 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, 333-27999, 333-59470 and 333-59474) and Form S-3 (No. 333-59402) of ORBITAL SCIENCES CORPORATION of our reports dated March 7, 2002 relating to the consolidated financial statements and financial statement schedules of Orbital Sciences Corporation and our report dated March 6, 2002 related to the financial statements of Orbital Imaging Corporation, which appear in this Form 10-K. /S/ PRICEWATERHOUSECOOPERS LLP McLean, Virginia March 26, 2002 EX-23.2 13 w58627ex23-2.txt CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report on ORBCOMM Global, L.P.'s December 31, 2000 and 1999, financial statements dated April 12, 2001, and our report on Orbital Communications Corporation's December 31, 1999, financial statements dated February 3, 2000, except with respect to the matters described in Note 10, as to which the date is April 12, 2001, incorporated by reference 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, 333-27999, 333-59470, and 333-59474) and Form S-3 (File No. 333-59402). ARTHUR ANDERSEN LLP Vienna, Virginia March 26, 2002 EX-99.1 14 w58627ex99-1.txt FINANCIAL STATEMENTS OF ORBITAL IMAGING CORP. EXHIBIT 99.1 =============================================================================== ORBITAL IMAGING CORPORATION FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001 AND 2000 AND FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2001 AND REPORT OF INDEPENDENT ACCOUNTANTS [ORBIMAGE LOGO] =============================================================================== REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Orbital Imaging Corporation: In our opinion, the accompanying balance sheets and the related statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Orbital Imaging Corporation at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 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 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 experienced continuing operating losses, defaulted on its senior notes and requires a financial restructuring to meet its capital and operating requirements. 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 1. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. PricewaterhouseCoopers LLP March 6, 2002 McLean, Virginia 2 ORBITAL IMAGING CORPORATION BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS DECEMBER 31, ---------------------- 2001 2000 ---- ---- Current assets: Cash and cash equivalents ......................................... $ 13,401 $ 4,146 Restricted cash from insurance proceeds ........................... 34,292 -- Trade receivables and other current assets, net of allowances of $64 and $60, respectively ................................. 357 1,453 --------- --------- Total current assets ......................................... 48,050 5,599 Property, plant and equipment, at cost, less accumulated depreciation of $17,576 and $14,268, respectively ............ 16,877 36,619 Satellites and related rights, at cost, less accumulated depreciation and amortization of $46,945 and $39,578, respectively ........................................ 113,817 283,543 Unbilled receivables .................................................... 5,523 8,799 Goodwill, intangibles and deferred charges .............................. 7,208 9,269 --------- --------- Total assets ...................................................... $ 191,475 $ 343,829 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued expenses ............................. $ 2,514 $ 4,103 Accrued interest payable .......................................... 36,801 8,719 Current portion of deferred revenue ............................... 7,527 8,904 Obligations to related parties .................................... 6,910 2,113 Senior notes ...................................................... 217,829 216,154 --------- --------- Total current liabilities .................................... 271,581 239,993 Deferred revenue, net of current portion ................................ 41 6,970 --------- --------- Total liabilities ................................................. 271,622 246,963 Preferred stock subject to repurchase, par value $0.01, 10,000,000 shares authorized; Series A 12% cumulative convertible, 2,000,000 shares authorized, 975,349 and 868,052 shares issued and outstanding, respectively (liquidation value of $99,486 and $88,541, respectively) ........................................................ 110,039 106,103 Stockholders' 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 ........................................ 87,502 87,469 Accumulated deficit ............................................... (277,940) (96,958) --------- --------- Total stockholders' deficit ....................................... (190,186) (9,237) --------- --------- Total liabilities and stockholders' deficit ....................... $ 191,475 $ 343,829 ========= =========
The accompanying notes are an integral part of these financial statements. 3 ORBITAL IMAGING CORPORATION STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31, ------------------------ 2001 2000 1999 ---- ---- ---- Revenues ........................... $ 18,755 $ 24,123 $ 18,587 Direct expenses .................... 17,311 26,696 21,212 ------------ ------------ ------------ Gross profit (loss) ................ 1,444 (2,573) (2,625) Selling, general and administrative expenses ......................... 9,502 9,216 10,362 Asset loss and impairment charges .. 138,040 -- -- ------------ ------------ ------------ Loss from operations ............... (146,098) (11,789) (12,987) Interest expense (income), net ..... 30,948 (2,160) (2,636) ------------ ------------ ------------ Loss before benefit for income taxes (177,046) (9,629) (10,351) Benefit for income taxes ........... -- (77) (3,629) ------------ ------------ ------------ Net loss ........................... $ (177,046) $ (9,552) $ (6,722) ============ ============ ============ Loss per common share - basic and diluted (1) ...................... $ (7.18) $ (0.96) $ (0.79) Loss available to common stockholders ..................... $ (180,982) $ (24,092) $ (19,796) 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 for each period presented. The accompanying notes are an integral part of these financial statements. 4 ORBITAL IMAGING CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL ------------ PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT TOTAL ------ ------ ------- ------- ----- 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) Issuance of stock options ............... -- -- 33 -- 33 Preferred stock dividends ............... -- -- -- (3,936) (3,936) Net loss ................................ -- -- -- (177,046) (177,046) ----------- ----------- ----------- ----------- ----------- BALANCE AS OF DECEMBER 31, 2001 ............ 25,214,000 $ 252 $ 87,502 $ (277,940) $ (190,186) =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 5 ORBITAL IMAGING CORPORATION STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, --------------------------- 2001 2000 1999 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ........................................ $(177,046) $ (9,552) $ (6,722) Adjustments to reconcile net loss to net cash used in operating activities: Asset loss and impairment charges .... 138,040 -- -- Depreciation, amortization and other . 13,821 14,923 14,258 Deferred tax benefit ................. -- (77) (3,629) Changes in assets and liabilities: Decrease (increase) in receivables and other current assets ................. 1,096 (4,873) (4,502) Decrease (increase) in other assets .. 3,887 (59) 357 Increase (decrease) in accounts payable and accrued expenses ......... 26,493 (432) 5,917 Decrease in deferred revenue ......... (8,306) (8,736) (7,609) Increase (decrease) in obligations to related parties ...................... 348 1,508 (8,603) --------- --------- --------- NET CASH USED IN OPERATING ACTIVITIES ........... (1,667) (7,298) (10,533) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ............................ (22,916) (38,445) (92,388) Insurance proceeds from launch failure .......... 28,838 -- -- Proceeds from launch delay penalties ............ 5,000 -- -- Purchases of restricted held-to-maturity securities ...................................... -- -- (7,306) Purchases of available-for-sale securities ...... -- (23,491) (53,698) Maturities of restricted held-to-maturity securities ...................................... -- 12,984 19,691 Maturities of available-for-sale securities ..... -- 46,699 38,362 Sales of available-for-sale securities .......... -- 8,842 17,671 --------- --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ...................................... 10,922 6,589 (77,668) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of long-term obligations ..................................... -- -- 67,974 --------- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES ....... -- -- 67,974 --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . 9,255 (709) (20,227) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ......... 4,146 4,855 25,082 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR ............... $ 13,401 $ 4,146 $ 4,855 ========= ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid ...................................... $ 4 $ 26,163 $ 20,582 ========= ========= ========= NON-CASH ITEMS: Capital expenditures ............................... $ 4,449 $ -- $ -- Preferred stock dividends .......................... 3,936 14,540 13,074 Capitalized compensatory stock options ............. 12 161 174 Capital contributed - tax basis adjustment ......................................... -- -- 90
The accompanying notes are an integral part of these financial statements. 6 ORBITAL IMAGING CORPORATION NOTES TO FINANCIAL STATEMENTS (1) BUSINESS OPERATIONS AND FINANCIAL RESTRUCTURING Orbital Imaging Corporation ("ORBIMAGE" or the "Company"), a Delaware corporation, is a global provider of Earth imagery products and services. ORBIMAGE is developing an integrated system of digital remote sensing satellites, U.S. and international ground stations and Internet-based sales channels to collect, process and distribute Earth imagery products. Going Concern The accompanying 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. ORBIMAGE has incurred losses since its inception, and management believes that it will continue to do so for the foreseeable future. As of December 31, 2001, ORBIMAGE had $13.4 million of unrestricted cash and cash equivalents. Current liabilities exceeded current assets by $223.5 million at December 31, 2001, and its accumulated deficit was $277.9 million on that date. ORBIMAGE's liquidity has been, and continues to be, constrained. ORBIMAGE is negotiating a financial restructuring, as discussed below, that will be required in order to provide adequate liquidity for operations through the launch and on-orbit verification of its OrbView-3 satellite, which is expected to be launched during the fourth quarter of 2002. ORBIMAGE defaulted on its senior notes during the year; therefore, all amounts relating to its senior notes have been classified as current liabilities in the accompanying financial statements. ORBIMAGE's ability to continue as a going concern is dependent on restructuring its senior notes (including the conversion of a substantial portion of the senior notes to equity) pursuant to the filing of a petition and a plan of reorganization ("POR") under Chapter 11 of the Bankruptcy Code, a timely and successful launch of the OrbView-3 satellite currently under construction, and a restructuring of the Company's obligations with respect to the RadarSat-2 License, as discussed below. Negotiations are ongoing among ORBIMAGE, Orbital, the preferred stockholders and noteholders with respect to a new Agreement, but there can be no assurance as to its content or timing. During 2001, ORBIMAGE funded its capital requirements for operations through cash from operations combined with cash on hand, advances from Orbital and insurance proceeds from the launch failure of its OrbView-4 satellite. Management expects that the financial restructuring strategy described below will generate sufficient additional liquidity to satisfy ORBIMAGE's capital and operating requirements for 2002. If ORBIMAGE is unable to achieve its plan, it may be forced to liquidate its assets for significantly less than their current carrying value and its financial position and results of operations would be materially and adversely impacted. Financial Restructuring 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 is also having discussions with Orbital Sciences Corporation ("Orbital"), ORBIMAGE's majority shareholder, in pursuit of additional sources of liquidity to meet its funding needs. As of March 31, 2001, ORBIMAGE was in default on its senior notes. ORBIMAGE also did not make the $13.1 million interest payment scheduled to be made on September 1, 2001. On September 20, 2001, ORBIMAGE reached an Agreement with an informal committee representing the holders of approximately 75 percent of the senior notes to undertake a financial restructuring, which was to include filing a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code with a POR. Certain key investors in ORBIMAGE's Series A preferred stock and Orbital also agreed to the terms of the Agreement. The Agreement was subject to certain conditions, including filing the petition for reorganization by December 15, 2001 and the POR by January 31, 2002, and approval of the plan no later than October 31, 2002. The unsuccessful launch of OrbView-4, described in Note 5 below, has resulted in these conditions not being met, and thus the Agreement is no longer in force. Negotiations are ongoing with respect to a new Agreement, but there can be no assurance as to its content or timing. As part of these negotiations, ORBIMAGE has offered and may agree to an additional $10 million cash incentive to be paid by the Company to Orbital Sciences Corporation ("Orbital"), its majority shareholder, as annual on-orbit incentive payments under the System Procurement Agreement between ORBIMAGE and Orbital. The timing of such incentive 7 payments is uncertain and will depend on the outcome of the negotiations. In addition, ORBIMAGE has offered to pay back to Orbital $5 million in launch penalties that Orbital paid to the Company in 2001 under the System Procurement Agreement by issuing a new subordinated note to Orbital that would mature at the time of its senior notes. Under the current RadarSat-2 Territorial License Agreement with MacDonald Detwiller and Associates ("MDA"), a former subsidiary of Orbital, ORBIMAGE is obligated to pay MDA $5 million on July 2, 2002 and another $5 million on December 31, 2002, or the Company may lose all rights under that License for which it has already invested $30 million. ORBIMAGE is in discussions with MDA to extend those payment dates to up to October 1, 2003 and April 1, 2004, respectively, but there can be no assurance as to the outcome of the discussions. The impact of any financial restructuring or bankruptcy filing is not determinable at present. (2) NATURE OF OPERATIONS 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 $11.2 million, $10.6 million and $10.5 million for the years ended December 31, 2001, 2000 and 1999, respectively. The OrbView-4 satellite suffered a launch failure in September 2001 and did not reach its intended orbit. The OrbView-3 satellite is currently expected to be launched in the fourth quarter of 2002 and will provide one-meter panchromatic and four-meter multispectral imagery of the Earth. The imagery provided by OrbView-3 is expected to 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, which granted ORBIMAGE exclusive marketing rights in the United States for RadarSat-2 imagery. RadarSat-2 is currently expected to be launched in late 2003 and will provide high-resolution commercial radar imagery. (3) SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amount reported in its financial statements and accompanying notes. Actual results could differ from these estimates. Certain amounts for prior years have been reclassified to conform with the 2001 presentation. Revenue Recognition ORBIMAGE's principal source of revenue is the sale of satellite imagery to customers, value-added 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. Revenue for other services is recognized as services are performed. ORBIMAGE recognizes revenue on the contracts to construct OrbView-3 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. Revenues recognized in advance of becoming billable are recorded as unbilled receivables. Such amounts generally do not become billable until after OrbView-3 becomes operational with the individual ground stations. 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, was provided to ORBIMAGE by Orbital pursuant to the Administrative Services Agreement. 8 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 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 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. 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 when purchased to be cash equivalents. Concentrations of Credit Risk Financial instruments which potentially subject ORBIMAGE to concentrations of credit risk consist principally of temporary cash investments. ORBIMAGE places its temporary cash investments with high credit quality financial institutions which invest primarily in U.S. Government instruments guaranteed by banks or savings and loan associations which are members of the FDIC. Recovery of Long-Lived Assets ORBIMAGE's policy is to review its long-lived assets, including goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. ORBIMAGE recognizes an impairment loss when the sum of expected undiscounted net future cash flows is less than the carrying amount of the assets. The amount of the impairment is measured as the difference between the asset's estimated fair value and its book value. Income Taxes ORBIMAGE recognizes income taxes using the asset and liability method. Under this 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 be applied 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. Satellites and Related Rights and Property, Plant and Equipment ORBIMAGE purchased the OrbView-1, OrbView-3 and OrbView-4 satellites, the OrbView-2 License and the ground system assets from Orbital pursuant to the System Procurement Agreement, discussed in Note 4 below. ORBIMAGE is purchasing the RadarSat-2 Territorial License pursuant to a separate agreement with MacDonald, Dettwiler and Associates Ltd. ("MDA"), a former subsidiary of Orbital. Amortization of the capitalized costs begins when the assets are placed in service. Capitalized costs include the cost of launch insurance. 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-2....................... 7 1/2 years Leasehold improvements ......... Shorter of estimated useful Life of lease or lease term
Prior to 2001, ORBIMAGE had capitalized interest costs in connection with the construction of satellites and related 9 ground segments and systems. The capitalized interest was recorded as part of the historical cost of the asset to which it related and will be amortized over the asset's useful life when placed in service. Interest capitalization was discontinued in 2001 because all significant expenditures relating to the construction of the satellites were made. Capitalized interest totaled $28.8 million and $23.7 million for the years ended December 31, 2000 and 1999, respectively. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No.142 supersedes APB Opinion No. 17, "Intangible Assets," and requires the discontinuance of goodwill amortization. In addition, SFAS No.142 includes provisions regarding the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. SFAS No.142 is required to be applied for fiscal years beginning after December 15, 2001, with certain early adoption permitted. ORBIMAGE will adopt SFAS No. 142 for its first fiscal quarter of 2002, and does not expect the adoption to have a material effect on its financial condition or results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for recognition and measurement of the impairment of long-lived assets to be held and used, and measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. ORBIMAGE is in the process of assessing the effect of adopting SFAS No. 144. (4) RELATIONSHIP WITH ORBITAL AND SUBSIDIARIES ORBIMAGE was initially established as a wholly-owned subsidiary of Orbital. In 1997, ORBIMAGE issued preferred stock to private investors to fund a significant portion of the remaining costs of existing projects (the "Private Placement"). During 1997, ORBIMAGE also executed certain contracts with Orbital whereby all assets and liabilities of Orbital's operating division, ORBIMAGE, were sold to ORBIMAGE at historical cost. ORBIMAGE had three significant contracts with Orbital at the beginning of 2000 which are still in effect: (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"), and (iii) the Amended and Restated Administrative Services Agreement dated May 8, 1997 (the "Administrative Services 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, 2001, ORBIMAGE committed to purchase various satellites, rights and ground systems for approximately $279.9 million, net of $31.0 million to be funded by the U.S. Air Force through a contract with Orbital. The System Procurement Agreement originally called for the OrbView-3 satellite to be constructed and launched before OrbView-4; however, continuing schedule delays resulted in OrbView-4 being constructed and delivered first. ORBIMAGE incurred costs of $4.4 million, $4.8 million and $33.0 million for the years ended December 31, 2001, 2000 and 1999, respectively, under the System Procurement Agreement and currently owes Orbital $4.4 million under that Agreement. Under the System Procurement Agreement, the Company is to pay Orbital $1.5 million upon the successful checkout of OrbView-3. Further, the Company is obligated to pay Orbital annual on-orbit incentive payments based upon operational performance of up to $2.25 million on each of the first five anniversaries of OrbView-3, for a total of $11.25 million. The System Procurement Agreement was amended in June 2000 to provide among other things for Orbital to pay ORBIMAGE a $2.5 million cash penalty if OrbView-4 was not launched by May 31, 2001, and an additional $2.5 million cash penalty if neither OrbView-3 nor OrbView-4 was launched by July 31, 2001. Orbital made both launch penalty payments in cash to ORBIMAGE as of December 31, 2001. 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 10 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. Under the Administrative Services Agreement, ORBIMAGE is paying Orbital for office space and other administrative services, as well as certain direct and indirect operating services provided by Orbital. ORBIMAGE incurred costs of approximately $1.4 million, $2.7 million and $2.1 million for the years ended December 31, 2001, 2000 and 1999, respectively, under the Administrative Services Agreement and currently owes Orbital $2.5 million under that Agreement. The parties have agreed to terminate the Administrative Services Agreement on March 31, 2002. In 1998, ORBIMAGE entered into an agreement with MDA, then 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. 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 $40.0 million. The $30.0 million of RadarSat-2 payments previously remitted to MDA under the original RadarSat-2 License agreement were applied to the $40.0 million license fee under the RadarSat-2 Territorial License. The remaining $10.0 million license fee obligation is to be paid by ORBIMAGE in two equal installments of $5.0 million each on July 2, 2002 and December 31, 2002. If ORBIMAGE is unable to make either installment payment of the remaining license fee obligation, it may lose all rights with respect to the RadarSat-2 Territorial License and have to write off its prior payments of $30 million under the original RadarSat-2 License Agreement. ORBIMAGE is also obligated to pay 60 percent of the operating costs for RadarSat-2, up to a maximum of $6.0 million per year, following the launch of the satellite. Negotiations are ongoing with respect to a new Agreement, but there can be no assurance as to its content or timing. The impact of any financial restructuring or bankruptcy filing are not determinable at present. In conjunction with the renegotiation of the RadarSat-2 Territorial License, on February 9, 2001, ORBIMAGE and Orbital entered into a purchase agreement whereby Orbital agreed to purchase receivables from ORBIMAGE in the future for an aggregate purchase price of $10.0 million (the "Purchase Agreement"). Orbital is obligated to make up to two $5.0 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 and ORBIMAGE having receivables sufficient to sell to Orbital in the amount of the payment. For the year ended December 31, 2001, ORBIMAGE recorded revenue of $0.3 million on contracts with Orbital. Two ORBIMAGE directors are also directors of Orbital as noted above. (5) ASSET LOSS AND IMPAIRMENT CHARGES During 2001, ORBIMAGE recorded a $138.0 million charge consisting of $91.5 million related to the unsuccessful launch of OrbView-4, net of insurance recoveries, and $46.5 million related to the impairment of the carrying value of the remaining satellites and related ground stations. Write-off of OrbView-4 and Application of Insurance Proceeds In September 2001, ORBIMAGE purchased insurance coverage for the combined risk of launch, satellite checkout and on-orbit satellite operations with respect to OrbView-4. ORBIMAGE paid $2.8 million to purchase insurance coverage of approximately $13.1 million. An additional $50 million of insurance coverage was purchased by ORBIMAGE on behalf of the senior note holders. One of the members of the informal committee of holders of the senior notes loaned ORBIMAGE the funds necessary to purchase such additional insurance coverage for approximately $12.7 million (the "Bridge Loan"). Interest accrued on the Bridge Loan at an annual rate of 13.625%. ORBIMAGE was also required to pay a 20% commitment fee to the Bridge Loan lender out of the proceeds to be received by the senior noteholders. On September 21, 2001, the OrbView-4 satellite suffered a launch failure and did not achieve its intended orbit. 11 Accordingly, ORBIMAGE wrote off the value of OrbView-4 as well as the portion of the ground station assets that were directly related to the operation of OrbView-4. ORBIMAGE wrote off $144.2 million for OrbView-4 and an additional $10.5 million for the related ground station assets. These losses were offset by proceeds from insurance of $63.1 million. The components of the loss are summarized as follows (in thousands): OrbView-4 satellite cost, before insurance premiums And commitment fee $ 125,649 Capitalized insurance premiums paid by ORBIMAGE ...................... 2,823 Capitalized insurance premiums borrowed under Bridge Loan ............ 12,749 Commitment fee and interest paid under Bridge Loan ................... 2,960 --------- Total value of Orb-View-4 satellite .................................. 144,181 Ground system assets related to OrbView-4 ............................ 10,503 --------- Total value of Orb-View-4 assets ..................................... 154,684 Less: insurance proceeds ............................................ (63,130) --------- Total asset loss ........................................... $ 91,554 =========
ORBIMAGE received $63.1 million of insurance proceeds from the OrbView-4 loss in December 2001. It used $15.7 million of the proceeds to payoff the Bridge Loan, related accrued interest and the commitment fee to the Bridge Loan lender. Additional insurance proceeds of $34.3 million were deposited with the trustee of the senior notes and are reflected on the balance sheet as restricted cash. The use of these proceeds is restricted to debt service payments to the senior noteholders. On February 10, 2002, the senior noteholders received approximately $28.4 million of the proceeds as payment of the outstanding interest on the senior notes. Further, restricted cash of $5.9 million is currently held by the trustee and is expected to be applied as a partial payment to the March 1, 2002 interest obligation on the senior notes. The remaining $13.1 million of the insurance proceeds were classified as unrestricted cash on the balance sheet. Asset Impairments Due to continued delays in the completion of OrbView-3 and RadarSat-2, the entry of competitors in markets served by ORBIMAGE and the potential effect of recent terrorism activities on Federal funding for scientific imagery applications, ORBIMAGE evaluated the recoverability of its remaining satellites and ground station assets pursuant to SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Accordingly, ORBIMAGE adjusted the carrying value of the satellites and related ground station assets to their estimated fair values based on anticipated future discounted cash flows, resulting in the following non-cash impairment charges which were recorded in 2001 (in thousands): Satellites and rights in process.................... $25,880 Orb-View-2 license.................................. 14,869 Ground system assets................................ 5,737 ------- Total impairment charge................... $46,486 =======
(6) COMPREHENSIVE INCOME (LOSS) For the years ended December 31, 2001, 2000 and 1999, 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 were as follows (in thousands, except share data):
YEARS ENDED DECEMBER 31, ----------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ Numerator for basic and diluted loss per common share: Net loss .......................................... $ (177,046) $ (9,552) $ (6,722) Preferred stock dividends ......................... (3,936) (14,540) (13,074) ------------ ------------ ------------ Loss available to common stockholders ................ $ (180,982) $ (24,092) $ (19,796) ============ ============ ============ 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) ...... $ (7.18) $ (0.96) $ (0.79) ============ ============ ============
- ---------- (1) All potentially dilutive securities, such as preferred stock subject to repurchase, warrants and stock options, are antidilutive for each period presented. 12 (8) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands):
DECEMBER 31, --------------------- 2001 2000 ------- -------- Land ....................... $ 213 $ 213 Ground system assets ....... 29,142 45,908 Furniture and equipment .... 3,210 2,888 Leasehold improvements ..... 1,888 1,878 Accumulated depreciation and amortization ............. (17,576) (14,268) -------- -------- Total ............ $ 16,877 $ 36,619 ======== ========
Depreciation and amortization totaled $3.3 million, $3.4 million and $3.2 million for the years ended December 31, 2001, 2000 and 1999, respectively. (9) SATELLITES AND RELATED RIGHTS Satellites and related rights consisted of the following (in thousands):
DECEMBER 31, ----------------------- 2001 2000 --------- --------- In service: OrbView-1 .................... $ 12,327 $ 12,327 Accumulated depreciation ..... (12,327) (12,327) OrbView-2 License ............ 49,674 64,543 Accumulated amortization ..... (34,618) (27,251) --------- --------- 15,056 37,292 Satellites and rights in process 98,761 246,251 --------- --------- Total ................ $ 113,817 $ 283,543 ========= =========
Satellite depreciation and amortization totaled $7.4 million, $8.6 million and $8.6 million for the years ended December 31, 2001, 2000 and 1999, respectively. (10) INCOME TAXES The income tax benefit consisted of the following (in thousands):
YEARS ENDED DECEMBER 31, -------------------------- 2001 2000 1999 ------ ------ ------ Current benefit: U.S. Federal ................. $ -- $ -- $ -- State ........................ -- -- -- ------ ------ ------ Total current benefit -- -- -- Deferred benefit: U.S. Federal ................. -- 72 3,460 State ........................ -- 5 169 ------ ------ ------ Total deferred benefit -- 77 3,629 ------ ------ ------ Total benefit for income taxes ......... $ -- $ 77 $3,629 ====== ====== ======
The effective income tax rate varied from the statutory U.S. Federal income tax rate because of the following differences:
YEARS ENDED DECEMBER 31, -------------------------- 2001 2000 1999 ------ ------ ------ U.S. Federal statutory tax rate (34.0)% (34.0)% (34.0)% State income taxes ............ (2.5) (2.5) (1.7) Valuation allowance ........... 36.4 37.4 -- Other ......................... 0.1 (1.7) 0.6 ------ ------ ------ Effective tax rate ............ (0.0)% (0.8)% (35.1)% ====== ====== ======
13 The primary components of ORBIMAGE's federal deferred tax assets and liabilities were as follows (in thousands):
DECEMBER 31, --------------------- 2001 2000 -------- -------- Deferred tax assets: Differences in revenue recognition $ 2,893 $ 5,948 Net operating loss carry forward . 63,333 15,994 Other ............................ 2,288 877 -------- -------- Deferred tax assets ................. 68,514 22,819 Less: valuation allowance .......... (67,993) (3,600) -------- -------- Net deferred tax assets ............. 521 19,219 Deferred tax liabilities: Differences in the tax treatment of Satellites and related rights .. 521 19,219 -------- -------- Net deferred tax liability .......... $ -- $ -- ======== ========
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, 2001, ORBIMAGE had net operating loss carryforwards totaling $173.7 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 of senior notes 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, 2001, the senior notes had a fair value of approximately $45 million as estimated by quoted market prices. Interest on ORBIMAGE's senior notes due 2005 accrues at a rate of 11.625% per annum and is payable semi-annually in arrears on March 1 and September 1. At December 31, 2001, ORBIMAGE was in default with regard to the senior notes because ORBIMAGE did not make the scheduled March 1, 2001 and September 1, 2001 interest payments. On February 10, 2002, the senior noteholders received approximately $28.4 million of the insurance proceeds as payment of the outstanding interest on the senior notes, which cured the payment default. This payment included interest on the overdue installments of interest which was payable at a rate of 12.625 percent per annum. The Company intends to make a partial payment of $5.9 million to the senior noteholders in conjunction with the March 1, 2002 semiannual interest payment, but expects to be in default again on its interest obligations under the senior notes by $7.2 million with regard to that payment. The holders of 25% of the face value of either offering of senior notes may accelerate the principal and accrued interest due with respect to their class of senior notes at any time due to an uncured payment default. 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. Covenants The indenture for the senior notes restricts, among other things, ORBIMAGE's ability to pay cash dividends. 14 (12) 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, 2001, 2000 and 1999, ORBIMAGE's contribution expense was $0.2 million, $0.2 million and $0.5 million, respectively. (13) LEASES Total rental expense under operating leases was $0.2 million, $0.2 million and $0.1 million for the years ended December 31, 2001, 2000 and 1999, respectively. Aggregate minimum rental commitments under non-cancelable operating leases (primarily for office space and equipment) as of December 31, 2001 were as follows (in thousands): 2002 $ 212 2003 199 2004 211 2005 219 2006 219 Thereafter 523 ------ $1,583 ======
(14) 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 975,349 shares were issued and outstanding as of December 31, 2001; (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, 2001, cumulative preferred stock dividends in arrears totaled 19,507 shares. 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 and Mandatory Conversion 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 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. Mandatory conversion of the Series A preferred 15 stock into shares of common stock shall occur upon the earliest of any one of the following events to take place: - 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 the 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. The activity in the preferred stock subject to repurchase was as follows for the years ended December 31, 1999, 2000 and 2001 (dollars in thousands):
SHARES AMOUNT ------ ------ 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 Preferred stock dividends paid in shares 107,297 3,235 Accrual of preferred stock dividends .... -- 701 ------- -------- BALANCE AS OF DECEMBER 31, 2001 ............ 975,349 $ 110,039 ======= ========
(15) 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 warrants were exercisable as of December 31, 2001 at a price is $0.01 per share. Each warrant entitles the holder to buy 8.75164 shares of common stock. The warrants expire on March 1, 2005. (16) 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 maximum term of an option is 10 years. The following table summarizes the activity relating to the Plan for the years ended December 31, 1999, 2000 and 2001: 16
WEIGHTED OUTSTANDING NUMBER OF OPTION PRICE AVERAGE AND SHARES PER SHARE EXERCISE PRICE EXERCISABLE --------- ------------ -------------- ------------- 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 3.60-6.25 4.77 2,510,455 Granted........................ 766,619 1.50 1.50 Exercised...................... -- -- -- Canceled or expired............ (1,259,072) 1.50-7.25 4.39 ---------- ---------- --------- OUTSTANDING AS OF DECEMBER 31, 2001..................... 3,019,227 $1.50-7.25 $4.10 2,381,318 ========== =========== ========= =========
As of December 31, 2001, the weighted average remaining contractual life of the options outstanding was 6.54 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 $182.1 million and $7.22, respectively, for the year ended December 31, 2001, $11.0 million and $1.01, respectively, for the year ended December 31, 2000 and $7.7 million and $0.82, respectively, for the year ended December 31, 1999. Pro forma diluted loss per common share for the years ended December 31, 2001, 2000 and 1999 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, 2001, 2000 and 1999 for options issued to employees and directors to determine the pro forma impact to its net loss. This 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. The assumptions used to determine the pro forma impact for the years ended December 31, 2001, 2000 and 1999 were as follows:
YEARS ENDED DECEMBER 31, ----------------------- 2001 2000 1999 ----------- ---------- --------- Volatility ............................. 155.0% 34.0% 30.0% Dividend yield ......................... 0.0% 0.0% 0.0% Risk-free interest rate ................ 4.5% 6.2% 6.6% Expected average life .................. 6.0 years 6.0 years 6.0 years Weighted average exercise price per share $ 4.18 $ 4.77 $ 4.48
The fair value of the options granted to employees and directors during the years ended December 31, 2001, 2000 and 1999 were estimated at $1.42 per share, $3.26 per share and $2.69 per share, respectively. Compensation expense recognized during each of the years ended December 31, 2001, 2000 and 1999 on stock options granted to employees was not material. (17) INFORMATION ON INDUSTRY SEGMENTS AND MAJOR CUSTOMERS ORBIMAGE operated as a single segment for the years ended December 31, 2001, 2000 and 1999. ORBIMAGE recognized revenues related to contracts with the National Aeronautics and Space Administration of approximately $8.7 million, $9.0 million and $9.4 million for the years ended December 31, 2001, 2000 and 1999, respectively, representing approximately 46%, 37% and 51%, respectively, of total revenues recognized during those years. 17 -----END PRIVACY-ENHANCED MESSAGE-----