ARRANGEMENT
INVOLVING
MacDONALD, DETTWILER AND ASSOCIATES LTD.
3173623 CANADA INC.
AND
ORBITAL SCIENCES CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS AND
HOLDERS OF THE 1988 EMPLOYEE SHARE OPTIONS AND THE
1988 KEY EMPLOYEE SHARE OPTIONS OF
MacDONALD, DETTWILER AND ASSOCIATES LTD.
AND
MANAGEMENT INFORMATION CIRCULAR
OCTOBER 6, 1995
[MDA LETTERHEAD]
October 10, 1995
Dear Shareholder or Optionholder:
You are cordially invited to attend a Special Meeting of Shareholders and
holders of 1988 Employee Share Options and 1988 Key Employee Share Options
(collectively, the "MDA 1988 Optionholders") of MacDonald, Dettwiler and
Associates Ltd. ("MDA") to be held on Tuesday, November 14, 1995 at MDA's
offices located at 13800 Commerce Parkway, Richmond, British Columbia at
10:00 a.m. local time. As described in the enclosed Proxy Circular, at the
Special Meeting, the MDA Shareholders and MDA 1988 Optionholders will be
asked to consider and vote upon an Arrangement under section 192 of the
Canada Business Corporation Act involving MDA, Orbital Sciences Corporation
("Orbital"), and 317632 Canada Inc. ("Acquisition"), a wholly owned
subsidiary of Orbital. Subject to any further order of the Supreme Court
of British of Columbia, the Arrangement must be approved by the affirmative
vote of 66-2/3% of the votes actually cast thereon by MDA Shareholders and
by MDA 1988 Optionholders, voting as separate classes.
The MDA Board of Directors has carefully reviewed and considered the terms
and conditions of the proposed Arrangement. The Board of Directors
believes that the transaction is fair and in the best interests of MDA, MDA
Shareholders and MDA 1988 Optionholders, and has unanimously approved the
Arrangement. The Board of Directors unanimously recommends that the MDA
Shareholders and MDA 1988 Optionholders vote FOR the proposed Arrangement
Resolution approving the Arrangement.
Under the Plan of Arrangement, MDA will receive Exchangeable Shares of
Acquisition, which will have voting, dividend and liquidation rights that
are, as nearly as practicable, equivalent to those of Orbital Common
Shares. The number of Exchangeable Shares to be issued will be based upon
an Exchange Ratio that is to be determined by dividing U.S.$5.41 by the
average closing sale price of Orbital Common Shares for the twenty day
period ending on the date four trading days prior to the Effective Date,
and may not be less than .2705 or greater than .3607. The Effective Date
is expected to occur shortly after the Special Meeting. MDA Shareholders
will receive the number of Exchangeable Shares equal to the product of the
Exchange Ratio multiplied by the number of MDA Common Shares held by them.
Holders of MDA Options, including MDA 1988 Options, will receive
Replacement Options entitling them to purchase such number of Orbital
Common Shares equal to the product of the Exchange Ratio multiplied by the
number of MDA Common Shares underlying such MDA Option, having an exercise
price per share equal to the quotient of the exercise price per share of
such MDA Option divided by the Exchange Ratio, and having the same vesting,
expiration and other terms as such MDA Option.
The accompanying Proxy Circular provides a detailed description of the
Arrangement and the business and financial information of MDA and Orbital.
MDA retained the investment banking firm of Nesbitt Burns Inc. ("Nesbitt
Burns") to advise it on the acquisition transaction, including to advise it
with respect to the consideration to be paid by Orbital in the Arrangement.
Nesbitt Burns has advised the MDA Board of Directors that, in Nesbitt
Burns' opinion, the consideration to be paid by Orbital in the Arrangement
is fair to MDA Shareholders and MDA 1988 Optionholders from a financial
point of view. A copy of Nesbitt Burns' opinion is attached to the Proxy
Circular as Appendix "C".
Your vote on this matter is very important. We urge you to review
carefully the enclosed materials and to return your proxy promptly.
Shareholders with questions regarding the Arrangement or other matters
described herein may contact Gordon Thiessen at (604) 278-3411.
Whether or not you plan to attend the Special Meeting, please sign and
promptly return your proxy card in the enclosed postage paid envelope. If
you attend the meeting, you may vote in person if you wish, even though you
have previously returned your proxy.
Sincerely,
/s/ John S. MacDonald /s/ Daniel E. Friedman
John S. MacDonald, Chairman Daniel E. Friedman, President and
CEO
NOTICE OF SPECIAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that a Special General Meeting (the
"Special Meeting") of holders of MDA Common Shares ("MDA
Shareholders") and holders of options ("MDA 1988 Optionholders")
under the 1988 Employee Share Option Plan and the 1988 Key
Employee Share Option Plan (together, the "MDA 1988 Options") of
MacDonald, Dettwiler and Associates Ltd. ("MDA") will be held at
the offices of MDA at 13800 Commerce Parkway, Richmond, British
Columbia, V6V 2J3, on Tuesday, November 14, 1995 at the hour of
10:00 a.m. (Vancouver time) for the following purposes:
(a) to consider, pursuant to an order of the Supreme Court of
British Columbia dated October 6, 1995 (the "Interim
Order"), and, if deemed advisable to pass, with or without
variation, a special resolution (the "Arrangement
Resolution") to approve an arrangement (the "Arrangement")
under section 192 of the Canada Business Corporations Act;
and
(b) to transact such further or other business as may properly
come before the Special Meeting or any adjournment thereof.
The texts of the Arrangement Resolution, the Plan of Arrangement
and the agreements in respect of the Arrangement are set forth in
Appendices "F," "A" and "B," respectively, to the accompanying
Management Information Circular of MDA (the "Proxy Circular").
Pursuant to the Interim Order, MDA Shareholders and the MDA 1988
Optionholders have been granted the right to dissent with respect
to the Arrangement and to be paid the fair value of their MDA
Common Shares or the MDA Common Shares to which they are entitled
under the MDA 1988 Options, as the case may be, in respect of the
Arrangement Resolution in accordance with section 190 of the
Canada Business Corporations Act. This right is described in the
Proxy Circular.
The Board of Directors has fixed October 10, 1995 as the record
date for determining MDA Shareholders entitled to receive notice
of and to vote at the Meeting. Only holders of record of MDA
Common Shares at the close of business on October 10, 1995 will
be entitled to vote in respect of the matters to be voted on at
the Special Meeting or any adjournment thereof, except that a
person who has acquired MDA Common Shares subsequent to such
record date will be entitled to vote such shares, instead of the
holder of record, upon making a written request to that effect
not later than 10 days preceding the date of the Special Meeting
to the Secretary of MDA at the registered office of MDA at 26th
floor, 700 West Georgia Street, Vancouver, British Columbia,
V7Y 1B3 and establishing that such person owns such shares. All
MDA 1988 Optionholders on the date of mailing of the Proxy
Circular will receive Notice of the Special Meeting and all MDA
1988 Optionholders on the date of the Special Meeting will be
entitled to attend and vote at the Special Meeting.
MDA Shareholders and MDA 1988 Optionholders who are unable to
attend the Special Meeting in person are requested to sign, date
and return, in the envelope provided for that purpose, the
enclosed instrument of proxy. In order to be valid for use at
the Special Meeting, proxies must be received by Montreal Trust
Company of Canada, 510 Burrard Street, Vancouver, British
Columbia, V6C 3B9 not less than 48 hours (excluding Saturdays,
Sundays and holidays) preceding the Special Meeting or any
adjournment thereof.
DATED at Richmond, British Columbia, this 6th day of October,
1995.
BY ORDER OF THE BOARD OF DIRECTORS
ROBERT B. WALLIS, Secretary
TABLE OF CONTENTS
Page
MANAGEMENT INFORMATION CIRCULAR 1
GLOSSARY OF TERMS 2
MDA AND ORBITAL REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES 7
CANADIAN/U.S. EXCHANGE RATES 7
SUMMARY OF PROXY CIRCULAR 8
General 8
The Arrangement and The Combination Agreement 8
Certain Canadian Federal Income Tax Considerations 11
Certain United States Federal Income
Tax Considerations 12
The Special Meeting 13
Business of Orbital 14
Business of MDA 16
MARKET PRICE AND DIVIDEND INFORMATION 17
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA 18
Selected Historical Consolidated Financial Data of
MDA 18
Selected Historical Consolidated
Financial Data of Orbital 19
PRO FORMA FINANCIAL INFORMATION 20
PRO FORMA CONSOLIDATED CAPITALIZATION 27
RISK FACTORS 28
Technologically Advanced Products and Services 28
Dependence on United States Government 28
Capital Requirements 28
Regulation 29
THE SPECIAL MEETING - GENERAL PROXY INFORMATION 30
General 30
Solicitation of Proxies 30
Appointment of Proxies 30
Signing of Proxies 30
Revocation of Proxies 30
Voting of Proxies 31
MDA Common Shares 31
MDA 1988 Options 31
Required Votes to Approve the Arrangement
and Voting Intentions of Certain Shareholders
and Optionholders 31
Principal Holders of MDA Common Shares
and MDA 1988 Options 32
THE ARRANGEMENT AND THE COMBINATION AGREEMENT 32
The Arrangement - General 32
Background of the Arrangement 33
MDA's Reasons for the Arrangement and
Recommendations of the MDA Board 35
Orbital's Reasons for the Arrangement 35
Operations Following the Arrangement 36
Interests of Certain Persons in the Arrangement 36
Opinion of MDA's Financial Advisor 36
Plan of Arrangement 39
Post-Combination Share Ownership 40
Qualifying Holdcos 40
Dissenting Holders 40
Description of Exchangeable Shares 40
Voting Rights 41
Dividend Rights 41
Retraction, Redemption and Exchange Right 42
Deduction and Remittance of Withholding Tax 43
Anti-dilution and Capital Reorganizations 44
Support Agreement 44
Market for Orbital Common Shares
and Exchangeable Shares 45
The Combination Agreement 45
Actions to be Taken Prior to the Effective
Time 45
Business of MDA Pending the Arrangement 45
Solicitation of Alternate Transactions 46
Conditions to the Arrangement 46
Termination and Amendment 47
Fees, Expenses and Indemnification 47
Confidentiality Agreement 48
Agreements of MDA Affiliates 48
Court Approval and Completion of the Arrangement 48
Accounting Treatment 49
Stock Exchange Listings 49
Exchangeable Shares 49
Orbital Common Shares 49
Eligibility for Investment in Canada 49
Exchangeable Shares 49
Voting Rights and Exchange Right 49
Orbital Common Shares 49
Resale of Exchangeable Shares and Orbital
Common Shares Received in the Arrangement 50
Canada 50
United States 50
Procedures for Exchange of Share
Certificates by MDA Shareholders 51
Return to Depositary of Letter of Transmittal 51
Election to Immediately Exchange
Exchangeable Shares for Orbital Common Shares 51
Fractional Shares 52
Failure to Deposit Certificates Representing
MDA Common Shares 52
Confirmation of Replacement Options 52
INCOME TAX CONSIDERATIONS TO MDA SHAREHOLDERS AND
OPTIONHOLDERS 52
Canadian Federal Income Tax Considerations 52
Holders of MDA Common Shares Resident in Canada 53
Holders of MDA Common Shares Not Resident in Canada 57
MDA 1988 Optionholders 58
United States Federal Income Tax Considerations 58
Taxation of U.S. Holders 59
Shareholders Not Resident in or Citizens of the
United States 62
Information, Reporting and Backup Withholding 63
INFORMATION CONCERNING ACQUISITION 63
INFORMATION CONCERNING ORBITAL 63
Background and Recent Acquisitions 63
Description Of Orbital's Products And Services 64
Launch Systems 65
Space and Electronics Systems 66
Communications and Information Systems 67
Competition 70
Research and Development 71
Backlog and Contracts 71
Properties 72
Environmental Regulation 73
Insurance 73
Litigation 73
Management's Discussion and Analysis of
Financial Condition and Results of Operations 73
Overview 73
Adoption of New Accounting Standard 74
Results of Operations for the Six-Month Periods
Ended June 30, 1995 and 1994 76
Results of Operations for the Years Ended
December 31, 1994, 1993 and 1992 77
Liquidity and Capital Resources 79
Management and Employees 80
Executive Officers and Directors 80
Indebtedness of Directors and Officers 81
Employees 81
Description of Capital 82
Capitalization 82
Common Shares 82
Preferred Shares 82
Dividend Policy 83
Transfer Agent 83
Independent Auditors 83
INFORMATION CONCERNING MDA 83
Business 83
Subsidiary Companies 83
General 84
Geo-Information Systems 84
Aviation Systems 85
Space and Defence Systems 86
Communications 87
Contract Pricing and Completion 87
Marketing and Sales 87
Competition 89
Research and Development 89
Patents and Licenses 89
Personnel 90
Properties 90
Management's Discussion and Analysis of
Financial Condition and Results of Operations 90
Results of Operations for the Quarter ended
June 30, 1995 and Quarter Ended June 30, 1994 90
Results of Operations for the Fiscal Years
ended March 31, 1995 and 1994 90
Results of Operations for the Fiscal Years ended
March 31, 1994 and 1993 91
Directors and Officers 92
Description of Share Capital 93
Dividend Record and Dividend Policy 93
Executive Compensation 94
Summary Compensation Table 94
Long-Term Incentive Plan Compensation 94
Pensions 95
Auditors 95
Registrar and Transfer Agent 96
Stock Exchange Listings 96
COMPARISON OF SHAREHOLDERS' RIGHTS 96
Extraordinary Transactions - Vote Required 96
Amendment to Governing Documents 97
Dissent Rights 98
Oppression Remedy 98
Derivative Action 99
Shareholder Consent in Lieu of Meeting 99
Director Qualifications 99
Fiduciary Duties of Directors 99
Indemnification of Officers and Directors 100
Director Liability 100
Anti-takeover Provisions and Interested
Stockholder Transactions 100
Shareholder Protection Rights Plan 101
DISSENTING RIGHTS 101
AVAILABLE INFORMATION 104
LEGAL MATTERS 104
APPROVAL OF PROXY CIRCULAR BY MDA BOARD OF DIRECTORS 104
ANNEX "I" Orbital's Consolidated Financial Statements and
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1995 F-1 (OMITTED)
ANNEX "II" MDA's Financial Statements F-39 (OMITTED)
ANNEX "III" Excerpt of Orbital's Proxy Statement for 1995
Annual Meeting of Stockholders P-1 (OMITTED)
APPENDIX "A" Plan of Arrangement A-1
APPENDIX "B" Combination Agreement B-1
APPENDIX "C" Opinion of Nesbitt Burns C-1 (OMITTED)
APPENDIX "D" Interim Order D-1 (OMITTED)
APPENDIX "E" Notice of Application for Final Order
to the Supreme Court (British Columbia) E-1 (OMITTED)
APPENDIX "F" Arrangement Resolution F-1 (OMITTED)
APPENDIX "G" Section 190 of the CBCA G-1 (OMITTED)
MacDONALD, DETTWILER and ASSOCIATES LTD.
MANAGEMENT INFORMATION CIRCULAR
This Proxy Circular is being furnished to holders of Common
Shares of MDA and MDA 1988 Optionholders in connection with the
solicitation of proxies by management of MDA for use at the
Special Meeting to be held at 10:00 a.m., local time, on Tuesday,
November 14, 1995, at the offices of MDA at 13800 Commerce
Parkway, Richmond, British Columbia, V6V 2J3, and at any
adjournment thereof.
At the Special Meeting, MDA Shareholders and MDA 1988
Optionholders will be asked to consider and vote upon a proposal
to approve an arrangement under section 192 of the CBCA involving
MDA and its shareholders and optionholders and to transact such
further or other business as may properly come before the meeting
or any adjournment thereof.
MDA Shareholders and MDA 1988 Optionholders are being asked to
approve the Arrangement under the CBCA. Pursuant to the
Arrangement, MDA will become a wholly owned subsidiary of
Acquisition and each outstanding MDA Common Share will be
exchanged for a number of Exchangeable Shares of Acquisition
equal to the Exchange Ratio. The Exchange Ratio will be
determined by dividing US$5.41 by the average closing price of
Orbital Common Shares for the 20 trading days ending on the date
four trading days prior to the Effective Date of the Arrangement,
provided that the Exchange Ratio will not be less than 0.2705 or
greater than 0.3607. Outstanding MDA Options will become
Replacement Options to acquire Orbital Common Shares on terms
identical to the existing MDA Options, with appropriate
adjustments in the exercise price and the number of shares
subject to such options to reflect the Exchange Ratio. The
Exchangeable Shares will have voting, dividend and liquidation
rights that are, as nearly as practicable, equivalent to those
rights of the Orbital Common Shares.
Holders of Exchangeable Shares will have the right to exchange
all or any of such shares for an equal number (subject to
adjustment in the event of certain capital and corporate
reorganizations) of Orbital Common Shares plus the Dividend
Amount attributable to such shares, at any time prior to the
Automatic Redemption Date and subject to certain Call Rights of
Orbital. The Exchangeable Shares will be automatically exchanged
on the Automatic Redemption Date and upon the occurrence of
certain events, including the liquidation, dissolution or winding-
up of Orbital or Acquisition or the default by Acquisition under
the Exchangeable Share Provisions. Acquisition has the right to
accelerate the Automatic Redemption Date upon 75 days' written
notice to the holders of Exchangeable Shares at any time when
there are outstanding less than 400,000 Exchangeable Shares held
by persons other than Orbital and its Affiliates.
This Proxy Circular and the accompanying forms of proxy, Letter
of Transmittal and Notice of Guaranteed Delivery are first being
mailed to MDA Shareholders and MDA 1988 Optionholders on or about
October 11, 1995.
All information in this Proxy Circular relating to MDA has been
supplied by MDA. All information relating to Orbital Sciences
Corporation and Acquisition has been supplied by Orbital.
Orbital has reviewed all information relating to itself and
Acquisition after its inclusion in this Proxy Circular. MDA has
not made any independent investigations and assumes no
responsibility for the accuracy or completeness of such
information. Certain capitalized terms used in this Proxy
Circular without definition have the meanings given in the
Glossary of Terms found at page 2.
See "Risk Factors" for certain considerations relevant to MDA
Shareholders and MDA 1988 Optionholders regarding the Arrangement
and their investment in the securities referred to herein.
No person is authorized to give any information or to make any
representation not contained in this Proxy Circular and, if given
or made, such information or representation should not be relied
upon as having been authorized. This Proxy Circular does not
constitute an offer to sell, or a solicitation of an offer to
purchase, any securities, or the solicitation of a proxy, by any
person in any jurisdiction in which such an offer or solicitation
would be unlawful or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom
it is unlawful to make such an offer or solicitation of an offer
to purchase or proxy solicitation. Neither delivery of this
Proxy Circular nor any distribution of the securities referred to
in this Proxy Circular shall, under any circumstances, create an
implication that there has been no change in the information set
forth herein since the date of this Proxy Circular.
GLOSSARY OF TERMS
The following terms have the following meanings when used in this
Proxy Circular (including the summary). These defined terms are
not used in the consolidated financial statements of either MDA
or Orbital attached as annexes hereto.
"1933 Securities Act" means the United States Securities Act of
1933, including all regulations made thereunder, all amendments
to such statute or regulations from time to time, and any statute
or regulation that supplements or supersedes such statute or
regulation.
"1934 Securities Exchange Act" means the United States Securities
Exchange Act of 1934, including all regulations made thereunder,
all amendments to such statute or regulations from time to time,
and any statute or regulation that supplements or supersedes such
statute or regulation.
"Acquisition" means 3173623 Canada Inc., a newly incorporated
subsidiary of Orbital, existing under the CBCA.
"Acquisition Class B Preferred Shares" means the Class B
Preferred Shares of Acquisition having the rights, privileges,
restrictions and conditions set forth in Appendix A to the Plan
of Arrangement.
"Acquisition Common Shares" means the Common Shares of
Acquisition having the rights, privileges, restrictions and
conditions set forth in Appendix A to the Plan of Arrangement.
"Affiliate" of any person means any other person directly or
indirectly controlling, controlled by, or under common control
with, that person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"),
as applied to any person, means the possession by another person,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of that first mentioned
person, whether through the ownership of voting securities, by
contract or otherwise.
"Affiliate Agreements" means the agreements entered into between
Orbital and persons who are deemed to be "affiliates" of MDA
within the meaning of the 1933 Securities Act, substantially in
the forms attached as Exhibits 6.2.4(A) and (B) to the
Combination Agreement.
"Arrangement" means the arrangement under section 192 of the CBCA
on the terms and subject to the conditions set out in the Plan of
Arrangement, subject to any amendments thereto made in accordance
with section 6.1 of the Plan of Arrangement or made at the
direction of the Court in the Final Order.
"Arrangement Resolution" means the resolution concerning the
Arrangement in the form set forth in Appendix "F" to this Proxy
Circular.
"Automatic Redemption Date" means the fifth anniversary of the
Effective Date, unless such date shall be accelerated at any time
to a specified earlier date by the board of directors of
Acquisition upon at least 75 days' prior written notice to the
registered holders of Exchangeable Shares, in which case the
Automatic Redemption Date shall be such earlier date; provided,
however, that the board of directors of Acquisition may so
accelerate the Automatic Redemption Date only at such time as
there are outstanding fewer than 400,000 Exchangeable Shares held
by holders other than Orbital and its Affiliates.
"Average Closing Price" means the average closing sales price of
Orbital Common Shares for the 20 trading days ending on the date
four trading days prior to the Effective Date, as reported on
NASDAQ.
"Business Day" means any day other than a Saturday, a Sunday or a
day when banks are not open for business in either or both of the
Commonwealth of Virginia and Vancouver, British Columbia.
"CBCA" means the Canada Business Corporations Act, R.S.C. 1985,
c.C-44, including all regulations made thereunder, all amendments
to such statute or regulations from time to time, and any statute
or regulation that supplements or supersedes such statute or
regulation.
"Call Rights" means collectively, the Liquidation Call Right, the
Redemption Call Right and the Retraction Call Right.
"Canadian dollars" and "Cdn$," "dollars" and "$" mean the lawful
currency of Canada.
"Canadian GAAP" means generally accepted accounting principles in
Canada.
"Canadian Tax Act" means the Income Tax Act (Canada), R.S.C.
1985, c.1 (5th Supplement), including all regulations made
thereunder, all amendments to such statute or regulations from
time to time, and any statute or regulation that supplements or
supersedes such statute or regulation.
"Change of Control Agreements" means the agreements to be entered
into between Orbital and certain employees of MDA substantially
in the form attached as Exhibit 6.2.5 to the Combination
Agreement.
"Combination Agreement" means the Combination Agreement among
Orbital, Acquisition and MDA dated as of August 31, 1995 as
amended on September 29, 1995, a copy of which is appended as
Appendix "B" hereto.
"Court" means the Supreme Court of British Columbia.
"DGCL" means the General Corporation Law of the State of
Delaware, including all amendments to such statute from time to
time, and any statute or regulation that supplements or
supersedes such statute.
"Depositary" means Montreal Trust Company of Canada, at its
office set out in the Letter of Transmittal.
"Dissenting MDA Shareholders" means MDA Shareholders who have
exercised a right of dissent in respect of the Arrangement
Resolution in strict compliance with section 190 of the CBCA and
the Interim Order.
"Dissenting MDA 1988 Optionholders" means MDA 1988 Optionholders
who have exercised a right of dissent in respect of the
Arrangement Resolution in strict compliance with section 190 of
the CBCA and the Interim Order.
"Dividend Amount" means an amount equivalent to the full amount
of declared and unpaid dividends on the Exchangeable Shares plus
all dividends declared on Orbital Common Shares that have not
been declared on the Exchangeable Shares in accordance with the
Exchangeable Share Provisions.
"Effective Date" means the date on which the Arrangement becomes
effective as established by the date of issue of the certificate
of amendment in respect of the Plan of Arrangement to be issued
by the Director under the CBCA pursuant to subsection 192(7) of
the CBCA.
"Effective Time" means 12:01 a.m. (Vancouver time) on the
Effective Date.
"Employment Agreements" means the employment agreements to be
entered into between MDA and certain officers substantially in
the form attached as Exhibit 3.18 to the Combination Agreement.
"Exchange Ratio" is equal to US$5.41 divided by the Average
Closing Price, provided that in no event shall it be less than
0.2705 or greater than 0.3607.
"Exchange Right" means the right of the Trustee, on behalf of the
holders of Exchangeable Shares other than Orbital and its
Affiliates, to require Orbital to purchase the Exchangeable
Shares upon the occurrence of certain events as stated in the
Voting and Exchange Trust Agreement.
"Exchangeable Share Provisions" means the rights, privileges,
restrictions and conditions attaching to the Exchangeable Shares,
which are set forth in Appendix A to the Plan of Arrangement.
"Exchangeable Shares" means the Exchangeable Non-Voting Shares of
Acquisition having the rights, privileges, restrictions and
conditions set forth in the Exchangeable Share Provisions.
"Final Order" means the final order of the Court approving the
Arrangement.
"Holding Company Agreements" means the agreements to be entered
into among Acquisition, the respective Qualifying Holdcos and
their shareholders, substantially in the form attached as Exhibit
2.1.2 to the Combination Agreement.
"Insolvency Event" means the dissolution or winding-up of
Acquisition, any insolvency or bankruptcy proceeding instituted
by or against Acquisition, including any such proceeding under
the Companies' Creditor Arrangement Act (Canada) and the
Bankruptcy and Insolvency Act (Canada), the admission in writing
by Acquisition of its inability to pay its debts generally as
they become due and the inability of Acquisition, as a result of
solvency requirements of the CBCA, to redeem any Exchangeable
Shares tendered for retraction.
"Interim Order" means the interim order of the Court, a copy of
which is appended to this Proxy Circular as Appendix "D".
"Letter of Transmittal" means the letter of transmittal for use
by MDA Shareholders. A copy is enclosed with this Proxy Circular
and additional copies are available on request from the
Depositary.
"Liquidation Call Right" means the overriding right of Orbital,
in the event of and notwithstanding the proposed liquidation,
dissolution, winding-up or insolvency of Acquisition, to purchase
from all but not less than all of the holders of Exchangeable
Shares all but not less than all of the Exchangeable Shares held
by each such holder, as more particularly described in the Plan
of Arrangement.
"MDA" means MacDonald, Dettwiler and Associates Ltd., a
corporation existing under the CBCA, and where the context so
requires, means MDA and its subsidiaries.
"MDA Board" means the board of directors of MDA.
"MDA Common Shares" means the common shares of MDA, together with
all Rights.
"MDA Options" means collectively, the options outstanding under
the MDA 1988 Option Plans, the Key Employee Share Option Plan and
the Amended and Restated Key Employee Share Option Plan.
"MDA 1988 Option Plans" means together, the 1988 Employee Share
Option Plan of MDA and the 1988 Key Employee Share Option Plan of
MDA.
"MDA 1988 Optionholder" means a holder of an MDA 1988 Option.
"MDA 1988 Options" means the options to purchase MDA Common
Shares issued under the MDA 1988 Option Plans.
"MDA Shareholder" means a holder of record of MDA Common Shares.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation National Market System.
"Nesbitt Burns" means Nesbitt Burns Inc., financial advisor to
MDA.
"Orbital" means Orbital Sciences Corporation, a corporation
existing under the laws of the State of Delaware, and where the
context so requires, means Orbital and its subsidiaries.
"Orbital Common Shares" means the common stock, par value $.01
per share, of Orbital.
"Plan of Arrangement" means the plan of arrangement proposed
under section 192 of the CBCA, substantially in the form attached
to this Proxy Circular as Appendix "A," as amended, modified or
supplemented from time to time in accordance with its terms.
"Proxy Circular" means this Management Information Circular
including the Annexes and Appendices attached hereto and all
amendments and supplements hereto from time to time.
"PSC" means The PSC Communications Group, a division of MDA.
"Qualifying Holdco" means a corporation that shall have become a
party to the Plan of Arrangement prior to the date of the Special
Meeting pursuant to the Plan of Arrangement and in accordance
with the terms of the Combination Agreement and shall have
satisfied all the conditions under its respective Holding Company
Agreement to the satisfaction of Acquisition in its sole
discretion.
"Redemption Call Right" means the overriding right of Orbital, in
the event of and notwithstanding a proposed redemption of
Exchangeable Shares by Acquisition, to purchase from all but not
less than all of the holders of Exchangeable Shares all but not
less than all of the Exchangeable Shares held by each such
holder, as more particularly described in the Plan of
Arrangement.
"Replacement Option" means an option to purchase Orbital Common
Shares issued or granted in replacement of a MDA Option.
"Retraction Call Right" means the overriding right of Orbital, in
the event of and notwithstanding a request by a holder of
Exchangeable Shares for Acquisition to redeem any or all of the
Exchangeable Shares registered in the name of such holder, to
purchase all but not less than all of the Exchangeable Shares
that are the subject of such request directly from such holder,
as more particularly described in the Plan of Arrangement.
"Rights" means all rights associated with the Common Shares in
the capital of MDA, including without limitation all rights
associated with such Common Shares pursuant to the Shareholder
Protection Rights Plan.
"SEC" means the United States Securities and Exchange Commission.
"SFAS" means the Financial Accounting Standards Board's
statements of financial accounting standards.
"Shareholder Protection Rights Plan" means the Shareholder
Protection Rights Plan Agreement dated as of August 27, 1992
between MDA and Montreal Trust Company of Canada, as Rights
Agent, as amended from time to time.
"Special Meeting" means the meeting of MDA Shareholders and MDA
1988 Optionholders to be held on Tuesday, November 14, 1995 to
consider the Arrangement Resolution and to transact such further
and other business as may properly come before the meeting, and
any adjournment thereof.
"Special Voting Share" means the one Series A Preferred Share of
Orbital to be issued to the Trustee by Orbital in connection with
the Arrangement and to be held by the Trustee pursuant to the
terms of the Voting and Exchange Trust Agreement.
"Support Agreement" means the agreement to be entered into
between Acquisition and Orbital in connection with the
Arrangement substantially in the form attached as Exhibit 2.3 to
the Combination Agreement.
"TSE" means The Toronto Stock Exchange.
"Trustee" means State Street Bank and Trust Company.
"U.S. dollars" and "US$" mean the lawful currency of the United
States.
"U.S. GAAP" means generally accepted accounting principles in the
United States.
"Voting Agreements and Irrevocable Proxy" means the agreements
between certain directors, officers and shareholders of MDA and
Orbital relating to the voting by such persons of MDA Common
Shares held by them on the Arrangement Resolution.
"VSE" means the Vancouver Stock Exchange.
"Voting and Exchange Trust Agreement" means the agreement to be
entered into as of the Effective Date between Orbital,
Acquisition and the Trustee in connection with the Arrangement
substantially in the form attached as Exhibit 2.2 to the
Combination Agreement.
"Voting Rights" means the voting rights attached to the Special
Voting Share exercisable by the Trustee at the direction of the
holders of Exchangeable Shares pursuant to the terms of the
Voting and Exchange Trust Agreement.
MDA AND ORBITAL REPORTING CURRENCIES
AND ACCOUNTING PRINCIPLES
The financial information related to MDA contained in this Proxy
Circular is reported in Canadian dollars and has been prepared in
accordance with Canadian GAAP, which differs in certain respects
from U.S. GAAP.
The financial information related to Orbital, including the pro
forma financial information, contained in this Proxy Circular is
reported in U.S. dollars and has been prepared in accordance with
U.S. GAAP, which differs in certain respects from Canadian GAAP.
See Notes 2 and G to the pro forma financial information of
Orbital for an explanation of the relevant major differences
between U.S. GAAP and Canadian GAAP.
CANADIAN/U.S. EXCHANGE RATES
In this Proxy Circular, dollar amounts are expressed either in
"Canadian dollars," "Cdn$," "$" or "dollars" or in "U.S. dollars"
or "US$."
According to Reuters Historical Data for calendar 1992 to
calendar 1994 and for the nine months ended September 30, 1995,
the high and low exchange rates (i.e. the rate at which Canadian
dollars were sold for U.S. dollars), the average exchange rate
(i.e. the average of the exchange rates on the last day of each
month during the period) and the end-of-period exchange rates for
one Canadian dollar expressed in U.S. dollars for the periods
indicated are set forth below:
Twelve Nine Months Ended
Months September 30,
Ended
December
31,
_______ _________________________
1992 1993 1994 1995
US$ US$ US$ US$
High for period 0.8485 0.7994 0.7567 0.7446
Low for period 0.7725 0.7417 0.7097 0.7009
End of period 0.7866 0.7566 0.7133 0.7410
Average for 0.8249 0.7737 0.7302 0.7288
period
On September 29, 1995, the noon buying rate for Cdn$1.00 was
US$0.7442.
SUMMARY OF PROXY CIRCULAR
The following is a summary of certain information about the
Arrangement, MDA, Orbital and Acquisition and is qualified in its
entirety by reference to the full text of this Proxy Circular,
including the annexes and appendices hereto. MDA Shareholders
and MDA 1988 Optionholders are urged to read this Proxy Circular,
including the accompanying annexes and appendices, in its
entirety. See "Risk Factors" for certain information that should
be considered by MDA Shareholders and MDA 1988 Optionholders.
For the definitions of certain terms used in this Proxy Circular,
see "Glossary of Terms."
General
Orbital Sciences Corporation, MacDonald, Dettwiler and Associates
Ltd. and 3173623 Canada Inc., a newly formed subsidiary of
Orbital, have entered into the Combination Agreement. Pursuant
to the Combination Agreement, MDA and Acquisition have applied
for and received the Interim Order of the Supreme Court of
British Columbia calling the Special Meeting of MDA Shareholders
and MDA 1988 Optionholders to consider the approval of the
Arrangement under section 192 of the CBCA.
Pursuant to the Arrangement, MDA will become a wholly owned
subsidiary of Acquisition and each outstanding MDA Common Share
will be exchanged for a number of Exchangeable Shares of
Acquisition equal to the Exchange Ratio. The Exchange Ratio will
be determined by dividing US$5.41 by the average closing price of
Orbital Common Shares for the 20 trading days ending on the date
four trading days prior to the Effective Date of the Arrangement,
provided that the Exchange Ratio will not be less than 0.2705 or
greater than 0.3607. Outstanding MDA Options will become
Replacement Options to acquire Orbital Common Shares on terms
identical to the existing MDA Options, with appropriate
adjustments in the exercise price and the number of shares
subject to such options to reflect the Exchange Ratio. The
Exchangeable Shares will have voting, dividend and liquidation
rights that are, as nearly as practicable, equivalent to those
rights of the Orbital Common Shares.
Orbital is a space technology company that designs, manufactures,
operates and markets a broad range of space products and services
that include launch systems, space and electronics systems, and
communications and information systems. Orbital had revenues of
approximately US$222 million for the year ended December 31,
1994. As of June 30, 1995, Orbital's total backlog, including
firm orders of approximately US$495 million, was approximately
US$1.3 billion. The closing sales price of an Orbital Common
Share on September 29, 1995 was US$16.25, as reported by NASDAQ.
The Arrangement and The Combination Agreement
The Combination Agreement, a copy of which is appended hereto as
Appendix "B," provides for the implementation of the Arrangement
under the CBCA, including obtaining the Interim Order, calling
the Special Meeting and obtaining the Final Order of the Court
approving the Arrangement. The Combination Agreement also
contains the terms and conditions of Orbital's, MDA's and
Acquisition's obligations to consummate the Arrangement.
The Arrangement. Pursuant to the Arrangement, (i) MDA will
become a wholly owned subsidiary of Acquisition and an indirect
subsidiary of Orbital, (ii) MDA Shareholders (except dissenting
holders, and except corporations ("Qualifying Holdcos") that,
together with their respective shareholders, have entered into an
agreement (a "Holding Company Agreement") with Acquisition
substantially in the form attached as Exhibit 2.1.2 to the
Combination Agreement and have met the conditions under the
Holding Company Agreement) will receive, in exchange for their
MDA Common Shares, a number of Exchangeable Shares equal to the
product of the number of such MDA Common Shares multiplied by the
Exchange Ratio; (iii) all outstanding shares of each Qualifying
Holdco will be exchanged for a number of Exchangeable Shares
equal to the product of the number of MDA Common Shares owned by
such Qualifying Holdco multiplied by the Exchange Ratio; and
(iii) each outstanding MDA Option will be converted into a
Replacement Option exercisable for a number of Orbital Common
Shares equal to the product of the number of MDA Common Shares
subject to such MDA Option multiplied by the Exchange Ratio, at
an exercise price per share equal to the exercise price per share
of such MDA Option divided by the Exchange Ratio, and subject to
the same vesting, expiration and other terms as such MDA Option.
In addition, Acquisition will issue 10,000 Class B Preferred
Shares to Canadian Imperial Bank of Commerce as partial payment
for investment banking services rendered with respect to the
Arrangement. See "The Arrangement and the Combination Agreement
- - Plan of Arrangement."
Recommendation and Fairness Opinion. The MDA Board has approved
the Combination Agreement and unanimously recommends that MDA
Shareholders and MDA 1988 Optionholders vote to adopt the
Arrangement Resolution. Nesbitt Burns Inc., financial advisor to
MDA, has delivered to the MDA Board its written opinion dated as
of October 4, 1995 (a copy of which is attached to this Proxy
Circular as Appendix "C") to the effect that, based upon and
subject to the various considerations set forth in such opinion
and as of that date, the Arrangement is fair to MDA Shareholders
and MDA 1988 Optionholders from a financial point of view. The
fees to be paid to Nesbitt Burns are contingent upon consummation
of the Arrangement. See "The Arrangement and the Combination
Agreement - MDA's Reasons for the Arrangement and Recommendations
of the MDA Board" and "- Opinion of MDA's Financial Advisor."
Qualifying Holdcos. The Combination Agreement provides that any
MDA Shareholder that wishes to contribute its MDA Common Shares
to a holding company and exchange the shares of the Qualifying
Holdco for Exchangeable Shares as provided in the Plan of
Arrangement may do so by complying with certain notice
provisions, entering into a Holding Company Agreement and
satisfying the conditions set forth in the Holding Company
Agreement. See "The Arrangement and the Combination Agreement -
Qualifying Holdcos."
Description of Exchangeable Shares. The Exchangeable Shares will
have voting, dividend and liquidation rights that are, as nearly
as practicable, equivalent to those rights of the Orbital Common
Shares, and will be exchangeable for Orbital Common Shares on a
one-for-one basis (subject to adjustment). Each Exchangeable
Share will be entitled to receive dividends from Acquisition
payable at the same time as, and to the extent possible in the
same property or cash as, and in the case of cash dividends, in
the Canadian dollar equivalent of, each dividend paid by Orbital
on an Orbital Common Share. The Exchangeable Shares generally
will not be entitled to vote on matters submitted to
Acquisition's shareholders but, pursuant to the Voting and
Exchange Trust Agreement, holders of Exchangeable Shares will be
provided with voting rights that will entitle them to vote along
with holders of Orbital Common Shares on matters submitted to
Orbital's shareholders. In the event of the liquidation,
dissolution or winding-up of Acquisition or Orbital, a holder of
Exchangeable Shares will receive one Orbital Common Share for
each Exchangeable Share (subject to adjustment). Acquisition
will automatically redeem all Exchangeable Shares then
outstanding on the fifth anniversary of the Effective Date, and
may redeem all outstanding Exchangeable Shares at any time when
there are less than 400,000 outstanding Exchangeable Shares held
by persons other than Orbital and its Affiliates, in each case
for a redemption price of one Orbital Common Share per
Exchangeable Share (subject to adjustment). Upon a proposed
retraction or redemption of an Exchangeable Share, or in the
event of the liquidation, dissolution or winding-up of
Acquisition, Orbital will have the right, in lieu of Acquisition
making such retraction, redemption or liquidation payment, to
purchase Exchangeable Shares for a price of one Orbital Common
Share for each Exchangeable Share (subject to adjustment). In
the event of certain capital or corporate reorganizations of
Orbital, the number of Orbital Common Shares to be issued upon
the exchange of Exchangeable Shares will be appropriately
adjusted so that the holders of the Exchangeable Shares are
treated in the same manner as holders of Orbital Common Shares.
Although the transfer of Exchangeable Shares, subject to
receiving certain orders from securities regulators, will not be
restricted under applicable securities laws, except in certain
stated instances, the Exchangeable Shares will not be listed on
any stock exchange and MDA does not expect there will be any
market for the Exchangeable Shares. See "The Arrangement and the
Combination Agreement - Description of Exchangeable Shares."
Voting and Exchange Trust Agreement. At the Effective Time,
Acquisition, Orbital and the Trustee will enter into the Voting
and Exchange Trust Agreement pursuant to which Orbital will issue
to the Trustee one Series A Preferred Share of Orbital (the
"Special Voting Share"). The Special Voting Share will vote with
the Orbital Common Shares at any meeting at which the holders of
Orbital Common Shares are entitled to vote, and will be entitled
to a number of votes equal to the number of Orbital Common Shares
issuable upon exchange of all Exchangeable Shares outstanding
from time to time not owned by Orbital or its Affiliates. On
each vote of Orbital Common Shares, holders of Exchangeable
Shares as of the record date established for the meeting at which
such vote will be taken will have the right to direct the Trustee
with respect to a number of votes equal to the number of Orbital
Common Shares issuable upon exchange of their Exchangeable
Shares. See "The Arrangement and the Combination Agreement -
Description of Exchangeable Shares - Voting Rights."
Pursuant to the Voting and Exchange Trust Agreement, Orbital will
grant to the Trustee for the benefit of the holders of
Exchangeable Shares the Exchange Right, exercisable upon the
liquidation, dissolution or insolvency of Acquisition or if
Acquisition defaults in its dividend, retraction or redemption
obligations with respect to the Exchangeable Shares, to require
Orbital to purchase all or any part of the Exchangeable Shares at
a purchase price of one Orbital Common Share for each
Exchangeable Share (subject to adjustment). In addition, Orbital
will grant to the Trustee for the benefit of the holders of the
Exchangeable Shares the Automatic Exchange Right, exercisable
upon the liquidation, dissolution or winding-up of Orbital, to
automatically exchange each Exchangeable Share for one Orbital
Common Share (subject to adjustment) five business days prior to
the date of any such liquidation event. See "The Arrangement and
the Combination Agreement - Description of Exchangeable Shares -
Retraction, Redemption and Exchange Right."
Support Agreement. At the Effective Time, Acquisition and
Orbital will enter into the Support Agreement pursuant to which
Orbital will covenant to take such action as is necessary to
permit Acquisition to (i) pay simultaneous and equivalent
dividends on the Exchangeable Shares as are paid by Orbital on
the Orbital Common Shares, and (ii) honour the redemption and
retraction rights and the dissolution entitlements that are
attributes of the Exchangeable Shares. The Support Agreement
will also provide that, without the prior approval of the holders
of the Exchangeable Shares, Orbital will not take certain
actions, such as declaring dividends on the Orbital Common Shares
or effecting reclassifications or reorganizations of the Orbital
Common Shares, without the same or an economically equivalent
action being taken in respect of the Exchangeable Shares. See
"The Arrangement and the Combination Agreement - Support
Agreement."
Court Approval and Completion of the Arrangement. The
implementation of the Arrangement is subject to the Final Order
approving the Arrangement. MDA, Acquisition and Orbital intend
to apply for the Final Order as promptly as practicable after the
Special Meeting. A copy of the Notice of Application for the
Final Order is attached as Appendix "E" hereto. The hearing in
respect of the Final Order is scheduled to take place on
November 16, 1995 before the presiding Judge or Master in
Chambers at the Courthouse, 800 Smithe Street, Vancouver, British
Columbia. At that hearing, any MDA Shareholder, any MDA 1988
Optionholder and any other interested party who wishes to
participate or to be represented or to present evidence or
argument may do so, subject to filing with the Court and serving
appropriate notices of appearance in accordance with the Interim
Order. At the hearing for the Final Order, the Court will
consider, among other factors, the fairness of the Arrangement
and the approval of the Arrangement Resolution by MDA
Shareholders and MDA 1988 Optionholders. The Effective Date of
the Arrangement will occur after the Final Order is obtained and
all other conditions in the Combination Agreement have been
satisfied or waived, which is expected to occur promptly after
the Special Meeting. See "The Arrangement and the Combination
Agreement - Court Approval and Completion of the Arrangement."
Conditions to the Arrangement. Consummation of the Arrangement
is subject to the satisfaction of a number of conditions,
including but not limited to: (i) the passage of the Arrangement
Resolution by the MDA Shareholders and the MDA 1988
Optionholders; (ii) Dissenting MDA Shareholders and Dissenting
MDA 1988 Optionholders being entitled in the aggregate to receive
no more than 10% of the aggregate number of Orbital Common Shares
and Replacement Options to be issued pursuant to the Plan of
Arrangement; (iii) the receipt of necessary orders or
registrations under applicable securities regulations to permit
the transactions contemplated by the Arrangement to be completed
and the Exchangeable Shares to be freely tradeable except in
certain limited circumstances; (iv) the absence of any
restrictive court orders or any other legal restraints preventing
or making illegal the consummation of the Arrangement; (v) the
continuing accuracy in all material respects of the
representations and warranties made by each of MDA and
Acquisition and Orbital in the Combination Agreement on and as of
the Effective Date; and (vi) the receipt by Orbital of an opinion
that the Arrangement is to be accounted for as a pooling of
interests. See "The Arrangement and the Combination Agreement -
The Combination Agreement."
Termination. The Combination Agreement may be terminated and the
Arrangement may be abandoned prior to the Effective Date,
notwithstanding the approval by the MDA Shareholders and the MDA
1988 Optionholders of the Arrangement Resolution, under the
circumstances specified in the Combination Agreement, including:
(i) by Orbital, if the Average Closing Price is more than
US$25.00; (ii) by Orbital, if the MDA Board shall have withdrawn
or modified in any manner adverse to Orbital its support of the
Arrangement, or shall fail to affirm such support upon the
request of Orbital; (iii) by MDA, if the Average Closing Price is
less than US$12.775; (iv) by MDA, if MDA receives a bona fide
offer to acquire all the shares or assets of MDA for a
consideration per MDA Common Share having a fair market value
greater than US$5.95, based on prevailing exchange rates at the
date of the offer; (v) by mutual agreement of Orbital and MDA;
and (vi) by either party if the Arrangement is not consummated by
December 31, 1995 (other than as a result of a default of the
terminating party). Under certain circumstances MDA may be
required to pay Orbital a US$750,000 termination fee if the
Combination Agreement is terminated by MDA. See "The Arrangement
and the Combination Agreement - The Combination Agreement -
Termination and Amendment" and "- Solicitation of Alternate
Transactions."
Operations Following the Arrangement. Orbital currently expects
that following the Arrangement, MDA will continue to operate as a
separate entity, substantially in the same manner as it has
operated its business prior to the Arrangement. See "The
Arrangement and the Combination Agreement - Operations Following
the Arrangement."
Accounting Treatment. The Arrangement is expected to be
accounted for as a pooling of interests under U.S. GAAP, and it
is a condition to Orbital's obligation to consummate the
Arrangement that Orbital shall have received an opinion of KPMG
Peat Marwick LLP, its independent auditors, to the effect that
such accounting treatment is appropriate. See "The Arrangement
and the Combination Agreement - Accounting Treatment."
Certain Canadian Federal Income Tax Considerations
The following discussion of Canadian federal income tax
considerations is intended as a general summary and does not
discuss all of the facts and circumstances that may affect the
tax liability of particular holders of MDA Common Shares and MDA
1988 Options. Holders of MDA Common Shares and MDA 1988 Options
are urged to consult their own tax advisors. See "Income Tax
Considerations to MDA Shareholders and Optionholders - Canadian
Federal Income Tax Considerations."
Residents of Canada. A holder of MDA Common Shares who receives
Exchangeable Shares will generally not be subject to Canadian
income tax in respect of such transaction (i) if such holder is
not considered to receive Voting Rights or the Exchange Right for
MDA Common Shares, or (ii) even if such holder is considered to
receive Voting Rights or the Exchange Right for MDA Common
Shares, if such holder effects a Tax Election under section 85 of
the Canadian Tax Act specifying a transfer price equal to the
aggregate of the adjusted cost bases of such MDA Common Shares
immediately before the exchange.
Pursuant to the Canadian Tax Act, a holder of an outstanding MDA
1988 Option that becomes a Replacement Option will be deemed not
to have disposed of the MDA 1988 Option and not to have acquired
the Replacement Option, provided the value of the Replacement
Option is not greater than the value of the MDA 1988 Option.
Furthermore, for purposes of the tax consequences of the
Replacement Option, the Replacement Option will be deemed to be
the same option as, and a continuation of, the MDA 1988 Option
and Orbital will be deemed to be the same corporation as, and a
continuation of, MDA.
So long as the value of the Call Rights, Exchange Right and the
Voting Rights is nominal, the grant of Call Rights by a holder of
Exchangeable Shares, in consideration of the receipt of Exchange
Right and Voting Rights, should not result in any material
Canadian federal income tax consequences.
A holder of Exchangeable Shares who receives Orbital Common
Shares from Acquisition on a redemption (including a retraction)
by Acquisition of the holder's Exchangeable Shares will be deemed
to receive a dividend as a result of such redemption. A holder
of Exchangeable Shares who exchanges his Exchangeable Shares with
Orbital for Orbital Common Shares upon the exercise of the Call
Rights or the Exchange Right will generally realize a capital
gain (or capital loss) as a result of such exchange.
Non-Residents of Canada. Provided the MDA Common Shares are
listed on a prescribed stock exchange at the time of
implementation of the Arrangement, a holder of MDA Common Shares
who is not resident in Canada, who holds MDA Common Shares as
capital property and does not hold MDA Common Shares in
connection with a business carried on in Canada, generally will
not be subject to tax under the Canadian Tax Act solely as a
result of the transactions effected pursuant to the Arrangement.
A non-resident holder of Exchangeable Shares who receives Orbital
Common Shares from Acquisition on a redemption (including a
retraction) of the holder's Exchangeable Shares will be deemed to
receive a dividend as a result of such redemption that will be
subject to non-resident withholding tax under the Canadian Tax
Act at the rate of 25%, subject to reduction under the provisions
of an applicable income tax treaty. Under the Canada-United
States Income Tax Convention, the rate is generally reduced to
15% for residents of the United States. A holder of Exchangeable
Shares who exchanges his Exchangeable Shares with Orbital for
Orbital Common Shares upon the exercise of the Call Rights or the
Exchange Right will generally realize a capital gain (or capital
loss) as a result of such exchange.
An exchange of Exchangeable Shares for Orbital Common Shares by a
non-resident may be subject to tax under the Canadian Tax Act. A
non-resident may be exempt from tax pursuant to the provisions of
an applicable tax treaty such as the Canada-United States Income
Tax Convention. In any case, Orbital or Acquisition will require
non-residents to obtain a certificate from Revenue Canada on such
exchange specifying a certificate limit not less than the fair
market value of the Orbital Common Shares. If no such
certificate is obtained, then either Orbital or Acquisition will
withhold and remit to Revenue Canada as tax on behalf of such non-
resident holder, 33J% of the fair market value of the Orbital
Common Shares, and Orbital or Acquisition will deliver to the non-
resident holder a reduced number of Orbital Common Shares to
reflect such payment to Revenue Canada.
Certain United States Federal Income Tax Considerations
The following discussion of United States federal income tax
considerations is intended as a general summary and does not
discuss all of the facts and circumstances that may affect the
tax liability of particular MDA Shareholders. MDA Shareholders
are urged to consult their own tax advisors. See "Income Tax
Considerations to MDA Shareholders and Optionholders - United
States Federal Income Tax Considerations."
U.S. Shareholders. MDA and Orbital believe, based on advice of
counsel, that there is a reasonable basis on which to conclude
that the exchange of MDA Common Shares pursuant to the
Arrangement will constitute a taxable transaction for U.S.
federal income tax purposes, and MDA understands that Orbital
intends to report the exchange in a manner consistent with the
foregoing. If the exchange is taxable, MDA Shareholders who are
"United States persons" for U.S. federal income tax purposes
("U.S. Holders"), including United States citizens or residents,
domestic corporations, domestic partnerships, and estates or
trusts subject to U.S. federal income tax on their income
regardless of source, who receive Exchangeable Shares would
recognize capital gain or loss in an amount equal to the
difference between the fair market value of the Exchangeable
Shares received (together with cash received in lieu of
fractional shares (if any)) and the tax basis of the MDA Common
Shares surrendered in the exchange. Such capital gain or loss
would generally constitute U.S. source gain and would be long-
term capital gain or loss if the MDA Common Shares exchanged have
been held for more than one year at the time of the exchange. It
is possible, however, that the United States Internal Revenue
Service (the "IRS") may take the position that the receipt of
Exchangeable Shares in exchange for MDA Common Shares is not a
taxable event, in which case a U.S. Holder would only have to
recognize gain to the extent of cash in lieu of fractional shares
(if any), and certain carryover tax basis and holding period
rules would apply to the Exchangeable Shares.
MDA and Orbital also believe, based on the advice of counsel,
that there is a reasonable basis on which to conclude that the
exchange, retraction or redemption of the Exchangeable Shares for
Orbital Common Shares will be treated as a taxable event for U.S.
federal income tax purposes, and Orbital has advised MDA that it
currently intends to take this position. If the exchange is a
taxable event, a U.S. Holder that receives Orbital Common Shares
from Orbital pursuant to the Call Rights would generally
recognize capital gain or loss equal to the difference between
the fair market value of the Orbital Common Shares at the time of
the exchange (together with cash in lieu of fractional shares (if
any) and cash equal to the Dividend Amount (if any)) and the tax
basis of the Exchangeable Shares. Such capital gain or loss
would be long-term capital gain or loss if the Exchangeable
Shares have been held for more than one year at the time of the
exchange. It is possible, however, that the IRS could assert
that a portion of such gain constitutes U.S. source ordinary
income. If the receipt of Orbital Common Shares is effected
through a retraction or redemption of Exchangeable Shares
distributed to a U.S. Holder directly by Acquisition, then if the
retraction or redemption is treated as a taxable transaction, it
would be treated as a taxable exchange of the Exchangeable Shares
if the U.S. Holder meets certain tests relating to reductions in
its percentage shareholdings in Acquisition, and otherwise would
be taxed as a dividend paid on the Exchangeable Shares to the
extent of Acquisition's (or, possibly, Orbital's) earnings and
profits. It is possible, however, that the IRS could assert that
the exchange, retraction or redemption of Exchangeable Shares for
Orbital Common Shares is not a taxable event, in which case a
U.S. Holder would only have to recognize gain to the extent of
cash in lieu of fractional shares (if any) and the Dividend
Amount (if any), and certain carryover tax basis and holding
period rules would apply to the Orbital Common Shares.
Non-U.S. Shareholders. A holder of MDA Common Shares that is not
a U.S. Holder ("non-U.S. Holder") generally will not be subject
to U.S. federal income tax on a gain recognized on the receipt of
the Exchangeable Shares, Voting Rights and Exchange Right, or on
the subsequent sale or exchange of the Exchangeable Shares or
Orbital Common Shares, unless such gain is effectively connected
with a U.S. trade or business.
Dividends received by a non-U.S. Holder with respect to the
Orbital Common Shares generally will be subject to U.S.
withholding tax at a rate of 30%, which rate may be subject to
reduction by an applicable income tax treaty in effect between
the U.S. and the non-U.S. Holder's country of residence. Under
the Canada-U.S. Income Tax Convention, the rate is generally
reduced to 15%. Although the matter is not entirely free from
doubt, dividends received by a non-U.S. Holder on Exchangeable
Shares should not be subject to U.S. withholding tax.
The Special Meeting
Time and Place. The Special Meeting will be held on Tuesday,
November 14, 1995 at the office of MDA at 13800 Commerce Parkway,
Richmond, B.C., V6V 2J3, at 10:00 a.m. (Vancouver time).
MDA Shareholders and MDA 1988 Optionholders Entitled to Vote. At
the Special Meeting, the MDA Shareholders (voting together as one
class) and the MDA 1988 Optionholders (voting separately from the
MDA Shareholders as a second class) will each consider and vote
upon a proposal to approve the Arrangement Resolution, and will
transact such other business as may properly come before the
Special Meeting or any adjournments thereof. The close of
business on October 10, 1995 is the record date for determination
of MDA Shareholders entitled to receive notice of and to vote at
the Special Meeting, subject to the rights of certain transferees
of MDA Common Shares after that date in accordance with the CBCA.
All holders of MDA 1988 Options on the date of the Special
Meeting will be entitled to attend and vote at the Special
Meeting. As of September 29, 1995, 11,218,156 MDA Common Shares
and 277,643 MDA 1988 Options were outstanding. See "The Special
Meeting -General Proxy Information."
Vote Required. Subject to any further order of the Court, the
Arrangement Resolution must be approved by the affirmative vote
of 66K% of the votes actually cast thereon by the MDA
Shareholders and the MDA 1988 Optionholders, voting as separate
classes (and for this purpose any spoiled votes, illegible votes,
defective votes and abstentions shall be considered not to be
votes cast). Directors, officers and shareholders of MDA holding
approximately 56.6% of the issued and outstanding MDA Common
Shares have executed Voting Agreements and Irrevocable Proxies
with Orbital agreeing to vote for the Arrangement Resolution at
the Special Meeting. In addition, certain officers and employees
of MDA holding approximately 59.2% of total votes entitled to be
cast by the MDA 1988 Optionholders have agreed with MDA to vote,
as MDA 1988 Optionholders, for the Arrangement Resolution. See
"The Special Meeting - General Proxy Information - Required Votes
to Approve the Arrangement and Voting Intentions of Certain
Shareholders and Optionholders."
Dissent Rights. MDA Shareholders and MDA 1988 Optionholders who
do not vote in favour the Arrangement Resolution and comply with
certain procedures are entitled to dissent under section 190 of
the CBCA, in accordance with the Interim Order. See "Dissenting
Rights."
Business of Orbital
Orbital is a space technology company that designs, manufactures,
operates and markets a broad range of space products and services
that are grouped into three categories: Launch Systems, Space and
Electronics Systems, and Communications and Information Systems.
Launch Systems include space and suborbital launch vehicles;
Space and Electronics Systems include satellites, spacecraft
platforms, space sensors and instruments, and space payloads and
experiments, as well as advanced avionics and data management
systems; and Communications and Information Systems include
satellite-based two-way mobile data communications systems,
satellite-based navigation products and remote sensing systems,
along with satellite tracking systems and environmental
monitoring products. See "Information Concerning Orbital."
Orbital's goal is to become a full-service space company by
integrating its launch vehicles, satellites and other products
into complete "turn-key" space systems and providing end-to-end
satellite-based services for particular markets. Orbital's
strategy is to exploit expanding opportunities to provide
government, commercial and other customers with low-cost access
to space. Essential elements of Orbital's strategy include
investment of substantial private capital in the development of
proprietary products; reduction of the time required for product
development; formation of strategic business alliances to enhance
Orbital's marketing, technical, manufacturing and financial
capabilities; establishment of vertically integrated
manufacturing and testing capabilities; and acquisitions of
companies with product lines that complement or enhance Orbital's
existing base of products, services and technologies. Orbital
believes that providing lower-cost "turn-key" space systems
should stimulate the use of space products and services by
private corporations, educational and research institutions and
other non-traditional space customers including, ultimately,
individual consumers.
Orbital's customer base includes a wide range of U.S.
governmental agencies, universities and commercial enterprises
including: the U.S. National Aeronautics and Space Administration
("NASA"); the National Oceanic and Atmospheric Administration;
various organizations within the U.S. Department of Defense
("DoD"), including the U.S. Army, the U.S. Navy, the U.S. Air
Force, the Advanced Research Projects Agency ("ARPA") and the
Ballistic Missile Defense Organization ("BMDO"); ORBCOMM Global,
L.P. ("ORBCOMM Global"), an affiliate of Orbital; Johns Hopkins
University; and certain distributors of electronics and
recreational equipment.
Launch Systems. Orbital's Launch Systems Group's most
significant products are space and suborbital launch vehicles. A
space launch vehicle launches a satellite into orbit around the
Earth. Suborbital launch vehicles place payloads into a variety
of high-altitude trajectories but, unlike space launch vehicles,
do not place payloads into Earth orbit.
Orbital's space launch vehicles are the Pegasusr launch vehicle;
the Pegasus XL launch vehicle (a modified, larger version of the
Pegasus); and the Taurusr launch vehicle. The Pegasus and
Pegasus XL vehicles are launched from beneath a modified large
aircraft such as a Lockheed L-1011 to deploy satellites weighing
up to 1,000 pounds into low-Earth orbit. The higher-capacity
Taurus vehicle is a ground-launched derivative of the Pegasus
vehicle that can carry payloads weighing up to 3,000 pounds to
low-Earth orbit and payloads weighing up to 800 pounds to
geosynchronous orbit. In March 1995, Orbital and Rockwell
International Corporation agreed to form a joint venture to
develop, construct, operate and market a new advanced technology
small reusable space launch vehicle (the "X-34").
Orbital's suborbital launch products include various types of
suborbital vehicles and their principal subsystems, payloads
carried by such vehicles, and related launch support
installations and systems used in their assembly and operation.
Customers typically use Orbital's suborbital launch vehicles to
launch scientific and other payloads and for defence-related
applications such as target and interceptor experiments for anti-
missile defence systems.
Space and Electronics Systems. Orbital's Space and Electronics
Systems Group's products include spacecraft systems and payloads,
defence avionics and sensors.
The Space and Electronics Systems Group is responsible for the
design, production and testing of small and medium class
spacecraft for scientific, military and commercial applications.
The small standard spacecraft platforms developed by Orbital,
such as the PegaStarO and the MicroStarO, are designed to be
launched by the Pegasus, Pegasus XL or Taurus launch vehicles.
The PegaStar spacecraft platform is a general purpose spacecraft
that has successfully performed on one mission, and is planned to
be used for Orbital's SeaStarO ocean environmental monitoring
satellite system. Orbital's MicroStar spacecraft platform is
designed for use in the ORBCOMM Global satellite-based two-way
data communications network consisting of up to 36 MicroStar
satellites (the "ORBCOMM System") and also for a variety of small
space science and remote sensing projects, including some of
those being pursued by Orbital's wholly owned subsidiary, Orbital
Imaging Corporation ("ORBIMAGE"). Orbital's medium class
satellites are generally used to gather various scientific data,
such as ocean topography and ultraviolet sources outside the
galaxy.
Orbital develops, manufactures and markets avionics products,
including advanced electronics and data management systems for
aircraft flight operations and ground support for the U.S.
military and foreign governments. The Space and Electronics
Systems Group also is responsible for the design, production and
testing of spacecraft command and data handling, attitude control
and structural subsystems for a variety of government and
commercial customers. Other Space and Electronics Systems Group
products include satellite-borne scientific sensors and
instruments, such as atmospheric ozone monitoring instruments and
environmental sensors.
Communications and Information Systems. Orbital's Communications
and Information Systems Group includes Orbital's subsidiaries:
Orbital Communications Corporation ("ORBCOMM"), ORBIMAGE and
Magellan Corporation ("Magellan").
In June 1993, ORBCOMM and Teleglobe Mobile Partners ("Teleglobe
Mobile"), a partnership formed by Teleglobe Inc. ("Teleglobe"),
formed ORBCOMM Global to design, develop, construct, integrate,
test and market the ORBCOMM System. The ORBCOMM System is a
satellite-based communications network designed to provide
virtually continuous mobile data communications coverage over
much of the Earth's surface. The ORBCOMM System will include a
constellation of up to 36 small low-Earth orbit MicroStar
satellites, a satellite control centre operating and positioning
the satellites, network control centres controlling the flow of
information through the system, local ground stations sending and
receiving signals between the network control centres and nearby
satellites, and the mobile communicators used by subscribers to
transmit and receive messages to and from nearby satellites. In
April 1995, Orbital launched on a Pegasus launch vehicle the
first two satellites of the ORBCOMM System. ORBCOMM Global
expects to begin intermittent commercial service using these
satellites during the first quarter of 1996.
ORBIMAGE is currently seeking to develop and market a broad range
of information services that identify and monitor global
environmental changes and collect and disseminate other remote
sensing information. Small Earth-viewing satellites and related
sensors and instruments to be placed in relatively low orbits are
expected to offer cost-efficient data collection, daily global
coverage and high-resolution sensing services. Services to be
provided by ORBIMAGE could include high-resolution optical
imaging of land surfaces for geographic information and sensing
of ozone and atmospheric conditions.
Magellan designs, manufactures and markets Global Positioning
System satellite-based navigation and positioning products for
commercial and consumer markets including marine and aviation
applications, outdoor recreational users such as hunters and
hikers, professional users such as geologists, geographers,
surveyors, natural resource managers and contractors and, to a
lesser extent, governmental users.
Business of MDA
MDA provides technology-based solutions and services to Earth
information, air navigation, defence applications and data
communications markets worldwide, through four business areas.
Geo-Information Systems. Geo-Information Systems, MDA's largest
business area, involves the development of systems for the
management of Earth resources and the environment, by applying
MDA's expertise in Earth observation ground stations and related
markets. MDA is one of the world's leading companies in
providing solutions for the acquisition, processing, archiving
and dissemination of non-classified Earth observation data. Of
the 26 non-secret ground stations in the world, MDA has built or
been part of the construction of 23 ground stations in 20
countries. In addition to pursuing opportunities to build new
ground stations, MDA is actively pursuing opportunities to
upgrade existing ground stations so that they are able to process
the data that new technologically-advanced Earth observation
satellites are able to provide.
In addition to systems for space-based Earth observation, MDA
builds systems to process Earth images from airborne radar. MDA
also designs and builds customized software products in
consultation with consumers in government and industry to make
geographic related data more useful. The Geo-Information Systems
business area provides operational and post-delivery support to
ensure operational efficiency of systems delivered to its
customers. This support includes consulting services, training,
maintenance and test equipment, spare parts and manuals.
Aviation Systems. MDA's Aviation Systems business area is
focused on specific markets, including the provision of automated
aeronautical information systems and automated air traffic
management systems. MDA builds and markets the Pegasus-AISTM
(unrelated to Orbital's Pegasus space launch vehicle), an
automated aeronautical information management system. This
system provides pilots and other users with aeronautical and
meteorological information. In addition, MDA is developing a
niche in the embedding of its aeronautical information systems
into broader air traffic management systems.
MDA is currently participating in the development and delivery of
air traffic management software to be used in the Canadian
Automated Air Traffic System. Air traffic management systems
allow air traffic controllers to guide pilots in flight by
combining information about flights, routes, weather,
navigational aids, airways and airports, and delivering it to air
traffic controllers in a form that is intended to enable timely,
safe decisions.
Space and Defence Systems. MDA's Space and Defence Systems
business area provides surveillance and command support systems
for space and defence. MDA's defence systems include naval mine
countermeasures, artillery command and control, radar deception
systems and military materiel management. In space-related work,
MDA continues to provide major software development efforts as
part of Canada's contribution to the Space Station project. This
activity provides an opportunity for the enhancement of MDA's
space-qualified software capabilities.
Communications. In 1994, MDA entered a new computer network
communications consulting and training business through the
acquisition of Ottawa-based The PSC Communications Group Inc.
PSC helps customers design and implement networks so that
computers can communicate faster and at lower cost, and develops
software for special client needs, such as to monitor networks,
and find and correct trouble-spots. PSC also offers
instructional classes for a variety of vendor products, as well
as general courses in computer communications, aimed mainly at
technicians in companies across North America, Europe and other
parts of the world.
MARKET PRICE AND DIVIDEND INFORMATION
Orbital Common Shares are quoted on NASDAQ under the symbol
"ORBI". The following table sets forth the high and low closing
sale prices reported on NASDAQ for an Orbital Common Share for
the periods indicated. The closing sale price of an Orbital
Common Share on the NASDAQ on July 28, 1995, the last trading day
prior to the public announcement of the Arrangement, was
US$17.625 and on September 29, 1995, the latest practicable
trading day before the printing of this Proxy Circular, was
US$16.25.
Twelve Month Periods High Low
Ended December 31, US$ US$
1993
First Quarter 14.25 10.75
Second Quarter 13.75 10.25
Third Quarter 19.00 12.25
Fourth Quarter 23.00 16.50
1994
First Quarter 26.50 15.25
Second Quarter 24.50 14.00
Third Quarter 18.50 14.50
Fourth Quarter 22.50 15.00
1995
First Quarter 20.50 16.50
Second Quarter 22.00 15.50
Third Quarter 19.25 16.25
MDA Common Shares have been traded on the VSE since August 9,
1993 and on the TSE since April 3, 1995 under the symbol "MDA".
The following table sets forth the high and low closing sale
prices reported on the VSE and TSE for an MDA Common Share for
the periods indicated. The closing sale price for an MDA Common
Share on the TSE on July 28, 1995, the last trading day prior to
the public announcement of the Arrangement, was Cdn$5.50 and on
September 29, 1995, the latest practicable trading day before the
printing of this Proxy Circular, was Cdn$6.375. Assuming
Effective Dates of July 28, 1995 and September 29, 1995, the
Exchange Ratio would have been .2927 and .3133, respectively.
VSE TSE
Twelve Month Periods Ended High Low High Low
December 31,
Cdn$ Cdn$ Cdn$ Cdn$
1993
August 9 to Sept. 30 4.50 3.80 --- ---
Fourth Quarter 4.10 3.00 --- ---
1994 ---
First Quarter 4.15 3.20 ---
Second Quarter 4.00 3.50 --- ---
Third Quarter 4.25 3.65 --- ---
Fourth Quarter 4.00 3.25 --- ---
1995
First Quarter 3.75 2.90 --- ---
Second Quarter 3.75 3.50 4.55(1) 3.30 (1)
Third Quarter 6.625 6.625 7.125 4.05
Note 1: Commencing April 3, 1995.
Neither Orbital nor MDA has paid any dividends on their common
shares except for a cash dividend of $1.00 per MDA Common Share
paid by MDA in 1992. Orbital currently intends to retain
earnings for use in its business and does not anticipate paying
cash dividends on the Orbital Common Shares in the foreseeable
future. In addition, Orbital is subject to certain contractual
restrictions on its ability to pay dividends. The Combination
Agreement prohibits the payment of any dividends by MDA prior to
the Effective Date.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical financial information of MDA
and Orbital has been derived from their respective historical
consolidated financial statements, and should be read in
conjunction with such consolidated financial statements and the
related notes thereto, which are attached as Annex "I" for
Orbital and Annex "II" for MDA to this Proxy Circular.
Selected Historical Consolidated Financial Data of MDA
The following selected consolidated financial data as of and for
the fiscal years ended March 31, 1993, 1994 and 1995 of MDA are
derived from the consolidated financial statements of MDA,
including those contained in Annex "II" to this Proxy Circular,
and should be read in conjunction with such consolidated
financial statements and the related notes thereto. The
following selected consolidated financial data for the three
months ended June 30, 1994 and 1995 and as of June 30, 1995 are
derived from the unaudited consolidated financial statements
included in Annex "II" to this Proxy Circular. In the opinion of
management of MDA, the unaudited consolidated financial data
reflect all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation. The operating results for
interim periods are not necessarily indicative of the results
expected for the full year.
Omitted: See the Consolidated Financial Data of MDA included
in Item 7(a) above.
Selected Historical Consolidated Financial Data of Orbital
The following selected consolidated financial data as of and for
the years ended December 31, 1992, 1993 and 1994 of Orbital are
derived from consolidated financial statements contained in
Annex "I" to this Proxy Circular, and should be read in
conjunction with such consolidated financial statements and the
related notes thereto. The following selected consolidated
financial data for the six months ended June 30, 1994 and 1995
and as of June 30, 1995 are derived from unaudited condensed
consolidated financial statements included in Annex "I" to this
Proxy Circular. In the opinion of management of Orbital, the
unaudited consolidated financial data reflect all adjustments,
consisting of normal recurring accruals, necessary for a fair
presentation. The operating results for interim periods are not
necessarily indicative of the results expected for the full year.
Omitted: See the Selected Historical Consolidated Financial Data
of Orbital included in the Company's Annual Report on Form 10-K
filed with the SEC on March 29, 1995.
PRO FORMA FINANCIAL INFORMATION
For purposes of the following pro forma presentation, Orbital has
assumed that the conversion of the Exchangeable Shares occurs
contemporaneously with the other transactions occurring on the
Effective Date (i.e., that Orbital issues Orbital Common Shares
directly for MDA Common Shares). The actual number of Orbital
Common Shares issuable pursuant to the Combination Agreement is
based on the Average Closing Price. Assuming an Average Closing
Price of US$17.25 per Orbital Common Share and an Exchange Ratio
of .3136 Orbital Common Shares to 1.00 MDA Common Share, Orbital
expects to issue approximately 3.9 million Orbital Common Shares
for all issued and outstanding MDA Common Shares and under all
Replacement Options for MDA Options. The Arrangement will be
accounted for using the pooling of interests method of accounting
and, accordingly, MDA's assets and liabilities will be carried
forward at their historical recorded amounts.
The following unaudited pro forma condensed consolidated
financial information consists of the Unaudited Pro Forma
Condensed Consolidated Statements of Operations for the six
months ended June 30, 1995 and for the year ended December 31,
1994, and the Unaudited Pro Forma Condensed Consolidated Balance
Sheet as of June 30, 1995 (collectively, the "Pro Forma
Statements"). The Unaudited Pro Forma Condensed Consolidated
Statement of Operations for the six months ended June 30, 1995
gives effect to the Arrangement as if it had occurred on
January 1, 1995. The Unaudited Pro Forma Condensed Consolidated
Statement of Operations for the year ended December 31, 1994
gives effect to the Arrangement as if it had occurred on
January 1, 1994. The Unaudited Pro Forma Condensed Consolidated
Balance Sheet gives effect to the Arrangement as if it had
occurred on June 30, 1995. The Pro Forma Statements have been
prepared in accordance with U.S. GAAP (see Notes 2 and G to the
Pro Forma Statements for a description of major differences
between U.S. GAAP and Canadian GAAP).
Orbital's management believes that, on the basis set forth
herein, the Pro Forma Statements reflect a reasonable estimate of
the Arrangement based on currently available information and the
assumptions described herein. The pro forma financial data do
not purport to represent what Orbital's financial position or
results of operations would actually have been had the
Arrangement in fact occurred on June 30, 1995, January 1, 1995 or
January 1, 1994, or to project Orbital's financial position or
results of operations for any future date or period indicated.
The Pro Forma Statements should be read in conjunction with the
consolidated financial statements of each of Orbital and MDA and
related notes thereto included in Annexes "I" and "II,"
respectively.
OMITTED: See the Unaudited Pro Forma Condensed Cconsolidated Balance
Sheet at June 30, 1995 filed above in Item 7(b).
OMITTED: See the Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Six Months Ended June 30, 1995 filed above in Item 7(b).
OMITTED: See the Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 1994 filed above in Item 7(b).
OMITTED: See the Notes to Pro Forma Adjustments to Unaudited Pro Forma
Condensed Consolidated Financial Statements and Notes, Notes to Pro Forma
Adjustments to the Unaudited Pro Forma Condensed Consolidated Financial
Statements and Notes to Conversion Adjustments to the Unaudited Pro
Forma Condensed Consolidated Financial Statements filed above in Item 7(b).
PRO FORMA CONSOLIDATED CAPITALIZATION
The following table sets forth the short-term debt and
capitalization of Orbital, on a pro forma consolidated basis, to
give effect to the Arrangement.
June 30, 1995
(Pro Forma)
(US$ in
thousands)
Short-term debt:
Current portion of long-term $ 5,639
obligations 7,005
Short-term bank borrowings $ 12,644
Total short-term debt
Long-term debt:
Long-term obligations, net of 34,927
current portion 20,000
10 1/2% Senior Notes due 2002 56,000
6 3/4% Convertible Subordinated $110,927
Debentures due 2003
Total long-term debt
Stockholders' equity:
Preferred Shares, par value $0.01
per share: 10,000,000 --
authorized; no shares issued and
outstanding
Preferred Series A Shares, par value
$0.01 per share: --
one share authorized; no shares
issued and outstanding (1)
Preferred Series B Shares, no par
value: 10,000 authorized, issued
and outstanding (2) 10
Preferred Series B Shares, no par
value:
10,000 authorized, issued and
outstanding (2)
Common Shares, par value $0.01 per 266
share: 40,000,000
authorized; 26,556,640 shares
issued and outstanding
after adjusting for 15,735 shares
in treasury (3)
Additional paid-in capital 246,243
Cumulative translation adjustment (3,571)
Unrealized losses on short-term (221)
investments
Retained earnings (deficit) (1,960)
Total stockholders' equity $240,767
Total capitalization $351,694
Notes:
(1) The Preferred Series A Share issued by Orbital is held under
the Voting and Exchange Trust Agreement and is eliminated in
consolidation.
(2) Preferred Series B Shares are issued by Acquisition to
Canadian Imperial Bank of Commerce pursuant to the
Arrangement.
(3) Assumes an immediate exchange of all outstanding
Exchangeable Shares and exercise of Replacement Options for
3,920,290 Orbital Common Shares. Excludes 3,900,945 Orbital
Common Shares issuable upon conversion of Orbital's 6 3/4%
Convertible Subordinated Debentures due 2003 and 1,661,146
Orbital Common Shares reserved for issuance pursuant to
options outstanding as of September 8, 1995 with exercise
prices ranging from US$7.50 to US$22.00 per share.
RISK FACTORS
The following risk factors related to Orbital should be
considered by MDA Shareholders and MDA 1988 Optionholders in
evaluating whether to approve the Arrangement Resolution. These
factors should be considered in conjunction with the other
information included in this Proxy Circular. In addition, MDA
Shareholders and MDA 1988 Optionholders should refer to "The
Arrangement - Reasons for Recommendation of the MDA Board."
Technologically Advanced Products and Services
Most of the products developed and manufactured by Orbital are
technologically advanced and novel systems that must function
under demanding operating conditions. Even though Orbital
believes it employs sophisticated design, manufacturing and
testing practices, there can be no assurance that Orbital's
products will be successfully launched or operated or that they
will be developed or will perform as intended. Certain of
Orbital's contracts require it to forfeit part of its expected
profit, to receive reduced payments, to provide a replacement
launch or other product or service, or to reduce the price of
follow-on missions if its products fail to perform adequately.
Performance penalties also may be imposed should Orbital fail to
meet delivery schedules or other measures of contract
performance. Orbital, like most companies and governments that
have launch and satellite programs, has experienced occasional
product failures and other problems, including with respect to
certain of its launch vehicles and satellites. For example,
Orbital's first two flights of the Pegasus XL space launch
vehicle in June 1994 and June 1995 were unsuccessful.
Orbital's products and services are and will continue to be
subject to significant technological change and innovation.
Orbital's success will generally depend on its ability to
penetrate and retain markets for its existing products and to
continue to conceive, design, develop, manufacture and market new
products and services on a cost-effective and timely basis.
Orbital anticipates that it will incur significant expenses in
the design, development and initial manufacture and marketing of
new products and services. There can be no assurance that
Orbital 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 and
on a cost-effective basis, that licenses and regulatory approvals
required for new products and services will be secured, or that
anticipated markets will exist or develop for new products or
services.
Dependence on United States Government
A significant percentage of Orbital's backlog is with the U.S.
Government or under subcontracts with prime contractors to the
U.S. Government. Most of Orbital'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 the
imposition of budgetary constraints could materially adversely
affect Orbital's business and financial performance.
Furthermore, contracts with the U.S. Government may be terminated
or suspended by the U.S. Government at any time, with or without
cause.
Capital Requirements
Orbital's future business requirements and growth plans will
require significant additional capital. Orbital believes that
working capital, cash from operations, operating leases, customer
financing and available bank borrowings will be adequate to meet
these capital needs through 1995. Orbital expects that it will
need to incur indebtedness or raise additional equity capital to
fund its anticipated growth in 1996 and beyond. While Orbital
believes that, if necessary, it has flexibility to reduce or
delay its anticipated capital requirements and its anticipated
investments in ORBIMAGE or the X-34 program, such reductions or
delays could impede Orbital's growth and adversely affect
Orbital's results of operations.
The ORBCOMM System and the X-34 program are in relatively early
stages and the actual cost of each project may vary significantly
from current estimates. In addition to the funds committed by
Orbital and its respective partner in each venture, additional
financing from the partners and/or third party sources will be
required, and there can be no assurance that the required capital
will be received. In the event that the necessary capital cannot
be obtained, implementation and commercial development of the
ORBCOMM System or X-34 will be delayed, significantly restricted
or possibly abandoned, and Orbital could be required to expense
part or all of its investment in the ORBCOMM System or the X-34
program, as the case may be.
Orbital has invested and will continue to invest substantial
resources in capital equipment and other assets supporting its
various products and programs. In the event of significantly
reduced or eliminated product sales with respect to a particular
program, Orbital could be required to expense some or all of its
investments in assets dedicated to that program.
Regulation
The ability of Orbital to pursue its business activities is
regulated by various agencies and departments of the U.S.
Government. Commercial space launches require licenses from the
U.S. Department of Transportation ("DoT") and operation by
Orbital of its leased L-1011 aircraft requires licenses from
certain agencies of the DoT, including the Federal Aviation
Administration. Construction, launch and operation of commercial
communications satellites, including the ORBCOMM System, require
licenses from the U.S. Federal Communications Commission and
frequently require the approval of international regulatory
authorities. Some planned ORBIMAGE private remote sensing
satellites require a license from the U.S. Department of
Commerce. Exports of Orbital's products, services and technical
information frequently require licenses from the U.S. Department
of State or the U.S. Department of Commerce. There can be no
assurance that Orbital will continue to be successful in its
efforts to obtain necessary licenses or regulatory approvals.
THE SPECIAL MEETING - GENERAL PROXY INFORMATION
General
This Proxy Circular is furnished to MDA Shareholders and MDA 1988
Optionholders in connection with the solicitation of proxies by
management of MDA to be used at the Special Meeting to be held on
Tuesday, November 14, 1995 at 10:00 a.m., Vancouver time, at the
offices of MDA at 13800 Commerce Parkway, Richmond, British
Columbia, V6V 2J3, and at any adjournments or postponements
thereof for the purposes set forth in the accompanying Notice of
Special Meeting. The information contained herein is given as at
September 29, 1995, except where otherwise noted.
Solicitation of Proxies
In addition to solicitation by mail, officers, directors and
regular employees of MDA may, without additional compensation,
solicit proxies personally or by telephone or telecopier. This
solicitation is made on behalf of management of MDA and the cost
of the solicitation will be borne by MDA.
Arrangements will be made with custodians, nominees and
fiduciaries for forwarding proxy solicitation materials to
beneficial owners of MDA Common Shares held of record by such
custodians, nominees and fiduciaries, and MDA will reimburse such
custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith.
In order to be valid for use at the Special Meeting, any proxy
must be received by Montreal Trust Company of Canada, 510 Burrard
Street, Vancouver, British Columbia, V6C 3B9, not less than
48 hours (excluding Saturdays, Sundays and holidays) preceding
the Special Meeting or any adjournment thereof.
Appointment of Proxies
The persons named in the enclosed proxy are directors or officers
of MDA. A MDA Shareholder or MDA 1988 Optionholder who wishes to
appoint some other person to represent him or her at the Special
Meeting may do so by inserting such person's name in the blank
space provided in the form of proxy or by completing another form
of proxy and, in either case, delivering it or returning it by
mail so that it is received by the stated deadline. A proxy
nominee need not be an MDA Shareholder or MDA 1988 Optionholder.
Signing of Proxies
The proxy must be signed by the MDA Shareholder or MDA 1988
Optionholder, as the case may be, or by his or her attorney
authorized in writing, as his or her name appears on MDA's
register of shareholders or records of holders of MDA 1988
Options. If the MDA Shareholder is a corporation, the proxy must
be executed by a duly authorized officer or attorney thereof.
Revocation of Proxies
In addition to revocation in any other manner permitted by law, a
proxy given pursuant to this solicitation may be revoked by
instrument in writing executed by the MDA Shareholder or MDA 1988
Optionholder, as the case may be, or by his or her attorney
authorized in writing or, if the MDA Shareholder is a
corporation, by a duly authorized officer or attorney thereof and
deposited either:
(i) at the registered office of MDA at any time up to
and including the last business day preceding the day
of the Special Meeting, or any adjournments or
postponements thereof; or
(ii) with the chairman of the Special Meeting on the
day of the Special Meeting prior to the commencement
thereof, or any adjournments or postponements thereof.
Upon either of such deposits, the former proxy will be revoked.
Voting of Proxies
The persons named in the enclosed proxy will vote "FOR" or
"AGAINST" the Arrangement Resolution such number of shares or
votes with respect to which such persons are appointed proxy, on
the ballot to be cast with respect to the Arrangement Resolution
in accordance with the instructions of the MDA Shareholder or MDA
1988 Optionholder appointing them. In the absence of direction
or instruction, shares or votes represented by a properly
executed proxy will be voted "FOR" approval of the Arrangement
Resolution.
The enclosed form of proxy confers discretionary authority upon
the persons designated therein with respect to amendments to or
variations of matters identified in the accompanying Notice of
Special Meeting of Shareholders and with respect to other matters
that may properly come before the Special Meeting. At the date
of this Proxy Circular, the management of MDA knows of no such
amendments, variations or other matters. However, if any such
amendments, variations or other matters not presently known to
the management of MDA should properly come before the Special
Meeting, the shares represented by the proxies will be voted in
accordance with the best judgment of the person or persons voting
such proxies, absent contrary instructions.
MDA Common Shares
On September 29, 1995, MDA had outstanding 11,218,156 MDA Common
Shares; the only shares of MDA issued and outstanding. Each MDA
Shareholder of record at the close of business on October 10,
1995, the record date established for notice of the Special
Meeting, will be entitled to one vote for each MDA Common Share
held by him or her on all matters proposed to come before the
Special Meeting, except to the extent that he or she has
transferred any MDA Common Shares after the record date and the
transferee of such shares produces properly endorsed share
certificates or otherwise establishes ownership thereof and makes
a written demand, not later than the close of business on
November 3, 1995, to be included in the list of shareholders
entitled to vote at the Special Meeting, in which case the
transferee will be entitled to vote such shares.
MDA 1988 Options
On September 29, 1995, MDA had 277,643 MDA 1988 Options
outstanding. Each MDA 1988 Optionholder on the date of mailing
will receive notice of the Special Meeting and each MDA 1988
Optionholder, on the date of the Special Meeting, will be
entitled to one vote for each MDA Common Share such person is
entitled to purchase under a MDA 1988 Option.
Required Votes to Approve the Arrangement and Voting Intentions
of Certain Shareholders and Optionholders
Subject to any further order of the Court, the Arrangement
Resolution must be approved by the affirmative vote of 66K% of
the votes actually cast thereon by the MDA Shareholders and by
the MDA 1988 Optionholders, voting as separate classes, and for
this purpose any spoiled votes, illegible votes, defective votes
and abstentions shall be considered not to be votes cast.
As at September 29, 1995, the directors and officers of MDA as a
group beneficially owned approximately 23.6% of the outstanding
MDA Common Shares and executive officers of MDA as a group held
approximately 47.0% of the outstanding MDA 1988 Options.
All of the directors and officers of MDA and MDA Shareholders
holding 10% or more of the MDA Common Shares have executed Voting
Agreements and Irrevocable Proxies agreeing to hold their MDA
Common Shares and to vote for the Arrangement Resolution. These
agreements represent 56.6% of the votes attached to the
outstanding MDA Common Shares. In addition, officers and
employees of MDA holding approximately 59.2% of the total votes
entitled to be cast by MDA 1988 Optionholders have agreed with
MDA to hold their options and vote for the Arrangement Resolution
in their capacity as MDA 1988 Optionholders. All of these
agreements contain provisions which provide for termination in
certain circumstances, including if the Combination Agreement is
terminated. See "The Arrangement and the Combination Agreement -
Interests of Certain Persons in the Arrangement" and "- The
Combination Agreement - Termination and Amendment."
Principal Holders of MDA Common Shares and MDA 1988 Options
To the knowledge of the directors and officers of MDA, the only
persons who beneficially own, directly or indirectly, or exercise
direction over, MDA Common Shares carrying more than 10% of the
votes attached to all of the MDA Common Shares are as follows:
Number of MDA Common
Name of Shareholder Shares Beneficially Held Percentage
Ventures West Technologies (1) 2,404,104 21%
Spar Aerospace Limited 1,292,709 12%
John W. Pitts (2) 1,154,314 10%
John S. MacDonald (3) 1,110,449 10%
Notes:
(1) Ventures West Technologies' holdings are in two limited
partnerships: Ventures West Technologies (1994) Limited
Partnership owns 1,879,666 shares and Ventures West
Technologies Limited Partnership owns 524,438 shares.
(2) Mr. Pitts controls 1,154,314 MDA Common Shares indirectly
through Anako Holdings Inc.
(3) Dr. MacDonald controls 1,110,449 MDA Common Shares
indirectly through QuMac Enterprises Limited.
There is no MDA 1988 Optionholder carrying the right to vote at
the Special Meeting more than 10% of the votes attached to all of
the MDA 1988 Options.
Each of the above MDA Shareholders have executed Voting
Agreements and Irrevocable Proxies agreeing to hold their MDA
Common Shares and to vote for the Arrangement Resolution.
Management of MDA has been advised that Orbital does not own any
MDA Common Shares.
THE ARRANGEMENT AND THE COMBINATION AGREEMENT
The Arrangement - General
MDA Shareholders and MDA 1988 Optionholders are being asked to
approve the Arrangement under the CBCA whereby: (i) MDA will
become a wholly-owned subsidiary of Acquisition and an indirect
subsidiary of Orbital; (ii) MDA Shareholders (other than
Dissenting MDA Shareholders but including Qualifying Holdcos)
will receive, in exchange for all of their MDA Common Shares, a
number of Exchangeable Shares equal to the product of the
Exchange Ratio multiplied by the number of MDA Common Shares held
by them; and (iii) holders of MDA Options (other than Dissenting
MDA 1988 Optionholders) will receive, in exchange for each of
their MDA Options, a Replacement Option entitling them to
purchase a number of Orbital Common Shares equal to the product
of the Exchange Ratio multiplied by the number of MDA Common
Shares underlying such MDA Option, having an exercise price per
share equal to the quotient of the exercise price per share of
such MDA Option divided by the Exchange Ratio, and having the
same vesting, expiration and other terms as such MDA Option. The
Exchangeable Shares will have voting, dividend and liquidation
rights that are, as nearly as practicable, equivalent to those
rights of the Orbital Common Shares.
Holders of Exchangeable Shares will have the right to exchange
all or any of such shares for an equal number (subject to
adjustment in the event of certain capital and corporate
reorganizations) of Orbital Common Shares plus the Dividend
Amount attributable to such shares, at any time prior to the
Automatic Redemption Date and subject to certain Call Rights of
Orbital. The Exchangeable Shares will be automatically exchanged
on the Automatic Redemption Date and upon the occurrence of
certain events, including the liquidation, dissolution or winding-
up of Orbital or Acquisition or the default by Acquisition under
the Exchangeable Share Provisions. Acquisition has the right to
accelerate the Automatic Redemption Date upon 75 days' written
notice to the holders of Exchangeable Shares at any time when
there are outstanding less than 400,000 Exchangeable Shares held
by persons other than Orbital and its Affiliates.
Background of the Arrangement
On March 31, 1995, the MDA Board engaged Nesbitt Burns as
financial advisors to MDA to assist in determining whether or not
it would be advantageous for MDA to proceed with a public
offering of MDA Common Shares, and to provide advice with respect
to any acquisition transaction relating to MDA or to the MDA
Common Shares. An engagement letter was executed by MDA and
Nesbitt Burns on June 15, 1995. At the March 31 meeting the MDA
Board proposed the terms of bonus arrangements for senior
employees in the event of the completion of certain transactions.
See "The Arrangement and the Combination Agreement - Interests of
Certain Persons in the Arrangement."
On June 8, 1995, at a regularly scheduled board meeting the MDA
Board was advised by a director that Orbital had indicated an
interest in acquiring all of the MDA Common Shares. Management
was instructed by the MDA Board to meet with Orbital and
determine whether or not a transaction could be proceeded with.
On June 14, 1995, senior management of MDA and advisors met in
Richmond, B.C. with senior management of Orbital to determine
Orbital's level of interest and the general terms of a
transaction, including the requirements that the transaction be
effected as a pooling of interests and on a tax deferred basis
for Canadian MDA Shareholders.
On June 19, 1995, the MDA Board met and was advised of the
position of Orbital and the general terms of the transactions
contemplated. Management was advised to conduct due diligence on
Orbital and if the results were positive, to proceed with
negotiations with Orbital to reach an agreement as to the
structure and price of a proposed transaction.
On June 23, 1995, Orbital and MDA signed a confidentiality
agreement and Orbital agreed not to purchase any MDA Common
Shares.
During the period from June 26 to July 12, 1995, executives and
advisors of Orbital met with representatives of MDA in Vancouver,
B.C. and conducted due diligence on MDA. Executives and advisors
of MDA met with representatives of Orbital at Orbital's office in
Dulles, Virginia and conducted due diligence on Orbital.
Discussions of a general nature were held on the form of a
proposed transaction, including the requirements that the
transaction be effected on a pooling of interests basis through
an arrangement under the CBCA, and whereby Canadian MDA
Shareholders would receive a tax deferral as a result of the
transaction. In addition, senior management and advisors of MDA
met with senior management and advisors of Orbital. The
preliminary terms of a proposal were presented by Orbital and
Orbital and MDA commenced preliminary negotiations on the
exchange ratio (price), conditions for completion of the
transaction, factors relating to the exchange ratio, and other
related matters.
On July 13, 1995, the MDA Board met and was advised of the
results of due diligence on Orbital and the preliminary
negotiations. Representatives of Nesbitt Burns presented a
preliminary review of the proposed transaction, including the
range of prices then being discussed and its preliminary view as
to the fairness of a transaction from a financial point of view.
The MDA Board was advised of the duties of directors in
transactions such as the one being proposed by Orbital.
From July 17 to July 25, 1995, senior management of MDA and its
advisors met with senior management of Orbital to continue
negotiations. Orbital and MDA and their advisors commenced
preparation of the Affiliate Agreements and Voting Agreements and
Irrevocable Proxies. Drafts of these agreements were circulated
to certain shareholders, directors and officers of MDA who would
be required to execute the same. On July 18, 1995, the MDA Board
met and was advised of the status of negotiations and on July 20,
1995, MDA signed a letter with Orbital agreeing not to solicit
other business combinations except as specified.
On July 27, 1995, the MDA Board met and was updated on the status
of negotiations and the status of the position of major
shareholders including Spar Aerospace Limited ("Spar").
Management was advised to continue negotiations and those
negotiations were proceeded with. The meeting adjourned until
July 28, 1995 following a meeting between Mr. Wallis of MDA and
senior management of Spar. At the adjourned meeting the MDA
Board was advised of Spar's position and that a meeting among
senior executives of MDA, Orbital and Spar would be held on
July 31, 1995. On July 28, 1995, MDA was advised that Orbital's
board of directors had given approval in principle to the
proposed transaction.
On July 31, 1995, trading in MDA Common Shares was halted on the
TSE and VSE pending a press release. MDA, Orbital and Spar met
to discuss the terms of the proposed transaction and implications
to Spar. Spar senior management advised that they would
recommend supporting the transaction to Spar's board of
directors. On that date, Orbital and MDA executed a memorandum
of understanding with respect to the transaction and each of MDA
and Orbital issued press releases with respect thereto.
On August 3, 1995, the MDA Board ratified and confirmed the
memorandum of understanding, approved proceeding with the
preparation of definitive agreements for the completion of the
transaction with Orbital and waived the provisions of the
Shareholder Protection Rights Plan to permit the execution of
Voting Agreements and Irrevocable Proxies and Affiliate
Agreements. Representatives of Nesbitt Burns took part in this
meeting and gave an oral opinion on the fairness of the
Arrangement from a financial point of view.
From August 5 to August 31, 1995, negotiations were held on the
form of the definitive agreements and transactions related
thereto. On August 17, 1995 the MDA Board met. Representatives
of Nesbitt Burns updated the MDA Board with respect to its view
on the fairness of the Arrangement to MDA Shareholders and MDA
1988 Optionholders and confirmed its opinion on the fairness of
the Arrangement. The MDA Board reviewed and commented on the
draft definitive agreements including the Combination Agreement
and discussed certain conditions and changes with respect
thereto.
On August 17, 1995, the MDA Board formally approved and
authorized execution of the Combination Agreement and waived the
provisions of the Shareholder Protection Rights Plan to permit
the transactions contemplated by the Arrangement to be effected.
On August 18, 1995, the Orbital board of directors met and
approved the definitive agreements in the form presented, subject
to Orbital's management negotiating the terms of a fee payable by
MDA in the event MDA were to terminate the Combination Agreement
and not proceed with the transaction because a higher bona fide
offer was received by MDA. Negotiations were conducted over the
period from August 21 to 22, 1995. In exchange for the agreement
of MDA to provide a break-up fee of US$750,000 in certain
circumstances, the parties agreed that the maximum and minimum
range within which the Exchange Ratio was established be changed
from .3488 to .3607 for the maximum, and from .2578 to .2705 for
the minimum.
From August 25 to August 31, 1995, the disclosure schedules of
the respective parties were reviewed. On August 31, 1995 the
definitive Combination Agreement was executed, subject to receipt
from Spar of an executed Affiliate Agreement and Voting Agreement
and Irrevocable Proxy. These agreements were received from Spar
on September 1, 1995.
On September 5, 1995, MDA and Orbital issued press releases with
respect to the execution of the definitive Combination Agreement
and terms of the Arrangement.
As of September 29, 1995, the Combination Agreement was amended
and restated to reflect, inter alia, amendments to the
Exchangeable Share Provisions as a result of Orbital obtaining a
"no-action" letter from the SEC with respect to the issue of
Orbital Common Shares on the exchange of the Exchangeable Shares.
MDA's Reasons for the Arrangement and Recommendations of the MDA
Board
On October 5, 1995 the MDA Board unanimously approved the
Arrangement and determined that the Arrangement was fair and in
the best interests of MDA, the MDA Shareholders and the MDA 1988
Optionholders. The MDA Board unanimously recommends to MDA
Shareholders and MDA 1988 Optionholders that they vote "FOR" the
Arrangement Resolution. The MDA Board based its approval of the
Arrangement on its determination that the Exchange Ratio is fair
to MDA, MDA Shareholders and MDA 1988 Optionholders, and upon a
number of other factors, including its views regarding the
following:
(i) as of July 28, 1995, the last trading day prior to
the public announcement of the Arrangement, the
consideration provided under the Arrangement to MDA
Shareholders and MDA 1988 Optionholders of Cdn$7.35 per
MDA Common Share (based on currency exchange rates at
that date), and provided that the Average Closing Price
is US$15.00 or more, represented a 34% premium to the
closing price of MDA Common Shares on the TSE on that
date;
(ii) the Arrangement will provide MDA Shareholders and
MDA 1988 Optionholders with the opportunity to receive
Orbital Common Shares, a security that has a
significantly larger market float and greater liquidity
than MDA Common Shares;
(iii) the opinion of the MDA Board
that the combination of Orbital's space and defence
business with MDA's expertise in earth imaging and air
navigation systems will result in expanded
opportunities for MDA's core business that should
strengthen overall combined operations;
(iv) the fact that Orbital's business combined with
MDA's business after the Arrangement will have
significantly greater financial and business resources
than those of MDA alone, which may enable MDA's
business to compete more effectively with competitors
having greater resources than MDA alone and to
negotiate future acquisitions;
(v) the geographic distribution of customers for
Orbital's and MDA's business are complementary and will
allow these businesses easier access to new customers;
and
(vi) the discussions between management of MDA and
senior executives of Orbital relating to operations of
MDA, after the Effective Date.
The MDA Board also considered the following information in
concluding that the Arrangement and the Exchange Ratio are fair
to MDA Shareholders and MDA 1988 Optionholders: (i) its knowledge
of the business, operations, property, assets, financial
condition, operating results and prospects of MDA and Orbital;
(ii) current industry, economic and market conditions and trends
and its informed expectations of the future of the industry in
which MDA operates; (iii) the opinion of Nesbitt Burns as to the
fairness from a financial point of view of the Arrangement to MDA
Shareholders and to the MDA 1988 Optionholders; (iv) the terms of
the Combination Agreement; (v) the structure and accounting and
tax treatment of the Arrangement; and (vi) the respective
corporate cultures and strategies of MDA and Orbital.
In view of the variety of factors considered in connection with
its evaluation of the Arrangement, the MDA Board did not find it
practicable to and did not quantify or otherwise assign relative
strengths to the specific factors considered in reaching its
determination.
Orbital's Reasons for the Arrangement
Orbital believes that the combination of the two companies will
expand the vertical integration of Orbital's manufacturing and
testing capabilities, enhance Orbital's ability to offer
customers complete space-based systems and augment Orbital's
satellite tracking product line and customer base. The
combination of MDA's expertise in satellite ground systems and
related information processing software with services offered by
Orbital is expected to achieve synergies that should strengthen
Orbital's ability to offer affordable space-based services, while
also expanding the combined company's overall commercial base.
Orbital also anticipates that MDA's significant international
presence will solidify Orbital's expansion of its existing lines
of business into international markets. Finally, Orbital expects
to realize synergies due to the ability of the combined company
to integrate MDA's technical expertise in such areas as advanced
space-qualified software, air navigation systems and defence
electronics with Orbital's existing defence and avionics
products.
Operations Following the Arrangement
Following the Arrangement, Orbital expects that MDA will continue
to operate as a separate entity, substantially in the same manner
as it is operated prior to the Effective Date.
Interests of Certain Persons in the Arrangement
In considering the recommendation of the MDA Board with respect
to the Arrangement, MDA Shareholders and MDA 1988 Optionholders
should be aware that certain officers and directors of MDA had
interests in the Arrangement, including those referred to below,
that may present potential conflicts of interest. The MDA Board
was aware of these potential conflicts and considered them along
with the other matters described in "The Arrangement - MDA's
Reasons for the Arrangement and Recommendations of the MDA
Board."
Dr. John S. MacDonald, Chairman of MDA will be asked to join the
board of directors of Orbital. On the Effective Date, Dr.
MacDonald will execute an Employment Agreement with MDA.
The President and each area general manager of MDA will execute
an Employment Agreement with MDA which will provide for payment
of compensation in accordance with industry standards and will
contain an obligation on the employee not to compete with MDA for
a two year period following the Effective Date. The Chairman,
the President and each general manager will also concurrently
enter into a Change of Control Agreement with Orbital that will
provide compensation to them of two times their annual level of
compensation if their employment with MDA is terminated or
changed in certain circumstances following a change of control of
Orbital or MDA after the Effective Date.
The MDA Board, in March, 1995, approved the grant of a bonus to
certain members of MDA management in the event of certain
transactions such as share dispositions and sales of assets of
MDA occurring, to compensate for the fact that change of control
agreements were not in place for these members of management.
The amount of the bonus will based on the value of the
transaction, including the price for MDA Common Shares obtained
thereunder. If a transaction were completed at a price no higher
than the price for MDA Common Shares at the time of the grant no
bonus would have been payable under the formula therefor. The
aggregate amount of this bonus will be allocated among certain
members of MDA's management, including officers, by the
compensation committee of the MDA Board and while not yet
definitively allocated, the amount paid to any one recipient may
be significant to that recipient.
Opinion of MDA's Financial Advisor
MDA appointed Nesbitt Burns on March 31, 1995 to act as the
exclusive financial advisor to MDA and to evaluate the fairness
from a financial point of view to MDA Shareholders and MDA 1988
Optionholders of certain business transactions, including the
Arrangement. An engagement letter was executed on June 15, 1995
relating to this appointment. Nesbitt Burns was retained based
on its experience as a financial advisor in connection with
mergers and acquisitions and in securities valuation as well as
Nesbitt Burns' familiarity with relevant markets and with MDA.
As compensation for its financial advisory services in connection
with a proposed business combination Arrangement MDA agreed to
pay Nesbitt Burns a success fee on the closing of any
transaction. Assuming the Average Closing Price is between
US$15.00 and US$20.00, this fee is estimated to be to
Cdn$981,000. Whether or not a transaction is consummated, MDA
has agreed to reimburse Nesbitt Burns for its out-of-pocket
expenses, including reasonable counsel fees, and to indemnify
Nesbitt Burns against certain liabilities and expenses in
connection with its services as financial advisor to MDA,
including liabilities arising under securities laws.
Nesbitt Burns first delivered to the MDA Board its oral opinion
on fairness of the Arrangement at the MDA Board meeting held on
August 3, 1995. Concurrently with the execution of the
Combination Agreement on August 31, 1995, Nesbitt Burns delivered
to the MDA Board a written opinion that the Arrangement was fair
to the MDA Shareholders and the MDA 1988 Optionholders from a
financial point of view. This opinion was subsequently updated
to October 4, 1995. The complete text of Nesbitt Burns' opinion
is attached hereto as Appendix "C" and the summary of the opinion
set forth below is qualified in its entirety by reference to such
opinion. MDA Shareholders and MDA 1988 Optionholders are urged
to read such opinion carefully and in its entirety for a
description of the procedures followed, the factors considered
and the assumptions made by Nesbitt Burns. In connection with
the rendering of its opinion dated October 4, 1995, Nesbitt Burns
among other things reviewed and relied upon:
(a) the most recent available draft of this Proxy Circular
prepared in connection with the Arrangement;
(b) the Combination Agreement as at September 29, 1995;
(c) the Voting Agreements and Irrevocable Proxies;
(d) the agreement dated as of July 31, 1995 between Orbital and
MDA outlining the proposed terms and conditions of the
Arrangement;
(e) the Agreement dated July 20, 1995 between Orbital and MDA
relating to MDA's agreement not to solicit third party bids
("No-Shop Agreement");
(f) audited financial statements of MDA for each of the fiscal
years in the five-year period ended March 31, 1995 and the
unaudited financial statements of MDA for the three month
periods ended June 30, 1994 and June 30, 1995;
(g) the budget for MDA for the fiscal year ending March 31,
1996;
(h) the strategic plan for MDA dated April 24, 1995 for the five
fiscal years ending March 31, 2000 prepared by the
management of MDA;
(i) certain income tax information with respect to MDA;
(j) publicly available information related to the business,
operations and consolidated financial performance of MDA
including the annual report to shareholders for the fiscal
year ended March 31, 1995;
(k) confidential information provided to Nesbitt Burns by the
management of MDA consistent with that disclosed to Orbital;
(l) discussions with senior management of MDA with respect to
the information referred to in (f), (g), (h), (i) and (j)
above, and MDA management's assessment of the current and
prospective operations of MDA and the industries in which
they operate;
(m) relevant stock market information relating to the MDA Common
Shares and the shares of other companies whose activities
include businesses similar to certain of MDA's businesses;
(n) data with respect to other transactions of a comparable
nature considered by Nesbitt Burns to be relevant;
(o) such other financial, market and industry information and
such other analysis as Nesbitt Burns considered relevant and
appropriate in the circumstances; and
(p) a certificate dated the date of the opinion from senior
officers of MDA as to the accuracy and completeness of
certain information provided to Nesbitt Burns.
In addition, Nesbitt Burns reviewed and relied upon the following
with respect to Orbital:
(a) audited financial statements of Orbital for each of the
fiscal years in the five-year period ended December 31, 1994
and the unaudited financial statements for the six months
ended June 30, 1994 and June 30, 1995;
(b) publicly available information related to the business,
operations and consolidated financial performance of
Orbital, including the annual report to shareholders for the
fiscal year ended December 31, 1994;
(c) confidential information provided to Nesbitt Burns by the
management of Orbital consistent with that disclosed to MDA;
(d) discussions with senior management of Orbital with respect
to the information referred to in (a), (b) and (c) above and
Orbital management's assessment of the current and
prospective operations of Orbital, and the industries in
which it operates;
(e) relevant stock market information relating to the Orbital
Common Shares and the shares of other companies whose
activities include businesses similar to certain of
Orbital's businesses;
(f) data with respect to transactions involving other companies
similar to Orbital; and
(g) such other financial, market and industry information and
such other analysis as Nesbitt Burns considered relevant and
appropriate in the circumstances.
Nesbitt Burns' conclusion as to the fairness of the Arrangement
from a financial point of view to the MDA Shareholders and MDA
1988 Optionholders was based upon various factors and
assumptions, including without limitation, the following:
(a) the conclusion that fairness in respect of the Arrangement
for MDA Shareholders or MDA 1988 Optionholders should be
based upon whether the consideration to be received under
the Arrangement by current holders of MDA Common Shares is
equal to or greater than the bottom end of the range of
values of the MDA Common Shares currently held;
(b) the determination that it was not inappropriate to utilize
the market trading price of Orbital Common Shares for
purposes of its assessment;
(c) in assessing the MDA Common Shares and the consideration
offered for each MDA Common Share, an assumption of a
currency exchange rate of US$0.7361 per Cdn$1.00 as agreed
on July 31, 1995 and US$0.7509 per Cdn$1.00 on October 4,
1995 and an assumption of a trading value of Orbital Common
Shares in excess of US$15.00;
(d) in assessing the MDA Common Shares, an approach to value
based on MDA remaining a going concern. Liquidation and
break-up methodologies were not considered appropriate in
the circumstances. Nesbitt Burns considered that the most
appropriate going concern method to apply to MDA was a
discounted cash flow ("DCF") approach. The DCF approach
takes into account the amount, timing and relative certainty
of future cash flows expected to be generated by MDA's
businesses after provision for cash taxes, capital
expenditures and changes in working capital and before
provisions for payment to debtholders, interest income or
expense and payment to equity holders ("Free Cash Flow").
These Free Cash Flow projections were present valued by
applying an appropriate weighted average cost of capital
("WACC"). The DCF analysis included consideration of
sensitivities in respect of revenue growth, gross margins,
levels of WACC and the future growth rates of Free Cash
Flow;
(e) in order to check the conclusions reached based upon the DCF
analysis, a comparison of a range of multiples implied by
Nesbitt Burns' analysis to the range of multiples derived
from an analysis of comparable transactions and the market
trading of comparable public companies; and
(f) the fact that the consideration value offered to MDA
Shareholders of $7.35 per MDA Common Share, provided that
the Average Closing Price is greater than or equal to
US$15.00, represents a 53% premium to the closing price of
MDA Common Shares on the TSE on July 19, 1995 (the day prior
to MDA and Orbital entering into the No-Shop Agreement) and
a 34% premium to the closing price of MDA Common Shares on
the TSE on July 28, 1995 (the last trading day prior to the
announcement of the proposed Arrangement).
Based on and subject to the foregoing, Nesbitt Burns is of the
opinion that, as of the date of the Opinion, the Arrangement is
fair, from a financial point of view, to the holders of MDA
Common Shares and MDA 1988 Optionholders.
Plan of Arrangement
Under the Plan of Arrangement, the following transactions, among
others, shall occur in the following order:
(a) the authorized share capital of Acquisition shall be amended
to authorize an unlimited number of Exchangeable Shares
having the rights, restrictions and limitations set forth in
the Exchangeable Share Provisions and 10,000 Class B
Preferred Shares having the rights, restrictions and
limitations set forth in Appendix A to the Plan of
Arrangement;
(b) Acquisition shall issue 10,000 Class B Preferred Shares to
Canadian Imperial Bank of Commerce in partial consideration
for services rendered to Acquisition in connection with the
Arrangement;
(c) all the outstanding MDA Common Shares, except MDA Common
Shares owned beneficially and of record by the Qualifying
Holdcos and MDA Common Shares held by Dissenting MDA
Shareholders, shall be exchanged by the holders thereof for
Exchangeable Shares, the number of which shall be the
product of such number of MDA Common Shares being exchanged
and the Exchange Ratio. Each former holder of MDA Common
Shares (other than the Qualifying Holdcos and Dissenting MDA
Shareholders) shall receive the whole number of Exchangeable
Shares resulting from the exchange of such holder's MDA
Common Shares for the consideration set out in the foregoing
sentence and in lieu of fractional Exchangeable Shares, an
amount in cash equal to the fraction multiplied by the
Average Closing Price, payable in Canadian dollars;
(d) all the outstanding shares of each of the Qualifying Holdcos
shall be exchanged by the holders thereof for Exchangeable
Shares, the number of which shall be the product of the
number of MDA Common Shares owned beneficially and of record
by each respective Qualifying Holdco and the Exchange Ratio.
Each former holder of shares of a Qualifying Holdco shall
receive the whole number of Exchangeable Shares resulting
from the exchange of all such holder's shares of a
Qualifying Holdco for the consideration set out in the
foregoing sentence and in lieu of fractional Exchangeable
Shares, an amount in cash equal to the fraction multiplied
by the Average Closing Price, payable in Canadian dollars;
(e) each of the Qualifying Holdcos shall be dissolved into and
its assets distributed to Acquisition and for the purposes
of such dissolution each of the Qualifying Holdcos will be
authorized to file articles of dissolution with the Director
under CBCA at such time as the board of directors of
Acquisition shall determine;
(f) each outstanding MDA Option, except options held by
Dissenting MDA 1988 Optionholders, shall become an option to
purchase a number of Orbital Common Shares equal to the
product (rounded to the nearest whole number) of the
Exchange Ratio times the number of MDA Common Shares subject
to such MDA Option and will have an exercise price equal to
the exercise price for such option divided by the Exchange
Ratio and the same vesting, expiration and other terms as
such MDA Option as in effect immediately prior to the
Effective Time;
(g) the MDA 1988 Option Plans will be amended to provide that if
the Orbital Common Shares are changed or exchanged for a
different kind or number of securities, the options
thereunder will be amended accordingly; and
(h) the name of Acquisition shall be changed to "MacDonald
Dettwiler Holdings Inc."
Contemporaneously with the Arrangement, Orbital and Acquisition
will enter into the Voting and Exchange Trust Agreement and the
Support Agreement. See "The Arrangement and the Combination
Agreement - Description of Exchangeable Shares."
Post-Combination Share Ownership
Upon completion of the Arrangement, Acquisition will be the
beneficial owner of all the outstanding MDA Common Shares and
Orbital will be the beneficial and registered owner of all of the
Acquisition Common Shares. The Acquisition Common Shares will be
the only class of voting securities of Acquisition. As a result
of the Arrangement, assuming an Exchange Ratio of .3136 (based on
an assumed Average Closing Price of US$17.25), the former MDA
Shareholders and holders of MDA Options will own or will have the
right to acquire (through ownership of Exchangeable Shares and
Replacement Options) approximately 15% of the outstanding Orbital
Common Shares (including shares issuable to holders of the
Exchangeable Shares and Replacement Options).
Qualifying Holdcos
Any MDA Shareholder who wishes to transfer the MDA Common Shares
owned by it to a Qualifying Holdco and exchange the shares of
such Qualifying Holdco for Exchangeable Shares pursuant to the
Plan of Arrangement must notify MDA of its desire to do so not
less than five Business Days prior to the Special Meeting and
must have entered into a Holding Company Agreement with
Acquisition and met all the conditions thereunder prior to the
date of the Special Meeting. Acquisition shall enter into a
Holding Company Agreement with each MDA Shareholder who provides
the aforementioned notice to MDA and who meets the conditions
provided in the Holding Company Agreement. Any MDA Shareholder
who has not entered into a Holding Company Agreement with
Acquisition on or before the date of the Special Meeting or who
has entered into such agreement but has failed to meet all such
conditions to the satisfaction of Acquisition in its sole
discretion shall, subject to the Plan of Arrangement receiving
all necessary approvals, exchange his or her MDA Common Shares
for Exchangeable Shares as an MDA Shareholder. Any MDA
Shareholder wishing to use a Qualifying Holdco should consult its
legal advisors and tax advisors.
Dissenting Holders
As permitted in the Interim Order, MDA Shareholders and MDA 1988
Optionholders may exercise rights of dissent with respect to
their MDA Common Shares or the MDA Common Shares underlying the
MDA 1988 Options pursuant to and in the manner set forth in
section 190 of the CBCA and the Plan of Arrangement. In the
event of the exercise of dissent rights by any MDA 1988
Optionholders, such MDA 1988 Options shall be deemed to have been
exercised and the exercise price of each such MDA 1988 Option
shall be satisfied by reducing the fair market value paid for the
MDA Common Shares underlying such MDA 1988 Option by such
exercise price, provided that if the MDA 1988 Optionholder is
ultimately not entitled to be paid the fair market value for such
underlying shares, such MDA 1988 Option shall be deemed not to
have been exercised and shall become a Replacement Option. See
"Dissenting Rights."
Description of Exchangeable Shares
Holders of Exchangeable Shares will have voting, liquidation and
dividend rights which are, as nearly as practicable, equivalent
to the rights of holders of Orbital Common Shares. Holders of
Exchangeable Shares will have the right to exchange any of such
shares for an equal number (subject to adjustment in the event of
certain capital and corporate reorganizations of Orbital) of
Orbital Common Shares plus the Dividend Amount attributable to
such shares, at any time prior to the Automatic Redemption Date
and subject to certain Call Rights of Orbital. The Exchangeable
Shares will be automatically exchanged on the Automatic
Redemption Date and upon the occurrence of certain events,
including the liquidation, dissolution or winding-up of Orbital
or Acquisition or the default by Acquisition under the
Exchangeable Share Provisions. Acquisition has the right to
accelerate the Automatic Redemption Date upon not less than
75 days' written notice to the holders of Exchangeable Shares at
any time when there are outstanding less than 400,000
Exchangeable Shares held by persons other than Orbital and its
Affiliates.
Voting Rights
Holders of Exchangeable Shares will generally not be entitled to
vote at meetings of the shareholders of Acquisition (except as
required by law). Orbital will be the only voting shareholder of
Acquisition. Pursuant to the Voting and Exchange Trust Agreement
holders of Exchangeable Shares will be entitled to vote along
with holders of Orbital Common Shares at meetings of the holders
of Orbital Common Shares.
As of the Effective Date, Orbital, Acquisition and the Trustee
will enter into the Voting and Exchange Trust Agreement under
which Orbital will issue one Special Voting Share to the Trustee
for the benefit of the holders of the Exchangeable Shares (the
"Beneficiaries"). The Special Voting Share will carry the number
of votes, exercisable at any meeting at which holders of Orbital
Common Shares are entitled to vote, equal to the number of
Orbital Common Shares into which the outstanding Exchangeable
Shares not held by Orbital or any of its Affiliates are then
exchangeable.
Each Beneficiary on the record date for any meeting at which
holders of Orbital Common Shares are entitled to vote will be
entitled to instruct the Trustee to exercise that number of the
votes attached to the Special Voting Share equal to the number of
votes that the Exchangeable Shares held by such holder would be
entitled to if exchanged for Orbital Common Shares. The Trustee
will exercise each vote attached to the Special Voting Share only
as directed by the relevant Beneficiary and, in the absence of
instructions from a Beneficiary, will not exercise such votes.
Each Beneficiary may, upon instructing the Trustee, obtain a
proxy from the Trustee entitling the Beneficiary to vote directly
at the relevant meeting the votes attached to the Special Voting
Share to which the Beneficiary is entitled. All rights of a
Beneficiary to exercise votes attached to the Special Voting
Share will cease upon the exchange or redemption of Exchangeable
Shares for Orbital Common Shares or the purchase of Exchangeable
Shares by Orbital pursuant to the Call Rights.
The Trustee will send to the Beneficiaries the notice of each
meeting at which holders of Orbital Common Shares are entitled to
vote, together with the related meeting materials and a statement
as to the manner in which the Beneficiary may instruct the
Trustee to exercise the votes attaching to the Special Voting
Share, in each case at the same time as Orbital sends such notice
and materials to the holders of Orbital Common Shares. The
Trustee will also send to the Beneficiaries copies of all
information statements, interim and annual financial statements,
reports and other materials and at the same time as, and to the
extent that, such materials are sent by Orbital to the holders of
Orbital Common Shares. The Trustee will also send to the
Beneficiaries all materials sent by third parties to holders of
Orbital Common Shares to the extent such materials are provided
by Orbital to the Trustee, including dissident proxy circulars
and tender and exchange offer circulars, as soon as possible
after such materials are first sent to holders of Orbital Common
Shares.
Dividend Rights
Under the Exchangeable Share Provisions, holders of Exchangeable
Shares will be entitled to receive dividends as follows:
(i) in the case of a cash dividend declared on Orbital
Common Shares, holders of each Exchangeable Share will
be entitled to receive the Canadian dollar equivalent
of the dividend declared on one Orbital Common Share
(subject to adjustment);
(ii) in the case of a stock dividend declared on
Orbital Common Shares that is payable in Orbital Common
Shares, holders of each Exchangeable Share will be
entitled to receive such number of Exchangeable Shares
as is equal to the number of Orbital Common Shares to
be paid as a dividend on one Orbital Common Share
(subject to adjustment); and
(iii) in the case of a dividend
declared on Orbital Common Shares in property other
than cash or Orbital Common Shares, holders of each
Exchangeable Share will be entitled to receive such
type and amount of property as is the same or
economically equivalent to (as determined by the board
of directors of Acquisition) the type and amount of
property declared as a dividend on one Orbital Common
Share (subject to adjustment).
The number of Orbital Common Shares referred to in determining
the amount of dividends to be paid on one Exchangeable Share is
subject to adjustment in the event of certain capital and
corporate reorganizations so as to treat the holders of
Exchangeable Shares in the same manner as the holders of Orbital
Common Shares were treated with respect to any such
reorganization. The record date for the determination of the
holders of Exchangeable Shares entitled to receive payment of,
and the payment date for, any dividend declared on Exchangeable
Shares shall be the same dates as the record date and payment
date, respectively, for the corresponding dividend on Orbital
Common Shares.
Retraction, Redemption and Exchange Right
Subject to applicable law and the Call Rights of Orbital
described below, (i) holders of Exchangeable Shares shall be
entitled at any time upon notice to the Depositary to require
Acquisition to redeem any of such Exchangeable Shares, and (ii)
on the Automatic Redemption Date, Acquisition shall redeem all of
the then outstanding Exchangeable Shares held by holders other
than Orbital and its Affiliates. Pursuant to the Voting and
Exchange Trust Agreement, subject to applicable law and the Call
Rights of Orbital described below, (i) upon the occurrence of and
during the continuance of an Insolvency Event or if Acquisition
shall be in default of the terms of the Exchangeable Share
Provisions, a holder of Exchangeable Shares may instruct the
Trustee to require Orbital to purchase any or all of such
holder's Exchangeable Shares and (ii) in the event of the
voluntary or involuntary liquidation, dissolution or winding-up
of Orbital, the Exchangeable Shares will automatically be
exchanged for Orbital Common Shares. In the case of any
retraction or redemption of Exchangeable Shares by Acquisition,
any purchase or exchange of Exchangeable Shares pursuant to the
Voting and Exchange Trust Agreement, or any purchase of
Exchangeable Shares by Orbital pursuant to its Call Rights
described below, each Exchangeable Share so retracted, redeemed,
purchased or exchanged shall (subject to required withholding)
entitle the holder thereof to receive (i) an amount equal to the
market price of an Orbital Common Share, which amount shall be
satisfied in full by delivery to such holder of one Orbital
Common Share (subject to adjustment) and (ii) payment of the
Dividend Amount. Upon the exercise by Orbital of any of the Call
Rights described below, the holder of Exchangeable Shares with
respect and to which such Call Right is exercised will be
authorized to sell and Orbital will be obligated to purchase the
Exchangeable Shares with respect to which such Call Right is
exercised.
Exercise of Retraction Rights of Holders and Orbital's Retraction
Call Rights. Holders of Exchangeable Shares may effect a
retraction by presenting a certificate or certificates to
Acquisition's transfer agent representing the number of
Exchangeable Shares the holder desires to retract, together with
a written request (a "Retraction Request") specifying the number
of Exchangeable Shares the holder wishes to retract and
acknowledging the Retraction Call Right of Orbital described
below, and such other documents as may be required to effect the
retraction of the Exchangeable Shares. Subject to the Retraction
Call Right of Orbital, Acquisition shall redeem the Exchangeable
Shares so retracted effective at the close of business on the
sixth Business Day after the Retraction Request is received.
Upon receipt of a Retraction Request, the transfer agent shall
immediately notify Orbital of such request. If Orbital wishes to
exercise its Retraction Call Right, it must so notify the
transfer agent by the end of the third Business Day following the
receipt by the transfer agent of the Retraction Request that it
intends to exercise its Retraction Call Right to purchase all,
but not less than all, of the Exchangeable Shares submitted by
the holder thereof for retraction.
Exercise of Redemption Rights of Acquisition and Orbital's
Redemption Call Rights. Subject to Orbital's Redemption Call
Right, the Exchangeable Shares shall be redeemed by Acquisition
on the Automatic Redemption Date. Acquisition has the right to
accelerate the Automatic Redemption Date upon 75 days' written
notice to the holders of Exchangeable Shares at any time when
there are outstanding less than 400,000 Exchangeable Shares held
by holders other than Orbital and its Affiliates. Orbital shall
have the Redemption Call Right, notwithstanding any proposed
redemption of the Exchangeable Shares by Acquisition as outlined
above, to purchase on the Automatic Redemption Date all, but not
less than all, of the outstanding Exchangeable Shares.
Orbital shall, at least 75 days before the Automatic Redemption
Date, provide Acquisition and the transfer agent with notice of
its exercise of the Redemption Call Right. The transfer agent
shall thereafter give notice to each holder of Exchangeable
Shares of Orbital's exercise of the Redemption Call Right.
Exercise of Liquidation Exchange Right of Holders and Orbital's
Liquidation Call Rights. Pursuant to the Voting and Exchange
Trust Agreement, upon the occurrence and during the continuance
of an Insolvency Event, or if Acquisition shall be in default of
the terms of the Exchangeable Share Provisions, a Beneficiary may
instruct the Trustee to require Orbital to purchase any or all of
the Exchangeable Shares held by the Beneficiary. Acquisition and
Orbital will give immediate written notice to the Trustee of the
occurrence of an Insolvency Event or any event that may, with the
passage of time or the giving of notice, become an Insolvency
Event, or if Acquisition shall be in default of the Exchangeable
Share Provisions. As soon as practicable thereafter, the Trustee
will notify each Beneficiary of such event or potential event
and will advise the Beneficiary of its rights as described above.
Under the Plan of Arrangement, Orbital will be granted the
Liquidation Call Right, in the event of and notwithstanding the
proposed voluntary or involuntary liquidation, dissolution or
winding-up of Acquisition, to purchase all, but not less than
all, of the Exchangeable Shares then outstanding and not held by
Orbital or its Affiliates. The purchase by Orbital of all the
outstanding Exchangeable Shares upon the exercise of such
Liquidation Call Right in that event will occur on the effective
date of the voluntary or involuntary liquidation, dissolution or
winding up of Acquisition. In addition, if Acquisition is not
legally able to redeem all Exchangeable Shares tendered for
retraction by a Beneficiary because it is insolvent or to do so
would render it insolvent, Orbital shall be deemed to have
exercised its Liquidation Call Right with respect to those
Exchangeable Shares which could not be redeemed.
Exercise of Automatic Exchange Right in the Event of Liquidation
or Winding Up of Orbital. Under the Voting and Exchange Trust
Agreement, in the event of the voluntary or involuntary
liquidation, dissolution or winding-up of Orbital, all
outstanding Exchangeable Shares will automatically be exchanged
for Orbital Common Shares, by way of a purchase by Orbital. The
consideration for the full purchase price for the Exchangeable
Shares subject to such automatic exchange shall be delivered to
the holder thereof at least five days prior to a liquidation
event.
Deduction and Remittance of Withholding Tax
Delivery of Orbital Common Shares to a holder of Exchangeable
Shares by Acquisition or Orbital, as the case may be, as
described under "Exercise of Retraction Rights of Holders and
Orbital's Retraction Call Rights," "Exercise of Redemption Rights
of Acquisition and Orbital's Redemption Call Rights," "Exercise
of Liquidation Exchange Right of Holders and Orbital's
Liquidation Call Rights," and "Exercise of Automatic Exchange
Right in the Event of Liquidation or Winding Up of Orbital," will
be made, in the case of a holder that is a resident of Canada or
a holder that is a non-resident of Canada who provides a
certificate issued under section 116 of the Canadian Tax Act
specifying a certificate limit not less than the fair market
value of the Exchangeable Shares, without any reduction in number
of Orbital Common Shares, and will be made, in the case of a
holder who is a non-resident of Canada and who does not provide
such a certificate, in a reduced number of Orbital Common Shares
to reflect compliance with the obligation of Acquisition or
Orbital, as the case may be, to withhold and remit on behalf of
such non-resident holder, tax under section 116 of the Canadian
Tax Act.
Anti-dilution and Capital Reorganizations
In the event of stock splits or consolidations of Orbital Common
Shares, the distribution to the holders of Orbital Common Shares
of options, warrants or rights to acquire securities or assets of
Orbital for less than their fair market value or other
distribution to holders of Orbital Common Shares of assets of
Orbital, unless an economically equivalent distribution is made
by Acquisition to holders of the Exchangeable Shares, the number
of Orbital Common Shares to be received upon exchange of the
Exchangeable Shares will be adjusted so as to give equivalent
economic treatment to the holders of the Exchangeable Shares. In
the event of a capital reorganization of Orbital, holders of
Exchangeable Shares shall be entitled to receive after such
capital reorganization, the number of shares or other securities
of Orbital or of a corporation resulting, surviving or continuing
from the capital reorganization that such holder would have
received had he or she been a holder of Orbital Common Shares on
the record date of the capital reorganization.
Support Agreement
The Support Agreement obligates Orbital and Acquisition to take
or refrain from taking certain actions so as to ensure that
holders of Exchangeable Shares will receive the voting, dividend,
liquidation and exchange rights described above. In particular,
the Support Agreement provides that: (i) Orbital shall not, and
shall cause its Affiliates not to, exercise any voting rights
attached to Exchangeable Shares owned by it or any of its
Affiliates on any matter considered at meetings of holders of
Exchangeable Shares (including any approval sought from such
holders in respect of matters arising under the Support
Agreement); (ii) Orbital shall not declare or pay any dividend on
the Orbital Common Shares unless Acquisition simultaneously
declares and pays the same or an economically equivalent dividend
(after, in the case of cash dividends, appropriate adjustments
for currency translations) on the Exchangeable Shares; and (iii)
Orbital and Acquisition will do all things necessary to ensure
that Acquisition will be able to make all payments on the
Exchangeable Shares required in the event of (a) the liquidation,
dissolution or winding-up of Acquisition, (b) the retraction of
Exchangeable Shares by a holder, or (c) the redemption of the
Exchangeable Shares by Acquisition.
The Support Agreement obligates Orbital, in the event that a
tender offer, share exchange offer, issuer bid, takeover bid or
similar transaction with respect to Orbital Common Shares (an
"Offer") is proposed or recommended by Orbital, its shareholders
or board of directors, or is otherwise effected with the consent
or approval of Orbital's board of directors, to use all
commercially reasonable efforts to take such actions in good
faith as are necessary or desirable to enable and permit holders
of Exchangeable Shares to participate in such Offer to the same
extent and on an economically equivalent basis as the holders of
the Orbital Common Shares, without discrimination.
The Support Agreement also provides that Orbital will take all
actions necessary or desirable to cause all Orbital Common Shares
issued and delivered pursuant to the Combination Agreement and
related agreements to be freely tradeable by the holders thereof
(other than any restrictions on transfer by reason of a holder
being a "control person" of Orbital for purposes of Canadian law
or an "affiliate" of Orbital for purposes of United States
securities laws). In addition, Orbital will take all such
actions necessary to cause all such Orbital Common Shares to be
listed or quoted for trading on all stock exchanges or quotation
systems on which outstanding Orbital Common Shares are then
listed or quoted for trading. The Orbital Common Shares are
currently quoted for trading on the NASDAQ and it is not
anticipated that such shares will be listed on any other stock
exchange or trading system.
The Support Agreement also provides that, without the prior
approval of Acquisition and the holders of the Exchangeable
Shares, Orbital will not distribute additional Orbital Common
Shares or rights to subscribe therefor or other assets or
evidences of indebtedness to all or substantially all holders of
Orbital Common Shares nor change the Orbital Common Shares nor
effect any reorganization or other transaction affecting the
Orbital Common Shares, unless the same or an economically
equivalent distribution on, or change to, the Exchangeable Shares
(or in the rights of the holders thereof) is made simultaneously.
The board of directors of Acquisition is conclusively empowered
to determine in good faith and in its sole discretion whether any
corresponding distribution on or change to the Exchangeable
Shares is the same as or economically equivalent to any proposed
distribution on or change to the Orbital Common Shares.
The Support Agreement also provides that so long as there remain
outstanding any Exchangeable Shares not owned by Orbital or any
of its Affiliates, Orbital will remain the beneficial owner,
directly or indirectly, of all outstanding shares of Acquisition,
other than Exchangeable Shares and the Class B Preferred Shares.
With the exception of administrative changes for the purposes of
adding covenants for the protection of the holders of the
Exchangeable Shares, making certain necessary amendments or
curing ambiguities or clerical errors (in each case provided that
the board of directors of each of Orbital and Acquisition is of
the opinion that such amendments are not prejudicial to the
interests of the holders of the Exchangeable Shares), the Support
Agreement may not be amended without the approval of the holders
of the Exchangeable Shares.
Market for Orbital Common Shares and Exchangeable Shares
The Orbital Common Shares issued upon exchange of the
Exchangeable Shares will be freely tradeable by the holders
thereof (other than any restrictions on transfer by reason of a
holder being a "control person" of Orbital for purposes of
Canadian law or an "affiliate" of Orbital for purposes of United
States securities laws) and will be quoted for trading on the
NASDAQ. Although the transfer of Exchangeable Shares, subject to
receiving orders from applicable securities regulators, will not
be restricted under applicable securities laws, subject to the
above-noted exceptions, the Exchangeable Shares will not be
listed on any stock exchange and MDA does not expect there will
be any market for the Exchangeable Shares. See "The Arrangement
and the Combination Agreement - Stock Exchange Listings" and "-
Resale of Exchangeable Shares and Orbital Common Shares Received
in the Arrangement."
The Combination Agreement
The following paragraphs summarize the material terms of the
Combination Agreement. MDA Shareholders and MDA 1988
Optionholders are urged to read the Combination Agreement in its
entirety for a more complete description of the terms and
conditions of the obligations of the parties in respect of the
Plan of Arrangement.
Actions to be Taken Prior to the Effective Time
Pursuant to the Combination Agreement, MDA, Acquisition and
Orbital have agreed to perform certain obligations. MDA agreed
to call all options to purchase MDA Common Shares presently held
by shareholders of Earth Observation Sciences Ltd., a subsidiary
of MDA. Orbital and Acquisition covenanted to obtain exemptions
from registration or file a registration statement under the 1933
Securities Act qualifying the issue of the Orbital Common Shares,
and to obtain all orders necessary from securities regulators in
Canada so as to qualify the issuance and permit the free trading
of the Exchangeable Shares and the Orbital Common Shares in the
U.S. and Canada subject only to restrictions on holders who are
"control persons" in Canada or "affiliates" in the U.S. In
addition, Orbital, Acquisition and MDA have agreed to cooperate
in the preparation of this Proxy Circular, to take all actions
necessary to qualify the issue of the Exchangeable Shares and
Orbital Common Shares under appropriate securities legislation in
order to permit the issue and free trading thereof, subject to
the above-noted exceptions, to call the Special Meeting, and to
obtain the necessary court orders to permit the Arrangement to be
completed.
Business of MDA Pending the Arrangement
Pending consummation of the Arrangement, and except as otherwise
consented to or approved in advance by Orbital in writing, MDA
has agreed that MDA and its subsidiaries will, among other
things, operate their respective businesses in the ordinary
course of business consistent with past practices and use
reasonable efforts to preserve intact their respective business
organizations; not authorize for issuance or issue any capital
stock, rights, warrants, options or convertible or similar
securities, subject to certain exceptions, or repurchase any
capital stock; not take any action that would materially
adversely affect the ability of MDA or Orbital to obtain the
approvals required to effect the transactions contemplated by the
Combination Agreement; and not take any action that would
materially affect the ability of MDA to perform its covenants and
agreements under the Combination Agreement.
Solicitation of Alternate Transactions
The Combination Agreement provides that except as required by
law, MDA will not, directly or indirectly: solicit, encourage,
initiate or participate in any negotiations, inquiries or
discussions with respect to any offer or proposal to acquire all
or any significant part of MDA's business, assets or capital
shares whether by arrangement, amalgamation, merger,
consolidation, other business combination, purchase of assets,
tender or exchange offer or otherwise (each an "Acquisition
Transaction"); or disclose any information not customarily
disclosed to any person concerning MDA's business or properties
or afford to any person or entity access to its properties, books
or records, except in the ordinary course of business consistent
with past practice and except as required pursuant to a
governmental request for information; enter into or execute any
agreement relating to an Acquisition Transaction, plan of
reorganization, or other agreement calling for the sale of all or
any significant part of its business and properties; or make or
authorize any public statement, recommendation or solicitation
with respect to any Acquisition Transaction or any offer or
proposal relating to an Acquisition Transaction other than with
respect to the Arrangement.
The Combination Agreement provides that nothing contained therein
limits the power of the MDA Board to withdraw or modify any
recommendation with respect to the Plan of Arrangement if a
material adverse change occurs in the business or affairs of
Orbital or in any of the information provided by Orbital on which
the MDA Board has based any recommendation regarding the
Arrangement. If any person proposes an unsolicited bona fide
acquisition transaction that in the opinion of MDA's Board
(having consulted its financial advisors) offers terms that may
be more favourable to the MDA Shareholders than pursuant to the
Combination Agreement or the Plan of Arrangement, MDA shall have
seven business days to consider such proposal, following which
time the MDA Board may withdraw or modify any recommendation with
respect to the Plan of Arrangement only if to do so would, in the
opinion of the MDA Board (having consulted outside counsel),
acting reasonably, be a proper exercise of the directors'
fiduciary duty. Depending on the timing of the unsolicited bona
fide Acquisition Transaction, the MDA Board may support a
proposal to postpone or adjourn the Special Meeting for not more
than 10 business days. The Combination Agreement generally
requires MDA to inform Orbital of any such bona fide offer
received by it or any related request for information.
In addition, MDA may terminate the Combination Agreement if a
bona fide offer for an Acquisition Transaction providing
consideration for MDA Common Shares having a fair market value of
at least US$5.95 per share (based on prevailing currency exchange
rates at the date of the offer) is received, in which case MDA
has agreed to pay Orbital a fee of US$750,000 upon completion of
the transaction that gave rise to such termination.
Conditions to the Arrangement
Consummation of the Arrangement is subject to the satisfaction of
various conditions for the benefit of each of MDA or Orbital and
both of them. Conditions precedent for the benefit of MDA
include: (i) Orbital's and Acquisition's representations and
warranties being correct on the Effective Date and Orbital having
performed its covenants under the Combination Agreement in all
material respects; (ii) MDA receiving an opinion from counsel to
Orbital in form and substance reasonably satisfactory to MDA; and
(iii) the Average Closing Price being equal to or greater than
US$12.775. Conditions precedent for the benefit of Orbital
include: (i) MDA's representations and warranties being correct
on the Effective Date and MDA having performed its covenants
under the Combination Agreement in all material respects; (ii)
Orbital having received an opinion of MDA's counsel in form and
substance reasonably satisfactory to Orbital; (iii) MDA's Board
having waived the applicable provisions of the Shareholder
Protection Rights Plan; (iv) all necessary Affiliate Agreements
having been executed; (v) MDA having entered into Employment
Agreements and Change of Control Agreements with the Chairman,
the President and each area general manager, as required, (vi)
Dissenting MDA Shareholders and Dissenting MDA 1988 Optionholders
entitled to receive in the aggregate no more than 10% of the
aggregate number of Orbital Common Shares and the Orbital Common
Shares reserved for issuance upon exercise of the Replacement
Options to be issued pursuant to the Plan of Arrangement; (vii)
Orbital having received a letter from its independent auditors to
the effect that the transaction meets the requirements for
pooling of interests accounting under U.S. GAAP; (viii) all
required third-party consents and waivers relating to the
Arrangement having been obtained; and (ix) the Average Closing
Price being equal to or less than US$25.00.
In addition, for the benefit of both MDA and Orbital, the
following conditions must be met: (i) the approval of MDA
Shareholders and MDA 1988 Optionholders as required under the
Interim Order shall have been obtained and the Final Order shall
have been issued by the Court; (ii) there shall be no temporary
restraining order, preliminary or permanent injunction or other
legal restraints or prohibitions, statutes, rules, regulations or
orders preventing consummation of the Arrangement; and (iii) the
approval for quotation, subject to notice of issuance, on the
NASDAQ of the Orbital Common Shares to be issued in connection
with the Arrangement shall have been obtained.
The parties entitled to the benefit of a particular condition may
waive compliance thereof.
Termination and Amendment
The Combination Agreement may be terminated and the Arrangement
may be abandoned prior to the Effective Date notwithstanding
approval by the MDA Shareholders and MDA 1988 Optionholders,
under the circumstances specified therein, including: (i) by
mutual consent of Orbital and MDA; (ii) by either Orbital or MDA,
if the Arrangement shall not have been consummated by
December 31, 1995 and if the terminating party has not caused the
failure of the Arrangement to be consummated by its own failure
to fulfil any of its obligations under the Combination Agreement;
(iii) by either Orbital or MDA, if the MDA Shareholders or the
MDA 1988 Optionholders fail to approve the Arrangement
Resolution; (iv) by either Orbital or MDA if there is a material
breach on the part of the other party in a representation or
warranty or covenant or agreement contained in the Combination
Agreement which is not cured within 10 days of notice; (v) by
Orbital, if the MDA Board has withdrawn or changed its
recommendation on the Arrangement in a manner adverse to Orbital,
or shall fail to affirm such support at Orbital's request; and
(vi) by MDA, if it has received a bona fide offer to consummate
an Acquisition Transaction for consideration per MDA Common Share
having a fair market value of at least US$5.95 (based on
prevailing currency exchange rates on the date of such offer).
The Combination Agreement may be amended by an agreement in
writing among the parties thereto at any time prior to the
Effective Date; provided, however, that, after approval of the
Arrangement by the MDA Shareholders and MDA 1988 Optionholders,
no amendment may be made which by law requires further approval
of such shareholders or optionholders, without such further
approval.
Fees, Expenses and Indemnification
Except as described herein, all fees and expenses incurred in
connection with the Combination Agreement and the transactions
contemplated thereby will be paid by the party incurring such
expenses, whether or not the Arrangement is consummated.
MDA has agreed to pay Orbital a fee of US$750,000 if the
Combination Agreement is terminated by MDA because MDA has
received a bona fide offer of an Acquisition Transaction for
consideration per MDA Common Share having a fair market value of
at least US$5.95 (based on prevailing currency exchange rates on
the date of such offer), and such fee is payable only when such
Acquisition Transaction is completed.
If the Combination Agreement is terminated as a result of a
breach by one of the parties, the party who has breached will pay
the actual out-of-pocket expenses of the others.
The Combination Agreement provides that the indemnification
provisions set forth in MDA's by-laws may not be modified for six
years from the Effective Date in any manner that would adversely
affect the rights thereunder of individuals who at the Effective
Date were MDA's directors or officers, unless such modification
is required by law, and requires Orbital or Acquisition to
continue in effect with respect to any claims arising out of
conduct prior to the Effective Date directors and officers'
insurance policies providing coverage of substantially the same
scope as is currently maintained by MDA; provided, however, that
Orbital may amend, repeal or modify such by-law provisions or
cause the directors and officer's insurance policies to be
modified or cancelled if it indemnifies such parties against all
expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
reason of the fact that such person was a director or officer of
MDA, in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative or investigative, provided that such expenses were
incurred by such person in connection with such action, suit or
proceeding and provided that such person acted in good faith and
in a manner he reasonably believed to be in or not opposed to
MDA's best interests and had no reasonable cause to believe his
conduct was unlawful.
MDA has agreed that, if the Arrangement is not effective, it will
indemnify each present and former director or officer of MDA or
any of its subsidiaries (collectively, the "Indemnified
Parties"), to the fullest extent permitted under applicable law
or under its by-laws, against any costs or expenses (including
attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of or
pertaining to any action or omission occurring while they were
directors, officers or employees for six years after the proposed
Effective Date.
Confidentiality Agreement
Each of Orbital and MDA has agreed to keep confidential, pursuant
to a confidentiality agreement dated June 23, 1995 (the
"Confidentiality Agreement"), proprietary information provided by
the other party. The Confidentiality Agreement contains terms
restricting the disclosure and use of confidential information
exchanged between the two parties in evaluating the Arrangement
and otherwise.
Agreements of MDA Affiliates
Rule 145 promulgated under the 1933 Securities Act regulates the
disposition in the U.S. of securities by "affiliates" of MDA in
connection with the Arrangement. Affiliates of MDA, as so
defined, have delivered to Orbital executed Affiliate Agreements.
Under such Affiliate Agreements, each affiliate agrees not to
sell, transfer or otherwise dispose of Orbital Common Shares or
Exchangeable Shares issued to the affiliate in the Arrangement
unless such sale, transfer or other disposition (i) has been
registered under the 1933 Securities Act, (ii) is made in
compliance with the requirements of Rule 145 under the 1933
Securities Act, or (iii) in the opinion of counsel reasonably
acceptable to Orbital, is otherwise exempt from registration
under the 1933 Securities Act. To comply with the requirements
of pooling of interests accounting treatment, each Affiliate
Agreement also restricts the sales of such shares prior to and
following the Arrangement until the publication and dissemination
by Orbital of consolidated financial results that include results
of combined operations of MDA and Orbital for at least 30 days on
a consolidated basis following the Effective Date. The Affiliate
Agreements terminate if the Combination Agreement is terminated.
Court Approval and Completion of the Arrangement
Under the CBCA and pursuant to the Interim Order, the Arrangement
requires Court approval, after approval of the MDA Shareholders
and MDA 1988 Optionholders has been obtained. Prior to the
mailing of this Proxy Circular, MDA obtained the Interim Order
providing for the calling, holding and conduct of the Special
Meeting and other procedural matters. A copy of the Interim
Order is attached as Appendix "D" to this Proxy Circular. The
Notice of Application for the Final Order appears as Appendix "E"
to this Proxy Circular.
Subject to the approval of the Arrangement Resolution by the MDA
Shareholders and the MDA 1988 Optionholders, the hearing in
respect of the Final Order is scheduled to take place on
November 16, 1995 at 10:00 a.m. (Vancouver time). At that
hearing, any MDA Shareholder, any MDA 1988 Optionholder, or any
other interested party who wishes to participate or to be
represented or to present evidence or arguments may do so,
subject to filing a notice of appearance with the Court and
serving such notice of appearance upon MDA's solicitors within
the time as set forth in the Notice of Application for the Final
Order, and upon all other parties who have filed a notice of
appearance, and satisfying other requirements as provided in the
Interim Order. At the final hearing the Court will consider,
among other things, the fairness and reasonableness of the
Arrangement.
Assuming that the Final Order is granted, and the other
conditions to the Combination Agreement are satisfied, or waived
by the party or parties entitled to do so, it is anticipated that
the following will occur substantially simultaneously: articles
of arrangement will be filed with the Director appointed under
the CBCA to give effect to the Arrangement; and the Support
Agreement, the Voting and Exchange Trust Agreement and the
various other documents necessary to give effect to the
Arrangement and other transactions contemplated by the
Combination Agreement will be executed and delivered.
Subject to the foregoing, it is anticipated that the Arrangement
will be completed not later than November 30, 1995.
Accounting Treatment
The Arrangement is expected to be treated by Orbital as a pooling
of interests for accounting purposes under U.S. GAAP. This
accounting method permits the recorded assets and liabilities of
both Orbital and MDA to be carried forward on a consolidated
basis by Orbital, after giving effect to the Arrangement, at
their recorded historical amounts. No recognition of goodwill
will be required as a result of the Arrangement and consequently,
there will be no amortization of goodwill from the Arrangement
reflected in Orbital's future financial periods.
It is a condition to Orbital's obligation to effect the
Arrangement that Orbital receive an opinion from KPMG Peat
Marwick LLP, independent auditors of Orbital, to the effect that
pooling of interests accounting treatment for the Arrangement
under U.S. GAAP is appropriate. In the event holders of MDA
Common Shares and MDA 1988 Options in the aggregate entitled to
receive greater than 10% of the sum of the Orbital Common Shares
issuable pursuant to the Plan of Arrangement and the Orbital
Common Shares reserved for issuance upon exercise of the
Replacement Options, shall properly exercise their right to
dissent, the Arrangement may not qualify for treatment as a
pooling of interests under applicable accounting rules.
Stock Exchange Listings
Exchangeable Shares
The Exchangeable Shares will not be listed or posted for trading
on any stock exchange. MDA does not expect there will be any
market for the Exchangeable Shares.
Orbital Common Shares
NASDAQ has conditionally approved inclusion of the additional
Orbital Common Shares issuable upon exchange of the Exchangeable
Shares and the Replacement Options for quotation. Orbital
expects that NASDAQ will grant final approval for such inclusion.
Eligibility for Investment in Canada
Exchangeable Shares
The Exchangeable Shares (including the Voting Rights and the
Exchange Right) (a) will be "foreign property" under the Canadian
Tax Act for trusts governed by registered pension plans,
registered retirement savings plans, registered retirement income
funds and deferred profit sharing plans or for certain other tax-
exempt persons, and (b) will not be qualified investments under
the Canadian Tax Act for trusts governed by registered retirement
savings plans, registered retirement income funds and deferred
profit sharing plans.
Voting Rights and Exchange Right
The Voting Rights and the Exchange Right will not be qualified
investments and will be "foreign property" under the Canadian Tax
Act.
Orbital Common Shares
The Orbital Common Shares will be qualified investments under the
Canadian Tax Act for trusts governed by registered retirement
savings plans, registered retirement income funds and deferred
profit sharing plans so long as such shares remain quoted on the
NASDAQ or another prescribed stock exchange. The Orbital Common
Shares will be "foreign property" under the Canadian Tax Act.
Resale of Exchangeable Shares and Orbital Common Shares Received
in the Arrangement
Canada
Orbital, Acquisition and MDA have applied for rulings of the
British Columbia Securities Commission ("BCSC"), the Ontario
Securities Commission (the "OSC") and the securities commissions
of certain other jurisdictions in Canada in which holders of MDA
Common Shares reside, exempting any trade in Exchangeable Shares
or in Orbital Common Shares made in connection with or pursuant
to the Arrangement from the applicable prospectus and
registration requirements of the securities legislation of such
jurisdictions. If granted, these rulings would permit holders of
Exchangeable Shares who are not "control persons" of Acquisition
to sell such securities in British Columbia, Ontario and such
other jurisdictions, without being required to file a prospectus
in respect thereof, provided that no unusual effort is made to
prepare the market for any such sale or to create a demand for
such securities and no extraordinary commission or consideration
is paid in respect thereof. However, if such resale occurs in
British Columbia by a seller that is an insider of Acquisition,
then, as a further condition to permitting such resale,
Acquisition must not be in default of any requirement of the
Securities Act (British Columbia) or the regulations thereunder.
If granted, these rulings would permit residents of such
jurisdictions who are recipients of Orbital Common Shares to
resell such securities provided that such resales are executed
through the facilities of a stock exchange or market outside of
British Columbia, Ontario or such other jurisdiction, as the case
may be, and such resales are made in accordance with the rules of
the stock exchange or market upon which such trades are made and
in accordance with all laws applicable to such stock exchange or
market.
MDA, Acquisition and Orbital have also applied for orders under
the Securities Act (British Columbia), the Securities Act
(Ontario) and the applicable securities laws of certain other
jurisdictions in Canada in which holders of MDA Common Shares
reside to permit all issuances of securities to be carried out
pursuant to the Exchangeable Share Provisions and the Voting and
Exchange Trust Agreement to be exempt from the registration
requirements of such Acts and applicable securities laws. Upon
completion of the Arrangement, Acquisition will be a reporting
issuer under the Securities Act (British Columbia), but MDA will
cease to be a reporting issuer under the Securities Act (Ontario)
and the applicable securities laws of the other jurisdictions.
In addition, the ruling requested from the BCSC would, if
granted, exempt Acquisition from certain statutory financial and
other reporting requirements under the Securities Act (British
Columbia). As a condition to granting the ruling as described
above, Orbital will undertake, among other things, to file with
the appropriate securities commissions of such jurisdictions
copies of all documents filed by it with the SEC and to send to
all holders of Exchangeable Shares resident in British Columbia
and such other jurisdictions all disclosure materials that are
sent to holders of Orbital Common Shares, including, without
limitation, copies of its annual reports and all proxy
solicitation materials and, upon request, copies of its quarterly
reports.
United States
The offer and sale of the Exchangeable Shares, the Replacement
Options and the Orbital Common Shares to be issued in exchange
therefor (collectively the "New Shares") will not be registered
under the 1933 Securities Act. The Exchangeable Shares, the
Replacement Options and the Orbital Common Shares issuable upon
exchange of the Exchangeable Shares will be issued in reliance on
section 3(a)(10) of the 1933 Securities Act, which exempts from
registration under the 1933 Securities Act securities that are
issued in exchange for other outstanding securities where the
terms and conditions of the issuance have been approved by any
court expressly authorized by law to grant approval to the
proposed issuance, after a hearing upon the fairness of the terms
and conditions of the issuance at which all persons to whom such
securities will be issued have the right to appear. Orbital has
been orally advised that it will be issued a letter from the SEC
confirming that the staff of the SEC will not recommend any
enforcement action to the SEC if Acquisition, in reliance on the
exemption provided by section 3(a)(10), issues the Exchangeable
Shares, the Replacement Options, and the Orbital Common Shares
issuable in exchange for the Exchangeable Shares.
All Orbital Common Shares received by MDA Shareholders in the
Arrangement will be freely transferable under the United States
federal securities laws, except that Orbital Common Shares
received by persons who are deemed to be "affiliates" (as such
term is defined under the 1933 Securities Act) of MDA at the time
of the transaction may be resold by such affiliates only in
transactions permitted by the resale provisions of
Rule 145(d)(1), (2) or (3) promulgated under the 1933 Securities
Act (or Rule 145(d)(1) alone in the case of such persons who
become affiliates of Orbital upon the completion of the
Arrangement), or as otherwise permitted under the 1933 Securities
Act. Rule 145(d)(1) generally provides that the "affiliates" of
the acquired company may not sell securities of the issuer unless
pursuant to an effective registration statement or unless
pursuant to the volume, current public information, manner of
sale and timing limitations of Rule 144 (excluding the holding
period requirements of Rule 144). These limitations generally
require that (a) any sales made by the affiliate in any three
month period not exceed the greater of (i) 1% of the outstanding
shares of the issuer or (ii) the average weekly reported volume
of trading in such shares on all national securities exchanges
and/or reported through an automated quotation system of a
registered securities association over a four-week period and (b)
that such sales be made in unsolicited, open market "broker
transactions" or in transactions directly with a market maker.
Rules 145(d)(2) and (3) generally provide that the foregoing
limitations lapse for nonaffiliates of the issuer after a period
of two or three years has elapsed since the date the securities
were acquired from the issuer, respectively. The average weekly
reported volume of the Orbital Common Shares for the four weeks
ending September 29, 1995 was 848,250 Orbital Common Shares.
Persons who may be deemed to be affiliates of an issuer generally
include individuals or entities that directly or indirectly
control, are controlled by, or are under common control with,
such issuer and may include certain officers and directors of
such issuer as well as principal stockholders of such issuer.
See "The Arrangement and the Combination Agreement - Agreements
of MDA Affiliates."
Procedures for Exchange of Share Certificates by MDA Shareholders
At or promptly after the Effective Time, Acquisition shall
deposit with the Depositary, for the benefit of the holders of
MDA Common Shares and the holders of shares of the Qualifying
Holdcos exchanged pursuant to the Plan of Arrangement,
certificates representing the Exchangeable Shares issued
therefor.
A Letter of Transmittal is enclosed with this Proxy Circular for
use by MDA Shareholders for transmittal of certificates
representing MDA Common Shares. Additional copies of the Letter
of Transmittal may be obtained from the Depositary. A subsequent
letter of transmittal may also be forwarded to MDA Shareholders
following the Effective Date. The details of the procedures for
exchange of certificates representing MDA Common Shares and the
deposit of such certificates with the Depositary and the
addresses of the office of the Depositary are set out in the
Letter of Transmittal.
The procedures for receiving certificates representing
Exchangeable Shares and/or Orbital Common Shares are as follows:
Return to Depositary of Letter of Transmittal
A properly completed Letter of Transmittal, or any subsequent
letter of transmittal, is to be forwarded to the Depositary at
the office as set forth therein, together with the certificate(s)
representing the MDA Common Shares. As soon as practicable after
the surrender of certificates representing MDA Common Shares and
after the Effective Date, the Depositary will deliver
certificates representing Exchangeable Shares and/or Orbital
Common Shares in accordance with the instructions set forth in
the Letter of Transmittal or any subsequent letter of
transmittal, as the case may be.
Election to Immediately Exchange Exchangeable Shares for Orbital
Common Shares
MDA Shareholders who wish to immediately exchange their
Exchangeable Shares for Orbital Common Shares must complete the
Letter of Transmittal and indicate their election to immediately
exchange the Exchangeable Shares they are entitled to receive for
Orbital Common Shares in the election section therein. If only a
part of such holder's MDA Common Shares are to be immediately
exchanged for Orbital Common Shares, the MDA Shareholder shall
indicate the number of Exchangeable Shares to be so exchanged.
If any MDA Shareholder elects to immediately exchange all or part
of his or her Exchangeable Shares for Orbital Common Shares, a
certificate for the full number of Exchangeable Shares to which
that holder would have been entitled under the Plan of
Arrangement shall be issued, the Depositary shall, by the Letter
of Transmittal, be appointed an attorney to effect the retraction
on behalf of the holder and the holder will receive certificates
representing Orbital Common Shares. MDA has been advised that in
the event of the retraction contemplated by the exercise of this
election, Orbital intends to exercise its Redemption Call Right
and purchase such Exchangeable Shares. Orbital or Acquisition as
the case may be, will require holders of Exchangeable Shares who
are not residents of Canada and who elect to retract their
Exchangeable Shares as described above to obtain a certificate
from Revenue Canada pursuant to section 116 of the Canadian Tax
Act, specifying a certificate limit no less than the fair market
value of the Orbital Common Shares immediately before the
exchange or redemption, as the case may be, and to deliver such
certificate to Orbital or Acquisition. See "The Arrangement and
the Combination Agreement - Description of Exchangeable Shares -
Deduction and Remittance of Withholding Tax."
Fractional Shares
No certificates or scrip representing fractional Exchangeable
Shares or Orbital Common Shares will be issued. In lieu of any
such fractional interests, each MDA Shareholder entitled to a
fractional interest in Exchangeable Shares or Orbital Common
Shares in consequence of the Arrangement or upon exchange of the
Exchangeable Shares for Orbital Common Shares will receive an
equivalent amount in cash (rounded to the nearest whole cent),
without interest, from Acquisition equal to the Canadian Dollar
Equivalent (as defined in the Exchangeable Share Provisions) of
the product of such fraction, multiplied by the Average Closing
Price.
Failure to Deposit Certificates Representing MDA Common Shares
Pending the surrender of certificates formerly representing MDA
Common Shares, such certificates will, subject to the provisions
in the following sentence, be deemed to represent the right to
receive upon such surrender, a certificate representing the
appropriate number of Exchangeable Shares (based on the Exchange
Ratio), any cash payment in lieu of a fractional Exchangeable
Share, and any Dividend Amount. Any certificate formerly
representing MDA Common Shares not deposited with all other
necessary documents on or prior to the sixth anniversary of the
Effective Date shall cease to represent a claim or interest of
any kind or nature as a shareholder of MDA, the relevant
Qualifying Holdco or Acquisition, as the case may be. On such
date, the Exchangeable Shares to which the former registered
holder of such undeposited certificate was entitled shall be
deemed to have been surrendered to Acquisition together with all
dividends, distributions and interests held for such former
registered holder.
Confirmation of Replacement Options
As soon as practicable after the Effective Date, Orbital will
forward to each holder of a MDA Option, except a Dissenting MDA
1988 Optionholder, confirmation of the Replacement Option,
setting forth the number of Orbital Common Shares such holder is
entitled to and the exercise price therefor.
INCOME TAX CONSIDERATIONS TO MDA SHAREHOLDERS AND OPTIONHOLDERS
Canadian Federal Income Tax Considerations
In the opinion of Farris, Vaughan, Wills and Murphy, counsel for
MDA, the following is a summary of the principal Canadian federal
income tax considerations generally applicable to (i) MDA
Shareholders who, for purposes of the Canadian Tax Act, are
residents of Canada, hold their MDA Common Shares as capital
property and deal at arm's length with MDA, Acquisition and
Orbital, (ii) MDA Shareholders who, for purposes of the Canadian
Tax Act, have not been and will not be resident in Canada at any
time while they have held MDA Common Shares or Exchangeable
Shares, and deal at arm's length with MDA, Acquisition and
Orbital, and (iii) MDA 1988 Optionholders.
This summary is based on the current provisions of the Canadian
Tax Act, all specific proposals to amend the Canadian Tax Act
publicly announced by the Minister of Finance prior to the date
hereof, and counsel's understanding of the current administrative
practices of Revenue Canada. Except for the foregoing, this
summary does not take into account or anticipate any changes in
law, whether by legislative, administrative or judicial decision
or action, nor does it take into account provincial, territorial
or foreign income tax legislation or considerations, which may
differ from the federal income tax considerations described
herein.
WHILE THIS SUMMARY IS INTENDED TO ADDRESS ALL PRINCIPAL CANADIAN
FEDERAL INCOME TAX CONSIDERATIONS, IT IS OF A GENERAL NATURE ONLY
AND IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE,
LEGAL OR TAX ADVICE TO ANY PARTICULAR MDA SHAREHOLDER OR MDA 1988
OPTIONHOLDER. THEREFORE, SUCH HOLDERS SHOULD CONSULT THEIR OWN
TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES. NO
ADVANCE INCOME TAX RULING HAS BEEN OR WILL BE OBTAINED FROM
REVENUE CANADA TO CONFIRM THE TAX CONSEQUENCES OF ANY OF THE
TRANSACTIONS DESCRIBED HEREIN.
Holders of MDA Common Shares Resident in Canada
Exchange of MDA Common Shares for Exchangeable Shares. A holder
of MDA Common Shares who receives Exchangeable Shares in exchange
for MDA Common Shares pursuant to the Plan of Arrangement
(provided such holder is not considered to receive Voting Rights
or any Exchange Right as partial consideration for MDA Common
Shares (see below)) will, unless such holder of MDA Common Shares
includes any portion of the capital gain or capital loss
otherwise determined in respect of the disposition of such MDA
Common Shares in the holder's income tax return for the taxation
year in which the exchange occurs, be deemed pursuant to the
"automatic" rollover provisions of section 85.1 of the Canadian
Tax Act to have disposed of such MDA Common Shares and will be
deemed to have acquired the Exchangeable Shares received in
exchange for such MDA Common Shares at a cost equal to the
adjusted cost base to such holder of such MDA Common Shares.
Based on the current administrative practise of Revenue Canada, a
holder of MDA Common Shares who receives cash not exceeding $200
in lieu of a fraction of an Exchangeable Share may reduce the
adjusted cost base of the Exchangeable Shares received by such
holder by the amount of such cash. Alternatively, the capital
gain or capital loss otherwise arising on the disposition of the
fraction of the MDA Common Share which is disposed of for such
cash may be reported.
If a holder of MDA Common Shares chooses to treat the exchange of
MDA Common Shares for Exchangeable Shares as a taxable
transaction, such holder of MDA Common Shares will be required to
recognize a capital gain (or capital loss) to the extent that the
fair market value of the Exchangeable Shares (and any cash in
lieu of a fractional MDA Common Share) received in exchange for
such holder's MDA Common Shares immediately before the exchange,
net of any costs of disposition, exceeds (or is less than) the
adjusted cost base to the holder of such MDA Common Shares
immediately before the exchange. The cost to the holder of the
Exchangeable Shares received in exchange for such MDA Common
Shares will in this case be equal to the fair market value of
such Exchangeable Shares immediately before the exchange.
Where the transitional rules contained in the Income Tax
Application Rules, R.S.C. 1985, c.2 (5th Supplement), as amended
(the "ITARs"), apply to determine the adjusted cost base to a
holder of MDA Common Shares of any MDA Common Shares owned by
such holder prior to 1972 and continuously thereafter until
immediately before the exchange of such shares for Exchangeable
Shares, such rules may continue to apply for the purposes of
determining the adjusted cost base to the holder of any
Exchangeable Shares received in exchange therefor. Holders of MDA
Common Shares who may be affected by such rules should consult
their own tax advisors.
Although the Plan of Arrangement and the Voting and Exchange
Trust Agreement provide that Orbital has granted the Voting
Rights and Exchange Right to holders of the MDA Common Shares in
consideration of the Call Rights, it is possible Revenue Canada
may take the position that the Voting Rights and Exchange Right
were acquired by a holder of MDA Common Shares in connection with
the exchange of the MDA Common Shares and not in consideration of
the Call Rights. In such event, a holder of MDA Common Shares
who receives Exchangeable Shares in exchange for MDA Common
Shares pursuant to the Plan of Arrangement would not qualify for
the "automatic" rollover provisions of section 85.1 of the
Canadian Tax Act. In such circumstances, unless a holder of MDA
Common Shares effects an election in respect of such exchange in
accordance with the provisions of subsection 85(1) or (2) of the
Canadian Tax Act (as described below), the holder may be
considered to have disposed of MDA Common Shares in a taxable
transaction and the holder therefore may be required to recognize
a capital gain (or capital loss) to the extent that the aggregate
of the fair market value of the Exchangeable Shares (and any cash
in lieu of a fractional MDA Common Share) and the fair market
value of Voting Rights and Exchange Right (which MDA believes to
be nominal) received in exchange for such holder's MDA Common
Shares immediately before the exchange, net of any costs of
disposition, exceeds (or is less than) the adjusted cost base to
the holder of such MDA Common Shares immediately before the
exchange. The cost to the holder of the Exchangeable Shares
received in exchange for such MDA Common Shares will in this case
be equal to the fair market value of such Exchangeable Shares
immediately before the exchange.
A holder may exchange MDA Common Shares and obtain a full or
partial tax-free "rollover" in respect of such exchange by filing
with Revenue Canada (and, where applicable, with a provincial tax
authority) an election (the "Tax Election") under
subsection 85(1) of the Canadian Tax Act or, in the case of a
partnership, under subsection 85(2) of the Canadian Tax Act (and
the corresponding provisions of any applicable provincial tax
legislation) made jointly by the holder and Acquisition (which
Acquisition, subject to the following paragraphs, has agreed to
make) in respect of the holder's MDA Common Shares so exchanged
pursuant to the Plan of Arrangement and specifying therein a
"transfer price," within the limitations set forth in the
Canadian Tax Act, so that such MDA Common Shares will be deemed
to be disposed of for proceeds of disposition equal to the
transfer price thereof. Subject to the limitations set out in
subsection 85(1) of the Canadian Tax Act regarding the specified
transfer price, if the transfer price is equal to the aggregate
of the adjusted cost bases of such MDA Common Shares determined
immediately before the exchange, no capital gain or capital loss
will be realized, and to the extent that the transfer price in
respect of such shares exceeds (or is less than) the aggregate of
the adjusted cost bases thereof, such holder will realize a
capital gain (or a capital loss).
Holders of MDA Common Shares who desire to effect the exchange of
their MDA Common Shares pursuant to subsection 85(1) or (2) of
the Canadian Tax Act, as the case may be, should obtain the
appropriate federal election forms at any Revenue Canada District
Taxation Office. Where necessary, the appropriate provincial
election forms should be obtained from the income tax authorities
in that province. These forms must be completed and submitted to
Acquisition for execution at the following address: c/o
MacDonald, Dettwiler and Associates Ltd., 13800 Commerce Parkway,
Richmond, British Columbia, V6V 2J3, Attention: Secretary.
Although the Tax Election involves certain complexities, it may
result in more favourable tax consequences to a holder than would
otherwise be the case if the Tax Election was not made in respect
of the exchange.
Holders of MDA Common Shares who wish to effect the exchange of
their MDA Common Shares pursuant to subsection 85(1) or (2) of
the Canadian Tax Act, as the case may be, are referred to
Information Circular 76-19R2 and Interpretation Bulletin IT-
291R2, published by Revenue Canada, for information respecting
the joint election to be made under the Canadian Tax Act.
The comments provided herein with respect to joint elections are
provided for general assistance only. The law in this area is
complex and contains numerous technical requirements including
limitations applicable to the transfer price. Compliance with
such requirements to ensure the validity of the joint elections
will be the sole responsibility of the holder making the
election. Acquisition will not be responsible for proper
completion and timely filing of such joint elections and agrees
only to execute any properly completed election forms received
from holders of MDA Common Shares. In particular, Acquisition
will not be responsible or liable for any taxes, interest,
penalties, damages or expenses resulting from the failure of
Acquisition or any of its agents, servants or officers, to
properly complete and return such joint election forms to any
holder for filing by such holder with Revenue Canada (and the
appropriate provincial authority, where applicable) within the
time and in the prescribed form required under the Canadian Tax
Act and any applicable provincial tax legislation.
Call Rights. MDA is of the view and has advised counsel that the
Call Rights, the Exchange Right and the Voting Rights have only
nominal value. The disposition by a holder of the Call Rights in
consideration for the Voting Rights and the Exchange Right
should, therefore, not result in any material Canadian federal
income tax consequences. Such determinations of value are not
binding on Revenue Canada and counsel can express no opinion on
matters of factual determination such as this. If the Voting
Rights or Exchange Right do have greater than nominal value and
are properly viewed as being received by a holder of MDA Common
Shares from Orbital in consideration for the Call Rights, a
capital gain would arise in an amount equal to the fair market
value of the Voting Rights and the Exchange Right and such holder
will be deemed to have acquired such Voting Rights and such
Exchange Right for a cost equal to their fair market value.
Dividends. Dividends on Exchangeable Shares or Orbital Common
Shares will receive the following treatment under the Canadian
Tax Act.
Exchangeable Shares. In the case of a shareholder who is an
individual, dividends received or deemed to be received on the
Exchangeable Shares will be included in computing the
shareholder's income, and will be subject to the gross-up and
dividend tax credit rules normally applicable to taxable
dividends received from taxable Canadian corporations.
The Exchangeable Shares will be "taxable preferred shares" and
"short-term preferred shares" for purposes of the Canadian Tax
Act, and accordingly, dividends received or deemed to be received
on the Exchangeable Shares will not be subject to the 10% tax
under Part IV.1 of the Canadian Tax Act applicable to certain
corporations.
If the Support Agreement is deemed to be a "guarantee agreement"
under the Canadian Tax Act and if Acquisition or any person with
whom Acquisition does not deal at arm's length is a "specified
financial institution" under the Canadian Tax Act at a point in
time that a dividend is paid on an Exchangeable Share, then
dividends received or deemed to be received by a shareholder that
is a corporation will not be deductible in computing taxable
income but will be fully includable in taxable income under
Part I of the Canadian Tax Act. Such dividend will not be
subject to tax under Part IV of the Canadian Tax Act. A
corporation will generally be a specified financial institution
for these purposes if it is a bank, a trust company, a credit
union, an insurance corporation or a corporation whose principal
business is the lending of money to persons with whom the
corporation is dealing at arm's length or the purchasing of debt
obligations issued by such persons or a combination thereof, and
corporations controlled by or related to such entities.
Acquisition has informed counsel that it is of the view that
neither it nor any person with whom it does not deal at arm's
length is a specified financial institution at the current time
but there can be no assurance that this status will not change
prior to the time any dividend on an Exchangeable Share is
received or deemed to be received by a corporate shareholder.
Subject to the foregoing, in the case of a shareholder that is a
corporation, other than a "specified financial institution" as
defined in the Canadian Tax Act, dividends received or deemed to
be received on the Exchangeable Shares will normally be
deductible in computing its taxable income.
A shareholder that is a "private corporation" (as defined in the
Canadian Tax Act) or any other corporation resident in Canada and
controlled or deemed to be controlled directly or indirectly in
any manner whatsoever by or for the benefit of an individual or a
related group of individuals may be liable under Part IV of the
Canadian Tax Act to pay a refundable tax of 33 1/3% on dividends
received or deemed to be received on the Exchangeable Shares to
the extent that such dividends are deductible in computing the
shareholder's taxable income.
Orbital Common Shares. Dividends on Orbital Common Shares will
be included in the recipient's income for the purposes of the
Canadian Tax Act. Such dividends received by an individual
shareholder will not be subject to the gross-up and dividend tax
credit rules in the Canadian Tax Act. A corporation which is a
shareholder will include such dividends in computing its income
and generally will not be entitled to deduct the amount of such
dividends in computing its taxable income. United States non-
resident withholding tax on such dividends will be eligible for
foreign tax credit or deduction treatment where applicable under
the Canadian Tax Act.
Redemption or Exchange of Exchangeable Shares. On the redemption
(including a retraction) of an Exchangeable Share by Acquisition
for an Orbital Common Share, the holder of an Exchangeable Share
will be deemed to have received a dividend equal to the amount,
if any, by which the redemption proceeds (the fair market value
at the time of the redemption of the Orbital Common Share
received by the shareholder from Acquisition on the redemption
plus the amount, if any, of all unpaid dividends on the
Exchangeable Share) exceeds the paid-up capital at that time of
the Exchangeable Share so redeemed. The amount of any such
deemed dividend will be subject to the tax treatment accorded to
dividends described above. On the redemption, the holder of an
Exchangeable Share will also be considered to have disposed of
the Exchangeable Share, but the amount of such deemed dividend
will be excluded in computing the shareholder's proceeds of
disposition for purposes of computing any capital gain or capital
loss arising on the disposition of the Exchangeable Share. In
the case of a shareholder that is a corporation, it is possible
that in some circumstances the amount of any such deemed dividend
may be treated as proceeds of disposition and not as a dividend
and accordingly, such corporate shareholders should consult their
own tax advisors for specific advice in these circumstances.
On the exchange of an Exchangeable Share by the holder thereof
with Orbital for an Orbital Common Share pursuant to the Call
Rights or the Exchange Right, the holder will in general realize
a capital gain (or a capital loss) equal to the amount by which
the proceeds of disposition of the Exchangeable Share, net of any
reasonable costs of disposition, exceed (or are less than) the
adjusted cost base of the Exchangeable Share to the holder
thereof. For these purposes, the proceeds of disposition will be
the value of an Orbital Common Share at the time of exchange plus
the amount of all unpaid dividends on the Exchangeable Share.
The cost of an Orbital Common Share received on the retraction,
redemption or exchange of an Exchangeable Share will be equal to
the fair market value of the Orbital Common Share at the time of
such event.
If the holder of an Exchangeable Share is a corporation, or a
partnership or a trust of which a corporation is a partner or
beneficiary, as the case may be, the amount of any loss arising
from a disposition or deemed disposition of an Exchangeable Share
in certain circumstances may be reduced by the amount of
dividends received or deemed to have been received by it on such
share.
Because of the existence of the Call Right, a holder exercising
the right of retraction in respect of an Exchangeable Share
cannot control whether such holder will receive an Orbital Common
Share by way of redemption of the Exchangeable Share by
Acquisition or by way of purchase of the Exchangeable Share by
Orbital. As described above, the Canadian federal income tax
consequences of a redemption differ from those of a purchase.
However, a holder who exercises the right of retraction will be
notified if the Call Right will not be exercised by Orbital, and
if such holder does not wish to proceed, such holder may cancel
the notice of retraction and retain such holder's Exchangeable
Share.
Dissenting MDA Shareholders. A holder of MDA Common Shares is
permitted to dissent from the Arrangement in compliance with
section 190 of the CBCA and the Interim Order. A MDA Shareholder
who dissents from the Arrangement Resolution in compliance with
section 190 of the CBCA will be entitled, in the event the
Arrangement becomes effective, to be paid by MDA the fair value
of the MDA Common Shares held by such shareholder determined at
the appropriate date. See "Dissenting Rights." A Dissenting MDA
Shareholder will be considered to receive a deemed dividend and
to have disposed of the MDA Common Shares in accordance with the
discussion above of the redemption of the Exchangeable Shares.
Additional income tax considerations may be relevant to
Dissenting MDA Shareholders who fail to perfect or withdraw their
claims pursuant to the rights of dissent. Dissenting MDA
Shareholders should consult their own tax advisors for specific
advice in these circumstances.
Foreign Property. The Exchangeable Shares will be foreign
property under the Canadian Tax Act for trusts governed by
registered pension plans, registered retirement savings plans,
registered retirement income funds and deferred profit sharing
plans or for certain other tax-exempt persons. The Voting Rights
and Exchange Right will be foreign property under the Canadian
Tax Act. Orbital Common Shares will be foreign property under
the Canadian Tax Act.
Qualified Investments. The Exchangeable Shares will not be
qualified investments under the Canadian Tax Act for trusts
governed by registered retirement savings plans, registered
retirement income funds and deferred profit sharing plans and at
the end of each month, such trusts will be liable to pay a tax
under the Canadian Tax Act of 1% of the fair market value of the
Exchangeable Shares. Orbital Common Shares will be qualified
investments under the Canadian Tax Act for such plans as long as
such shares remain listed on the NASDAQ (or are listed on certain
other exchanges). The Voting Rights and Exchange Right will not
be qualified investments under the Canadian Tax Act.
Holders of MDA Common Shares Not Resident in Canada
Generally, MDA Common Shares will not be taxable Canadian
property provided that those shares are listed on a prescribed
stock exchange in Canada, the holder does not use or hold, and is
not deemed to use or hold, the MDA Common Shares in connection
with carrying on a business in Canada and the holder, persons
with whom such holder does not deal at arm's length, or the
holder and such persons, has not owned (or had under option) 25%
or more of the issued shares of any class or series of the
capital stock of MDA at any time within five years preceding the
date in question. The MDA Common Shares are currently listed on
a prescribed stock exchange in Canada under the Canadian Tax Act.
Such a holder of MDA Common Shares will not be subject to tax
under the Canadian Tax Act on the exchange of MDA Common Shares.
Generally, the Exchangeable Shares will be taxable Canadian
property, and on the redemption (including a retraction) of an
Exchangeable Share by Acquisition for an Orbital Common Share, a
non-resident holder of an Exchangeable Share will be considered
to have received a deemed dividend and be considered to have
disposed of the Exchangeable Share for proceeds of disposition in
an amount as described above for residents of Canada. The amount
of such deemed dividend will be subject to non-resident
withholding tax under the Canadian Tax Act as described below,
and Acquisition will require the non-resident holder to obtain a
certificate pursuant to section 116 of the Canadian Tax Act as
described below. On the exchange of an Exchangeable Share by the
non-resident holder thereof with Orbital for an Orbital Common
Share, the non-resident holder of an Exchangeable Share will be
considered to have disposed of the Exchangeable Share for
proceeds of disposition in an amount as described above for
residents of Canada, and Orbital will require the non-resident
holder to obtain a certificate pursuant to section 116 of the
Canadian Tax Act as described below.
Orbital or Acquisition, as the case may be, will require the non-
resident holder of the Exchangeable Shares to apply to Revenue
Canada to obtain a certificate pursuant to section 116 of the
Canadian Tax Act, specifying a certificate limit no less than the
fair market value of the Orbital Common Shares immediately before
the exchange or redemption, as the case may be. A certificate
should generally be obtainable from Revenue Canada where the non-
resident holder of Exchangeable Shares pays an amount on account
of tax arising on a disposition or establishes that no tax is
payable. Where no certificate is obtained by such non-resident
holder or where a certificate is obtained specifying a
certificate limit less than the fair market value of the Orbital
Common Shares, Orbital or Acquisition will withhold and remit to
Revenue Canada within 30 days after the end of the month in which
Orbital or Acquisition acquires the Exchangeable Shares, as tax
on behalf of the non-resident holder, 33J% of the amount by which
the fair market value of the Orbital Common Shares exceeds the
certificate limit specified in the certificate or if no
certificate is obtained, 33J% of the fair market value of the
Orbital Common Shares, and Acquisition or Orbital will deliver to
the non-resident holder a reduced number of Orbital Common Shares
to reflect such payment to Revenue Canada. Holders of such
Exchangeable Shares may be exempt from liability to pay tax under
the Canadian Tax Act by virtue of any applicable tax treaty
between Canada and the country in which they are resident. For
example, under the Canada-United States Income Tax Convention, a
resident of the United States who has not been a resident of
Canada at any time during the ten years immediately preceding the
exchange of the Exchangeable Shares should generally be exempt
from such tax under the Canadian Tax Act. However, such
exemption will not relieve Acquisition or Orbital from their
liability to withhold or remit amounts to Revenue Canada on
account of tax where the non-resident holder has not provided the
appropriate certificate as discussed above. Non-resident holders
of Exchangeable Shares should consult their own tax advisors for
specific advice in these circumstances.
Dividends paid or deemed to be paid on the Exchangeable Shares
are subject to non-resident withholding tax under the Canadian
Tax Act at the rate of 25%, although such rate may be reduced
under the provisions of an applicable income tax treaty. For
example, under the Canada-United States Income Tax Convention,
the rate is generally reduced to 15%.
A holder whose Exchangeable Shares are redeemed (either under
Acquisition's redemption right or pursuant to the holder's
retraction rights) will be deemed to receive a dividend as
described above, which deemed dividend will be subject to
withholding tax as described in the preceding paragraph.
MDA 1988 Optionholders
Pursuant to the Canadian Tax Act, a holder of each outstanding
MDA 1988 Option which becomes a Replacement Option pursuant to
the Plan of Arrangement will be deemed not to have disposed of
the MDA 1988 Option and not to have acquired the Replacement
Option, provided the value of the Replacement Option is no
greater than the value of the MDA 1988 Option. Furthermore, the
Replacement Option shall be deemed to be the same option as, and
a continuation of, the MDA 1988 Option and Orbital shall be
deemed to be the same corporation as, and a continuation of, MDA.
Dissenting MDA 1988 Optionholders. A holder of MDA 1988 Options
is permitted to dissent from the Arrangement and shall be deemed,
pursuant to the Plan of Arrangement and the Interim Order, to
have exercised the MDA 1988 Options with respect to which he or
she is exercising the dissent and the exercise price under each
such MDA 1988 Option shall be deemed to be paid by set-off
against the fair value paid for MDA Common Shares under such MDA
1988 Option, determined at the appropriate date. See "Dissenting
Rights." A benefit (the "Benefit Amount") equal to the amount of
such payment by MDA to the Dissenting MDA 1988 Optionholder will
be deemed to have been received by the Dissenting MDA 1988
Optionholder because of his or her employment and will be added
to the taxable income of such holder, and where the exercise
price for the MDA Common Share under each such MDA 1988 Option
was not less than the fair market value of the MDA Common Share
at the time the agreement for the MDA 1988 Option was made, an
amount equal to one fourth of the Benefit Amount may be deducted
by the Dissenting MDA 1988 Optionholder for the purpose of
computing taxable income. Where Dissenting MDA 1988
Optionholders are considered to have acquired MDA Common Shares
under his or her MDA 1988 Option, Dissenting MDA 1988
Optionholders would also be considered to have received a deemed
dividend. Dissenting MDA 1988 Optionholders should consult their
own tax advisors for specific advice in these circumstances.
United States Federal Income Tax Considerations
In the opinion of Paul, Weiss, Rifkind, Wharton & Garrison,
United States counsel to MDA, the following summarizes the
principal U.S. federal income tax considerations arising from and
relating to the Arrangement, including the receipt and ownership
of Exchangeable Shares and Orbital Common Shares, that are
generally applicable to MDA Shareholders that are U.S. citizens
or residents, domestic corporations, domestic partnerships, and
estates or trusts subject to U.S. federal income tax on their
income regardless of source ("U.S. Holders") and to certain MDA
Shareholders that are not U.S. Holders. This summary is intended
for general information only. It does not discuss all aspects of
U.S. federal income taxation that may be relevant to a particular
U.S. Holder (including potential application of the alternative
minimum tax) or to certain types of investors subject to special
treatment under the U.S. federal income tax laws (for example,
banks, life insurance companies, tax-exempt organizations, broker-
dealers or U.S. Holders who received their MDA Common Shares as
compensation), nor does it discuss any aspect of state, local or
foreign tax laws. Additionally, the following summary is limited
to U.S. Holders (i) who hold MDA Common Shares as "capital
assets" within the meaning of section 1221 of the United States
Internal Revenue Code of 1986, as amended (the "Code"), (ii) who
will hold Exchangeable Shares and Orbital Common Shares as
"capital assets," (iii) who do not actually or constructively own
(and have not at any time in the preceding five-year period
actually or constructively owned) 10% or more of the voting stock
of MDA or Acquisition, as the case may be, and (iv) whose
ownership, receipt and disposition of Exchangeable Shares and
Orbital Common Shares is not attributable to a permanent
establishment in Canada. The summary also does not discuss the
federal income tax consequences of any transaction involving a
Qualifying Holdco.
This summary is based on laws, regulations, rulings and decisions
currently in effect, all of which are subject to change, possibly
with retroactive effect. In addition, U.S. Holders should note
that there is no statutory, judicial, or administrative authority
that directly addresses certain of the U.S. federal income tax
consequences of the issuance and ownership of instruments and
rights comparable to the Exchangeable Shares, the Voting Rights,
the Exchange Right and the Call Rights. Consequently (as
discussed more fully below), many aspects of the U.S. federal
income tax treatment of the Arrangement, including the receipt,
ownership and disposition of Exchangeable Shares, are uncertain.
No advance income tax ruling has been sought or obtained from the
Internal Revenue Service ("IRS") regarding the tax consequences
of any of the transactions described herein. Accordingly, it is
possible that the U.S. federal income tax consequences of the
Arrangement and the holding and disposition of the Exchangeable
Shares may differ from those described below.
U.S. HOLDERS AND NON-U.S. HOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL, STATE, AND LOCAL
TAX CONSEQUENCES AND THE FOREIGN TAX CONSEQUENCES OF THE
ARRANGEMENT, INCLUDING THE RECEIPT AND OWNERSHIP OF EXCHANGEABLE
SHARES OR ORBITAL COMMON SHARES.
Taxation of U.S. Holders
The Arrangement. Although the matter is not free from doubt, MDA
and Orbital have been advised that there is a reasonable basis on
which to conclude that the exchange of MDA Common Shares for
Exchangeable Shares pursuant to the Arrangement will constitute a
taxable transaction for U.S. federal income tax purposes, and MDA
understands that Orbital intends to report the exchange in a
manner consistent with the foregoing.
If the exchange is a taxable transaction:
(1) a U.S. Holder who receives Exchangeable Shares would
recognize capital gain or loss in an amount equal to the
difference between the fair market value of the Exchangeable
Shares received (together with cash received in lieu of
fractional shares (if any)) and the adjusted basis of the
MDA Common Shares surrendered in the exchange;
(2) such capital gain or loss would be long-term capital gain or
loss if the MDA Common Shares exchanged have been held for
more than one year at the time of the exchange and otherwise
would be short-term capital gain or loss;
(3) an exchanging U.S. Holder would take as its tax basis in the
Exchangeable Shares the fair market value of the
Exchangeable Shares at the time of the exchange;
(4) the holding period of the Exchangeable Shares received by
the U.S. Holder in the exchange would begin on the day after
the U.S. Holder receives the Exchangeable Shares; and
(5) gain realized on the exchange of MDA Common Shares for
Exchangeable Shares generally would be treated as U.S.
source gain.
It is possible that the IRS may take the position that the
receipt of Exchangeable Shares in exchange for MDA Common Shares
is not a taxable event. In such case:
(1) a U.S. Holder generally would not recognize gain or loss on
the receipt of the Exchangeable Shares; such a U.S. Holder
would, however, be required to recognize gain to the extent
of the receipt of cash in lieu of fractional shares (if any)
and, possibly as discussed below, the value, if any, of the
Voting Rights, Exchange Right and other rights under the
Support Agreement;
(2) the tax basis of the Exchangeable Shares would be equal to
the tax basis of the MDA Common Shares exchanged therefor
(reduced by the tax basis allocated to fractional share
interests); and
(3) the holding period of the Exchangeable Shares would include
the holding period of the MDA Common Shares exchanged
therefor.
The IRS may assert that the Exchangeable Shares and certain of
the rights associated therewith constitute "offsetting positions"
for purposes of the straddle rules set forth in section 1092 of
the Code. In such case, the holding period of the Exchangeable
Shares would not increase while held by a U.S. Holder, and
interest incurred in carrying the Exchangeable Shares would not
be deductible by a U.S. Holder.
MDA believes that the Voting Rights and the Exchange Right
received and the Call Rights conveyed by MDA shareholders
pursuant to the Combination Agreement and the Arrangement will
have only nominal value and, therefore, that their receipt or
conveyance will not result in any material U.S. federal income
tax consequences. Further, the exchange of the Call Rights for
the Voting Rights and the Exchange Right may not be taxable to
such U.S. Holders because such U.S. Holders may be deemed to have
granted a purchase option to Orbital, which is not generally
treated as a taxable event for U.S. federal income tax purposes
(although, under this approach, the value of the Voting Rights
and the Exchange Right would be taken into account upon the
exercise or lapse of the Call Rights). It is possible, however,
that the IRS could take the position that the Voting Rights, the
Exchange Right and the Call Rights have greater than nominal
value and that the transfer or receipt of such rights is taxable.
In such event, the receipt of the Voting Rights and the Exchange
Right and the conveyance of the Call Rights could generate
taxable gain or loss. Such gain or loss would generally be U.S.
source short-term capital gain or loss, unless the IRS were to
assert that the Voting Rights and the Exchange Right (or any
other rights, such as the rights beneficially enjoyed by U.S.
Holders under the Support Agreement) were transferred to the U.S.
Holder by MDA, and not by Orbital, in consideration for a portion
of the U.S. Holder's MDA Common Shares. In the latter case, any
gain recognized by a U.S. Holder may be treated as ordinary
income.
Distributions on the Exchangeable Shares. MDA understands that
Orbital does not intend to pay dividends prior to the Automatic
Redemption Date, and thus, no dividends would be payable with
respect to the Exchangeable Shares. If any such dividends were
paid, however, a U.S. Holder of Exchangeable Shares generally
would be required to include in gross income as ordinary income
any dividends paid on the Exchangeable Shares to the extent paid
out of the earnings and profits of Acquisition, as determined
under U.S. federal income tax principles. Distributions, if any,
in excess of Acquisition's current or accumulated earnings and
profits would constitute a non-taxable return of capital to a
U.S. Holder to the extent of the U.S. Holder's basis in the
Exchangeable Shares and would be applied against and reduce the
basis in the Exchangeable Shares. To the extent that such
distributions are in excess of a U.S. Holder's basis in the
Exchangeable Shares, the distributions would constitute capital
gain. It is possible that the IRS could take the position that
Orbital's, rather than Acquisition's, earnings and profits should
be taken into account in the foregoing calculations.
Based on the tax position that Orbital has advised MDA that it
plans to take, any dividends paid on the Exchangeable Shares out
of Acquisition's earnings and profits would be treated as foreign
source dividend income and would generally not be eligible for
the dividends received deduction allowed to corporation
shareholders under the Code. It is possible, however, that the
IRS could assert that such dividends constitute U.S. source
income. Under the current Canada-United States Income Tax
Convention, such distributions to U.S. Holders would be subject
to Canadian withholding tax at a rate of 15% irrespective of any
position that the IRS may take. See "Canadian Federal Income Tax
Considerations - Holders of MDA Common Shares Not Resident In
Canada," above. Subject to certain limitations of U.S. federal
income tax law, a U.S. Holder should generally be entitled to
either a credit against its U.S. federal income tax liability or
a deduction in computing U.S. taxable income for Canadian income
taxes withheld from distributions with respect to the
Exchangeable Shares. The use of a credit may, however, be
limited or precluded entirely if the U.S. Holder has no income
that is treated as non U.S. source income for U.S. federal income
tax purposes.
Exchange or Retraction of Exchangeable Shares. Although the
matter is not free from doubt, MDA and Orbital have been advised
that there is a reasonable basis on which to conclude that the
exchange, retraction or redemption of the Exchangeable Shares for
Orbital Common Shares will be treated as a taxable event for U.S.
federal income tax purposes, and Orbital has advised MDA that it
currently intends to take this position. If the exchange is a
taxable event, and the U.S. Holder receives Orbital Common Shares
from Orbital pursuant to the Call Rights:
(1) a U.S. Holder generally would recognize gain or loss equal
to the difference between the fair market value of the
Orbital Common Shares at the time of the exchange (together
with cash equal to the Dividend Amount (if any) and cash in
lieu of fractional shares (if any)) and the U.S. Holder's
tax basis in the Exchangeable Shares;
(2) such gain or loss would generally be capital gain or loss,
except that the IRS could assert that a holder must
recognize amounts attributable to any declared but unpaid
dividends on the Exchangeable Shares as ordinary income that
may he treated as U.S. source income;
(3) any capital gain or loss would be long-term capital gain or
loss if the Exchangeable Shares have been held for more than
one year at the time of the exchange and otherwise would be
short-term capital gain or loss;
(4) the U.S. Holder would take as its tax basis in the Orbital
Common Shares the fair market value of the Orbital Common
Shares at the time of the exchange;
(5) the holding period of the Orbital Common Shares received by
the U.S. Holder in exchange would begin on the day after the
U.S. Holder receives the Orbital Common Shares; and
(6) gain realized on the exchange of Exchangeable Shares for
Orbital Common Shares generally will be treated as U.S.
source gain.
If the receipt of Orbital Common Shares is effected through a
retraction or redemption of Exchangeable Shares with respect to
which Orbital does not exercise its overriding Call Right, and
thus the Orbital Common Shares are distributed to a U.S. Holder
directly by Acquisition, then if the retraction or redemption is
treated as a taxable transaction, it will be treated as a taxable
exchange of the Exchangeable Shares (treated for U.S. federal
income tax purposes as described above) if the retraction (i)
results in a "complete termination" of the U.S. Holder's stock
interest in Acquisition under section 302(b)(3) of the Code, (ii)
is "substantially disproportionate" with respect to the U.S.
Holder under section 302(b)(2) of the Code, or (iii) is "not
essentially equivalent to a dividend" with respect to the U.S.
Holder under section 302(b)(1) of the Code. In determining
whether any of these tests has been met, shares of stock
considered to be owned by the U.S. Holder by reason of certain
constructive ownership rules set forth in section 318 of the
Code, as well as shares actually owned, generally must be taken
into account. If a retraction or a redemption is treated as a
taxable transaction but does not meet any of the tests described
above, the cash and the fair market value of the Orbital Common
Shares received by the U.S. Holder would generally be taxed as a
dividend paid on the Exchangeable Share to the extent of
Acquisition's (or, possibly, Orbital's) earnings and profits.
See "Distributions on the Exchangeable Shares," above.
Irrespective of how the retraction or redemption is treated for
U.S. federal income tax purposes, it will, as discussed above, be
subject to Canadian withholding tax. See "Canadian Federal
Income Tax Considerations - Holders of MDA Common Shares Not
Resident in Canada," above. Any Canadian tax imposed on the
exchange will be available as a credit against U.S. federal
income taxes, subject to applicable limitations. For example,
the use of such a credit may be limited or precluded entirely if
the U.S. Holder has no income that is treated as non U.S. source
income for U.S. federal tax purposes. A U.S. Holder that is
ineligible for a foreign tax credit with respect to any Canadian
tax paid, or who otherwise so chooses, may be entitled to a
deduction therefor in computing U.S. taxable income.
It is possible that the exchange, or retraction or redemption of
Exchangeable Common Shares for Orbital shares would be held to
constitute a nonrecognition event. In such case:
(1) a U.S. Holder that exchanges its Exchangeable Shares for
Orbital Common Shares generally would not recognize gain or
loss on the receipt of the Orbital Common Shares;
(2) a U.S. Holder would, however be required to recognize gain
to the extent of the receipt of cash in lieu of fractional
shares (if any) exceeds the tax basis allocable thereto and
income (which may be ordinary income) to the extent of cash
equal to the Dividend Amount (if any);
(3) the tax basis of the Orbital Common Shares would be equal to
the tax basis of the Exchangeable Shares exchanged therefor
(reduced by the tax basis allocated to fractional share
interests); and
(4) the holding period of the Orbital Common Shares would
include the holding period of the Exchangeable Shares
exchanged therefor.
Dissenting U.S. Holders. A U.S. Holder who exercises its right
to dissent from the Arrangement will generally recognize U.S.
gain or loss on the exchange of its MDA Common Shares for cash in
an amount equal to the difference between the amount of cash
received and its adjusted tax basis in the MDA Common Shares.
Such gain or loss will be capital gain or loss if such shares
have been held for more than one year at the time of the exchange
and otherwise will be short-term capital gain or loss, and will
generally be U.S. source.
Shareholders Not Resident in or Citizens of the United States
The following summary is applicable to a holder of MDA Common
Shares that is not a U.S. Holder ("non-U.S. Holder").
A non-U.S. Holder generally will not be subject to U.S. federal
income tax on gain recognized on the receipt of the Exchangeable
Shares, the Voting Rights and the Exchange Right, on the sale or
exchange of the Exchangeable Shares, or on the receipt or sale of
the Orbital Common Shares unless such gain is effectively
connected with the conduct by the non-U.S. Holder of a U.S. trade
or business or, if a tax treaty applies, if the gain is
attributable to a U.S. permanent establishment of the non-U.S.
Holder.
If gain recognized by a non-U.S. Holder on the receipt of the
Exchangeable Shares, on the sale or exchange of the Exchangeable
Shares, or on the receipt or sale of the Orbital Common Shares,
is effectively connected with a U.S. trade or business or is
attributable to a permanent establishment in the United States,
the non-U.S. Holder would be subject to U.S. federal income tax
at the graduated rates that are applicable to U.S. citizens,
resident aliens, and domestic corporations, and may be subject to
withholding in certain circumstances. Non-U.S. Holders may be
entitled to a limited foreign tax credit on non-U.S. source
income that is effectively connected with a U.S. trade or
business. In addition, if the non-U.S. Holder is a corporation,
the branch profits tax also may apply.
MDA understands that Orbital does not intend to pay dividends
prior to the Automatic Redemption Date and thus, no dividends
would be payable with respect to the Exchangeable Shares. Any
dividends received by a non-U.S. Holder with respect to the
Exchangeable Shares should not be subject to U.S. withholding
tax, and MDA understands that it is not anticipated that
Acquisition would withhold any amounts in respect of such tax
from such dividends. The possibility exists, however, that the
IRS may assert that U.S. withholding tax is payable with respect
to dividends paid on the Exchangeable Shares to non-U.S. Holders.
In such case, holders of Exchangeable Shares could be subject to
U.S. withholding tax at a rate of 30%, which rate may be reduced
by an applicable income tax treaty in effect between the United
States and the non-U.S. Holder's country of residence (15% on
dividends paid to residents of Canada). Dividends paid to a non-
U.S. Holder that are effectively connected with the conduct of a
trade or business in the United States are taxed at the graduated
rates that are applicable to U.S. citizens, resident aliens, and
domestic corporations, and are not subject to withholding if the
non-U.S. holder gives an appropriate statement to the withholding
agent in advance of the dividend payment. Such effectively
connected dividends also may, under certain circumstances, be
subject to an additional branch profits tax if the non-U.S.
Holder is a corporation.
Dividends received by a non-U.S. Holder with respect to the
Orbital Common Shares generally will be subject to U.S.
withholding tax at a rate of 30%, which rate may be subject to
reduction by an applicable income tax treaty (15% on dividends
paid to residents of Canada). If the dividends are effectively
connected with the conduct of a U.S. trade or business, they
would be taxed at the graduated rates that are applicable to U.S.
citizens, resident aliens, and domestic corporations, and would
not be subject to withholding if the non-U.S. holder gives an
appropriate statement to the withholding agent in advance of the
dividend payment. A non-U.S. Holder that is a corporation also
may be subject to an additional branch profits tax on effectively
connected dividends.
The Orbital Common Shares (and, possibly, the Exchangeable Shares
or a portion thereof) will be deemed to be U.S. situs assets for
purposes of the U.S. federal estate tax with the result that any
such shares held by an individual non-U.S. Holder at the time of
his or her death will be subject to the U.S. federal estate tax,
except as may otherwise be provided by an applicable estate tax
treaty with the U.S.
Information, Reporting and Backup Withholding
Information reporting to the IRS by paying agents and custodians
located in the United States may be required with respect to
amounts received on the disposition of Exchangeable Shares or
Orbital Common Shares, or dividends paid on either of the
foregoing. A U.S. Holder may be subject to backup withholding at
the rate of 31% with respect to dividends paid by such persons,
unless the holder (i) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this
fact, or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup
withholding rules. Generally, dividends paid to non-U.S. Holders
of the Orbital Common Shares that are subject to the 30% (or
reduced treaty) rate of withholding tax will be exempt from
backup withholding tax. Backup withholding is not an additional
tax, and may be credited against the holder's federal income tax
liability.
INFORMATION CONCERNING ACQUISITION
Acquisition was incorporated under the CBCA on August 11, 1995
solely for the purpose of entering into the Combination Agreement
and completing the transactions contemplated thereby, including
the Arrangement. Acquisition has not carried on any material
business or activities other than those relating to the
Combination Agreement and the Arrangement. The registered and
principal office of Acquisition is located at 44th Floor, 1 First
Canadian Place, Toronto, Ontario, M5X 1B1. It is anticipated
that immediately prior to the Effective Date, Acquisition will
change its registered and principal office to 13800 Commerce
Parkway, Richmond, British Columbia, V6V 2J3.
Acquisition is a wholly owned subsidiary of Orbital. Pursuant to
the Arrangement, among other things, the authorized share capital
of Acquisition will be amended to authorize an unlimited number
of Exchangeable Shares and 10,000 Class B Preferred Shares; as a
result of this amendment, Acquisition will have three classes of
authorized share capital consisting of an unlimited number of
common shares, an unlimited number of Exchangeable Shares and
10,000 Class B Preferred Shares. Pursuant to the Arrangement,
the Exchangeable Shares will be issued to MDA Shareholders (other
than Dissenting MDA Shareholders) and holders of shares of
Qualifying Holdcos in exchange for the MDA Common Shares held by
them or the Qualifying Holdcos, as the case may be. As a result,
Acquisition will become the sole shareholder of MDA. The 10,000
Class B Preferred Shares will be issued to Canadian Imperial Bank
of Commerce as partial payment for investment banking services
rendered with respect to the Arrangement. All of the issued and
outstanding common shares of Acquisition will be held by Orbital.
In addition, pursuant to the Arrangement, the name of Acquisition
will be changed to "MacDonald Dettwiler Holdings Inc." See "The
Arrangement and The Combination Agreement - Plan of Arrangement."
The directors of Acquisition are David W. Thompson (President and
Chief Executive Officer of Orbital), Ian J. Cowan (Vice-
President, Lehman Brothers Canada Inc.) and Michael Gregory (Vice-
President, Lehman Brothers Canada Inc.). The officers of
Acquisition are David W. Thompson, President, Carlton B.
Crenshaw, Vice-President and Treasurer, and Leslie C. Seeman,
Secretary, all of whom are also officers of Orbital.
INFORMATION CONCERNING ORBITAL
Background and Recent Acquisitions
Orbital was incorporated under the laws of the State of Delaware
in 1987. Its headquarters are located at 21700 Atlantic
Boulevard, Dulles, Virginia, 20166, U.S.A.
Orbital is a space technology company that designs, manufactures,
operates and markets a broad range of space products and services
that are grouped into three categories: Launch Systems, Space and
Electronics Systems, and Communications and Information Systems.
Launch Systems include space and suborbital launch vehicles;
Space and Electronics Systems include satellites, spacecraft
platforms, space sensors and instruments, and space payloads and
experiments, as well as advanced avionics and data management
systems; and Communications and Information Systems include
satellite-based two-way mobile data communications systems,
satellite-based navigation products and remote sensing systems,
along with satellite tracking systems and environmental
monitoring products.
Orbital's goal is to become a full-service space company by
integrating its launch vehicles, satellites and other products
into complete "turn-key" space systems and providing end-to-end
satellite-based services for particular markets. Orbital's
strategy is to exploit expanding opportunities to provide
government, commercial and other customers with low-cost access
to and operations in space. Essential elements of Orbital's
strategy include investment of substantial private capital in the
development of proprietary products; reduction of the time
required for product development; formation of strategic business
alliances to enhance Orbital's marketing, technical,
manufacturing and financial capabilities; and establishment of
vertically integrated manufacturing and testing capabilities. In
addition, Orbital believes that its strategy of providing "turn-
key" space systems, through the integration of lower-cost space
launch vehicles with lower-cost smaller satellites and sensors
and instruments, should stimulate the use of space products and
services by private corporations, educational and research
institutions and other non-traditional space customers including,
ultimately, individual consumers.
An important element of Orbital's strategy to integrate its
various products into complete "turn-key" systems is the
acquisition of companies with product lines that complement or
enhance Orbital's existing base of products, technology and
services. Orbital acquired Space Data Corporation ("Space Data")
in 1988, thereby expanding its product lines and increasing its
vertical integration in production and testing. In September
1993, Orbital acquired all the assets of the Applied Sciences
Operation, a division of The Perkin-Elmer Corporation ("ASO").
This operation designs, develops and produces satellite-borne
scientific sensors for space and terrestrial research and in situ
atmospheric monitoring equipment for human space flight programs.
In August 1994 and December 1994, Orbital acquired Fairchild
Space and Defense Corporation ("Fairchild") and Magellan
Corporation ("Magellan"), respectively. The Fairchild
acquisition has enhanced Orbital's satellite system and subsystem
development and production capabilities and has expanded
Orbital's existing product lines by adding various sophisticated
electronics and defence products. Magellan designs, manufactures
and markets hand-held receivers for Global Positioning System
("GPS") satellite-based navigation and positioning for commercial
and consumer markets.
Orbital's customer base includes a wide range of
U.S. governmental agencies, universities and commercial
enterprises including NASA; the National Oceanic and Atmospheric
Administration; various organizations within the U.S. Department
of Defense ("DoD") including the U.S. Army, the U.S. Navy, the
U.S. Air Force, ARPA and BMDO; ORBCOMM Global; John Hopkins
University; and certain distributors of electronics and
recreational equipment. Orbital's diversification and
integration of space-based products and services is reflected in
its revenue mix with 34%, 40% and 26% of its 1994 revenues
derived from Launch Systems, Space and Electronics Systems and
Communications and Information Systems, respectively. Orbital
had revenues of approximately US$222 million for the year ended
December 31, 1994. As of June 30, 1995, Orbital's total backlog,
including firm orders of approximately US$495 million, was
approximately US$1.3 billion.
Orbital has three wholly owned active subsidiaries -- Magellan,
ORBIMAGE and Fairchild -- and owns 99.9% of the outstanding
shares of ORBCOMM. Magellan, ORBIMAGE, Fairchild and ORBCOMM are
each incorporated under the laws of the State of Delaware.
Description Of Orbital's Products And Services
The space products and services provided by Orbital are grouped
into three categories: Launch Systems, Space and Electronics
Systems, and Communications and Information Systems.
Launch Systems
Orbital's Launch Systems Group's products include space and
suborbital launch vehicles. Orbital also continues to explore
new, longer-term research and development opportunities for more
affordable and flexible space launch vehicles, such as the X-34
reusable launch vehicle described below.
Space Launch Vehicles. A space launch vehicle launches a
satellite into orbit around the Earth. Orbital's three space
launch vehicles are the Pegasus launch vehicle, the Pegasus XL
launch vehicle, and the Taurus launch vehicle.
Orbital's Pegasus vehicle is launched from beneath a modified
large aircraft, such as a Lockheed L-1011, to deploy satellites
up to 1,000 pounds into low-Earth orbit. Customers for Pegasus
include the U.S. Air Force, NASA, BMDO, ORBCOMM Global and ARPA,
as well as the Brazilian and Spanish space agencies. Through
September 1995, Orbital has conducted a total of seven standard
Pegasus missions, all of which were fully or partially
successful. Whether a mission is fully or partially successful
depends on the particular mission requirements designated by the
customer. The modified Pegasus XL, developed to deploy heavier
satellites into orbit, has had two unsuccessful flights, one
occurring in June 1994 and the other occurring in June 1995.
Orbital believes that it correctly identified and remedied the
cause of the 1994 failure. Orbital believes it has identified
the cause of the 1995 failure, which was not related to the
anomalies observed in the first unsuccessful flight, and is
implementing what it believes to be the necessary corrective
actions. There can be no assurance, however, that the causes of
the failures here been correctly identified or that they will be
successfully corrected. In 1992, Orbital entered into a ten-year
lease for a Lockheed L-1011 aircraft, which has been modified to
enable it to launch both the Pegasus and Pegasus XL vehicles.
There is no assurance that, in the event that the L-1011 were
unavailable for any reason, another aircraft could be obtained on
a timely or cost-effective basis.
The higher-capacity Taurus vehicle is a four-stage, ground-
launched derivative of the Pegasus vehicle that can carry
payloads weighing up to 3,000 pounds to low-Earth orbit and
payloads weighing up to 800 pounds to geosynchronous orbit.
Taurus is designed to be readily transported with a self-
contained launch pad, including assembly and pre-flight
equipment, so that launch from a variety of developed or remote
locations can be achieved on short notice. In March 1994,
Orbital successfully launched the first Taurus vehicle, deploying
two satellites for ARPA.
Suborbital Launch Vehicles. Suborbital launch vehicles place
payloads into a variety of high-altitude trajectories but, unlike
space launch vehicles, do not place payloads into orbit around
the Earth. Orbital's suborbital launch products include
suborbital vehicles and their principal subsystems, payloads
carried by such vehicles, and related launch support
installations and systems used in their assembly and operation.
Orbital offers its customers customized vehicle and payload
design, manufacturing and integration, launch and mission support
and tracking and recovery services, as well as construction and
activation of launch pads and other infrastructure elements.
Customers typically use Orbital's suborbital launch vehicles to
launch scientific and other payloads and for defence-related
applications such as target and interceptor experiments for anti-
missile defence systems. The primary customers for Orbital's
suborbital launch vehicles include the U.S. Army, the U.S. Navy
and BMDO.
From January 1991 through September 1995, Orbital has conducted a
total of 38 launches of suborbital vehicles, of which 34 have
been fully or partially successful and four have been failures.
While cutbacks in the DoD's budget and, in particular, those
projects related to missile defence have resulted in decreased
revenues attributable to suborbital launches, Orbital believes
that increasing sophistication of missile technology and public
concern over the United States' missile defence system will
continue to provide opportunities for Orbital's suborbital
program.
Reusable Launch Vehicles. A major reason for the high cost of
access to space today using expendable launch vehicles is the
fact that the entire launch vehicle, including expensive
structures and electronics equipment, is expended during launch.
Orbital is currently developing the X-34 partially reusable
launch vehicle with the goal of significantly reducing the cost
of access to space. Like Pegasus, the X-34 will be air-launched
from a carrier aircraft. Although the X-34 upper stage will be
expended during launch, the booster vehicle itself will return to
Earth, to be refurbished and reused in subsequent launches. The
X-34 is being designed to launch small 500 to 1,000-pound
satellites to low-Earth orbit.
In March 1995, Orbital entered into a Cooperative Agreement with
NASA to develop, construct, test and launch two X-34 reusable
launch vehicles. At that time, Orbital and Rockwell
International Corporation ("Rockwell") agreed to establish a
joint venture, to be called American Space Lines ("ASL"), the
terms of which are under negotiation, to develop, construct, test
and operate two X-34 small reusable launch vehicles. Under the
ASL joint venture, Orbital will be the prime contractor for the
design and construction of the launch vehicle, and Rockwell will
be a subcontractor for the design and construction of various
subsystems, including the propulsion and thermal protection
subsystems. There can be no assurance that Orbital and Rockwell
will successfully conclude their negotiations to establish ASL.
Orbital estimates that the development, construction and initial
testing of the first two X-34 vehicles will require a total
investment of at least US$190 million. Under the Cooperative
Agreement between Orbital (to be novated to ASL) and NASA, NASA
will partially fund the project by providing approximately US$60
million in cash to ASL as specified performance milestones are
met. NASA also is providing approximately US$10 million in
funding NASA centres that will perform as subcontractors.
Orbital and Rockwell are expected to fund the remaining costs of
the X-34 program.
The Cooperative Agreement can be suspended or revoked by NASA or
Orbital/ASL at any time, and there can be no assurance that NASA
will continue to fund or support the project to the extent
presently contemplated by the Cooperative Agreement. Development
and construction of the X-34 is in a very early stage and the
actual cost of the X-34 and the amount and structure of
anticipated investment in ASL may vary significantly from current
estimates. There can be no assurance that the funds expected to
be committed by Orbital, Rockwell and NASA will be sufficient to
finance the project, or that ASL will be able to raise the
required capital if NASA exercises its right to suspend or revoke
the Cooperative Agreement. In the event that ASL does not
receive the necessary capital and Orbital and Rockwell decide not
to go forward with the project, Orbital could be required to
expense part or all of its expected investment in ASL.
Space and Electronics Systems
Orbital's Space and Electronics Systems Group's products include
spacecraft systems and payloads, defence avionics and sensors.
The Space and Electronics Systems Group is responsible for the
design, production and testing of small and medium class
spacecraft for scientific, military and commercial applications.
The small standard spacecraft platforms developed by Orbital,
such as the PegaStar and the MicroStar, are designed to be
launched by the Pegasus or Taurus launch vehicle. The PegaStar
spacecraft platform is a general purpose spacecraft that has
successfully performed one mission for the U.S. Air Force
measuring space radiation. It is also planned to be used for
Orbital's SeaStar ocean environmental monitoring satellite
system. Orbital's MicroStar spacecraft platform is designed for
use in the ORBCOMM System and also for a variety of small space
science and remote sensing projects, including some of those
being pursued by Orbital's wholly owned subsidiary, ORBIMAGE. In
April 1995, the first three MicroStar spacecraft were deployed,
two for the ORBCOMM System, and the other to monitor lightning
and severe weather patterns for NASA.
Orbital's medium class satellites, such as TOPEX/Poseidon, NASA's
Upper Atmosphere Research Satellite, Landsat 4 and Landsat 5 have
been in space for several years, and are used to gather various
scientific data, such as ocean topography and ultraviolet sources
outside the galaxy. In August 1995, Orbital was selected to
become the spacecraft supplier to Johns Hopkins University, which
is leading NASA's Far Ultraviolet Spectroscopy Explorer (FUSE)
program to measure far ultraviolet radiation. The FUSE
spacecraft is presently scheduled for launch in 1998.
Orbital develops, manufactures and markets avionics, advanced
electronics and data management systems for aircraft flight
operations and ground support. These systems collect, process
and store mission-critical data for, among other things, mission
planning and flight operations, and manage on-board equipment for
strategic tactical military aircraft, helicopters, satellites and
surface vehicles. The primary customers for data management
systems are the U.S. Navy, the U.S. Air Force, various DoD prime
contractors and foreign governments. Orbital is the leading
supplier of certain avionics systems and products, including
mission data loaders for the U.S. Navy, and data transfer
equipment and digital terrain systems for the U.S. Air Force. In
addition, Orbital provides stores management systems, including
weapons arming and firing functions for use on tactical aircraft
and helicopters. The avionics systems and products are deployed
on a number of aircraft, including the F-14, F-15, F-16, F-22 and
the LAMPS Helicopter.
Orbital's satellite-borne scientific sensors and instruments
include atmospheric ozone monitoring instruments and
environmental sensors. The Total Ozone Mapping Spectrometer
("TOMS") instrument was produced by Orbital to be launched on a
Pegasus vehicle for NASA. TOMS will measure ozone concentrations
around the world for the purpose of monitoring the effect of man-
made chemicals and atmospheric conditions on the ozone layer. In
addition, Orbital is currently developing and producing various
in situ monitoring products for space and defence applications.
These products include the Atmospheric Composition Monitoring
Assembly, being developed under a contract with The Boeing
Company, that will measure various atmospheric gases in the
crew's living quarters on the Space Station for the purpose of
ensuring a healthy living environment for astronauts. Orbital
also produces the Central Atmospheric Monitoring System for the
U.S. Navy for use on submarines.
Communications and Information Systems
Orbital's Communications and Information Systems include planned
and operational products and services provided by Orbital's
Magellan, ORBCOMM and ORBIMAGE subsidiaries. Magellan
manufactures GPS satellite-based navigation and positioning
products for commercial and consumer markets including marine and
aviation applications, outdoor recreational users such as hunters
and hikers, professional users such as geologists, geographers,
surveyors, natural resource managers and contractors and, to a
lesser extent, the U.S. Government. ORBCOMM and ORBIMAGE are
developing satellite-based services to address the expanding
market for global two-way data communications and information
derived from remote sensing of the atmosphere, oceans and land
surfaces. Orbital believes that the ORBCOMM and ORBIMAGE systems
will require significant capital investments. Although Orbital
believes the long-term profit potential of such service
businesses developed and supported by Orbital's proprietary
product technologies is significant, there can be no assurance
that Orbital will be able to successfully develop these
businesses.
Satellite-Based Navigation and Positioning Products. Orbital's
Magellan subsidiary designs, manufactures and markets hand-held
GPS receivers that provide users with precise positioning and
navigation information for a broad range of personal and
professional activities including marine navigation, outdoor
recreation (hiking and hunting), surveying and general aviation.
Magellan focuses its research, design and engineering activities
on the development of GPS receivers that are reliable, portable,
easy-to-use and affordable, recently targeting the growing
recreational market. Magellan is also expected to be a
significant supplier of personal communicators for the ORBCOMM
System.
In addition, Orbital's Germantown operations produce data
management systems that have been applied to the design,
development and manufacture of "intelligent transportation
systems," primarily for metropolitan transit operators, that
provide GPS-based location of vehicles and allow for
communications and schedule management.
ORBCOMM System. The ORBCOMM System is designed to provide
virtually continuous mobile data communications coverage over
much of the Earth's surface. Under this design, subscribers will
be able to use inexpensive, pocket-sized personal communicators
to send and receive short messages, emergency alerts and other
critical information, and to use the position-determining
capability of the communicators to obtain data concerning the
location and condition of automobiles, trucks, shipping vessels
and other valuable assets. Orbital expects that the ability to
send and receive other short messages and data without the
geographic limitations of existing data communications systems
will stimulate the growth of new markets for satellite-based data
communications and will be used to supplement terrestrial
communications systems by providing relatively low-cost coverage
in areas outside the range of these systems.
The ORBCOMM System design consists of a constellation of small
low-Earth orbit satellites, a satellite control centre operating
and positioning the satellites, network control centres
controlling the flow of information through the system, local
ground stations sending and receiving signals between the network
control centres and nearby satellites, and the mobile
communicators used by subscribers to transmit and receive
messages to and from nearby satellites. In April 1995, Orbital
successfully launched the first two satellites that will comprise
the ORBCOMM System constellation. After working through certain
anomalies that were initially observed on these two spacecraft,
the satellites have validated a number of technical capabilities
of the ORBCOMM System. ORBCOMM Global is presently involving in
beta testing the ORBCOMM System, and has successfully used the
ORBCOMM System to transmit data messages.
Orbital expects that, using at least 26 satellites and
appropriately located gateway Earth stations, the ORBCOMM System
will provide communications availability generally exceeding 95%
during each 24-hour period in the United States and other
temperate zones in the Northern and Southern hemispheres and
exceeding 75% of each 24-hour period in the equatorial region.
Equatorial region availability could be improved to generally
exceed 90% with an additional plane of eight satellites. Outages
will be dispersed in brief intervals over the 24-hour period,
thereby minimizing the effect of any unavailability of the
system. The ORBCOMM System will only be available in areas where
appropriate licenses have been obtained and generally only where
there is a proximate gateway Earth station and network control
centre.
The ORBCOMM System is being constructed and implemented in two
phases: the ORBCOMM Phase 1 System, consisting of the satellite
control centre, the United States network control centre, four
United States gateway Earth Stations and two MicroStar
satellites; and the ORBCOMM Phase 2 System, consisting of up to
an additional 34 MicroStar satellites. The ORBCOMM Phase 1
System satellites were launched in April 1995, and Phase 1 has
been substantially completed. Subject to the ability of ORBCOMM
Global to secure sufficient financing and completion of satellite
development and production in accordance with current schedules,
Orbital believes that the ORBCOMM Phase 2 System could be fully
operational in late 1997.
Development and Financing. Effective June 30, 1993, ORBCOMM and
Teleglobe Mobile formed a partnership, ORBCOMM Global, for the
design, development, construction, testing and operation of the
ORBCOMM System, and formed two marketing partnerships to market
the ORBCOMM System in the United States and internationally.
ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International
Partners, L.P. ("ORBCOMM International, " and together with
ORBCOMM USA, the "Marketing Partnerships") each has the exclusive
right to market the ORBCOMM System in the United States and
internationally, respectively. Also effective June 30, 1993,
Orbital entered into an arm's length agreement with ORBCOMM
Global pursuant to which Orbital had responsibility for the
overall design, development and integration of the ORBCOMM System
(the "System Agreement"). The System Agreement was replaced by
the ORBCOMM System Procurement Agreement between ORBCOMM Global
and Orbital, dated September 12, 1995 (the "Procurement
Agreement").
The Phase 1 System was designed, constructed and implemented
pursuant to the System Agreement. The Procurement Agreement
provides that Orbital will, among other things, construct and
launch 24 satellites, and construct an additional 10 satellites,
for the ORBCOMM Phase 2 System. Under the Procurement Agreement,
Orbital is providing satellites and launch services and the
remaining work to be done on the U.S. satellite control centre
and U.S. gateway Earth stations on a fixed-price basis.
Construction and implementation of the ORBCOMM Phase 1 System in
the United States cost approximately US$65 million, with
US$55 million and US$10 million contributed by Orbital (through
ORBCOMM) and Teleglobe Mobile, respectively. Teleglobe Mobile
and Orbital (through ORBCOMM) are obligated to increase each of
their aggregate investment in ORBCOMM Global to US$85 million and
US$75 million, respectively.
Under ORBCOMM Global's partnership agreement, action by the
partnership generally requires the approval of general partners
holding a majority of the participating interests (i.e.,
interests participating in profits and losses). Each of ORBCOMM
and Teleglobe Mobile is a general partner of ORBCOMM Global and
holds 50% of the participating interests in ORBCOMM Global, with
the result that the approval of both Orbital and Teleglobe Mobile
is necessary for ORBCOMM Global to act. ORBCOMM holds directly
and indirectly a 51% participating interest in ORBCOMM USA and
Teleglobe Mobile holds directly and indirectly a 51%
participating interest in ORBCOMM International, with the result
that ORBCOMM acting alone generally controls the operation of
ORBCOMM USA, and Teleglobe Mobile acting alone generally controls
the operation of ORBCOMM International.
Although construction of the ORBCOMM Phase 1 System is
substantially completed, development and construction of the
ORBCOMM Phase 2 System is in an early stage and the actual cost
of the system, schedule and the amount and structure of the
anticipated investment in ORBCOMM Global may vary significantly
from current estimates. Orbital expects that design,
construction and implementation in the United States of the
ORBCOMM Phase 2 System will require total capital of
approximately US$160 million, bringing the total estimated
required capital for the ORBCOMM System to approximately
US$235 million. ORBCOMM Global may seek additional equity
contributions and/or bank or other debt financing. ORBCOMM
Global has already obtained asset-based financing of US$5 million
to fund a portion of its development and startup costs for the
ORBCOMM Phase 2 System. Orbital has guaranteed ORBCOMM Global's
outstanding indebtedness, and Orbital or Teleglobe may be
required to guarantee or provide credit support in connection
with additional indebtedness incurred by ORBCOMM Global.
Teleglobe Mobile has obtained a US$44 million commitment from
Technologies Resources Industries Bhd., a Malaysian
telecommunications company, to acquire up to 30% of Teleglobe
Mobile's interest in ORBCOMM Global. Orbital has been informed
that Teleglobe Mobile may seek additional investors to
participate in its investment in ORBCOMM Global.
In the event that ORBCOMM Global does not otherwise receive the
necessary capital, implementation and commercial development of
the ORBCOMM System may be delayed, significantly restricted or
possibly abandoned, and Orbital could be required to expense part
or all of its investment in the ORBCOMM System. In addition,
start-up of the ORBCOMM System will produce significant ORBCOMM
Global operating losses for several years. Even if the ORBCOMM
System is fully implemented, there can be no assurance that an
adequate market will develop for ORBCOMM System services, that
ORBCOMM Global will achieve profitable operations or that Orbital
will recover any of its past or anticipated investment in the
ORBCOMM System. Because Orbital has a 50% participating interest
in ORBCOMM Global, Orbital expects to recognize its pro rata
share of ORBCOMM Global profits and losses.
Regulatory Approvals. In October 1994, ORBCOMM became the first
company to be awarded full U.S. Federal Communication Commission
("FCC") authority to construct, launch and operate a low-Earth
orbit satellite-based messaging and data communications network
in the United States. This license, which provides that the
ORBCOMM System must be constructed within six years from the date
the license was granted, extends for a period of ten years from
the date the first ORBCOMM System satellite became operational.
At the end of the seventh year of the ten-year term, a renewal
application must be filed with the FCC. ORBCOMM has retained
control over applicable FCC licences consistent with FCC
regulations. As with any such license, the ORBCOMM System
license may be revoked and a license renewal application may be
denied for cause. In late 1994, two other applicants for FCC
licenses similar to that awarded to ORBCOMM petitioned the FCC to
reconsider the grant of the license to ORBCOMM. ORBCOMM has
opposed the petitions, which Orbital and ORBCOMM believe are
without merit. In addition, for the ORBCOMM System to be
operated in other countries throughout the world, Orbital or the
foreign licensees must obtain from the appropriate foreign
regulatory bodies authority to do so. Orbital anticipates that
the cost of these activities will be borne primarily by foreign
licensees. ORBCOMM International has entered into preliminary
agreements with 19 candidate licensees serving 66 countries to
seek such licenses and to initiate country-specific market
development in such countries. There can be no assurance that
Orbital or foreign licensees will be granted all licenses or
approvals necessary to operate the ORBCOMM System in any other
country.
ORBIMAGE Remote Sensing and Imaging Systems. Orbital, primarily
through ORBIMAGE, is currently seeking to develop and market a
broad range of information services to identify and monitor
global environmental changes and to collect and disseminate other
remote sensing information. Small Earth-viewing satellites and
related sensors and instruments to be placed in relatively low
orbits are expected to offer cost-efficient data collection,
daily global coverage and high-resolution imaging services for
government and commercial uses.
In April 1995, ORBIMAGE's first MicroStar satellite was
successfully launched to monitor lightning and severe weather
patterns for NASA. In March 1991, Orbital entered into a
contract with NASA to provide worldwide, daily ocean imagery
using Orbital's SeaStar environmental monitoring satellite
system, based on the PegaStar spacecraft. Orbital plans to
develop, produce, launch and operate the SeaStar system to
deliver high-quality multi-spectral ocean imagery for up to five
years, currently scheduled to commence during 1996. In addition
to providing unprocessed real-time ocean data to NASA, Orbital
plans to process and package the data received from SeaStar and
to use value-added resellers and other marketing agents to sell
the SeaStar data to other U.S. Government users and to potential
domestic and international customers such as commercial
fishermen, oil and gas companies, ocean transportation companies
and oceanographers.
ORBIMAGE is developing and marketing other small satellite-based
Earth observation, remote sensing and environmental monitoring
services using, among other things, Orbital's PegaStar and
MicroStar spacecraft platforms, Pegasus and Taurus launch
vehicles, space sensors and instruments and other space products.
Services to be provided by ORBIMAGE could include high-resolution
optical imaging of land surfaces for geographic information
services, mapping and news-gathering, sensing of ocean and
atmospheric conditions and measuring of ozone and other gaseous
concentrations in the atmosphere. ORBIMAGE is currently
exploring potential strategic arrangements for the development of
several remote sensing businesses, with Orbital providing launch
services, spacecraft and other related products. There can be no
assurance that ORBIMAGE will be able to conclude such strategic
arrangements or develop profitable commercial Earth observation,
remote sensing or environmental monitoring businesses.
Satellite Tracking Systems. Orbital's ground tracking systems,
installed at approximately 70 sites around the world, consist of
meteorological and satellite tracking and telemetry stations that
are used to collect weather data and to communicate with and
control orbiting spacecraft. Orbital's current customers for
satellite tracking systems include Lockheed Martin Corporation
("Lockheed Martin"), ORBCOMM and Orbital's SeaStar project. As a
result of the Arrangement, Orbital is exploring the feasibility
of combining its satellite tracking systems operations with those
of MDA.
Competition
Orbital believes that competition for sales of its products and
services is based on price, performance and other technical
features, reliability, scheduling and customization.
The primary competition to the Pegasus and Taurus vehicles is
expected to come from the smaller and larger classes,
respectively, of LLV launch vehicles currently being developed by
Lockheed Martin. The LLV had an unsuccessful first flight in
August 1995. Direct competition to the Taurus vehicle also comes
from EER Systems' Conestoga launch vehicle. Potential
competition to the Pegasus may come from launch systems derived
from surplus ballistic missiles that could be made available by
the U.S. Government and various foreign governments including
Russia. In addition, the X-34 reusable launch vehicle is
expected to compete with, and eventually replace, the Pegasus.
Competition for Taurus could also come from surplus Titan II
launch vehicles, although Titan II production has been
discontinued and only a limited inventory remains. Indirect
competition to the Pegasus and Taurus vehicles also exists in the
form of secondary or "piggyback" payload capacity on large
boosters such as Ariane, Titan, Long March and Proton launch
vehicles. While secondary payloads offer a low-cost method of
launching satellites in some cases, the secondary status of the
payload often requires customers to accept less desirable orbits,
"standby" launch scheduling and potentially more complicated and
costly payload integration procedures.
Orbital's suborbital launch vehicles, spacecraft systems and
payloads, satellite-based services and space support products
compete with products and services produced or provided by
numerous companies and government entities. Orbital's airborne
and ground-based electronics, data management systems and defence-
oriented avionics products face competition from several
established manufacturers. Orbital's space sensors and
instruments face competition from a number of companies and
university research laboratories capable of designing and
producing space instruments.
The ORBCOMM System will face direct and indirect competition from
numerous existing and potential alternative communication
products and services from various large and small companies,
ranging from one-way tower-based data and messaging services to
sophisticated two-way satellite-based data and voice
communications services. Depending on the requirement of the
specific market, the ORBCOMM System may both compete with and
complement existing services such as one-way and two-way paging,
cellular data, specialized mobile radio and private networks.
ORBIMAGE may face competition from private and U.S. government
entities that provide satellite-based and other land imaging,
environmental monitoring and atmospheric sensing products. GPS
satellite-based navigation and positioning products manufactured
by Magellan face competition from several other producers of GPS
receivers, such as Garmin International and Trimble Navigation
Ltd. Orbital believes that Magellan's success will depend on its
ability to continue to develop new lower-cost and enhanced
performance products and to enter into and develop new markets
for GPS receivers.
Many of Orbital's competitors are larger and have substantially
greater resources than Orbital. Furthermore, the possibility
exists that other domestic or foreign companies or governments,
some with greater experience in the space industry and greater
financial resources than Orbital, will seek to produce products
or services that compete with those of Orbital, including the
Pegasus and Taurus launch vehicles, various suborbital launch
vehicles, PegaStar, MicroStar and other satellite systems, GPS
receivers and ORBCOMM and other satellite services. Any such
foreign competitor could benefit from subsidies from, or other
protective measures by, its home country. In addition, in
response to reductions in the U.S. defence budget, Orbital may
face competition from companies, such as missile manufacturers,
that could attempt to adapt existing or future products for non-
defence, space or suborbital launch applications.
Research and Development
Orbital believes that its future success will depend in part on
its ability to continue to conceive and develop new products and
services and enhance existing products on a more rapid and less
expensive basis than its competitors. Accordingly, Orbital
expects to continue to invest in product-related research and
development, to conceive and develop new products and services,
to enhance existing products and to seek customer and strategic
partner investments in these products. These strategic
relationships have included, and may include in the future, joint
development arrangements, joint venture investments and
acquisitions of strategic product lines and businesses.
Orbital's research and development expenses, excluding direct
customer-funded development, were approximately US$8.8 million
for the six months ended June 30, 1995 and approximately US$14.4
million, US$14.9 million, and US$10.6 million for the years ended
December 31, 1994, 1993 and 1992, respectively. Orbital's
research and development expenses during 1995 have been and will
be primarily for new or modified launch systems, spacecraft
programs, including possible ORBIMAGE projects, and satellite-
based navigation and positioning products.
Backlog and Contracts
Orbital's firm backlog at June 30, 1995 and 1994 was
approximately US$495 million and US$256 million, respectively.
As of June 30, 1995, approximately 60% of Orbital's backlog was
with the U.S. Government and its agencies or from subcontracts
with the U.S. Government's prime contractors. Backlog consists
of aggregate contract values for firm product orders, excluding
the portion previously included in operating revenues on the
basis of percentage of completion accounting, and including
government contracts awarded but not signed and orders not yet
funded in the amounts of approximately US$140 million as of
June 30, 1995. Approximately US$385 million of backlog at
June 30, 1995 is currently scheduled to be performed beyond 1995.
Backlog excludes unexercised contract options having an aggregate
potential contract value at June 30, 1995 of approximately
US$795 million.
A substantial portion of Orbital's revenues have been generated
primarily under fixed-price incentive fee, firm fixed-price and
cost-plus-fee U.S. government contracts. Fixed-price incentive
fee contracts are long-term contracts with specified cost, profit
and price targets. To the extent a contractor incurs less costs
than targeted, the contractor's profit will be increased based on
contractual incentives. In this manner, the contractor is
encouraged to keep costs at a minimum and, as a reward, realizes
additional profit. The U.S. Government, by virtue of the
contractor's reduced costs, offset in part by increased profit,
realizes a reduced price for the product or service. Firm-fixed-
price contracts are long-term contracts with fixed stated prices.
The contractor bears the burden of cost increases and realizes
the reward of cost savings. Cost-plus-fee contracts, which
include cost-reimbursable contracts, cost-plus-fixed-fee
contracts, cost-plus-award-fee contracts and cost-plus-incentive-
fee contracts, are long-term contracts that reimburse a
contractor for all costs incurred in the performance of the
contract with various contractual fee arrangements, including
fixed fees, award fees based on specific contractor performance,
and incentive fees based on contractor cost performance.
Orbital uses the percentage of completion method of accounting,
whereby revenue is recognized based on actual costs incurred in
relation to total estimated costs to complete the contract or
based on specific delivery terms and conditions, with incentive
and award amounts included in revenue or expense based on ongoing
estimates of expected incentive or award fees. Unforeseen events
and circumstances can alter Orbital's estimate of the costs
associated with a particular contract and any related profit or
incentive or award fee. To the extent cost overruns cannot be
passed on to Orbital's customers, they could materially adversely
affect Orbital's results of operations.
All of Orbital's U.S. Government contracts and, in general, its
subcontracts with the U.S. Government's prime contractors,
provide that such contracts may be terminated at will by the U.S.
Government or the prime contractor, respectively. Furthermore,
any of these contracts may become subject to a government-issued
stop work order under which Orbital is required to suspend
production. In the event of a termination at will, Orbital is
normally entitled to 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. Orbital
has experienced several contract suspensions and terminations in
the past, and there can be no assurance that such terminations or
stop work orders will not occur in the future.
During 1994, 1993 and 1992, approximately 60%, 70% and 80%,
respectively, of Orbital's total annual revenues were derived
from contracts with the U.S. Government and its agencies or from
subcontracts with the U.S. Government's prime contractors.
Orbital's government contracts are subject to regular audit and
periodic reviews and may be modified, increased, reduced or
terminated in the event of changes in government requirements or
policies, Congressional appropriations and program progress and
scheduling. Orbital believes that any adjustments likely to
result from pending inquiries or audits of its contracts will not
have a material adverse impact on Orbital's financial condition
or results of operation. Since Orbital's inception, it has not
experienced any material adjustments as a result of any such
inquiries or audits. U.S. Government curtailment of expenditures
for space research and development and related products and
services could have a material adverse effect on Orbital's
revenues and results of operations.
Properties
In 1993, Orbital entered into a 12-year lease agreement for
approximately 100,000 square feet of office and engineering space
in Dulles, Virginia, which serves as its corporate headquarters.
In 1994, Orbital completed construction of an approximately
30,000 square-foot satellite engineering and manufacturing
facility on land adjacent to the Dulles office facility. Orbital
also leases approximately 320,000 square feet of office,
engineering and manufacturing space in Germantown, Maryland;
312,000 square feet of office, engineering and manufacturing
space in Chandler, Arizona; approximately 135,000 square feet of
office, engineering and manufacturing space in Pomona,
California; approximately 40,000 square feet of office,
engineering and manufacturing space in San Dimas, California; and
approximately 25,000 square feet of manufacturing space in
Mexicali, Mexico. Orbital leases other small facilities or
offices in Huntsville, Alabama; Edwards Air Force Base,
California; Vandenberg Air Force Base, California; and Greenbelt,
Maryland. Although completion of Orbital's existing and pending
contracts may in the future require additional manufacturing
capacity, Orbital believes that its existing facilities are
adequate for its near- and medium-term requirements.
Environmental Regulation
Orbital's operations are subject to a variety of Federal, state
and local environmental regulations, including laws regulating
air and water quality and hazardous materials and regulations
implementing those laws. Orbital is one of several potentially
responsible parties involved in a California mandated clean-up of
a manufacturing facility near Salinas, California. Through
June 30, 1995, Orbital and two other potentially responsible
parties have shared certain investigation and monitoring costs,
resulting in total Orbital expenditures after insurance
recoveries of approximately US$85,000. Orbital does not believe
that its total exposure in this clean-up, or that other
compliance by it with applicable environmental regulations, will
have a material adverse effect on its operations.
Insurance
Orbital maintains a US$100 million aviation products liability
policy that insures Orbital against certain liabilities to third
parties that might arise in connection with the production or
operation of a number of its products and generally purchases
launch liability insurance with respect to certain liabilities to
third parties that might arise in connection with a launch.
Orbital also maintains a commercial general liability umbrella
policy of US$50 million to insure Orbital against any third party
claims associated with its manufacturing or business ventures.
In addition, under certain of its government contracts, Orbital
is indemnified by the U.S. Government against certain potential
third-party liabilities resulting from launch or operation of
space launch vehicles and for commercial launches is indemnified
against certain of such liabilities under launch licenses with
the U.S. Department of Transportation. In circumstances in which
Orbital has provided mission success warranties, depending on an
assessment of its exposure and the availability and pricing of
insurance, Orbital generally seeks to purchase mission success
insurance, which provides coverage with respect to contract
losses in the event its launch vehicles or other products fail to
perform and the mission is not completed successfully. Orbital
separately maintains both property (aircraft hull) and liability
insurance on the Lockheed L-1011 aircraft it is currently leasing
for its Pegasus program.
Orbital reviews its insurance coverage from time to time and
considers changes to its insurance coverage in response to the
introduction and operation of new products. The insurance
carried by Orbital and its indemnity rights against the U.S.
Government and other parties do not extend to all of Orbital's
products and services, may not cover all potential risks and may
not be effective to protect Orbital against all potential claims
or losses. In addition, there can be no assurance that mission
success insurance will be available at premium levels that in
Orbital's judgment justify purchase of such insurance or that
such insurance will be available in all instances in which
Orbital has provided mission success warranties.
Litigation
To its knowledge, Orbital is not a party to any legal proceeding,
the outcome of which would materially impact its business or
operations.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
A significant portion of Orbital's revenues are generated under
fixed-price incentive fee, firm fixed-price, and cost-plus-fee
contracts with various agencies of the U.S. Government, including
NASA, the U.S. Air Force, ARPA, the U.S. Army, the U.S. Navy and
BMDO. Orbital recognizes revenues using the percentage of
completion method of accounting, whereby revenue is recognized
based on actual costs incurred in relation to total estimated
costs to complete the contract or based on specific delivery
terms and conditions. In the case of fixed-price incentive fee
contracts, the final revenue amount can be increased or decreased
in accordance with cost incentive provisions that measure actual
financial performance against established targets. The incentive
fee is included in revenue at the time the amount of such fee can
reasonably be determined. In the case of cost-plus award fee
contracts, revenues are recognized to the extent of costs
incurred plus a proportionate amount of a base fee fixed at the
inception of the contract, if any. The award fee is included in
revenue as work is performed based on Orbital's on-going
estimates of the amount of the fee to be awarded. To the extent
that estimated costs of completion are adjusted, revenue
recognized from a particular contract will be affected in the
period of the adjustment.
Orbital is accounting for its investment in ORBCOMM Global using
the equity method of accounting and will continue to use the
equity method as long as Orbital's interest in the profits and
losses of ORBCOMM Global does not exceed the current 50%. In
accordance with the equity method of accounting, Orbital
consolidates 100% of the revenues earned and costs incurred
pursuant to the System Agreement and Procurement Agreement. See
"Information on Orbital - Communications and Information Systems
- - Development and Financing." Orbital also recognizes as equity
in earnings (losses) of affiliates its pro rata share of ORBCOMM
Global's profits and losses. During construction of the ORBCOMM
System, ORBCOMM Global is capitalizing substantially all system
construction costs, including amounts paid under the System
Agreement and Procurement Agreement. To the extent ORBCOMM
Global capitalizes its purchases under these agreements, Orbital
eliminates as equity in earnings (losses) of affiliates 50% of
Orbital's profits and losses thereunder.
Orbital acquired Magellan on December 28, 1994, in a transaction
accounted for as a pooling of interests. Orbital's historical
financial information has been restated to effect the pooling of
interests with Magellan as of the earliest period presented. On
August 11, 1994, Orbital acquired Fairchild, a subsidiary of
Matra Aerospace, Inc., in a transaction accounted for as a
purchase business combination. Fairchild's results of operations
for the nineteen-week period ended December 31, 1994 have been
included in Orbital's consolidated results of operations for the
year ended December 31, 1994. Orbital acquired ASO on
September 17, 1993, in a transaction accounted for as a purchase
business combination. ASO's results of operations for the
fourteen-week period ended December 31, 1993 have been included
in Orbital's consolidated results of operations for the year
ended December 31, 1993.
Adoption of New Accounting Standard
The Financial Accounting Standards Board recently issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of" ("SFAS 121") which (i)
requires that long-lived assets "to be held and used" be reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable, (ii) requires that long-lived assets "to be disposed
of" be reported at the lower of carrying amount or fair value
less cost to sell, and (iii) provides guidelines and procedures
for measuring an impairment loss that are significantly different
from existing guidelines and procedures.
Orbital adopted the provisions of SFAS 121 during the quarter
ended June 30, 1995. As a result, as of January 1, 1995 Orbital
recorded a cumulative adjustment for a change in accounting
principle of approximately US$4.2 million related to the
impairment in the carrying amount of certain assets to be
disposed of that supported its orbit transfer vehicle product
line.
The following table shows Orbital's revenues, gross profit and
gross profit margin, by major product category, for each of the
three years ended December 31, 1992, 1993 and 1994.
OMITTED: See Management's Discussion and Analysis in the Company's
Annual Report on Form 10-K filed with the SEC on March 29, 1995.
Results of Operations for the Six-Month Periods Ended June 30,
1995 and 1994
Revenues. Orbital's revenues for the six-month periods ended
June 30, 1995 and 1994 were US$132,930,000 and US$98,675,000,
respectively.
Space launch vehicle revenues were US$11,965,000 and
US$29,762,000 for the six-month periods ended June 30, 1995 and
1994, respectively. The significant decrease in revenues during
the periods is attributable primarily to the continuing effects
of production delays caused by Orbital's failed first launch of
its new Pegasus XL launch vehicle in June 1994, and was impacted
to some extent by the failed second launch of the Pegasus XL in
June 1995. Orbital expects revenues during the rest of 1995 to be
less than 1994 as a result of the ongoing failure review process
and resulting schedule delays. Sales of space launch vehicles to
ORBCOMM Global were US$1,452,000 and US$4,150,000 for the 1995
and 1994 six-month periods, respectively.
Revenues from suborbital launch vehicle products were
US$11,492,000 and US$11,626,000 for the six-month periods ended
June 30, 1995 and 1994, respectively. While suborbital revenues
have decreased significantly during the past few years as U.S.
Government defence spending has been reduced, Orbital expects
1995 revenues to remain approximately consistent with, or to
increase slightly from, revenue levels achieved in 1994.
For the six months ended June 30, 1995, spacecraft systems
revenues increased to US$28,901,000 from US$11,043,000 in the
same period in 1994. The increase in spacecraft system sales is
primarily as a result of additional revenues generated from
Orbital's Germantown operations, acquired in August 1994. The
1995 and 1994 six-month periods included US$3,395,000 and
US$4,496,000, respectively, in sales of MicroStar spacecraft to
ORBCOMM Global. Space sensors and instruments sales were
US$6,547,000 and US$8,773,000 for the 1995 and 1994 six-month
periods, respectively, and are expected to remain lower than 1994
levels throughout 1995.
Revenues from defence electronics and avionics products were
approximately US$29,790,000 and US$5,860,000 in the 1995 and 1994
six-month periods, respectively. Orbital acquired these products
as part of the August 1994 Fairchild acquisition and the
September 1993 acquisition of ASO.
Revenues from sales of navigation and positioning products
increased to US$26,459,000 for the six months ended June 30, 1995
as compared to US$18,553,000 for the 1994 period, primarily due
to increased unit sales offset, in part, by lower unit prices for
GPS navigators.
Revenues from Orbital's newly established Advanced Projects Group
were US$9,404,000 during the first half of 1995 as a result of
work performed under the Cooperative Agreement with NASA awarded
in March 1995 for the development of the X-34 small reusable
launch vehicle and work under a contract with ARPA, completed in
April 1995, for the study of a new advanced unmanned, long-
duration, high-flying aircraft.
Gross Profit. Gross profit depends on a number of factors,
including Orbital's mix of contract types and costs incurred
thereon in relation to estimated costs. Gross profit for the six-
month periods ended June 30, 1995 and 1994 was US$35,637,000 and
US$25,052,000, respectively. Gross profit margin as a percentage
of sales was approximately 26.8% and 25.4%, for the six-month
periods ended June 30, 1995 and 1994, respectively. The
increased gross profit margin during 1995 was primarily
attributable to increased margins for spacecraft systems and
navigation and positioning products, offset in part by cost
increases on the Pegasus program as a result of the Pegasus XL
failures in June of 1994 and 1995. Orbital believes that its
gross profit margin for the remainder of 1995 will increase
slightly as compared to the first half of 1995.
Research and Development Expenses. Research and development
expenses represent Orbital's self-funded product development
activities, and exclude direct customer-funded development.
Research and development expenses for the 1995 and 1994 six-month
periods were US$8,764,000 and US$6,506,000, respectively.
Research and development expenses in 1995 relate primarily to the
development of new or improved navigation products and
development efforts on Orbital's Pegasus XL program, and include
estimated expenses related to the recent Pegasus XL failure.
Orbital expects its research and development expenditures for the
rest of 1995 to be consistent with second half 1994 expenditures.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses include the costs of marketing,
advertising, promotional and other selling expenses as well as
the costs of the finance, administrative and general management
functions of Orbital. Selling, general and administrative
expenses for the six months ended June 30, 1995 and 1994 were
US$22,707,000 (or 17.1% of revenues) and US$14,472,000 (or 14.7%
of revenues), respectively. The increase in selling, general and
administrative expenses during 1995 as compared to 1994 was
primarily attributable to expanded marketing efforts related to
Orbital's ORBCOMM project (US$3,304,000 of expenses in 1995 as
compared to US$1,714,000 in 1994) and to various remote sensing
systems (US$408,000 of expenses in 1995 with no corresponding
expenses in 1994), and to the August 1994 Fairchild acquisition
(US$12,188,000 of expenses in 1995). Orbital expects selling,
general and administrative expenses as a percentage of revenues
during the remainder of 1995 to be less than or approximately
equal to those in the first half of 1995.
Interest Income and Interest Expense. Net interest expense for
the 1995 six-month period was US$1,887,000 as compared to
US$931,000 of net interest income for the 1994 six-month period.
Interest income for the periods reflects interest earnings on
short-term investments. Interest expense is primarily for
outstanding amounts on Orbital's revolving credit facility, on
Orbital's public debentures and, during 1995, on acquisition debt
incurred in connection with the August 1994 Fairchild
acquisition. Interest expense has been reduced by capitalized
interest of US$2,533,000 and US$2,517,000 for the 1995 and 1994
six-month periods, respectively.
Equity in Earnings (Losses) of Affiliates. Equity in earnings
(losses) of affiliates for the six-month periods ended June 30,
1995 and June 30, 1994 of US$362,000 and (US$544,000),
respectively, represents elimination of 50% of the profits on
sales to ORBCOMM Global, as well as Orbital's pro rata share of
ORBCOMM Global's current period earnings and losses. During the
construction phase of the project and prior to the commencement
of planned operations, ORBCOMM Global is capitalizing
substantially all construction-related costs and is expensing as
incurred all selling, general and administrative costs as period
costs.
Provision for Income Taxes. A provision for income taxes was not
necessary for the six months ended June 30, 1995 given Orbital's
reported operating losses. Orbital recorded an income tax
provision of US$917,000 for the six-month period ended June 30,
1994. Orbital records its interim income tax provisions based on
estimates of Orbital's effective tax rate expected to be
applicable for the full fiscal year. Estimated effective rates
recorded during interim periods may be periodically revised, if
necessary, to reflect current estimates.
At December 31, 1994, Orbital had approximately US$50,000,000 and
US$900,000 of net operating loss and tax credit carryforwards,
respectively, which are available to reduce future income tax
obligations, subject to certain annual limitations and other
restrictions.
Results of Operations for the Years Ended December 31, 1994, 1993
and 1992
Revenues. Orbital's revenues for 1994, 1993 and 1992 were
US$221,946,000, US$223,087,000 and US$204,190,000, respectively.
Revenues in 1994 included approximately US$30 million in sales to
ORBCOMM Global, as compared to US$38 million in 1993.
Revenues from Orbital's space launch vehicle products decreased
from US$55,987,000 in 1993 to US$52,200,000 in 1994. The
unexpected decrease was primarily attributable to a significant
delay in production of Orbital's Pegasus space launch vehicle
products as a result of the June 1994 Pegasus XL launch failure.
Revenues from space launch vehicle products increased in 1993, as
compared to 1992, due to work performed on Pegasus contracts
awarded in 1992 by BMDO and Brazil's national space agency and
initial work performed on the commercial contract awarded by
ORBCOMM Global.
Revenues from suborbital launch vehicle products decreased to
US$22,632,000 in 1994 as compared to US$48,990,000 in 1993.
Revenues from suborbital launch vehicle products also decreased
in 1993 from 1992's record revenues of US$82,061,000. Revenues
from suborbital launch vehicles, which are primarily purchased by
various agencies within the DoD for U.S. military purposes, have
decreased significantly as defence spending throughout the U.S.
Government has been reduced.
Orbital's sole contract with NASA for its orbit transfer vehicle
products was completed in 1993 after two successful launches.
Space and Electronics Systems revenues increased to US$88,305,000
in 1994 as compared to US$31,287,000 in 1993, due primarily to a
full year of sales of sensors and instruments equal to
US$28,482,000 following the September 1993 acquisition of ASO and
19 weeks of sales of spacecraft systems and defence avionics
equal to US$44,998,000 following the August 1994 acquisition of
Fairchild. Space systems revenues increased to US$31,287,000 in
1993 from US$20,715,000 in 1992, primarily as a result of sales
of sensors and instruments and sales of MicroStar satellites to
ORBCOMM Global. Space systems revenues in 1992 consisted solely
of sales of satellite systems to NASA and the U.S. Air Force.
Communications and Information Systems revenues decreased to
US$58,808,000 in 1994 from US$71,391,000 in 1993. The decrease
was attributable primarily to a decrease in sales to ORBCOMM
Global of US$10,455,000 as the initial contract for network
software neared completion, and a decrease in sales of satellite
tracking systems of US$8,443,000 as a large contract was
completed in 1994. Sales of Magellan's satellite navigational
instruments were US$37,144,000 in 1994 as compared to
US$32,900,000 in 1993 and US$29,557,000 in 1992. The increase
from 1993 was due to a significant increase in the number of
products sold offset, in part, by lower average unit sales
prices. Communications and Information Systems revenues
increased in 1993 as compared to 1992 as a result of sales of
network software and satellite tracking systems to ORBCOMM Global
under a contract awarded in 1993 and as a result of work
performed on a large satellite tracking system contract awarded
in late 1992.
Gross Profit. Orbital's gross profit for 1994, 1993 and 1992 was
US$64,881,000, US$52,883,000 and US$45,529,000, respectively.
Gross profit margin as a percentage of sales for those periods
was approximately 29.1%, 23.7%, and 22.3%, respectively. Gross
profit margin during 1994 reflected higher profit margins on ASO
and Fairchild products offset in part by cost growth on the
Taurus space launch vehicle development program, the first
product of which was successfully launched in March 1994.
Additionally, gross profit margin was decreased by cost growth on
the Pegasus program as a result of the June 1994 Pegasus XL
launch failure.
Research and Development Expenses. Research and development
expenses during 1994, 1993 and 1992 were US$14,389,000,
US$14,885,000 and US$10,586,000, respectively. Research and
development spending during 1994 and 1993 reflected Orbital's
continued development of its Pegasus XL and Taurus space launch
vehicles and development of lower-cost satellite navigation
equipment. In 1994, Orbital incurred approximately US$2,500,000
of unexpected research and development costs related to the June
1994 failure of its Pegasus XL vehicle.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses for 1994, 1993 and 1992 were
US$39,751,000 (or 17.9% of revenues), US$25,897,000 (or 11.6% of
revenues) and US$28,615,000 (or 14.0% of revenues), respectively.
The significant increase in selling, general and administrative
expenses and its related percentage of revenues in 1994 was
attributable to a full year of ASO's expenses (US$4,666,000 in
1994, or 16.8% of ASO's revenues), nineteen weeks of Fairchild's
expenses (US$6,409,000 in 1994, or 14.0% of Fairchild's revenues)
and significant selling, general and administrative expenses
related to initial marketing activities for Orbital's ORBCOMM
project (US$5,470,000 in 1994) offset in part by significant
company-wide cost reduction initiatives adopted during 1994 and
1993.
Interest Income and Interest Expense. Net interest income was
US$37,000, US$356,000 and US$738,000 for 1994, 1993 and 1992,
respectively. Interest income reflects interest earnings on
short-term investments reduced by interest expense (net of
capitalized interest of US$5,500,000, US$3,500,000 and US$850,000
in 1994, 1993 and 1992, respectively) for outstanding amounts on
Orbital's revolving credit facility, the public debentures and on
debt incurred in 1994 related to the Fairchild acquisition.
Equity in Earnings (Losses) of Affiliates. Equity in earnings of
affiliates in 1994 and 1993 primarily represents elimination of
US$1,264,000 and US$2,436,000, respectively, of profits on sales
to ORBCOMM Global, due to ORBCOMM Global's capitalization of its
purchases from Orbital. There were no sales to ORBCOMM Global
prior to 1993.
Provision for Income Taxes. Orbital adopted SFAS No. 109
effective January 1, 1993. The cumulative effect on prior years
of this change in accounting principle increased net income in
1993 by approximately US$200,000. The effect of adopting SFAS
109 on income from continuing operations in 1993 was not
material.
Orbital recorded income tax provisions of US$2,081,000,
US$2,288,000 and US$1,630,000 for 1994, 1993 and 1992,
respectively. Orbital's effective tax rate for these periods of
approximately 28% is primarily a result of non-tax deductible
goodwill amortization related to its acquisition of Space Data in
1988 and Fairchild in 1994, offset by tax-exempt interest
earnings and U.S. Federal research and experimental tax credits.
Liquidity and Capital Resources
Orbital's growth has required substantial capital to fund both an
expanding business base and significant research and development
and capital investment expenditures. Additionally, Orbital has
historically made strategic acquisitions of businesses and
routinely evaluates potential acquisition candidates. Orbital
expects to continue to pursue potential acquisitions that it
believes would augment its marketing, technical, manufacturing or
financial capabilities. Orbital has funded these requirements to
date, and expects to fund its requirements in the future, through
cash generated by operations, working capital loan facilities,
asset-based financings, joint venture arrangements, and private
and public equity and debt offerings.
During the quarter ended June 30, 1995, Orbital entered into a
US$20 million fixed-rate unsecured debt financing arrangement
with a private insurance company. The debt has a six-year term
and bears interest at 10 1/2% per annum. The debt arrangement
restricts the payment of dividends and contains certain covenants
with respect to Orbital's working capital, fixed charge ratio,
leverage ratio and tangible net worth. Additionally, in June
1995, Orbital completed a private placement of two million
Orbital Common Shares, receiving net proceeds of approximately
US$32 million. Orbital's shares were placed with various
offshore institutional investors and the issuance was exempt from
public registration pursuant to Regulation S of the 1933
Securities Act, as amended. In August 1994, Orbital issued
secured notes totalling approximately US$24,200,000 to eight
financial institutions, to support Orbital's acquisition of
Fairchild. The notes have an average interest rate of
approximately 8_% and generally mature on a monthly basis over a
three- to five-year period.
Cash, cash equivalents and short-term investments were
US$39,817,000 at June 30, 1995, and Orbital had short-term and
long-term debt obligations outstanding of approximately
US$106,955,000. The outstanding debt relates primarily to
advances under Orbital's line of credit facility, secured notes
issued in connection with the Fairchild acquisition, unsecured
notes issued in 1995, fixed asset financings and Orbital's public
debentures. During the quarter ended June 30, 1995, Orbital
converted, at a premium, approximately US$3,000,000 of its
convertible debentures at the request of certain debenture
holders, issuing approximately 209,000 Orbital Common Shares.
Orbital's revolving credit facility provides for total borrowings
from an international syndicate of six banks of up to
US$65,000,000, subject to a defined borrowing base comprised of
certain contract receivables. Approximately US$6,113,000 of
borrowings were outstanding under the facility at June 30, 1995,
against an available facility limit of approximately
US$25,491,000. At June 30, 1995, the average interest rate on
outstanding borrowings under this facility was approximately
8.2%. Borrowings are secured by contract receivables and certain
other assets. The facility restricts the payment of dividends
and contains certain covenants with respect to Orbital's working
capital, fixed charge ratio, leverage ratio and tangible net
worth, and expires in September 1997.
Orbital's operations used net cash of approximately US$8,466,000
in the six months ended June 30, 1995. Orbital also invested
approximately US$9,689,000 in the ORBCOMM System and incurred
US$9,854,000 of capital expenditures related primarily to
spacecraft production and test equipment.
Orbital expects that its 1995 capital needs for its existing
operations, including its planned US$5,000,000 net investment in
the ORBCOMM System, will in part be provided by working capital,
cash flows from operations, credit facilities, asset-based
financings, customer financings and operating lease arrangements.
Additionally, Orbital intends to invest at least US$67,500,000 in
the X-34 program, which investment will be required over the next
four years, including approximately US$5,000,000 in 1995.
Orbital believes that it may require additional equity and/or
debt financing to fund fully its currently planned operations and
capital requirements, to meet its potential increased investment
in the ORBCOMM System and to meet its investment requirements for
the X-34 program.
Management and Employees
Executive Officers and Directors
The following table sets forth the name, city of residence,
position and principal occupation of each of the executive
officers and directors of Orbital as of September 1, 1995. As of
September 29, 1995, the executive officers and directors of
Orbital beneficially owned, as a group, approximately 3.7% of the
outstanding Orbital Common Shares.
Principal
Name and Director Position with Occupation if
Residence Since Orbital Different than
Office Held
David W. 1982 Chairman of the
Thompson Board, President
Reston, and Chief
Virginia Executive Officer
Bruce W. 1982 Executive Vice
Ferguson President and
Great Falls, General Manager/
Virginia Communications
and Information
Systems Group and
Director
James R. 1992 Executive Vice
Thompson President and
Huntsville, General
Alabama Manager/Launch
Systems Group and
Director
Jack A. 1994 Executive Vice
Frohbieter President and
Germantown, General
Maryland Manager/Space and
Electronics
Systems Group and
Director
Fred C. Alcorn 1983 Director President, Alcorn
Houston, Texas Oil & Gas and
Alcorn
Development
(Real Estate)
Kelly H. Burke 1984 Director Chairman,
Alexandria, Stafford, Burke &
Virginia Hoaxer
(Aerospace
consulting)
Daniel J. Fink 1983 Director President, D.J.
Potomac, Fink Associates,
Maryland Inc.
(Management
consulting)
Lennard A. 1993 Director Professor and
Fisk Chairman,
Ann Arbor, Department of
Michigan Atmospheric,
Oceanic, and
Space Sciences,
University of
Michigan
Jack L. 1993 Director Professor of
Kerrebrock Aeronautics and
Lincoln, Astronautics,
Massachusetts Massachusetts
Institute of
Technology
J. Paul 1984 Director Managing
Kinloch Director, Lehman
Los Angeles, Brothers
California (Investment
Banking)
Douglas S. 1983 Director President and
Luke CEO, WLD
Coral Gables, Enterprises, Inc.
Florida (Investments)
John L. 1993 Director Consultant
McLucas
Alexandria,
Virginia
Harrison H. 1983 Director Consultant
Schmitt
Albuquerque,
New Mexico
Scott L. 1982 Director Consultant
Webster
Chandler,
Arizona
Antonio L. Executive Vice
Elias President and
McLean, General
Virginia Manager/Advanced
Projects Group
Carlton B. Senior Vice
Crenshaw President/Finance
Herndon, and
Virginia Administration
Leslie C. Senior Vice
Seeman President,
Bethesda, General Counsel
Maryland and Secretary
For information regarding executive and director compensation,
and a description of Orbital's stock option plans, reference is
made to the excerpt from Orbital's Proxy Statement dated
March 27, 1995, attached as Annex "III" to this Proxy Circular.
Indebtedness of Directors and Officers
There is no indebtedness owed by Orbital's directors or officers
to Orbital.
Employees
As of June 31, 1995 Orbital had 1,781 full-time permanent
employees, none of whom are covered by a collective-bargaining
agreement.
Description of Capital
Capitalization
The following table sets forth the capitalization of Orbital as
of June 30, 1995.
June 30,
1995
(US$ in
thousands)
Long-term debt:
Long-term obligations, net of current $ 19,203
portion
10 1/2% Senior Notes due 2002 20,000
6 3/4% Convertible Subordinated Debentures $ 56,000
due 2003
Total long-term debt $ 95,203
Shareholders' equity:
Preferred Shares, par value $0.01 per
share: 10,000,000 --
authorized; no shares issued and
outstanding
Common Shares, par value $0.01 per 227
share: 40,000,000
authorized; 22,636,357 shares issued
and outstanding
after adjusting for 15,735 shares in
treasury (1)
Additional paid-in capital 237,549
Unrealized losses on short-term (221)
investments
Retained earnings (deficit) (1,941)
Total shareholders' equity $ 235,614
Total capitalization $ 330,817
Note:
(1) Excludes 3,900,945 Orbital Common Shares issuable upon
conversion of Orbital's 6 3/4% Convertible Subordinated
Debentures due 2003 and 1,661,146 Orbital Common Shares
reserved for issuance pursuant to options outstanding as of
September 8, 1995 with exercise prices ranging from US$7.50
to US$22.00 per share.
Common Shares
Orbital has authorized 40,000,000 Common Shares, par value $0.01
per share of which approximately 22,636,357 are issued as at
June 30, 1995. Holders of Orbital Common Shares are entitled to
one vote per share on all matters to be voted on by shareholders
including the election of directors. Subject to the rights of
holders of any Orbital Preferred Shares that may be issued,
holders of Orbital Common Shares are entitled to receive such
dividends as may be declared from time to time by the board of
directors of Orbital from funds legally available therefor. Upon
liquidation, dissolution or winding-up of Orbital, the holders of
Orbital Common Shares will be entitled to share ratably all
assets available for distribution to shareholders after payment
of liabilities, subject to prior distribution rights of holders
of Preferred Shares then outstanding. The Orbital Common Shares
have no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions
applicable to the Common Shares.
Preferred Shares
Orbital has authorized 10,000,000 Preferred Shares, $0.01 par
value per share of which none are issued. See "Special Voting
Share" below. Orbital's board of directors is authorized,
without any further action by the shareholders, to determine the
rights, preferences, privileges and restrictions of the unissued
Preferred Shares.
Special Voting Share. In connection with the Arrangement,
Orbital's Board of Directors will designate the Series A
Preferred Stock as a series of Preferred Shares, and will
authorize the issue of one Series A Preferred Share, as the
Special Voting Share, to the Trustee under the Voting and
Exchange Trust Agreement. Except as otherwise required by law or
Orbital's Restated Certificate of Incorporation (the "Orbital
Restated Certificate"), the holder of record of the Special
Voting Share will have a number of votes equal to the number of
Orbital Common Shares issuable upon exchange of all outstanding
Exchangeable Shares (not owned by Orbital or its Affiliates).
The holders of Orbital Common Shares and the Special Voting Share
will vote together as a single class on all matters, except as
may be required by applicable law. In the event of any
liquidation, dissolution or winding up of Orbital, the holder of
the Special Voting Share shall not be entitled to receive any
assets of Orbital available for distribution to its shareholders.
The holder of the Special Voting Share shall not be entitled to
receive dividends. At such time as the Special Voting Share has
no votes attached to it because there are no Exchangeable Shares
outstanding not owned by Orbital or its Affiliates, the Special
Voting Share will be cancelled.
Dividend Policy
Orbital has never paid a cash dividend on the Orbital Common
Shares. Orbital currently intends to retain earnings primarily
for working capital and product development and therefore does
not anticipate paying dividends in the foreseeable future. In
addition, Orbital is subject to certain contractual restrictions
on its ability to pay dividends.
Transfer Agent
Orbital's transfer agent with respect to the Orbital Common
Shares is The First National Bank of Boston. Acquisition's
transfer agent with respect to the Exchangeable Shares is
expected to be Montreal Trust Company of Canada.
Independent Auditors
Orbital's independent auditors are KPMG Peat Marwick LLP.
INFORMATION CONCERNING MDA
Business
MDA was incorporated under the laws of Canada on February 3, 1969
by letters patent under the Canada Corporations Act. MDA was
subsequently continued under the CBCA on May 3, 1976. The head
and principal office of MDA is located at 13800 Commerce Parkway,
Richmond, British Columbia, V6V 2J3.
Subsidiary Companies
MDA owns 100% of the following active subsidiary companies:
INFORMATION CONCERNING MDA
Business
MDA was incorporated under the laws of Canada on February 3, 1969
by letters patent under the Canada Corporations Act. MDA was
subsequently continued under the CBCA on May 3, 1976. The head
and principal office of MDA is located at 13800 Commerce Parkway,
Richmond, British Columbia, V6V 2J3.
Subsidiary Companies
MDA owns 100% of the following active subsidiary companies:
Company Jurisdiction of
Incorporation
MacDonald Dettwiler British Columbia
Technologies Ltd.
MacDonald Dettwiler U.S.A.
Technologies Inc.
MacDonald Dettwiler Pty. Ltd. Australia
MacDonald Dettwiler Limited United Kingdom
PSC International (Europe) United Kingdom
Limited
At June 30, 1995 MDA owned 89.6% of Earth Observation Sciences
Limited, a corporation incorporated under the laws of the United
Kingdom, and will acquire the balance of its shares as a
condition to the Arrangement.
General
MDA is a leading supplier of commercial space remote sensing
ground stations, installed in over 20 countries, capable of
handling all major optical and radar imaging, or Earth
observation, satellites. MDA is also a major provider of
advanced space-qualified software, air navigation systems,
defence electronic systems and network communications training
and consulting.
MDA's customers for systems are usually Fortune-500 companies and
government agencies worldwide. MDA's basic business strategy is
to develop customized systems for individual clients, drawing on
proprietary technologies and on off-the-shelf products. MDA's
strength is in undertaking fixed price projects and delivering on
time and within the customer's budget. MDA currently has a
strategy of reducing its reliance on contracts from or related to
the Canadian Federal Government through operations and alliances
outside of Canada. MDA is seeking to expand its export markets
through understanding and accessing foreign funding sources such
as multi-lateral development agencies.
Utilizing existing technologies and seeking opportunities in
areas that complement MDA's business in terms of technological
capabilities and markets, MDA is currently developing a new
business strategy to capitalize on higher margin opportunities.
As part of the strategy, MDA's PSC division is extending its
consulting services by negotiating worldwide service agreements
with manufacturers of computer network equipment. The strategy
also contemplates MDA charging a per-use fee for data processed
by systems provided by MDA. In addition, MDA may acquire an
equity interest in ventures where it traditionally sold systems.
MDA's participation in EarthWatch Inc. is a part of this
strategy. This strategy is also consistent with MDA's 25.4%
interest in RSI, which has worldwide rights to market data from
the soon to be launched RADARSAT satellite. In other situations,
MDA will package components of customized systems into products
which can be sold to many buyers with few changes. This latter
strategy is designed to permit MDA to bring products to market
economically by capitalizing on the initial development of a
system. An example of a new product opportunity is the radar-
jamming system of the Space and Defence Systems business area.
MDA's business is divided into four business areas consisting of
Geo-Information Systems, Aviation Systems, Space and Defence
Systems and Communications, which are described in detail in the
following sections.
Geo-Information Systems
Geo-Information Systems, MDA's largest business area in terms of
revenues, involves the development of systems for the management
of Earth resources and the environment. This business area is
built on MDA's expertise in Earth observation ground stations and
related markets. The Geo-Information Systems business area also
provides operational and post-delivery support to ensure
operational efficiency of systems delivered to its customers.
This support includes consulting services, training, maintenance
and test equipment, spare parts and manuals.
MDA is one of the world's leading companies in providing
solutions for the acquisition, processing, archiving and
dissemination of non-classified Earth observation data. Of the
26 non-secret ground stations in the world, MDA has built or been
involved in the construction of 23 ground stations in 20
countries. These ground stations are designed to receive or
process data from some or all of the seven major non-secret Earth
observation satellites currently in operation. Among other
things, the data is processed to construct useful images or is
modified to enhance special characteristics or to correct
distortions and anomalies.
A significant portion of MDA's business in this area involves
upgrades to existing systems. Such upgrades are required as a
result of the launch of new technologically-advanced Earth-
observation satellites in order to ensure that existing ground
stations are able to process the data that the new satellites
provide. Delays in the launch of such new satellites can
adversely impact the ground station upgrade business.
The upgrade business has recently declined, in part due to the
failure of the U.S. LANDSAT-6 satellite, which was launched in
1994 but failed to achieve orbit. The only satellite launched
since then was the European Space Agency's ERS-2 which was
launched in April 1995. While MDA performed about $3.5 million
of ground station upgrades in Europe for ERS-2 during fiscal
1995, additional upgrading work will be relatively minor because
this satellite uses technology similar to ERS-1, launched in July
1991. However, several new technologically-advanced satellites
are scheduled for launch by the end of 1996 and these launches
are expected to increase demand for new and upgraded ground
stations.
Over the longer term, other major trends affecting the Geo-
Information Systems business area include technological advances,
the loosening of government restrictions, and a growing
commercial value and profit potential in the ownership of
satellites and ground stations. The technological advances
include a declining cost to obtain and disseminate satellite-
based Earth information and the proliferation of low-cost
personal computers capable of receiving these images. The
loosening of government restrictions mainly involves the 1994
decision of the U.S. government to begin issuing licences
permitting private companies to obtain and sell high-resolution
Earth images of a quality previously restricted to government
intelligence agencies. MDA expects that these trends will lead
to an increase in the number of satellites and ground stations,
and to the ownership of some satellites and ground stations by
private-sector companies.
MDA has completed several Earth information projects involving
mission-control and mission-management systems for the Canadian
Space Agency's RADARSAT satellite, scheduled for launch in late
1995, which contracts totalled $33.6 million. MDA has also
completed a multi-year project to build a specialized software
and hardware ground system that refines raw data from RADARSAT.
This $10 million system was installed at the Gatineau, Quebec
ground station that MDA has upgraded several times since the mid-
1980s. MDA owns approximately 25% of RSI, which has worldwide
rights to market data from the new RADARSAT satellite imagery.
In addition to space-based Earth observation, MDA builds other
systems related to Earth information, including the $10.8 million
Fast Mapping System for the government of Malaysia, which will
allow the Malaysian government to quickly update and generate
digital mapping products from satellite and airborne sensors, and
the installation of a multimillion-dollar Airborne Radar System
in China, which is used for flood monitoring and natural disaster
relief.
MDA has developed and delivered airborne Earth observation
systems with both electro-optical and radar sensors. The
Integrated Radar Imaging System, a side-looking radar that
provides detailed images of the ground in any light or weather
conditions, makes high-resolution imagery available in realtime
both on board an aircraft and at transportable ground stations.
Airborne Earth observation systems have been used for a number of
applications including mapping, forest management, oil spill
recovery and ice flow monitoring in the Arctic. MDA is a member
of a team, led by Raytheon Corporation of Lexington,
Massachusetts, that was awarded a contract from the Brazilian
Government in May 1995 for the development of an Amazon
surveillance system. MDA is currently negotiating the final
terms of its subcontract with Raytheon.
In mission management, under a contract with the European Space
Agency ("ESA"), MDA has built a system for managing the ERS-1
satellite's instrument package and for cataloguing and archiving
the vast quantities of data the satellite will deliver over its
lifetime. MDA expects to use this technology in providing
satellite mission management systems in the future, including
systems for ESA's ENVISAT satellite, which is scheduled for
launch in 1998.
Aviation Systems
Since 1987, MDA's Aviation Systems business area has focused on
specific aviation niche markets, including automated aeronautical
information systems and automated air traffic management systems.
This division was established to take advantage of a growing
trend toward commercialization of civil aviation authorities.
This commercialization typically leads to a strong incentive to
cut costs by investing in automation. At the same time, the
airline industry estimates several billion dollars will be spent
worldwide before the year 2000 on upgrading, replacing and
automating civil aviation traffic management systems. To meet
these developments MDA's Aviation Systems business area provides
the following:
Aeronautical Information Systems. MDA builds and markets Pegasus-
AIS (unrelated to Orbital's Pegasus launch vehicle), an automated
aeronautical information management system. The first sale of a
Pegasus-AIS system was to the Belgian Air Force for $1.8 million.
Faster and less expensive to operate than traditional manual
systems, Pegasus-AIS provides pilots and other users with
aeronautical and meteorological information. MDA has been
developing the underlying technology for Pegasus-AIS since 1989
by way of customized automated briefing systems that MDA is
building for civil aviation authorities in Australia, Norway and
Belgium. In addition, MDA incorporates its knowledge into
broader air traffic management systems. MDA has recently
completed work on a $2.7 million AIS project in India for
Raytheon.
Air Traffic Management Systems. Air traffic management systems
allow air traffic controllers to guide pilots in flight. These
systems combine information about flights, routes, weather,
navigational aids, airways and airports and deliver it to air
traffic controllers in a form that enables timely, safe decisions
to be made. In Canada, MDA is currently working under a
subcontract to Hughes Aircraft of Canada Limited ("Hughes") to
develop and deliver air traffic management software as part of
the Canadian Automated Air Traffic System. The subcontract value
was increased by $24 million during fiscal 1995 to a total of $85
million. Hughes' prime contract with Transport Canada is being
renegotiated. In Switzerland, MDA has a $4 million subcontract
for a Hughes air traffic control project. Under a $3 million
subcontract to Hughes, MDA is providing a military version of the
Canadian Automated Air Traffic System to Canada's Department of
National Defence. Together, MDA and Hughes are pursuing a
growing number of air traffic management systems sales
opportunities around the world, including a bid on two large
projects in Britain and the execution of projects in China and
Indonesia.
Space and Defence Systems
Many of MDA's technologies are directly applicable to the
development of space and defence systems. Defence markets around
the world have declined as governments reformulate defence policy
in the wake of the Gulf War and the collapse of the Soviet Bloc.
MDA has, however, sought to identify niches that are likely to
grow as defence agencies focus on peace-time surveillance,
monitoring and defensive capabilities. MDA's defence systems
include naval mine countermeasures, artillery command and
control, radar deception system and military materiel management.
In space-related work, MDA continues to provide major software
development efforts as part of Canada's contribution to the Space
Station project. This activity provides an opportunity for the
enhancement of MDA's space-qualified software capabilities. MDA
has actively pursued space and defence systems business since
1988.
Naval Mine Countermeasures System. Since 1988 MDA has worked on
a series of projects to develop geocoded sonar image modelling
and mosaicking techniques for mapping the ocean floor. MDA
currently has an $80 million subcontract from a unit of the SNC-
Lavalin Group Inc. of Montreal to develop a mine countermeasures
system for the Canadian Navy's Maritime Coastal Defence Vessel
program. MDA's role is to provide command and control systems
and operational ship-borne and shore-based sonar sensing and
processing capabilities for the detection of underwater mines.
Artillery Command and Control System. MDA is developing the
Artillery Regimental Data System to automate certain command and
control functions for the Canadian Army. This project draws on
MDA's expertise in the computerization of geographic information
and in the management of complex database systems. The Army has
agreed to extend the project into the implementation phase and
has increased the value of MDA's contract to $15.3 million.
Radar Deception System. MDA is developing a system to protect
airplanes, ships or ground installations from being detected and
tracked by hostile radars, under contract with the Department of
National Defence. MDA is also pursuing possible licensing
arrangements that would allow original-equipment manufacturers to
market and install the product.
Military Materiel Management System. In March 1994, the
Department of National Defence selected the SHL Systemhouse Inc.
team, which includes MDA as a major subcontractor, to upgrade the
Canadian Forces Supply System. This inventory management system
is scheduled for completion in 1997.
Communications
MDA entered into the computer network communications, consulting
and training business in fiscal 1995 with the acquisition of
Ottawa-based PSC Communications Group ("PSC").
PSC helps customers design and implement networks so that
computers can communicate faster and at less cost. It also
develops software for special client needs, such as to monitor
networks and find and correct trouble spots. PSC has built a
training relationship with U.S.-based Cisco Systems Inc.
("Cisco") and a worldwide service relationship with Nortel Inc.
PSC recently entered into a training relationship with Digital
Equipment Corporation ("DEC"). Training relationships such as
those with Cisco and DEC are expected to play a significant role
in PSC's future business.
PSC's relationship with Cisco, one of the world's largest
manufacturers of network equipment, includes acting as a leading
training and consulting partner around the world. PSC provides
similar services for DEC in the United States. PSC's arrangement
with Nortel Inc. involves a new product called Entrust which is
designed to ensure the security of computer networking systems.
PSC provides post-sales service to Entrust customers, including
product installation, training and ongoing customer support. PSC
anticipates offering additional training through its new office
in Australia, which will begin serving Hong Kong and other Asian
markets.
In addition to classes for specific vendor products, PSC offers
general courses in computer communications, aimed mainly at
technicians in companies across North America, Europe and other
parts of the world. PSC also provides software programming and
consulting services for clients with network related needs,
including assistance to customers in developing advanced
switching and network management products and recommending and
designing an optimal network system.
Contract Pricing and Completion
As of March 31, 1995 approximately 56% of MDA's active contracts
were fixed-price contracts. MDA has developed costing,
contingency management, operations and engineering methodologies
to allow it to undertake work on a fixed-price basis, and
believes its ability to undertake large-scale systems engineering
and software development projects on a fixed-price basis is a
major competitive advantage. The balance of MDA's contracts are
performed on a cost-plus or limitation of expenditures basis.
The technical nature and sophistication of the systems
deliverable under MDA's contracts require amendments to such
contracts to be negotiated, from time to time, in the ordinary
course of completing any contracts. These amendments may relate
to specifications, delivery times or similar matters. In the
absence of an agreement to such amendments, customers of MDA may
be in a position to terminate a contract with MDA and demand
repayments and penalties. Any such termination and demand may
have an effect on the earnings of MDA. To date, MDA has
generally been successful in renegotiating contracts as required
from time to time.
MDA endeavours to negotiate payment terms in its commercial
contracts that include advance and progress payments for
completion of project milestones. To secure these payments, some
customers require bank guarantees or letters of credit for all or
part of the advance and progress payments remitted to MDA.
Marketing and Sales
Within each of its business areas MDA focuses on specific niche
markets and follows a strategy of seeking to thoroughly
understand, anticipate and follow the trends within each niche.
The Earth observation market is shifting from one of scientific
orientation to one of end-user applications. This has resulted
in MDA now providing complete remote sensing centres and mission
management and control systems, where it previously marketed
satellite ground stations. In image analysis, the market has
matured for specific application systems focused on resource
management, digital mapping and land information. These shifts
have greatly expanded the size of the markets in which MDA is
operating.
The worldwide defence market is undergoing a rapid change from
one centred on conventional forces to one focused on intelligence
gathering and surveillance by methods that include the use of
sonar or radar mapping techniques. Economic pressures on
governments have caused defence agencies to focus on the
efficient use of resources through logistics and supply service
systems. MDA is focusing its defence marketing efforts on these
new areas of emphasis.
The space market is shifting from a scientific orientation to
include global environmental monitoring and commercial
applications. Several large programs such as the U.S. Mission to
Planet Earth, the Japanese ADEOS program and the European Space
Agency's Polar Orbiting Earth Mission program will require large
amounts of processing of remotely sensed satellite data and
mission management systems, and MDA has positioned itself to
compete in these emerging markets. In addition, MDA is
positioning itself to participate in the evolving private-sector
ownership of satellites and ground stations through a supply
contract and the acquisition of a minority interest in EarthWatch
Inc., which plans to launch a privately-owned Earth imaging
satellite in 1996.
MDA has taken advantage of the trend in the airspace management
market from a focus on radar systems and hardware to advanced air
traffic management systems. Through participation in programs in
Canada, Australia, Norway, Belgium and Switzerland, MDA is in a
position to market automated technology that it has previously
developed and provide applications expertise relating to
aeronautical information systems and flight data processing.
For the fiscal year ended March 31, 1995 approximately 44% of
MDA's revenues were generated from outside Canada, an increase
from 36% a year earlier. MDA traditionally works closely with
domestic and foreign customers to develop technology. MDA's
target is to derive 70% of its revenues from export markets,
replacing MDA's reliance on Canadian government funding. The
Canadian business is higher than the target, in part because of
MDA's entry into several new market niches. MDA is developing
export markets for such business.
The following table presents the source of MDA's gross revenues
by region during the last three fiscal years:
Gross
Revenues
Country 1993 1994 1995
Canada 52% 64% 56%
Asia 25% 19% 11%
Europe 11% 9% 18%
Australia 4% 4% 3%
South America 1% - -
United States 1% 2% 6%
Other 6% 2% 6%
Total 100% 100% 100%
MDA's sales cycle varies from as short as three weeks for
communications consulting projects to as long as two or three
years for certain defence and ground station projects. Where
required MDA has the capability to provide customer financing
through various agencies, including Canada's Export Development
Corporation and the Asian Development Bank.
MDA has established sales and engineering offices worldwide to
serve key geographic locations. These offices are presently
located in Canada, the United States, England, Malaysia and
Australia. In several other countries MDA has developed a
network of in-country agents to provide necessary assistance to
sales teams and to provide long-term customer support. PSC,
which is operated as a division of MDA, has its headquarters in
Ottawa, Ontario, and has branch offices in Ontario, British
Columbia, the United States, England and Australia.
Competition
MDA participates in various technological and geographical
markets. No one competitor is considered dominant in these
markets and MDA knows of no competitor which competes across its
entire span of technological expertise and markets. MDA may
compete against or team with the same company, depending on the
nature of each project opportunity.
In the Geo-Information Systems business area, MDA faces
competition from Datron Systems Inc. and Hughes-STX Corp. of the
United States. Competition in airborne radar systems includes
Loral Corp. (USA) and Thomson CSF (France). In the field of
land, resource and environmental management systems, MDA faces a
variety of competitors including MBB Dornier (Germany) and
Intergraph Corp. (USA).
Competition in the Aviation Systems markets is broad. Major
competitors include Siemens Plessy (Germany), Alenia S.p.A.
(Italy) and Thomson CSF (France).
In the Space and Defence Systems market, MDA's competitive
strategy is to take part in a consortium, when appropriate, in
order to participate in all of the major Canadian programs within
MDA's particular areas of expertise. Competitors and consortium
partners vary according to the specific program, but typically
include Computing Devices Canada, CAE Inc. and Paramax Systems
Canada.
PSC's consulting business has many small competitors, while its
training business competition is limited to a few companies
licensed by equipment manufacturers.
Research and Development
The majority of systems developed by MDA are large, highly
interactive and on the leading edge of technology. MDA devotes
significant resources to research and development because it is a
critical element in the maintenance of MDA's edge in a highly
competitive and rapidly changing worldwide market. MDA's
strategy is to conduct most research and development through
commercial contracts with customers providing the funding, while
maintaining the rights to use and exploit the technology. Where
full customer funding is not sufficient, MDA uses its own funds
and solicits assistance from various Canadian Government
agencies. A large percentage of MDA's customer-funded research
is contracted from government agencies, particularly the
Government of Canada which encourages research activity and the
development of new systems for export around the world.
MDA's net research and development expenditures for the fiscal
years ended 1993, 1994 and 1995 were $4.4 million, $3.4 million
and $2.4 million, respectively. These amounts exclude customer-
funded research and development and government assistance of
$28.8 million, $30.2 million and $31.7 million in 1993, 1994 and
1995, respectively.
Patents and Licenses
MDA seeks to protect its proprietary information and technology
under applicable intellectual property laws. For work that is
not patentable, contractual provisions, non-disclosure
agreements, copyright and secrecy laws are all used to protect
MDA's proprietary information and technology.
Where software is sold to a customer under contract, rights to
any proprietary software used, but developed outside the
contract, are restricted. MDA seeks to retain, to the greatest
extent possible, rights to use the software developed under the
contract.
Where MDA develops systems and software under development
contracts with the Government of Canada or by utilizing funds
provided in the form of government assistance, the Government of
Canada retains the ownership rights to the products developed and
in return licenses the technology to the developer. These
licenses are sole licenses which, in practice, give the use of
the technology only to the developer of the technology. Where
systems and software are developed under development contracts
with other governments, however, MDA seeks to retain all rights
to ownership and use of the technology developed.
Personnel
A key factor in MDA's success has been the ability to recruit and
retain the highly qualified people it needs to be successful in
the diverse and rapidly evolving markets in which it competes.
As at March 31, 1995, MDA employed 916 people, the majority of
whom hold university or college degrees. MDA has no unionized
employees and believes its relations with its employees are good.
Properties
MDA's head office, located at 13800 Commerce Parkway, Richmond,
British Columbia, is comprised of approximately 182,000 square
feet and is leased until January 2004. A second Richmond office,
located at 13571 Commerce Parkway, is comprised of approximately
30,000 square feet and is leased until February 2003. MDA also
leases space in Ottawa, Ontario and Kuala Lumpur, Malaysia, and
its subsidiaries lease space for their operations in each of
Boulder, Colorado; Farnham, England; and Sydney, Australia. The
PSC division is headquartered in Ottawa, Ontario and has offices
in Toronto, Ontario; Richmond, British Columbia; McLean,
Virginia; Bristol, England; and Sydney, Australia.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations for the Quarter ended June 30, 1995 and
Quarter Ended June 30, 1994
For the first quarter ended June 30, 1995, consolidated gross
revenues declined to $23.6 million, from $27.6 million for the
1994 quarter. The decline in revenue is primarily due to delays
in certain satellite launches that impact demand for Earth
information systems. MDA believes that revenues will increase
through the end of its 1996 fiscal year based on the current
schedule of upcoming optical and radar satellite launches.
Despite the drop in revenues for the quarter ended June 30, 1995,
net earnings remained constant for the June 30, 1995 and 1994
quarters at $0.09 per MDA Common Share. The earnings for the
June 30, 1994 quarter were affected by several low margin
development projects that have since been completed.
Other income consists primarily of interest income on term
deposits, bank balances and a lease receivable with RSI.
Interest income increased from $115,000 in the first quarter
ended June 30, 1994 to $232,000 in the 1995 quarter, primarily
due to an approximate $9 million increase in average cash
balances.
The acquisition of The PSC Communications Group Inc. in April
1994 was partially funded by debt, which is reflected in the net
increase in long-term debt of $3.9 million for the quarter ended
June 30, 1994.
Results of Operations for the Fiscal Years ended March 31, 1995
and 1994
Consolidated gross revenue increased by 8.4% over the previous
year. Fiscal year 1995 includes $13.9 million of revenue from
MDA's newly acquired Communications business area. Geo-
Information Systems revenues declined from $59.3 million in
fiscal 1994 to $48.8 million in fiscal 1995. An important part
of this unit's business is the construction and upgrade of ground-
based Earth observation centres. The revenue decline is
attributable mainly to a temporary lull in the launching of new
Earth observation satellites and the 1994 launch failure of the
Landsat-6 satellite, which delayed several customers' programs.
Cost of sales, consisting of labour, the purchase of deliverable
equipment and the engagement of subcontractors, rose by 6.3%,
from approximately $75.3 million in fiscal 1994 to $80.1 million
in fiscal 1995. In fiscal 1995, equipment and subcontracting
costs declined as a percentage of revenue. Labour costs were
higher primarily due to the acquisition of PSC, whose cost of
sales is comprised mainly of labour, and a one-time labour
expense to deliver a UNIX based system for MDA's Earth-imaging
technology.
Research and development expenditures, before allowing for
government assistance, were $4.7 million in fiscal 1995, up 9.9%
from $4.3 million in fiscal 1994. MDA received government
assistance for research and development of $2.3 million in fiscal
1995, bringing the net expenditure to $2.4 million. That
compared with net expenditures of $3.4 million in fiscal 1994.
In addition to the internally funded expenditures, customer-
funded research and development, pursuant to which MDA conducts
most of its research and development, was $29.3 million in fiscal
1995, unchanged from fiscal 1994. In most cases, MDA has the
right to exploit the technology that results from this customer-
funded research and development.
General and administrative expenditures were $7.8 million in
fiscal 1995, up from $6.7 million in fiscal 1994. This increase
includes $1.6 million attributable to the acquisition of PSC,
which has a slightly higher general and administrative component
than MDA's traditional business. General and administrative
expenditures for the traditional business declined by 7.5% in
fiscal 1995.
The effective rate of income tax for MDA was 46.9% in 1995,
compared with 44.0% in 1994. This increase is primarily due to
certain losses on foreign operations which MDA was unable to take
advantage of in fiscal 1995 but which can be carried forward and
used in the future, if these foreign operations become
profitable. These foreign losses are substantially due to start-
up operations in Australia and Britain.
Cash from operations was $4.2 million in fiscal 1995, down from
$16.3 million a year earlier. This change is largely
attributable to prepayment in fiscal 1994 for work to be
performed in fiscal 1995 and the recognition of revenue on the
percentage of completion basis. MDA does not recognize advance
prepayments on work as revenue until the work is done. In fiscal
1995, MDA worked off advance payments that had been received in
fiscal 1994.
Capital expenditures, primarily required to support growth in the
number of employees and replacement of existing computing
infrastructure, totalled $3.9 million in 1995 compared with $3.6
million in fiscal 1994. On April 6, 1994, MDA acquired 100% of
PSC for $6.3 million. The acquisition was funded by cash
reserves and a term bank loan.
Gross order backlog at March 31, 1995 was $112 million, compared
to $136 million at March 31, 1994. The backlog has been higher
in the recent past due to the simultaneous booking of some large
multi-year programs. But at about one year's revenue, the
backlog is typical for MDA's industry. In addition, with the
acquisition of PSC and with changes in certain market niches, MDA
is less reliant on traditional, long-term delivery contracts than
it once was.
As at the end of the 1995 fiscal year, MDA's bankers have issued
letters of guarantee to certain customers of MDA in the amount of
$9,459,000 of which $2,438,000 is guaranteed by the Federal
Government of Canada. If MDA fails to perform as agreed with
these customers and if the letters of guarantee are called, the
$7,021,000 due to MDA's bankers would be secured by an existing
general assignment of book debts and assignment of raw materials,
work in progress and finished goods. Inventories relating to
contracts with the Government of Canada are excluded from the
assignment. The Federal Government of Canada is secured under a
general recourse agreement, which ranks second to the charge held
by MDA's bankers. A letter of guarantee has never been drawn
against with respect to any project.
Results of Operations for the Fiscal Years ended March 31, 1994
and 1993
Consolidated gross revenues increased by 19.1%, from
approximately $85.2 million in fiscal 1993 to $101.4 million in
fiscal 1994. Operating costs increased by 18.9% in fiscal 1994,
slightly below the increase in revenues for the corresponding
1993 period. Internally funded research and development, net of
government assistance, decreased from $4.4 million in fiscal 1993
to $3.4 million in fiscal 1994. Research and development
decreased as the Geo-Information Systems business area
substantially completed the development phase of its ground
station upgrade program in fiscal 1993.
Operating earnings increased to $5.3 million in fiscal 1994 from
$4.3 million in fiscal 1993, an increase of 22%. Other income
decreased from $634,000 in fiscal 1993 to $532,000 in fiscal
1994. The decrease in interest income due to lower interest
rates is partially offset by interest income earned on the 10%
lease receivable with RSI.
Net cash provided by operations reached $16.3 million in fiscal
1994, compared with $0.5 million in fiscal 1993. Deferred
revenue was a major reason for this change, increasing by $12.0
million. Deferred revenue represents amounts invoiced to
customers in excess of revenue earned. Capital expenditures
amounted to $3.6 million in 1994.
Directors and Officers
The following table sets forth the directors and officers of MDA,
their municipality of residence, their principal occupations, the
year when they became directors and the number of MDA Common
Shares and MDA Options held by them. Following the Effective
Date, Orbital expects to appoint new directors to the MDA Board.
Principal
Occupation if No. of MDA
Director Different than Common
Name and Residence Office Since Office Held Shares or
MDA Options
Held
J. Brian Aune Director 1986 Chairman, St. Nil
Westmount, Quebec James Financial
Corporation
(Private
investment
company)
Winslow W. Bennett* Director 1982 President, 202,000
Vancouver, B.C. Winwood Holdings shares
Ltd. (Private
investment
company)
Michael J. Brown* Director 1982 President, 100 shares
West Vancouver, B.C. Ventures West
Management Inc.
(Venture capital
management)
Mark H. Leonard Director 1990 Senior Vice- Nil
Toronto, Ontario President,
Ventures West
Management Inc.
(Venture capital
management)
C. Calvert Knudsen* Director 1988 Director, 50,000
Seattle, Washington, MacMillan Bloedel shares
U.S.A. Limited, formerly
Chairman and
Chief Executive
Officer of
MacMillan Bloedel
(Integrated
forest products
company)
John S. MacDonald Director, 1969 1,110,449
Vancouver, B.C. Chairman of shares
the Board 1,994
options (1)
John W. Pitts* Director, 1982 1,154,314
Vancouver, B.C. Deputy shares
Chairman 2,341
options (1)
Daniel E. Friedmann Director, 1992 77,041
Vancouver, B.C. President shares
and Chief 161,467
Executive options (1)
Officer
Mark Dostie Director, 1995 5 shares
Vancouver, B.C. Engineer
David N. Caddey Vice- 11,346
Delta, B.C. President, shares
Space & 81,700
Defence options (1)
Systems
Bernard S. Clark Vice- 15,165
Delta, B.C. President, shares
Geo- 80,660
Information options (1)
Systems
Robert B. Wallis Vice- 15,002
Surrey, B.C. President, shares
Aviation 82,584
Systems, options (1)
Chief
Financial
Officer and
Secretary
Gordon D. Thiessen Controller 3,029
Richmond, B.C. and shares
Assistant 10,816
Secretary options (1)
John S. Rybinski Treasurer 9,315
Vancouver, B.C. shares
Elizabeth J. Harrison, Assistant Partner, Farris, Nil
Q.C. Secretary Vaughan, Wills &
Vancouver, B.C. Murphy
(Barristers and
Solicitors)
* Member of Audit Committee
Note:
(1) The outstanding MDA Options are exercisable at varying times
at prices ranging from $0.90 to $3.75 per MDA Common Share.
All of the directors of MDA have been engaged for the last five
years in their present principal occupation or in another
capacity with the firms identified opposite their names or
related firms, with the exception of J. Brian Aune. Prior to
November 1990, Mr. Aune was Chairman and Chief Executive Officer
of Nesbitt Thomson Inc., an investment dealer. MDA's Board does
not have an executive committee.
Description of Share Capital
The authorized share capital of MDA consists of an unlimited
number of MDA Common Shares, 205,000 Class A Preference Shares
and 27,000 Class B Preference Shares. As at the date hereof,
there are no Class A or Class B Preference Shares outstanding.
The MDA Common Shares are without par value and rank equally as
to dividends and participation in assets in the event of
liquidation, dissolution or winding up. The holders of MDA
Common Shares are entitled to one vote for each share held at
general meetings of MDA. Following completion of the
Arrangement, Acquisition will be the sole shareholder of MDA.
Dividend Record and Dividend Policy
MDA paid a dividend of $1.00 per MDA Common Share, totalling
$10,965,000, on July 30, 1992. No dividends have been paid since
that date. It is MDA's general policy to retain its earnings for
use in its business and not to pay cash dividends.
Executive Compensation
Summary Compensation Table
The following table sets forth the summary of compensation of the
Chief Executive Officer and the four named executive officers of
MDA and its subsidiaries for the fiscal years ended March 31,
1994 and 1995:
Long-Term
Compensation All
Annual Compensation Awards Other
Compensa-
tion
Securities
Name and Principal Other Under
Position Year Salary Bonus Annual Options $ (2)
($) ($) Compen- Granted
sation (1) (3)
Daniel E. Friedmann 1995 208,000 --- --- 35,000 7,342
President & C.E.O. (3)
Vice President & C.O.O 1994 202,000 --- --- 30,000 7,352
John W. Pitts (3) 1995 216,000 --- --- --- 7,373
Deputy Chairman
President & C.E.O. 1994 216,000 --- --- --- 7,379
John S. MacDonald 1995 186,760 11,560 --- --- 7,270
Chairman
1994 184,690 10,600 --- 7,269
Bernard S. Clark 1995 113,600 20,499 --- 20,000 7,050
Vice President
Geo-Information Systems 1994 108,933 30,947 --- 20,000 9,521
Robert B. Wallis 1995 110,200 20,000 --- 20,000 6,139
Chief Financial Officer
Vice-President,
Aviation Systems
Vice President 1994 107,369 10,000 --- 20,000 6,139
Chief Financial Officer
David N. Caddey 1995 108,600 17,233 --- 20,000 7,044
Vice President
Space & Defence Systems 1994 107,400 29,965 --- 20,000 7,050
Notes:
(1) Perquisites and other personal benefits do not exceed the
lesser of $50,000 and 10% of the total of the annual salary
and bonus of the named executive officer for the financial
year.
(2) Includes amounts paid pursuant to contributions to
designated retirement savings plan.
(3) John W. Pitts served as President and Chief Executive
Officer until March 15, 1995. Daniel E. Friedmann served as
Executive Vice President and Chief Operating Officer until
he was appointed President and Chief Executive Officer on
March 15, 1995.
Long-Term Incentive Plan Compensation
MDA provides long-term incentive compensation to key employees,
including executive officers, in the form of options granted
under the Key Employee Share Option Plan ("KESOP") and
predecessor plans, whereby options to purchase MDA Common Shares
are granted.
The following table set forth individual grants of options under
the KESOP during the fiscal year ended March 31, 1995, to the
named executive officers:
Options Granted During the Financial Year Ended March 31, 1995
Market Value
% of Total of
Options Securities
Securities Granted to Exercise of Underlying
Under Employees Base Price Options on
Name Options in ($/Security) the Date of Expiration
Granted Financial Grant Date
(#) (1) Year ($/Security)
Daniel E. Friedmann 35,000 14% 3.75 3.75 March
31, 2001
Bernard S. Clark 20,000 8% 3.75 3.75 March
31, 2001
Robert B. Wallis 20,000 8% 3.75 3.75 March
31, 2001
David N. Caddey 20,000 8% 3.75 3.75 March
31, 2001
Note:
(1) The first 20% of the MDA Common Shares under option vest
immediately and the remaining options vest over the four
succeeding anniversary dates of the day of grant.
The following table sets forth each exercise of options during the
fiscal year ended March 31, 1995 by the named executive officers:
Aggregate Options Exercised During the Financial Year Ended
March 31, 1995 and Financial Year-End Option Values
Securities Aggregate Value of
Acquired Value Unexercised Unexercised in
Name on Realized Options the Money Options
Exercise ($) at FY-End at FY-End($)
(#) (#) _________________________
Exercisable Unexer- Exer- Unexer-
cisable cisable cisable
Daniel E. Friedmann --- --- 81,760 40,000 302,512 148,000
Bernard S. Clark --- --- 35,400 24,000 130,980 88,800
Robert B. Wallis --- --- 37,500 24,000 138,750 88,800
David N. Caddey --- --- 39,700 24,000 146,870 88,800
Pensions
MDA does not maintain any pension plans for its executive
officers. MDA makes contributions on behalf of all of its
employees, as part of their compensation, for registered
retirement savings plans ("RRSP") equal to the contributions made
by each employee to their RRSP up to a maximum of 5% of that
person's base salary.
Auditors
MDA's auditors are KPMG Peat Marwick Thorne, 777 Dunsmuir Street,
Vancouver, British Columbia V7Y 1K3.
Registrar and Transfer Agent
Montreal Trust Company, at its principal offices in Vancouver and
Toronto, is the registrar and transfer agent for the MDA Common
Shares.
Stock Exchange Listings
The MDA Common Shares are listed on the TSE and the VSE and trade
under the symbol "MDA".
COMPARISON OF SHAREHOLDERS' RIGHTS
Former MDA Shareholders will, at the Effective Date, own
Exchangeable Shares that are exchangeable for Orbital Common
Shares. Pursuant to the Voting and Exchange Trust Agreement the
Trustee may, at the direction of the holders of the Exchangeable
Shares, exercise votes equivalent to those of Orbital Common
Shares. At the Effective Date, Acquisition will be a reporting
issuer under the laws of the province of British Columbia,
Ontario and certain other provinces.
While the rights and privileges of stockholders of a Delaware
corporation such as Orbital are, in many instances, comparable to
those of shareholders of a corporation under the CBCA, such as
MDA and Acquisition, there are certain differences. The
following is a summary of the material differences between the
rights of holders of MDA Common Shares, the rights of holders of
Exchangeable Shares, and the rights of holders of Orbital Common
Shares. These differences arise from differences between United
States and Canadian securities laws, between the DGCL and the
CBCA, and between the MDA articles and by-laws (the "MDA
Articles" and the "MDA By-Laws," respectively), Acquisition's
articles (the "Acquisition Articles") and by-laws (the
"Acquisition By-laws") as proposed to be amended in connection
with the Arrangement and the Orbital Restated Certificate and by-
laws (the "Orbital By-Laws"). For a description of the
respective rights of the holders of MDA Common Shares and Orbital
Common Shares, see, respectively, "Information Concerning MDA -
Share Capital Structure" and "Information Concerning Orbital -
Description of Capital."
Extraordinary Transactions - Vote Required
Under the CBCA, certain extraordinary corporate actions, such as
certain amalgamations, continuances, sales, leases or exchanges
of all the assets of a corporation other than in the ordinary
course of business, and other extraordinary corporate actions
such as liquidations, dissolutions and (if ordered by a court)
arrangements, are required to be approved by special resolution.
A special resolution is a resolution passed by a majority of not
less than two-thirds of the votes cast by the shareholders who
voted in respect of that resolution. In certain cases, a special
resolution to approve an extraordinary corporate action is also
required to be approved separately by the holders of a class or
series of shares.
The DGCL requires the affirmative vote of a majority of the
outstanding stock entitled to vote thereon to authorize any
merger, consolidation, dissolution or sale of substantially all
of the assets of a corporation, except that, unless required by
its certificate of incorporation, no authorizing stockholder vote
is required of a corporation surviving a merger if (a) such
corporation's certificate of incorporation is not amended in any
respect by the merger, (b) each share of stock of such
corporation outstanding immediately prior to the effective date
of the merger will be an identical outstanding or treasury share
of the surviving corporation after the effective date of the
merger, and (c) the number of shares to be issued in the merger
plus those initially issued upon conversion of any other
securities to be issued in the merger do not exceed 20% of such
corporation's outstanding common stock immediately prior to the
effective date of the merger. Stockholder approval is also not
required under the DGCL for mergers or consolidations in which a
parent corporation merges or consolidates with a subsidiary of
which it owns at least 90% of the outstanding shares of each
class of stock. The Orbital Restated Certificate does not
require a greater percentage vote for such actions except with
respect to certain business combinations. See "Anti-takeover
Provisions and Interested Stockholder Transactions."
Such matters as take-over bids, issuer bids or self tenders,
going-private transactions and transactions with directors,
officers, significant shareholders and other related parties to
which Acquisition is a party will be subject to regulation by
Canadian provincial securities legislation and administrative
policies of Canadian securities administrators. Similar matters
to which Orbital is a party will be subject to regulation under
United States securities laws, regulations and policies.
Orbital's Restated Certificate contains a provision that requires
the holders of two-thirds of Orbital's voting power, voting as a
single class, to approve a merger or certain other business
transactions ("Business Combination") between Orbital and a
holder of more than 5% of Orbital's outstanding voting stock or
any such holder's affiliates or associates ("Related Person").
Stockholder approval is not required if the "fair price
provision" (as defined therein) is satisfied or if two-thirds of
the "Continuing Directors" (as defined therein) (i) expressly
approve in advance the acquisition of stock that caused the
Related Person to become a Related Person and expressly decide in
advance of such acquisition that the approval of two-thirds of
the holders of the outstanding shares of voting stock is not
required, or (ii) approve the Business Combination. Generally,
the "fair price provision" will have been satisfied if the price
received by the holders of shares of Orbital Common Shares or
other class of voting stock is not less than the highest price
paid by the Related Person when acquiring any of its Orbital
Common Shares or other class of voting stock, as applicable,
within the two-year period preceding the earlier of the date of
the Business Combination or the date of the first public
announcement of the Business Combination.
Amendment to Governing Documents
Under the CBCA, any amendment to the articles generally requires
the approval by special resolution, which is a resolution passed
by a majority of not less than two-thirds of the votes cast by
shareholders who voted in respect of that resolution. Under the
CBCA, unless the articles or by-laws otherwise provide, the
directors may, by resolution, make, amend or repeal any by-law
that regulates the business or affairs of a corporation. Where
the directors make, amend or repeal a by-law, they are required
under the CBCA to submit the by-law, amendment or repeal to the
shareholders at the next meeting of shareholders, and the
shareholders may confirm, reject or amend the by-law, amendment
or repeal by an ordinary resolution, which is a resolution passed
by a majority of the votes cast by the shareholders who voted in
respect of the resolution.
The DGCL requires a vote of the corporation's board of directors
followed by the affirmative vote of a majority of the outstanding
stock of each class entitled to vote for any amendment to the
certificate of incorporation, unless a greater level of approval
is required by the certificate of incorporation. The Orbital
Restated Certificate provides that any amendment that relates to
(i) a director's liability to Orbital or its stockholders, (ii)
indemnification of directors, (iii) classification of the board
of directors or election or removal of directors, (iv) voting
requirements for approval of certain mergers, consolidations and
other business combinations, or (v) voting requirements for
amendment of any supermajority voting provisions, must be
approved by the affirmative vote of the holders of not less than
two-thirds of the outstanding shares entitled to vote for the
election of directors. The DGCL provides that if an amendment
alters the powers, preferences or special rights of a particular
class or series of stock so as to affect them adversely, that
class or series shall be given the power to vote as a class
notwithstanding the absence of any specifically enumerated power
in the certificate of incorporation. The Orbital Series A
Preferred Share which will be issued in connection with the
Arrangement has special voting powers. See "The Arrangement -
Description of Exchangeable Shares - Voting Rights."
The DGCL also states that the power to adopt, amend or repeal the
by-laws of a corporation shall be in the stockholders entitled to
vote, provided that the corporation in its certificate of
incorporation may confer such power on the board of directors in
addition to the stockholders. Under the Orbital Restated
Certificate the board of directors has been granted this power.
The Orbital By-laws are subject to adoption, amendment, repeal or
rescission by a majority of the authorized number of directors,
subject to the right of the stockholders entitled to vote with
respect thereto to alter and repeal by-laws adopted by the board
of directors.
Dissent Rights
The CBCA provides that shareholders of a CBCA corporation
entitled to vote on certain matters are entitled to exercise
dissent rights and to be paid the fair value of their shares in
connection therewith. The CBCA does not distinguish for this
purpose between listed and unlisted shares. Such matters include
(a) any amalgamation with another corporation (other than with
certain affiliated corporations); (b) an amendment to the
corporation's articles to add, change or remove any provisions
restricting or constraining the issue, transfer or ownership of
shares; (c) an amendment to the corporation's articles to add,
change or remove any restriction on the business or businesses
that the corporation may carry on or upon the powers that the
corporation may exercise; (d) a continuance under the laws of
another jurisdiction; (e) a sale, lease or exchange of all or
substantially all the property of the corporation other than in
the ordinary course of business; (f) a court order permitting a
shareholder to dissent in connection with an application to the
court for an order approving an arrangement proposed by the
corporation; or (g) certain amendments to the articles of a
corporation which require a separate class or series vote,
provided that a shareholder is not entitled to dissent if an
amendment to the articles is effected by a court order approving
a reorganization or by a court order made in connection with an
action for an oppression remedy. Under the CBCA, a shareholder
may, in addition to exercising dissent rights, seek an oppression
remedy for any act or omission of a corporation which is
oppressive, unfairly prejudicial to or that unfairly disregards a
shareholder's interest.
Under the DGCL, holders of shares of any class or series have the
right, in certain circumstances, to dissent from a merger or
consolidation by demanding payment in cash for their shares equal
to the fair value (excluding any appreciation or depreciation as
a consequence, or in expectation, of the transaction) of such
shares, as determined by agreement with the corporation or by an
independent appraiser appointed by a court in an action timely
brought by the corporation or the dissenters. The DGCL grants
dissenters' appraisal rights only in the case of mergers or
consolidations and not in the case of a sale or transfer of
assets or a purchase of assets for stock regardless of the number
of shares being issued. Further, no appraisal rights are
available for shares of any class or series listed on a national
securities exchange or designated as a national market system
security on the NASDAQ or held of record by more than 2,000
stockholders, unless the agreement of merger or consolidation
converts such shares into anything other than (a) stock of the
surviving corporation, (b) stock of another corporation which is
either listed on a national securities exchange or designated as
a national market system security on the NASDAQ or held of record
by more than 2,000 stockholders, (c) cash in lieu of fractional
shares, or (d) some combination of the above. In addition, such
rights are not available for any shares of the surviving
corporation if the merger did not require the vote of the
stockholders of the surviving corporation.
Oppression Remedy
The CBCA provides an oppression remedy that enables the court to
make any order, both interim and final, to rectify the matters
complained of, if the Director under the CBCA is satisfied upon
application by a complainant (as defined below) that: (i) any act
or omission of the corporation or an affiliate effects a result;
(ii) the business or affairs of the corporation or an affiliate
are or have been carried on or conducted in a manner; or (iii)
the powers of the directors of the corporation or an affiliate
are, have been or are threatened to be exercised in a manner
that, in any of the foregoing cases, is oppressive or unfairly
prejudicial to, or that unfairly disregards the interests of any
security holder, creditor, director or officer of the
corporation. A complainant includes: (a) a present or former
registered holder or beneficial owner of securities of a
corporation or any of its affiliates; (b) a present or former
officer or director of the corporation or any of its affiliates;
(c) the Director under the CBCA; and (d) any other person who in
the discretion of the court is a proper person to make such
application.
Because of the breadth of the conduct which can be complained of
and the scope of the court's remedial powers, the oppression
remedy is very flexible and is frequently relied upon to
safeguard the interests of shareholders and other complainants
with a substantial interest in the corporation. Under the CBCA,
it is not necessary to prove that the directors of a corporation
acted in bad faith in order to seek an oppression remedy.
Furthermore, the court may order the corporation to pay the
interim expenses of a complainant seeking an oppression remedy,
but the complainant may be held accountable for such interim
costs on final disposition of the complaint (as in the case of a
derivative action). The DGCL does not provide for a similar
remedy.
Derivative Action
Derivative actions may be brought in Delaware by a stockholder on
behalf of, and for the benefit of, the corporation. The DGCL
provides that a stockholder must aver in the complaint that he or
she was a stockholder of the corporation at the time of the
transaction of which he or she complains. A stockholder may not
sue derivatively unless he or she first makes demand on the
corporation that it bring suit and such demand has been refused,
unless it is shown that such demand would have been futile.
Under the CBCA, a complainant may apply to the court for leave to
bring an action in the name of and on behalf of a corporation or
any subsidiary, or to intervene in an existing action to which
any such body corporate is a party, for the purpose of
prosecuting, defending or discontinuing the action on behalf of
the body corporate. Under the CBCA, no action may be brought and
no intervention in an action may be made unless the court is
satisfied that (a) the complainant has given reasonable notice to
the directors of the corporation or its subsidiary of the
complainant's intention to apply to the court if the directors of
the corporation or its subsidiary do not bring, diligently
prosecute or defend or discontinue the action; (b) the
complainant is acting in good faith; and (c) it appears to be in
the interests of the corporation or its subsidiary that the
action be brought, prosecuted, defended or discontinued. A
complainant is not required to give security for costs in a
derivative action.
Shareholder Consent in Lieu of Meeting
Under the DGCL, unless otherwise provided in the certificate of
incorporation, any action required to be taken or which may be
taken at an annual or special meeting of stockholders may be
taken without a meeting if a consent in writing is signed by the
holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize such action
at a meeting at which all shares entitled to vote were present
and voted. The Orbital Restated Certificate does not permit any
action to be taken by written consent. Under the CBCA,
shareholder action without a meeting may only be taken by written
resolution signed by all shareholders who would be entitled to
vote thereon at a meeting.
Director Qualifications
A majority of the directors of a CBCA corporation generally must
be resident Canadians. The CBCA also requires that a corporation
whose securities are publicly traded must have not fewer than
three directors, at least two of whom are not officers or
employees of the corporation or its affiliates. The DGCL does
not have comparable requirements.
Fiduciary Duties of Directors
Directors of corporations incorporated or organized under the
CBCA and the DGCL have fiduciary obligations to the corporation
and its shareholders. Pursuant to these fiduciary obligations,
the directors must act in accordance with the so-called duties of
"due care" and "loyalty." Under the DGCL, the duty of care
requires that the directors act in an informed and deliberative
manner and inform themselves, prior to making a business
decision, of all material information available to them. The
duty of loyalty may be summarized as the duty to act in good
faith, not out of self-interest, and in a manner which the
directors reasonably believe to be in the best interests of the
stockholders.
Pursuant to section 122 of the CBCA, the duty of loyalty requires
directors of a CBCA corporation to act honestly and in good faith
with a view to the best interests of the corporation, and the
duty of care requires that the directors exercise the care,
diligence and skill that a reasonably prudent person would
exercise in comparable circumstances.
Indemnification of Officers and Directors
Under the CBCA and pursuant to the MDA By-Laws and the
Acquisition By-Laws, MDA and Acquisition may indemnify a director
or officer, a former director or officer or a person who acts or
acted at the corporation's request as a director or officer of a
body corporate of which MDA or Acquisition, as the case may be,
is or was a shareholder or creditor, and his or her heirs and
legal representatives (an "Indemnifiable Person"), against all
costs, charges and expenses, including an amount paid to settle
an action or satisfy a judgment, reasonably incurred by him or
her in respect of any civil, criminal or administrative action or
proceeding to which he or she is made a party by reason of being
or having been a director or officer of MDA or Acquisition, as
the case may be, or such body corporate, if: (a) he or she acted
honestly and in good faith with a view to the best interests of
MDA; and (b) in the case of a criminal or administrative action
or proceeding that is enforced by a monetary penalty, he or she
had reasonable grounds for believing that his or her conduct was
lawful. An Indemnifiable Person is entitled to such indemnity
from the corporation if he or she was substantially successful on
the merits in his or her defence of the action or proceeding and
fulfilled the conditions set out in (a) and (b), above. A
corporation may, with the approval of a court, also indemnify an
Indemnifiable Person in respect of an action by or on behalf of
the corporation or such body corporate to procure a judgment in
its favour, to which such person is made a party by reason of
being or having been a director or an officer of the corporation
or body corporate, if he or she fulfils the conditions set out in
(a) and (b), above.
The DGCL provides that a corporation may indemnify its present
and former directors, officers, employees and agents (each an
"indemnitee") against all reasonable expenses (including
attorneys' fees) and, except in actions initiated by or in the
right of the corporation, against all judgments, fines and
amounts paid in settlement in actions brought against them, if
such indemnitee acted in good faith and in a manner which he or
she reasonably believed to be in, or not opposed to, the best
interests of the corporation, and in the case of a criminal
proceeding, had no reasonable cause to believe that his or her
conduct was unlawful. The corporation shall indemnify an
indemnitee to the extent that he or she is successful on the
merits or otherwise in the defence of any claim, issue or matter
associated with an action. The Orbital Restated Certificate
provides for indemnification of directors or officers to the
fullest extent permitted by the DGCL.
The DGCL allows for the advance payment of an indemnitee's
expenses prior to the final disposition of an action, provided
that the indemnitee undertakes to repay any such amount advanced
if it is later determined that the indemnitee is not entitled to
indemnification with regard to the action for which such expenses
were advanced. The CBCA does not expressly provide for such
advance payment.
Director Liability
The DGCL provides that the charter of the corporation may include
a provision which limits or eliminates the liability of directors
to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided such liability
does not arise from certain proscribed conduct, including acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, breach of the duty of
loyalty, the payment of unlawful dividends or expenditure of
funds for unlawful stock purchases or redemptions or transactions
from which such director derived an improper personal benefit.
The Orbital Restated Certificate contains a provision limiting
the liability of its directors to the fullest extent permitted by
the DGCL. The CBCA does not permit any such limitation of a
director's liability.
Anti-takeover Provisions and Interested Stockholder Transactions
The DGCL prohibits, in certain circumstances, a "business
combination" between the corporation and an "interested
stockholder" within three years of the stockholder becoming an
"interested stockholder." An "interested stockholder" is a
holder who, directly or indirectly, controls 15% or more of the
outstanding voting stock or is an affiliate of the corporation
and was the owner of 15% or more of the outstanding voting stock
at any time within the prior three-year period. A "business
combination" includes a merger or consolidation, a sale or other
disposition of assets having an aggregate market value of 10% or
more of the consolidated assets of the corporation or the
aggregate market value of the outstanding stock of the
corporation and certain transactions that would increase the
interested stockholder's proportionate share ownership in the
corporation. This provision does not apply where: (i) either the
business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the
corporation's board of directors prior to the date the interested
stockholder acquired such 15% interest; (ii) upon the
consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder
owned at least 85% of the outstanding voting stock of the
corporation excluding, for the purpose of determining the number
of shares outstanding, shares held by persons who are directors
and also officers and by employee stock plans in which
participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered, (iii)
the business combination is approved by a majority of the board
of directors and the affirmative vote of two-thirds of the
outstanding votes entitled to be cast by disinterested
stockholders at an annual or special meeting; (iv) the
corporation does not have a class of voting stock that is listed
on a national securities exchange, authorized for quotation on an
inter-dealer quotation system of a registered national securities
association, or held of record by more than 2,000 stockholders
unless any of the foregoing results from action taken, directly
or indirectly, by an interested stockholder or from a transaction
in which a person becomes an interested stockholder, or (v) the
corporation has opted out of this provision. Orbital has not
opted out of this provision.
The CBCA does not contain a comparable provision with respect to
"business combinations" however policies of certain Canadian
securities regulatory authorities, including Policy 9.1 of the
Ontario Securities Commission ("Policy 9.1"), contain
requirements in connection with related party transactions. A
related party transaction means, generally, any transaction by
which an issuer, directly or indirectly, acquires or transfers an
asset or acquires or issues treasury securities or assumes or
transfers a liability from or to, as the case may be, a related
party by any means in any one transaction or any combination of
transactions. "Related party" is defined in Policy 9.1 to
include directors, senior officers and holders of at least 10% of
the voting securities of the issuer.
Policy 9.1 requires more detailed disclosures in the proxy
material sent to security holders in connection with a related
party transaction. Where the value of the asset, treasury
security or the principal amount of the liability, subject to the
related party transactions exceeds 25% of the issuer's market
capitalization, subject to certain exceptions, Policy 9.1
requires the preparation of a formal valuation of the subject
matter of the related party transaction and any non-cash
consideration offered therefor and the inclusion of a summary of
the valuation in the proxy material. For related party
transactions of such value, Policy 9.1 also requires, subject to
certain exemptions, that the minority shareholders of the issuer
approve the transaction, by either a simple majority or two-
thirds of the votes cast, depending upon the circumstances.
Shareholder Protection Rights Plan
MDA has a Shareholder Protection Rights Plan. The Shareholder
Protection Rights Plan in certain specific circumstances,
including the event of a hostile takeover bid being made for MDA,
provides that each MDA Common Shareholder is entitled to acquire
MDA Common Shares, or in certain circumstances common shares of
the bidder, at a 50% discount from the then prevailing market
price. The MDA Board has waived the provisions of the
Shareholder Protection Rights Plan to permit the transactions
contemplated by the Arrangement to be completed without
triggering such provisions.
Orbital does not currently have a plan similar to the Shareholder
Protection Rights Plan, although plans comparable to the
Shareholder Protection Rights Plan are permitted by the DGCL and
may be adopted by a board of directors without shareholder
approval. Orbital may in the future adopt a shareholder rights
plan.
DISSENTING RIGHTS
Pursuant to the Interim Order, MDA Shareholders and MDA 1988
Optionholders have been provided with the right to dissent from
the Arrangement Resolution under and in compliance with
section 190 of the CBCA and the Interim Order, reprinted in their
entireties as Appendices "D" and "G", respectively to this Proxy
Circular. The following summary is qualified in its entirety by
the Interim Order and the provisions of section 190 of the CBCA.
Pursuant to the Interim Order, a MDA Shareholder who dissents
from the Arrangement Resolution in compliance with section 190 of
the CBCA and the Interim Order (a "Dissenting MDA Shareholder")
will be entitled, in the event the Arrangement becomes effective,
to be paid by MDA the fair value of the MDA Common Shares held by
such Dissenting MDA Shareholder determined as of the close of
business on the day before the Arrangement Resolution is adopted.
Pursuant to the Interim Order and the Plan of Arrangement, any
MDA 1988 Optionholder who dissents from the Arrangement
Resolution in accordance with section 190 of the CBCA and the
Interim Order (a "Dissenting MDA 1988 Optionholder"), shall be
deemed, pursuant to the Plan of Arrangement and the Interim
Order, to have exercised the MDA 1988 Options with respect to
which he or she is exercising the dissent. Such Dissenting MDA
1988 Optionholder, will be entitled, if the Arrangement becomes
effective, to be paid the fair value of the MDA Common Shares
deemed to have been issued upon exercise, set-off by the exercise
price. The fair value shall be determined as of the close of
business on the day before the Arrangement Resolution is adopted.
A MDA Shareholder or MDA 1988 Optionholder who wishes to dissent
must send to MDA, no later than the termination of the Special
Meeting (or any adjournment thereof), written objection to the
Arrangement Resolution (a "Dissent Notice") and must not vote for
the Arrangement Resolution. The filing of a Dissent Notice does
not deprive a MDA Shareholder or a MDA 1988 Optionholder, as the
case may be, of the right to vote. The CBCA does not provide,
and MDA will not assume, that a vote against the Arrangement
Resolution or an abstention constitutes a Dissent Notice but a
MDA Shareholder or a MDA 1988 Optionholder need not vote his or
her MDA Common Shares or the votes to be exercised with respect
to his or her MDA 1988 Options against the Arrangement Resolution
in order to dissent. Under the CBCA, there is no right of
partial dissent and, accordingly, a Dissenting MDA Shareholder or
a Dissenting MDA 1988 Optionholder, as the case may be, may only
dissent with respect to all MDA Common Shares or all MDA Common
Shares to which he or she is entitled under all MDA 1988 Options,
respectively, held by him or her on behalf of any one beneficial
owner and which are registered in the name of the Dissenting MDA
Shareholder or Dissenting MDA 1988 Optionholder, as the case may
be.
MDA is required, within 10 days after the Arrangement Resolution
is adopted, to notify each MDA Shareholder or MDA 1988
Optionholder or MDA 1988 Optionholder who has filed a Dissent
Notice that the Arrangement Resolution has been adopted, but such
notice is not required to be sent to any MDA Shareholder who
voted for the Arrangement Resolution or who has withdrawn his or
her Dissent Notice.
A Dissenting MDA Shareholder or a Dissenting MDA 1988
Optionholder must then, within 20 days after receipt of notice
that the Arrangement Resolution has been adopted or, if he or she
does not receive such notice, within 20 days after he or she
learns that the Arrangement Resolution has been adopted, send to
MDA a written notice (a "Payment Demand") containing his or her
name and address, the number of MDA Common Shares in respect of
which he or she dissents, and a demand for payment of the fair
value of such MDA Common Shares. Within 30 days after sending a
Payment Demand, the Dissenting MDA Shareholder must send to the
MDA transfer agent the certificates representing the MDA Common
Shares in respect of which he or she dissents. A Dissenting MDA
1988 Optionholder shall be deemed to have sent those certificates
to the MDA transfer agent by reason of the deemed exercise of the
MDA 1988 Option. A Dissenting MDA Shareholder or a Dissenting
MDA 1988 Optionholder who fails to send to MDA, within the
appropriate time frame, certificates representing the MDA Common
Shares in respect of which he or she dissents, forfeits his or
her right to make a claim in accordance with the provisions of
section 190 of the CBCA. The MDA transfer agent will endorse on
share certificates received from a Dissenting MDA Shareholder a
notice that the holder is a Dissenting MDA Shareholder and will
forthwith return the share certificates to the Dissenting MDA
Shareholder.
On sending a Payment Demand to MDA, a Dissenting MDA Shareholder
or a Dissenting MDA 1988 Optionholder ceases to have any rights
as a MDA Shareholder or MDA 1988 Optionholder, other than the
right to be paid the fair value of his or her MDA Common Shares
as determined under section 190 of the CBCA, except where:
(a) the Dissenting MDA Shareholder or a Dissenting MDA 1988
Optionholder withdraws his or her Payment Demand before MDA
makes an offer to him or her pursuant to the CBCA;
(b) MDA fails to make an offer as hereinafter described and the
Dissenting MDA Shareholder or the Dissenting MDA 1988
Optionholder withdraws his or her Payment Demand; or
(c) the Arrangement does not proceed;
in which case his or her rights as a MDA Shareholder or a MDA
1988 Optionholder, as the case may be, are reinstated as of the
date he or she sent the Payment Demand.
MDA is required, not later than seven days after the later of the
Effective Date or the date on which MDA received the Payment
Demand of a Dissenting MDA Shareholder or a Dissenting MDA 1988
Optionholder, as the case may be, to send to each such dissenting
person who has sent a Payment Demand a written offer to pay
("Offer to Pay") for his or her MDA Common Shares an amount
considered by the MDA Board to be the fair value thereof, on the
close of business on the day before the Arrangement Resolution is
adopted, accompanied by a statement showing the manner in which
the fair value was determined. Every Offer to Pay must be on the
same terms. MDA must pay for the MDA Common Shares of a
Dissenting MDA Shareholder or a Dissenting MDA 1988 Optionholder
within 10 days after an Offer to Pay made as aforesaid has been
accepted by a Dissenting MDA Shareholder or a Dissenting MDA 1988
Optionholder, but any such Offer to Pay lapses if MDA does not
receive an acceptance thereof within 30 days after the Offer to
Pay has been made.
If MDA fails to make an Offer to Pay for a Dissenting MDA
Shareholder's or a Dissenting MDA 1988 Optionholder's MDA Common
Shares, or if a Dissenting MDA Shareholder or a Dissenting MDA
1988 Optionholder fails to accept an Offer to Pay which has been
made, MDA may, within 50 days after the Effective Date or within
such further period as a court may allow, apply to a court having
jurisdiction in the place where MDA has its registered office or
in the Province where such Dissenting MDA Shareholder or
Dissenting MDA 1988 Optionholder resides if MDA carries on
business in that province, to fix a fair value for the MDA Common
Shares of Dissenting MDA Shareholders or Dissenting MDA 1988
Optionholders. If MDA fails to apply to a court within such
period, a Dissenting MDA Shareholder or Dissenting MDA 1988
Optionholder may apply to a court for the same purpose within a
further period of 20 days or within such further period as a
court may allow. A Dissenting MDA Shareholder or Dissenting MDA
1988 Optionholder is not required to give security for costs in
such an application.
Upon an application to a court, all Dissenting MDA Shareholders
and all Dissenting MDA 1988 Optionholders whose MDA Common Shares
have not been purchased by MDA will be joined as parties and
bound by the decision of the court, and MDA will be required to
notify each affected Dissenting MDA Shareholder and Dissenting
MDA 1988 Optionholder of the date, place and consequences of the
application and of his or her right to appear and be heard in
person or by counsel. Upon any such application to a court, the
court may determine whether any other Dissenting MDA Shareholder
or Dissenting MDA 1988 Optionholder should be joined as a party,
and the court will then fix a fair value for the MDA Common
Shares of all Dissenting MDA Shareholders or Dissenting MDA 1988
Optionholders who have not accepted an Offer to Pay. The final
order of a court will be rendered against MDA in favour of each
such Dissenting MDA Shareholder and Dissenting MDA 1988
Optionholder and for the amount of the fair value of his or her
MDA Common Shares as fixed by the court. The court may, in its
discretion, allow a reasonable rate of interest on the amount
payable to each such Dissenting MDA Shareholder and Dissenting
MDA 1988 Optionholder from the Effective Date until the date of
payment.
The above is only a summary of the dissenting shareholder
provisions of the CBCA and the Interim Order, which are technical
and complex. It is suggested that any MDA Shareholder or MDA
1988 Optionholder wishing to avail himself or herself of his or
her rights under those provisions seek his or her own legal
advice as failure to comply strictly with the provisions of the
CBCA and the Interim Order may prejudice his or her right of
dissent. For a general summary of certain income tax
implications to a Dissenting MDA Shareholder, see "Income Tax
Considerations to MDA Shareholders and Optionholders - Canadian
Federal Income Tax Considerations - Dissenting MDA Shareholders,
and "- Dissenting MDA 1988 Optionholders" and "- United States
Federal Income Tax Considerations - Dissenting Persons."
AVAILABLE INFORMATION
Orbital is subject to the informational requirements of the 1934
Securities Exchange Act, and in accordance therewith files
reports and other information with the SEC. Such reports and
other information filed with the SEC can be inspected and copied
at the public reference facilities maintained by the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's Regional Offices at Seven World Trade Center, 13th Floor,
New York, New York 10048 and Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material also can be obtained from the Public Reference
Section of the SEC, Washington, D.C. 20549 at prescribed rates.
In addition, material filed by Orbital can be inspected at the
offices of The Nasdaq Stock Market, Reports Section, 1735 K
Street N.W., Washington, D.C., 20006.
LEGAL MATTERS
Certain legal matters in connection with the Arrangement will be
passed upon by Farris, Vaughan, Wills & Murphy, Vancouver and
Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York on
behalf of MDA and by Ropes & Gray, Boston, Massachusetts and
Davies, Ward & Beck, Toronto on behalf of Orbital and
Acquisition.
APPROVAL OF PROXY CIRCULAR BY MDA BOARD OF DIRECTORS
The contents of this Proxy Circular and the sending thereof to
MDA Shareholders and MDA 1988 Optionholders has been approved by
the MDA Board.
DATED at Richmond, British Columbia, this 6th day of October,
1995.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ Robert B. Wallis
ROBERT B. WALLIS, Secretary